Bajaj Auto share price falls over 3% as analysts caution on valuations after Q1 results. Should you buy the auto stock?

Bajaj Auto share price fell over 3% in early trade on Thursday as analysts remained cautious on the stock valuations even after the auto major delivered strong earnings for the first quarter of FY25. Bajaj Auto fell as much as 3.72% to ₹9,345.95 apiece on the BSE.

Two and three-wheeler manufacturer Bajaj Auto reported a net profit of ₹1,988 crore in the quarter ended June 2024, a growth of 19.4% from ₹1,665 crore in the year-ago quarter.

Bajaj Auto's revenue from operations in Q1FY24 rose 15.7% YoY to ₹11,928 crore from ₹10,310 crore, YoY, led by strong vehicle sales and record spares revenue. Total sales volumes during the quarter increased 7% to 11,02,056 units as compared with 10,27,407 units sold in the same quarter last year.

Operating profit, or earnings before interest, tax, depreciation and amortization (EBITDA), in Q1FY24 grew 24% YoY to ₹2,415 crore, while EBITDA margin improved by 130 basis points (bps) to 20.2%.

Analysts have maintained a mixed view on Bajaj Auto shares after the company’s strong Q1 results. Here’s what brokerages said on Bajaj Auto Q1 results and Bajaj Auto shares:

Nuvama Institutional Equities

Nuvama Institutional Equities believes Bajaj Auto’s two-wheeler volume prospects remain positive, and it reckons an 8% CAGR over FY24–27E led by continuing domestic growth and strong recovery in exports.

Bajaj Auto’s recently launched CNG model has received positive response, and the brokerage firm has factored in a 1% and 4% contribution to volumes in FY25E and FY26E. Nuvama Equities is building in a revenue and EBITDA CAGR of 11% and 14% over FY24–27E with an average RoE of ~35%.

The brokerage firm maintained a ‘Buy’ rating on Bajaj Auto shares with an unchanged target price of ₹12,000 per share.

Motilal Oswal

Bajaj Auto Q1 results were in line with Motilal Oswal’s estimates. It believes the company is likely to continue to outperform the domestic motorcycle industry on the back of its focus on 125cc+ segment.

Motilal Oswal has marginally lowered its FY25 and FY26 earnings estimates by 4% and 0.4%. It expects Bajaj Auto to gain share in domestic motorcycles in FY25, aided by a shift in demand to the 125cc+ segment, which is its strong market; and a healthy launch pipeline. However, the export outlook remains uncertain.

Bajaj Auto has witnessed a significant re-rating in the last 12 months, aided by market share gains in the 125cc+ domestic motorcycles segment, improved margins, and a one-of-a-kind policy to reward its shareholders. After the sharp rally, however, the Bajaj Auto stock at ~31x/25.5x FY25E/26E EPS appears fairly valued, Motilal Oswal said.

It reiterated its ‘Neutral’ rating on Bajaj Auto shares with a target price of ₹8,695 per share.

Kotak Institutional Equities

Kotak Institutional Equities expects the domestic two-wheeler segment’s volume to grow at a steady pace and the export two-wheeler segment’s volume to improve sequentially. According to the brokerage firm, Bajaj Auto’s current profitability trends (excluding PLI) are likely to partly reverse, as the mix normalizes. 

Kotak Equities maintained a ‘Sell’ rating on Bajaj Auto shares as it believes most positives are priced in at current market price and it believes valuations remain expensive at 30X FY2026E core EPS. It revised Bajaj Auto share price target to ₹6,800 from ₹6,200, driven by roll-over, higher long-term profitability assumptions and ₹85 per share increase owing to PLI 

The stock is trading at 30X FY2026E EPS, implying double-digit volume growth over 15 years, which we believe is challenging, given the higher penetration levels (~60%) of two-wheelers per household in India, Kotak Equities said.

Emkay Global

Emkay Global believes Bajaj Auto’s valuations remain expensive. It raised FY26 EPS estimates by 2.6%. The brokerage firm retained its ‘Reduce’ call on Bajaj Auto shares and raised the target price to ₹8,300 per share.

Among foreign brokerages, UBS, CLSA and Macquarie have issued bearish calls on Bajaj Auto shares. CLSA retained its ‘Underperform’ rating on Bajaj Auto stock as it believes valuations are expensive and awaited recovery in export. While, UBS has a ‘Sell’ rating, Macquarie assigned a ‘Neutral’ call on the stock.

Bajaj Auto share price has fallen over 5% in one month, while the stock has rallied more than 38% year-to-date (YTD). In the past one year, Bajaj Auto shares have risen over 94%.

At 9:40 am, Bajaj Auto shares were trading 2.54% lower at ₹9,461.35 apiece on the BSE. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.