Bajaj Auto tanks 12% after Q2; analysts cautious on margin, export outlook

Bajaj Auto Q2 impact: Bajaj Auto shares plummeted as much as 12.33 per cent to hit intraday low of Rs 10,184.90 per share on Thursday, October 17, 2024. The decline followed a mixed response from both domestic and international brokerages, despite the company delivering strong results in the September quarter (Q2FY25).

Analysts at Emkay said that the results were slightly disappointing due to lower average selling prices (ASPs). They noted that the company's two-wheeler retail growth has been modest, with a year-to-date increase of 6.7 per cent and a September-October growth rate of just 5.7 per cent. 

Furthermore, Bajaj Auto has been losing market share in the expanding 125cc segment. While exports are recovering, the crucial Nigerian market remains 50 per cent below its peak. On a positive note, the three-wheeler (3W) sector is experiencing growth, which may bolster future performance.

 

Considering these factors, Emkay downgraded Bajaj Auto to a ‘Sell’ rating from ‘Reduce,’ setting a new target price of Rs 9,500 based on a multiple of 26x core earnings for Sep-26E, up from 23x for Jun-26E. They, however, favour Hero MotoCorp Ltd (HMCL) for a better risk-reward profile and TVS Motor Company Ltd (TVSL) for its stronger growth prospects.

International brokerage Citi echoed a bearish sentiment, assigning a ‘Sell’ rating with a target price of Rs 7,800, citing slightly disappointing Q2 results driven by a minor shortfall in ASPs and gross margins. 

Also Read: Bajaj Auto Q2 results

Conversely, analysts at Nuvama were more optimistic about Bajaj Auto's volume prospects for two-wheelers, projecting an 8 per cent compound annual growth rate (CAGR) from FY24 to FY27, fuelled by 7 per cent growth in the domestic market and 10 per cent in exports. 

They highlighted that Bajaj Auto is bolstering its presence in electric and CNG vehicles, expecting these segments to account for over 20 per cent of domestic two-wheelers by FY27. As a result, Nuvama raised its FY25E–27E Ebitda estimates up to 3 per cent and is forecasting a revenue and Ebitda CAGR of 12 per cent and 15 per cent, respectively, over FY24–27, with an average return on equity (RoE) of around 36 per cent. Furthermore, they maintained a ‘Buy’ rating with a revised target price of Rs 13,200, up from Rs 12,000.

Analysts at InCred Equities, however, remain cautious due to potential risks to exports stemming from rising tensions in the Middle East and global currency fluctuations. Despite a notable 20 per cent stock price rally over the past three months, resulting in a P/E ratio considerably above the 10-year mean, they maintained a ‘Hold’ rating, updating their target price for Bajaj Auto to Rs 11,860 based on a target P/E of 30x for one-year forward earnings.

Meanwhile, reports indicate that global brokerage Macquarie has taken a ‘Neutral’ stance, setting a target price of Rs 11,072 per share. Nomura, on the other hand, has maintained a ‘Buy’ rating, raising its target price to Rs 13,400 per share.

Q2FY25 nos.

Bajaj Auto posted a healthy show in Q2FY25 as it reported a standalone profit of Rs 2,005 crore, up 9.2 per cent year-on-year (Y-o-Y) from Rs 1,836.1 crore in the same quarter a year ago (Q2FY24).

The topline, also known as revenue, surged 21.8 per cent Y-o-Y to Rs 13,127.5 crore in Q2FY25, as opposed to Rs 10,777.3 crore in Q2FY24. 

At the operating front, earnings before interest, tax, depreciation and amortisation (Ebitda) climbed 24.3 per cent annually to Rs 2,652.2 crore in the quarter under review, as against Rs 2,312.9 crore in the same quarter previous fiscal. Consequently, Ebitda margin expanded 40 basis points (bps) to 20.2 per cent in Q2FY25, from 19.8 per cent in Q2FY24. 

Additionally, the Board of Directors approved an additional investment of up to $10 million (approximately Rs 84 crore) in the equity share capital of Bajaj Brazil, a wholly owned subsidiary of the company, to be executed in a phased manner. The capital infusion aims to support business expansion and meet the demands of the growing operations in Brazil.

Segment-wise show

Bajaj Auto's segment performance displayed impressive growth across various categories. The domestic business continued to thrive, achieving its highest revenue and marking the tenth consecutive quarter of double-digit growth, driven by strong sales in motorcycles and commercial vehicles. 

Electric scooter sales nearly tripled, highlighting the company’s ability to capitalise on both traditional and emerging markets. Export revenue also saw double-digit growth, fuelled by favourable USD/INR realisations and a richer product mix, contributing to a record quarter in the LATAM market. The Pulsar brand excelled with over 110,000 units sold, while the new 'Freedom 125,' the world’s first CNG integrated bike, gained traction with over 30,000 units sold in over 350 cities.

In the commercial vehicles segment, volumes reached an all-time high of 140,000 units, supported by a quality product lineup and an extensive network expansion exceeding 600 touchpoints. 

The Chetak electric scooter gained market share considerably, with sales reaching approximately 30,000 units and a September market share of 21 per cent. The execution of the electric vehicle strategy has been effective, aided by the launch of an affordable variant and a distribution network now comprising nearly 3,000 touchpoints. Financially, Bajaj Auto demonstrated strong cash generation, adding over Rs 2,000 crore in free cash flow during the quarter. The company’s balance sheet remains robust, with surplus cash of around Rs 16,392 crore after investing about Rs 1,200 crore in strategic growth initiatives and distributing approximately Rs 2,233 crore in dividends in H1FY25.