Hold Bajaj Auto; target of Rs 2338: Sharekhan

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26 Aug, 2025 12:21

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Sharekhan's report on Bajaj Auto (BAL)

"Bajaj Auto (Bajaj) posted a strong operating performance on a sequential basis in Q2FY2015 aided by a favourable product mix and higher operating leverage. The higher percentage of three-wheelers and premium motorcycles (Pulsars and KTM) sold during the quarter boosted the GPM which was ultimately reflected in a 113-BPS Q-o-Q margin expansion. However, the company took a hit of Rs340 crore related to provisioning for National Calamity Contingent Duty payments on production from the Pantnagar facility. Adjusted for the same and a forex loss (Rs67 crore), the PAT was at Rs876 crore, marginally above our estimate."

"Bajaj’s market share in the domestic motorcycle segment reached an all-time low of 16.3% in Q2FY2015 as the company ceded space in the executive segment. The management is confident of regaining the market share and the launch of the Discover 150 has been the first step in the direction. Another couple of launches have been lined up in H2FY2015 which, the management expects, would propel the market share to the 20% mark. Meanwhile, the three-wheeler business continues to do extremely well driving the margin performance and profit growth."

"Given the strong traction in the three-wheeler business and growth in the premium motorcycle segment, the company is expected to maintain the margins at the current levels. We have increased our earnings estimates for FY2015 and FY2016 by 2.5% and 6.4% respectively to factor in the benefit of a higher OPM. We have also introduced our FY2017 earnings estimate of Rs167. Our revised price target of Rs2,338 (vs Rs 2,195 earlier) is based on 15.5x FY2016E earnings and values Bajaj’s 47.9% stake in premium motorcycle manufacturer, KTM AG, at Rs 105 per share (a 30% discount to the CMP). However, given that the company is yet to successfully demonstrate its ability to claw back market share in the domestic motorcycle segment, we remain cautious on the stock and maintain a Hold recommendation", says Sharekhan research report.

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