Bajaj Auto, Hero Moto, Maruti & other auto stocks plunge up to 12% as festive demand concerns paint Motown in red

Indian auto stocks came under significant selling pressure on Dalal Street on Thursday, October 17 as Bajaj Auto, a leading manufacturer of two-wheelers (2W) and three-wheelers (3W), expressed caution regarding festive demand during the announcement of its September quarter results.

As the first automaker to release its September quarterly numbers, Bajaj Auto's disappointing forecast significantly dampened investor sentiment. Analysts and investors had anticipated a strong rebound in sales during the festive season, a crucial period for the automotive industry traditionally characterised by increased consumer spending.

However, Bajaj Auto's projection of just 3% to 5% growth during the festive season fell short of market expectations, which were well below industry expectations of 8%. 

"Motorcycle sales during the ongoing festive season so far have been below expectations as demand is muted and the industry will be lucky if it sees 3-5 per cent growth compared to last year," Bajaj Auto Executive Director Rakesh Sharma said on Wednesday.

The entry-level two-wheeler segment, despite being targeted with consumer offers and discounts ranging from ₹5,000 to ₹6,000 on models priced around ₹65,000 ex- showroom, has still struggled to regain momentum, Sharma added.

The company's warning dragged also down its bigger two-wheeler rivals Hero MotoCorp and TVS Motor by about 4.5% each.

As a result, the Nifty Auto index plunged 3.5% in today’s intraday trade, hitting 25,004, marking its lowest level since mid-August. 

Bajaj Auto was at the forefront of the losses, witnessing a substantial decline of 12% to ₹10,210. This is the stock's most significant intra-day drop since March 2020.

Other major players in the two-wheeler segment, such as TVS Motor Company, Hero MotoCorp, and Eicher Motors, also saw their stocks tumble, down 4.7%, 4%, and 1.3%, respectively.

In addition, shares of passenger vehicle (PV) manufacturers, including Maruti Suzuki India and Mahindra & Mahindra, also faced declines ranging from 2% to 3%. Today's slump in the auto sector has contributed to a 7% loss in the Nifty Auto index for October thus far, marking the steepest monthly drop since February 2022.

Analysts turn bearish on Bajaj Auto

Bajaj Auto on Wednesday reported a 31% YoY decline in consolidated profit after tax to ₹1,385 crore for the second quarter ended September 30, 2024, impacted by higher expenses and a one-time hit due to an increase in its provision for deferred tax.

Total revenue from operations, however, rose to ₹13,247 crore in the second quarter compared to ₹10,838 crore in the year-ago period, Bajaj Auto said in a regulatory filing.

Following the company's Q2 numbers, Emkay Global downgraded its rating on Bajaj Auto stock to ‘sell’ from 'reduce' and revised the target price to ₹9,500 per share. Foreign brokerage firm Citi has a ‘sell’ rating on Bajaj Auto and a target price of ₹7,800 per share, signalling a downside of more than 32%.

Citi believes Bajaj Auto's Q2 results were marginally below estimates due to a slight miss in average selling price and gross margin. 

"Contrary to our expectations, the festive season has started on a weaker note, and we do see a downside risk to the domestic two-wheeler industry growth assumptions if demand trends do not see a pick-up during the Diwali festival," Kotak Institutional Equities said in a note.

Domestic PV: Crunching into reverse gear

Compared to two-wheeler manufacturers, car makers are facing their most challenging period, with sales declining for the third consecutive month in September as well as in Q2FY25. According to data from the Society of Indian Automobile Manufacturers (SIAM), sales to dealers dropped for the first time in ten quarters during the September quarter.

Automakers' sales to dealers fell by a cumulative 1.8% year-on-year, totalling approximately 10 lakh units in the second quarter. This decline contrasts with an even steeper 4.5% drop in dealer sales to consumers during the same period, as reported by the Federation of Automobile Dealers Associations (FADA).

The SUV segment, which had been a key driver for the industry, saw a significant slump of 9% in the September quarter, down from a growth of 23.5% in the previous year. This slowdown was exacerbated by a nearly 20% decline in small car sales, adversely affecting market leaders like Maruti Suzuki and Tata Motors.

Kotak Institutional Equities anticipates a 1% year-on-year decline in domestic passenger vehicle (PV) wholesale volumes for FY2025, a downgrade from an earlier forecast of 3% growth. This adjustment is attributed to several factors: high inventory levels stemming from weak demand trends, moderation in SUV growth due to a high base and declining order books, and ongoing weakness in the entry-level car segments.

While the festive season initially showed low to mid-single-digit growth, any further slowdown could significantly impact wholesale volume trends, especially given the current elevated inventory levels, it said.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.