Bajaj Auto Share Price Slumps 10% Post Q2 Earnings Miss, Guidance Cut; What Analysts Say?

The shares of Bajaj Auto tumbled by 10% to Rs 10,414 in morning trade on October 17, following the release of the company's second-quarter results that fell short of market expectations. This sudden drop in the stock price came after Bajaj Auto revised its growth outlook for two-wheeler sales in India to a modest 5%, which is at the lower end of its earlier projection of 5-8%. The results and cautious guidance have sparked mixed reactions from analysts and investors, leading to both bearish and bullish forecasts.

For the second quarter of FY2024-25, Bajaj Auto, headquartered in Pune, reported a 9% increase in standalone net profit, reaching Rs 2,005 crore. While this represents a growth from Rs 1,836 crore in the same quarter last year, the profit figure fell short of analysts' estimates. In addition, the company's revenue for the July-September period saw a 22% increase, climbing to Rs 13,127 crore from Rs 10,777 crore the previous year. Despite these gains, the market reacted negatively as the performance did not meet expectations, especially concerning profit margins and growth outlook.

The company's revision of its two-wheeler sales growth outlook to 5% for the domestic market, which is on the lower end of its earlier estimate, further dampened investor sentiment. Bajaj Auto's ability to meet higher market expectations during the festive season is also under scrutiny, as analysts suggest a more muted demand than anticipated.

The earnings miss and cautious outlook led to mixed reactions from prominent brokerage firms. Citi has issued a 'sell' call on Bajaj Auto, with a target price of Rs 7,800 per share-a significant downside of 33% from its last closing price of Rs 11,616. Citi pointed out that Bajaj Auto's Q2 performance was slightly below estimates, citing misses in average selling prices (ASPs) and gross margins. The brokerage was also concerned about the company's muted expectations for the festive season, despite data from Vahan suggesting that two-wheeler registrations were up 12% year-on-year.

On the other hand, Macquarie maintained a neutral stance, setting a target price of Rs 11,200 per share. According to Macquarie, the Q2 results were largely in line with expectations, but the company's gross margins were disappointing due to a higher share of new products in the mix. The firm also noted that the festive demand for Bajaj Auto might be softer than initially expected.

Despite the bearish calls, some analysts remain optimistic about Bajaj Auto's future. HSBC, Jefferies, and Morgan Stanley have issued bullish recommendations, pointing to positive growth drivers on the horizon.

HSBC is particularly optimistic, setting a target price of Rs 14,000 per share. The firm highlighted Bajaj Auto's 30% market share in the growing electric three-wheeler (e-3W) segment, noting that EV penetration has already reached 20%. HSBC also mentioned the potential disruption from the formalization of the e-rickshaw market, with Bajaj Auto expected to capitalize on this trend.

Similarly, Jefferies issued a 'buy' recommendation, citing Bajaj Auto's expanding market share in the electric two-wheeler (e-2W) segment and its plans to ramp up CNG bike volumes. Jefferies projects a 14% compound annual growth rate (CAGR) in volumes over FY24-27, driven by rising demand for two-wheelers in India and a cyclical recovery in exports. The firm also noted the company's capacity expansion in Brazil, which is expected to support future growth.

Morgan Stanley, which remains 'overweight' on Bajaj Auto, emphasized the company's efforts to maintain its current margins, despite challenges posed by the rise of electric vehicles (EVs). The brokerage believes that Bajaj Auto's consistent focus on maintaining profitability is a key positive, although it warns that the increasing penetration of EVs could affect the company's product mix.

Bajaj Auto's export markets provided a glimmer of hope, with Latin American (LATAM) markets showing a robust 20% year-on-year growth. However, this was offset by continued weakness in African markets, where the company has faced challenges. Looking ahead, Bajaj Auto remains optimistic about export growth in the upcoming quarter, expecting a better performance in Q3 FY2024-25 compared to Q2.

The company is also making significant strides in Brazil, where it plans to ramp up production at its Manaus facility. Production capacity is set to increase from 20,000 units to 35,000 units annually by 2024, backed by an Rs 84 crore investment in its Brazilian subsidiary, Bajaj Do Brasil Comercio De Motocicletas Ltda.

*Inputs from Moneycontrol*