Business Standard

Friday, February 14, 2025 | 10:05 PM ISTEN Hindi

Notification Icon
userprofile IconSearch

Bajaj Auto gets mixed reactions from brokerages after muted Q3 results

Despite the strong export performance, the overall Q3 results were seen as somewhat lacklustre, leading to mixed reactions from brokerages

Bajaj Auto

Logo of Bajaj is seen on an auto at a parking lot in Kolkata | Photo: Reuters

Tanmay Tiwary New Delhi

Listen to This Article

Two-wheeler manufacturer Bajaj Auto released its Q3 results for FY25 on Tuesday, January 28, after market hours, reporting a relatively muted performance.  However, on the bourses, Bajaj Auto share soared as much as 4.89 per cent to hit an intraday high of Rs 8,803 per share, on Wednesday, January 29.
 
The company’s standalone profit for the December quarter rose 3.3 per cent year-on-year (Y-o-Y) to Rs 2,108.7 crore compared to Rs 2,041.9 crore in the same period last year (Q3FY24).
 
Revenue for Q3FY25 increased 5.7 per cent Y-o-Y to Rs 12,806.9 crore, up from Rs 12,113.5 crore in Q3FY24. The growth was largely driven by strong exports, a solid domestic Green Energy portfolio, and another record performance in spares sales.
 
 
At the operating level, earnings before interest, tax, depreciation, and amortisation (Ebitda) climbed 6.2 per cent Y-o-Y to Rs 2,580.7 crore, compared to Rs 2,429.9 crore in Q3FY24. As a result, the Ebitda margin edged up 10bps to 20.2 per cent from 20.1 per cent a year ago.
 
The company attributed this slight improvement in margin to favourable USD/INR exchange rates and effective cost management, which helped offset the major investments being made in its strategic priorities. 
 
The company’s domestic volumes {two-wheelers (2W) and commercial vehicles (CV)} dropped 9 per cent Y-o-Y, with 7,07,105 units sold compared to 7,78,281 units in Q3FY24. However, exports zoomed 22 per cent Y-o-Y growth to 5,17,367 units, up from 4,22,716 units a year ago.
 
Despite the strong export performance, the overall Q3 results were seen as somewhat lacklustre, leading to mixed reactions from brokerages.
 
Nuvama noted that Bajaj Auto’s Q3FY25 revenue and Ebitda were broadly in-line with expectations. Also, the electric vehicle (EV) segment now contributes 22 per cent of domestic revenue, with Ebitda turning positive due to better pricing, scale, PLI incentives, and cost savings. 
 
Analysts highlighted that the Management has provided a positive volume outlook for the next three to six months, forecasting export growth of over 20 per cent and domestic growth of 6-8 per cent. 
 
Given this, Nuvama expects a 7 per cent volume compound annual growth rate (CAGR) over FY25–27E, driven by 6 per cent growth in the domestic segment and 9 per cent growth in exports. 
 
Therefore, analysts are forecasting a revenue/Ebitda CAGR of 11 per cent/12 per cent over FY25–27E, with an average return on equity (RoE) of around 35 per cent, and have maintained a ‘Buy’ rating with an unchanged target price of Rs 10,700 based on 30x FY27E core earnings plus cash/investments of Rs 794 per share.
 
On the other hand, Emkay highlighted that Bajaj Auto reported a miss of about 3 per cent on their revenue and profit after tax (PAT) estimates for Q3, mainly due to lower-than-expected average selling prices (ASPs), which were down 3 per cent Q-o-Q to Rs 104,600 per unit. This was attributed to an adverse product mix, though improving profitability from the EV business, which has now reached Ebitda breakeven, partially offset this. 
 
They noted that the Management maintains a cautiously optimistic outlook, expecting near-term domestic motorcycle industry growth of around 6-8 per cent, similar to the previous half and quarter. They also foresee a recovery in exports with over 20 per cent growth in the next three to six months, particularly in key African markets like Nigeria, with strong demand continuing in Latin America and ASEAN markets. 
 
Moreover, Bajaj Auto plans to continue leveraging new product launches, including nine motorcycle variants between December and March, a larger E-Auto model next month, and an entry into the E-rickshaw market in Q4. 
 
Considering this, Emkay has kept their estimates broadly unchanged, projecting a 13 per cent earnings per share (EPS) CAGR over FY25E-27E, and maintains an ‘Add’ rating with a target of Rs 9,500, citing an improving exports outlook and strong momentum in the electric two-wheeler segment. However, analysts at Emkay still prefer TVS, which has seen stronger market share gains and positive margin drivers.
 
Those at InCred Equities reported a 6 per cent Y-o-Y rise in Bajaj Auto’s Q3 Ebitda, which was 3 per cent below their estimates but 4 per cent above Bloomberg consensus. The miss in Ebitda was attributed to a 3 per cent ASP shortfall. A lower-than-expected other income and higher interest costs, analysts opined, resulted in an EPS miss of 7 per cent compared to their estimates and 5 per cent below consensus. 
 
Furthermore, the Management has guided for nine product refreshes in the coming quarter. Despite the recent correction in the stock, which has brought the price-to-earnings (P/E) valuation near the +1 standard deviation above the 10-year mean, InCred currently maintains a ‘Hold’ rating with a target price of Rs 11,860. 
Motilal Oswal highlighted that Bajaj Auto posted an in-line performance in Q3FY25 with ~2 per cent volume growth. Analysts believe favourable FX and a higher spares mix helped sustain margins at 20 per cent+ despite a rising EV mix. They have slightly reduced FY25/FY26 earnings estimates by 2 per cent each. A key concern is Bajaj Auto’s loss of share in the domestic 125cc+ segment Y-T-D.  While exports have revived short-term, the longer-term outlook is uncertain due to global macro challenges. Despite a recent stock price correction, Bajaj Auto is valued at ~25.5x FY26E/22.2x FY27E EPS, which appears fairly valued. Therefore, analysts at Motilal Oswal have maintained a ‘Neutral’ rating with a target price of Rs 8,770, based on 24x Dec’26E consolidated EPS. 
 
Among global brokerages, Morgan Stanley reportedly maintained an ‘Overweight’ rating on Bajaj Auto with a target price of Rs 9,951 per share. Meanwhile, Citi maintained a ‘Sell’ rating with a target price of Rs 7,900.
 
Reports suggest that Axis Capital, too, maintained a ‘Sell’ rating with a revised target price of Rs 7,550, down from Rs 8,000. 

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jan 29 2025 | 9:09 AM IST

Explore News