Bajaj Auto Q2 Review: Analysts Remain Optimistic But Valuations Trigger Caution

Bajaj Auto Ltd. is likely to have a healthy outlook and a better presence in the electric and compressed natural gas space, but high valuations remain a concern, analysts said after the motorcycle maker clocked the highest ever quarterly revenue in July–September 2024.

Better rural demand, positive urban demand, launches, better finance availability, and a favourable base will drive growth in domestic volumes in the two-wheeler segment, according to Nuvama Institutional Equities.

"We reckon domestic three-wheelers shall post an average growth of 7% over fiscal 2024–27 led by replacement demand and improved business activity," Nuvama said in a note on Oct. 16.

The brokerage maintains its 'buy' rating with a target price of Rs 13,200 per share, up from Rs 12,000 apiece earlier, implying an upside of 13% from the previous close.

The standalone net profit of the Pulsar maker rose 9% year-on-year to Rs 2,005 crore in the three months ended Sept. 30, on the back of a 22% surge in revenue to Rs 13,127 crore.

Bajaj Auto has now clocked double-digit revenue growth for 10 straight quarters, including its previous highest revenue of Rs 12,165.3 crore in October–December 2023. 

However, Emkay Research downgraded the stock to 'sell' from 'reduce' citing high valuations amid normalising growth. The brokerage raised the target price to Rs 9,500 per share from Rs 8,300 earlier, implying a downside of 18% from the previous close.

Exports for the auto major are recovering, albeit with the key Nigerian market still 50% below its earlier peak, Emkay said. "Elevated base effect for three-wheelers may kick-in."

The gross margin contracted 130 basis points sequentially on a higher share of lower-margin electric two-wheelers, Jefferies said in a note. The brokerage remains more optimistic as registration data suggests about 12% year-on-year growth in two-wheelers, it said.

Jefferies is optimistic about continued sequential improvements in exports. It trimmed its fiscal 2025–27 earnings per share by 1-2% but still expects a strong average growth of 16% EPS over the same period.

Shares of Bajaj Auto have risen 125% during the last 12 months and have advanced by 70% on a year-to-date basis. The relative strength index was at 48.

Twenty out of the 44 analysts tracking the company have a 'buy' rating on the stock, nine suggest a 'hold' and 15 have a 'sell' call, according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 7.5%.