Bajaj Auto's CNG bike a bold move; customer adoption a concern: Analysts

Need to see whether two-wheeler customers are willing to shift to CNG now that a good product is in the market, they said

Bajaj Auto CNG bike review: Bajaj Auto's foray into the CNG two-wheeler segment, though "bold", may take time to reap benefits, analysts said on Monday. 

While they do note that Freedom 125, the world's first CNG-integrated motorcycle by Bajaj Auto, marks a "significant milestone in the two-wheeler industry", they remain watchful of customer adoption.
 

"The adoption of CNG technology for personal use in passenger vehicles has, so far, been limited. We need to see whether 2W customers are willing to make this shift now that a good product is in the market," noted analysts at Motilal Oswal Financial Services with a 'Neutral' rating on the stock and a target price of Rs 8,660.

On the bourses, shares of Bajaj Auto slipped 1,7 per cent intraday before ending 1.12 per cent lower at Rs 9,528 per share. By comparison, the benchmark Sensex index ended 36 points (0.05 per cent) weak.

On Friday, July 5, Bajaj Auto launched the world's first CNG motorcycle, the Freedom 125, with three variants, and ex-showroom prices ranging from Rs 95,000 to Rs 1.1 lakh.

While the bike's CNG tank provides a range of over 200 kilometers on 2 kilogram of CNG, the 2-litre petrol tank offers another 130 km range, giving a total range of 330 kms, claims the management.

CNG pump network concerns

One of the key concerns for analysts is the lack of CNG infrastructure across India which, they said, needs to be ramped up to drive adoption of CNG motorcycles.

CNG penetration, analysts noted, is relatively higher in metro and tier-1 cities as compared to smaller towns, where penetration of the commuter segment is higher.

The queues for CNG refueling are long for passenger vehicles and three-wheelers. A two-wheeler customer will find this inconvenient, and investors need to see how Bajaj Auto will address it, they said. 

"The company will be launching Freedom 125 in Gujarat and Maharashtra, where there is a relatively higher CNG network touchpoint. However, apart from Uttar Pradesh, there is a lack of CNG infrastructure elsewhere in India. Customer demand trends in Gujarat and Maharashtra will, therefore, set the tone for the product's success in other markets," said analysts at Kotak Institutional Equities with a 'sell' rating on the stock and a target price of Rs 6,200.

At present, CNG is available in 335 towns, covering 70 per cent of the target market. Going ahead, the management expects nationwide CNG pumps to increase to 13,000 from 6,000 at present.

Cost conundrum

While the bike boasts of nearly 50 per cent less operating cost than the internal combustion engine (ICE) motorcycles, the initial total cost of ownership (TCO) may be higher.

A TCO analysis between Bajaj Freedom 125 and Hero HF Deluxe 100, by Kotak Institutional Equities, pointed out that it might take around 8.7 years for consumers to recover the higher upfront cost of Bajaj Freedom 125.

Within the 125 cc motorcycle segment, the brokerage believes Freedom 125 will compete with the executive segment (Honda Shine 125, Hero Super Splendor, Passion and Glamour) rather than the premium segment (Bajaj Pulsar 125, TVS Raider 125, and Hero Xtreme 125).

"This is because consumers of the premium 125 cc motorcycle segment will not be mileage conscious as compared to entry or executive segment motorcycle buyers," they said.

The company, on its part, is targeting consumers of 100 and 125 cc motorcycles for Freedom 125 NG, which roughly forms 75 per cent of total motorcycle market.

Against this, Kotak Institutional Equities is baking in incremental sales of 5,000 units per month.

Global brokerage Nomura, meanwhile, said Bajaj Auto may sell 5,000-10,000 units per month by the end of the year, and may break-even in 13-42 months.

That said, analysts at Nuvama Institutional Equities have a built-in sales estimate of 10,000 units/month in H2FY25 and 20,000 units/month in FY26.

"The success of this disruptive product can provide upside to volume estimates. We estimate Baja Auto's revenue/Ebitda CAGR at 12 per cent/15 per cent over FY24–26, with average return on equity of 35 per cent. We maintain 'Buy' with a target of Rs 12,000 based on 35x Sep-26 core earnings," the brokerage said.