Buy Bajaj Auto; target of Rs 3000: HDFC Securities

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26 Aug, 2025 12:21

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HDFC Securities' research report on Bajaj Auto

Financials: Realizations increased 2% YoY despite the lower share of 3Ws, with ABS/CBS across the bike portfolio (avg. Rs 4k/vehicle). EBITDA margin at 15.4% fell 110bps QoQ as S&D grew. Management believes margins are bottoming out. We are baking ~15.5% over FY20-21E as BJAUT’s aggression in entry level bikes runs into lower commodity prices. New launches in exec segment to drive market share: BJAUT will launch a 125cc bike in 2QFY20 (ahead of the festive season). After the entry level launches of FY19, this holds potential to gain market share in the exec segment. Well-equipped for BSVI: Bajaj has been supplying BSVI compliant bikes in KTM’s global markets. We think a technically smooth BSVI transition in India is feasible. Exports: The outlook for export markets is mixed. Our estimates factor 2% volume growth in 2W exports and 5% decline in 3W exports in FY20E. 3W exports will be impacted by new license plate norms in Egypt. Electric vehicles: Management will display an electric 2W by year end. While Bajaj is preparing for EVs, they are unsure about the adoption of these products due to infrastructure constraints (relating to charging). Products will be launched as the market gradually expands in size.

Outlook

Bajaj’s 1QFY20 PAT (Rs 11.3bn, +1% YoY) was inline. After gaining market share in FY19, we expect further gains from Bajaj in FY20, driven by new launches. The OEM is well equipped for BSVI given existing supplies to KTM. Further, its diversified product portfolio (3W/exports are ~50% of volumes) provides cushion against volatility in domestic 2Ws. Re-iterate BUY, with a TP of Rs 3,000 (based on 10-year avg P/E of 17.5x on FY21E EPS).

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