Bajaj Auto shares skid 11% post Q2; here’s why

Shares of Bajaj Auto tumbled nearly 11% in early trade on Thursday after the auto major reported lower than expected earnings in the September quarter of the current fiscal. The sentiment was further dented after the Rajiv Bajaj-led auto major trimmed its growth outlook for two-wheeler sales in India to 5%, at the lower end of its previous estimate of 5-8%.

Snapping the previous session gain, Bajaj Auto shares opened lower at ₹11,000.05, down 5% over Wednesday's closing price of ₹11,617.55 on the BSE. In the first hour of trade so far, the auto heavyweight declined as much as 10.6% to ₹10,384.25 levels, while the market capitalisation slipped to ₹2.9 lakh crore.

At the current level, Bajaj Auto shares are down nearly 19% from its 52-week high of ₹12,772.15 attained on September 27, 2024, while it has more than doubled from its 52-week low of ₹5,125.25 touched on October 18, 2023.  In the last one year, the counter has delivered 102% return to its shareholders, while it has risen 55% in the calendar year 2024. The auto stock has added 15% in six months, while it corrected nearly 13% in the past one month as investors booked profit at higher levels.

For the second quarter ended September 2024, Bajaj Group company posted two-wheeler major Bajaj Auto on Wednesday reported a 31.4% drop in its consolidated net profit after tax (PAT) to ₹1,385.44 crore as compared to ₹2,020.05 crore in the same period of the last fiscal. The bottom line growth was dented by the payment of ₹211 crore to account foe a one-time impact on deferred tax on investment income due to changes in the taxation structure.

The revenue from operations, however, grew 22.2% to ₹13,247.28 crore in Q2 FY25, from ₹10,838.24 crore in the corresponding period last year, driven by strong vehicle sales and spares as well as recovery in exports.

Sequentially, the profit was down 28.65%, while revenue from operations rose by 11%.

On the operating front, the EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortisation) touched an all-time high of ₹2,653 crore, up 24% year-on-year.

Post Q2, Motilal Oswal maintained ‘Neutral’ rating on Bajaj Auto with a target price of ₹11,450, citing that the stock is fairly valued. “The stock has outperformed the Nifty Auto Index over the last 12 months, fueled by market share gains in the 125cc+ domestic motorcycle segment, improved margins, and a unique shareholder reward policy. However, the stock now trades at 38.5x/30x FY25E/26E EPS and appears fairly valued,” it says in a note.

JM Financial has retained ‘BUY’ on the stock with a price target of ₹12,750, but cautioned that slowdown in the domestic 2-wheeler market remains a key risk. “Backed by a successful track record of product intervention by Bajaj Auto in the last few years, we remain positive on the stock. We estimate revenue / EPS CAGR of 15% / 17% over FY24-27E.”

Another domestic brokerage Nuvama has also maintained ‘BUY’ with a revised price target of ₹13,200 from ₹12,000 earlier. The positive view is underpinned by expectations of a cyclical upturn to continue in domestic 2Ws for next 3-4 years; improving presence in electric/CNG vehicles; expectations of overseas demand growth in FY25E, after two years of decline; and margin expansion emanating from better scale/mix.

“We are building in revenue/EBITDA CAGR of 12%/15% over FY24–27E with an average RoE of 36%,” it says.

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