Bajaj Auto delivered a robust all-round financial performance in the fourth quarter, beating Street estimates, but the shares fell as much as 3.56 percent to Rs 8,700.05 on April 19 amid concern the stock price had already run ahead of brokerage target prices and that valuations were expensive.
Brokerages gave a thumbs up to the two-wheeler company's January-March earnings report, but many of them have a 'sell' rating on the stock, with the target price far below the current level. They are cautious about Bajaj Auto's export business and expect the stock rally to wither out because most of the positive factors are already priced in.
So far this year, the Bajaj Auto stock has surged over 32 percent to Rs 9,021 at the close on April 18, outpacing the 1.2 percent gain in the benchmark Nifty 50 index during this period. In the past one year, the stock has almost doubled and was only the second-best in the Nifty 50 after Tata Motors.
Positives priced in
Analysts at CLSA have a 'sell' call on Bajaj Auto, saying the stock was overvalued after the recent rally. It increased its target price to Rs 6,889, which still implies a 24 percent downside. The brokerage foresees the domestic motorcycle segment growing in FY25, led by new launches.
"Q4 revenue was above estimate, led by higher realisations and driven by better product mix," it wrote in a review note.
ALSO READ: Domestic industry to grow 7-8% but Bajaj will race ahead faster, says a confident management
Analysts at Kotak Institutional Equities said most of the positive factors have already been priced in and the Bajaj Auto stock has fewer legs to rally on from here on.
"Valuations remain expensive at 30x FY25 core EPS," they said, sharing a 'sell' call with a target share price of Rs 6,200.
Domestic sales
Bajaj Auto's strong domestic performance made up for muted exports in Q4. Net profit rose 18 percent on-year to Rs 2,011.4 crore and revenue climbed 30 percent to Rs 11,249.8 crore. EBITDA surged 34.4 percent YoY, while the operating margin increased over 180 basis points to 19.7 percent in Q4.
Jefferies shared a 'buy' call on Bajaj Auto and raised the share target price to Rs 10,500. They expect 19 percent EPS compounded annual growth rate (CAGR) over FY24-26 and 7-9 percent rise in FY25-26 EPS.
ALSO READ: Bajaj Auto to maintain margins despite ramping up unprofitable EV business
Citi raised the Bajaj Auto stock target price to Rs 6,500 due to its upbeat Q4 performance but shared a 'sell' call as it expects three-wheeler demand growth to moderate in FY25 from FY24 levels.
Cautious on exports
Brokerages were cautious over Bajaj Auto's exports. Analysts at Motilal Oswal expect export demand to remain uncertain due to geopolitical headwinds. They shared a 'neutral' rating with a target price of Rs 8,360.
Volume recovery in two-wheeler exports is likely to fall below expectations due to inflation, currency devaluation in select markets, and shipping issues triggered by geopolitical tensions, analysts at Kotak pointed out.
CLSA analysts predicted Bajaj Auto's export volumes will grow in mid-single digits. Bajaj Auto's export revenue grew in double-digits YoY, but volumes were little changed from the previous quarter due to a soft base.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
