Bajaj Auto Share Price Highlights October 17, 2024: Bajaj Auto shares drop 13% on weak Q2, disappoints. Should you buy or sell?

Bajaj Auto shares tanked 13.11% on the NSE to close at ₹10,093.50. The stock closed at ₹10,095.70 on the BSE, lower by 13.10%.

Nifty Auto index dipped by 3.54% on Thursday’s trade to 24,991.20. Auto stocks were under pressure, including Bosch, M&M, TVS Motors, and Hero Motocorp.

Stock of Bajaj Auto plunged 12.52% on the NSE to trade at ₹10,162.15 as at 3.04 pm.

Major gainers on the NSE as at 3 pm

Tech Mahindra (2.38%), Infosys (2.18%), Power Grid (1.19%), L&T (1.06%), SBI (0.85%) 

Top losers: 

Bajaj Auto (-12.50%), Shriram Finance (-3.84%), M&M (-3.58%), Nestle India (-3.26%), Hero Motocorp (-3.24%) 

Strong Q2; outlook remains positive

Bajaj Auto’s Q2FY25 EBITDA surged 24% YoY to INR26.5bn (our estimate: INR27.3bn). 2W volume prospects are positive, and we reckon 8% CAGR over FY24–27E led by 7%/10% growth in domestic/ export segments. BJAUT’s presence is improving in the electric/CNG space and share of these vehicles should rise to 20%-plus in domestic 2Ws in FY27E. We are increasing FY25E–27E EBITDA by up to 3%.

Top losers of Nifty auto stocks:

Bajaj Auto (-11.81%),BOSCH (-3.89%), M&M (-3.22%), Hero Motocorp (-3.17%), TVS Motor (-2.96%)

Bajaj Auto EBITDA margin were steady QoQ at 20.2%; slightly below JMFe. 40bps YoY improvement was driven by better forex realization and higher operating leverage partially offset by EV ramp-up impact. Domestic 2W demand is being led by premium segment (125cc+). Festive season has started on a slow note but the company is hopeful of bounceback towards the latter part. Overall, 2W industry is expected to grow by c.5% during FY25. Recently launched CNG-bike, Freedom125, is being received well and the company indicated of gradual ramp-up in volumes. Outlook for domestic 3W volume remains healthy led by rising EV penetration. Share of EVs is gradually expanding (20% of revenue now) led by portfolio expansion, ramp-up of production and distribution network for both E2Ws and E3Ws. Exports sales are also witnessing gradual recovery. Margins in the medium-term are likely to draw support from a) favorable mix, b) higher operating leverage and c) cost reduction efforts esp. for EVs. Backed by successful track record of product intervention by BJAUT in the last few years, we remain positive on the stock. We estimate revenue / EPS CAGR of 15% / 17% over FY24-27E. Maintain BUY with Mar’26 TP of INR 12,750 (30x PE). Slowdown in domestic 2W market remains a key risk. 

Retain Accumulate; TP raised to INR 13,013: We are impressed by BJAUT’s margin resilience despite variability in its e2W as well as entry-level MC volume contribution since the past two quarters. With EV EBITDA breakeven in Q2, the implied ICE margins for BJAUT stands at a healthy 22%+, which gives us comfort of blended margins improving from here further as EV profitability improves over next couple of years. Expect a healthy EBITDA CAGR of ~20% and a PAT CAGR of 17% in FY24-27E. We are monitoring the retail ramp-up of Freedom CNG MC, which may aid share gains in the entry segment. Capital allocation continues to be robust, with ~95%+ of FY24 PAT returned to the shareholders. We reiterate Accumulate with a higher TP at INR 13,013 from INR 11,590, based on 30x (from 28x) December 2026E P/E, as we roll forward.

Valuations capped, downgrade to Neutral

BJAUT’s 2QFY25 reported EBITDA was a marginal miss at Rs26.5b (est Rs27.8b) led by lower-than-expected gross margins. EBITDA margins were flat QoQ at 20.2% (+40bp YoY) led by; 1) weak gross margins at 28.7% (est 29.6%, -130bp YoY). The near-term focus is, 1) increase distribution for Chetak and 2) new Chetak range launch in 3QFY25 and 3Ws as it targets to be full range player in 3W. We continue to believe, margins likely to be range bound given positive impact of favorable mix (increasing share of premium ICE 2W and 3W), operating leverage to off-set by increased marketing spends coupled with higher share of EVs (even though PLI benefits have started to accrue). BJAUT has witnessed the most re-rating in the recent past on the back of its market share gains in the 125cc+ domestic motorcycles segment and improved margins. After the sharp rally, however, the stock is trading at ~29.2x/26x FY26E/27E EPS leave no scope for negative surprise. Therefor we downgrade the stock to Neutral with TP of Rs11,596 (earlier Rs12,277) at 26x Mar’27 EPS.

Shares of Bajaj Auto slumped 11.96% on the NSE to ₹10,227 as at 1.55 pm.

“Bajaj Auto’s Q2FY24 revenue grew by 22% yoy supported by healthy double-digit volume growth. Recovery in the two-wheeler export segment remains a positive for Bajaj Auto. Further, the company also reported sharp growth in the electric scooter segment in Q2FY24, partly supported by increase in distribution network access. The company indicated that the festive season started on a weak note and thereby demand pick-up during Diwali festival will be important for the domestic two-wheeler industry.”

Among sectoral indices, auto stocks faced severe pressure. Bajaj Auto plummeted 11.69%, followed by Hero MotoCorp dropping 3.26% and Mahindra & Mahindra declining 2.87%. FMCG major Nestle India fell 3.09%, while Shriram Finance shed 2.68%.

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Bajaj Auto’s shares tumbled nearly 12 per cent on Thursday after the motorcycle maker said it anticipated weak festival season sales, a warning that slammed other automakers and also weighed on the broader market.

Click to read: Reuters report

Nuvama on Bajaj Auto: Maintain Buy on Company, target price at Rs 13200/Sh (Positive) 

Macquarie on Bajaj Auto: Maintain Neutral on Company, target price at Rs 11072/Sh (Neutral) 

Nomura on Bajaj Auto: Maintain Buy on Company, raise target price at Rs 13400/Sh (Positive) 

Citi on Bajaj Auto: Maintain Sell on Company, target price at Rs 7800/Sh (Negative) 

Mid-market report

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The stock of Bajaj Auto traded at ₹10,562.90 on the NSE, lower by 9.07% as at 9.55 am.

Bajaj Auto reported a 31.4 per cent drop in consolidated net profit to ₹1,385 crore in the quarter ended September 30, 2024, as compared to ₹2,020 crore reported in the same quarter last year. The company said additional provision of ₹211 crore was made to account for the cumulative one-time impact on Deferred Tax on Investment Income, due to the withdrawal of indexation and change in tax rate in the Finance Act, 2024

Sequentially, profit dipped 28.6 per cent during the quarter, compared to the June quarter, when it reported a profit of ₹1,941 crore.

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