Bajaj Auto Hits a Rough Road: Muted Festive Season Estimates Dim Share Price Outlook

Bajaj Auto Q2FY25: Just a month ago, Bajaj Auto's shares soared to an all-time high of Rs 12,774. There was a lot of buzz in the two-wheeler EV market around how the company’s aggressive strategy could pose a tough competition to the dominant player, Bhavish Aggarwal's Ola Electric.

And of course, with the festive season around the corner, expectations were high for a boost in sales. However, the recent quarterly earnings seem to have dampened the outlook for the company. On Thursday, the shares of Bajaj Auto declined by over 12 per cent on the National Stock Exchange.

While the company recorded a 9 per cent surge in net profit at Rs 2,005 crore (on quarterly basis), the major trigger for the decline came after the company projected a sharp cut in festive season sales. During an analyst call, Rakesh Sharma, Executive Director, Bajaj Auto stated that motorcycle sales for the upcoming October-November festive period are expected to grow by just 1-2 per cent. This was a big letdown compared to the industry’s earlier growth estimates which stood at 5-6 per cent.

Another road block for the auto company was the rise in commodity prices like copper, aluminum, rubber and noble metals (rhodium and platinum) which had a 50 basis point impact on margins. However, the effect was rising costs was largely offset by price hikes and operating leverage. The company's revenue stood at Rs 13,127 crore, marking a surge of nearly 22 per cent as compared to the corresponding quarter of the previous year.

Export Worries?

The export outlook remained largely blurry for Bajaj Auto. While revival was visible in some pockets, export volumes in major markets were largely flat. In Q2FY25, the company witnessed a 7 per cent year-on-year growth in export volumes. Exports to Latin America jumped by up to 20 per cent compared to last year, while volumes in Asia remained unchanged, and Africa (mainly Nigeria) faced a 9 per cent decline.

The total export revenue for Q2 stood at Rs 4,200 crore. However, as per analysts, the export picture might get clearer in the quarter ahead. "We expect a 15.3 per cent CAGR (compound annual growth rate) for EBITDA from FY24 to FY27E, driven by expectations of a recovery in exports and stronger domestic sales. Key risks include the possibility that exports may not recover by FY26, increased competition in the electric two-wheeler market and significant rise in raw material costs," Axis Securities stated in its report.

Meanwhile, the company sold 10,000 units of the recently launched Freedom-125 (CNG) by September 2024 and expects to reach 18,000 units in October. It is also increasing its production capacity from 30,000 to 40,000 units per month.

Share Outlook

On year-to-date basis, the multibagger stock has delivered a return of over 53 per cent. However, the recent damper on festive season cheer seems to have taken the better of investor sentiment. D-street analysts remain cautiously optimistic about the stock trajectory.

The stock has also outperformed the Nifty Auto Index over the past year. As per Motilal Oswal Financial Services, the stock performance was largely fueled by gains in the 125cc+ domestic motorcycle market, improved margins and a unique shareholder reward policy.

"However, the stock now trades at 38.5x/30x FY25E/26E EPS and appears fairly valued. We maintain our Neutral rating with a target price of Rs 11,450, based on 26x Sep’26E consolidated EPS," the brokerage firm said.

Axis Securities has maintained a 'hold' rating on the stock with a target price of Rs 11,950, citing stretched valuations. The target price suggests a mere 3 per cent upside from the current market level.