Bajaj Auto's better-than-expected Q1 isn't enough to convince brokerages; shares tumble 4%

Bajaj Auto shares have rallied over 40 percent since the start of the year.

Two-wheeler and three-wheeler major Bajaj Auto officially kicked off the earnings season for the auto sector on July 16 with a better-than-expected Q1 FY25 earnings show.

Thanks to consistent demand, robust 2-wheeler sales and higher realisations, the Pune-headquartered company posted an 18 percent on-year rise in consolidated net profit to Rs 1,988 crore. A Moneycontrol poll of seven brokerages had pegged the net profit at Rs 1,965 crore.

However, the result hasn't been able to convince a host of brokerages as UBS, Macquarie and CLSA have issued bearish calls on the counter.

Following the weak outlook, shares of Bajaj Auto slipped nosedived 4 percent to Rs 9,341.

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UBS has issued a 'sell' rating on the company with a target price of Rs 6,250, a downside of 35.5 percent. The brokerage anticipates margin tailwinds to moderate ahead. They believe the market is assigning a 25x P/E ratio to Bajaj Auto's three-wheeler (3W) business while overlooking the muted response to the Triumph and the moderation in 3W volumes. Additionally, UBS notes that the market seems to be ignoring the slippage in Bajaj Auto's two-wheeler (2W) market share despite the launch of multiple new models.

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Macquarie is 'neutral' on Bajaj Auto with a target price of Rs 9,655 per share. It said that multiple growth drivers are in play, including the introduction of CNG motorcycles and the expansion of their electric two-wheeler (E2W) portfolio with models priced under Rs 1 lakh. Additionally, Bajaj Auto is enhancing its manufacturing footprint in Latin America (LATAM) and ramping up volumes and distribution for electric three-wheelers (E3W) and premium motorcycles, which should provide further growth support, analysts said.

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CLSA also retains its 'underperform' rating on the stock as it believes that valuations are expensive and await export recovery. The brokerage expects Bajaj Auto gain market share in the motorcycle segment, led by new launches.

For instance, the company's monthly sales in Nigeria, which typically hover around 50,000 units, plummeted to below 5,000 in April due to severe economic conditions and currency devaluation. Although sales have since rebounded to approximately 15,000 units per month, this figure remains 70 percent below the benchmark.

On the contrary, Nomura is bullish on the stock and has maintained its 'buy' rating and hiked the price target to Rs 10,926, a 13 percent upside from current market levels. "Bajaj Auto remains preferred 2-wheeler pick as it continues to build on growth drivers," analysts state in a recent note. "Export recovery to sustain momentum," they added.

Bajaj Auto's popular motorcycle Pulsar also retained its double-digit growth trajectory, aided by a premiumisation thrust, the company said. The company said that this motorcycle witnessed "3X growth" over the rest of the industry on sports motorcycles, buoyed by product upgrades over time.

Bajaj Auto shares have rallied over 40 percent since the start of the year.