Bajaj Auto Q2 Performance and Market Reaction
Shares of Bajaj Auto tumbled 8 percent to Rs 10,636 in morning trade on October 17, 2024, following the company’s disappointing second-quarter financial results. Despite a 9 percent increase in standalone net profit to Rs 2,005 crore, the figures fell short of analysts' expectations. This performance prompted the company to revise its growth outlook for two-wheeler sales in India to a modest 5 percent, down from the earlier estimate of 5-8 percent.
Financial Summary
For the July-September period, Bajaj Auto reported revenue of Rs 13,127 crore, marking a 22 percent increase from Rs 10,777 crore in the previous year. However, this was insufficient to buoy investor sentiment, leading to a significant drop in share prices.
Brokerage Reactions
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Citi: Issued a 'sell' call with a target price of Rs 7,800 per share, a 33 percent downside from the last closing price of Rs 11,616. Citi attributed the downgrade to a slight miss in average selling prices (ASPs) and gross margins, coupled with a cautious festive demand outlook.
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Macquarie: Maintained a neutral stance with a target price of Rs 11,200 per share. Macquarie noted that while Q2 was in line, gross margins were disappointing due to a higher share of new products.
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HSBC: Issued a bullish call with a target price of Rs 14,000 per share, highlighting positive growth levers such as a 30 percent market share and increased EV penetration in the three-wheeler segment.
Positive Outlook from Other Brokerages
Despite the cautious tone from some analysts, other brokerages remain optimistic:
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Jefferies: Retained a 'buy' recommendation, projecting a 14 percent volume CAGR over FY24-27, driven by rising domestic two-wheeler demand and a cyclical recovery in exports.
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Morgan Stanley: Maintained an 'overweight' rating, citing Bajaj Auto's strategy to preserve margins at current levels as a positive.
Regional Performance and Future Plans
Bajaj Auto's performance in Latin America (LATAM) was a highlight, with a 20 percent year-on-year growth. Conversely, the African markets faced declines. The company expects an improved export performance in Q3 compared to Q2.
In Brazil, Bajaj Auto is ramping up its manufacturing capacity. Production at its Manaus facility will increase from 20,000 units to 35,000 units annually, supported by an Rs 84 crore investment in its Brazilian subsidiary, Bajaj Do Brasil Comercio De Motocicletas Ltda.
Conclusion
While Bajaj Auto's Q2 results have led to a significant drop in its share price and cautious outlook from some analysts, others see growth potential ahead. The company's efforts in expanding its market share, especially in the EV segment and Latin American markets, remain positive levers for future growth.