Bajaj Auto, the renowned Indian two-wheeler manufacturer, experienced a significant 9.5% drop in its stock price on Thursday, October 17th, 2024. This decline followed the release of disappointing second-quarter (Q2) FY25 financial results and a downward adjustment to the company’s full-year sales forecast.
Bajaj Auto Share Price Tumbles 9.5%
Bajaj Auto Q2 Performance Misses Expectations
While Bajaj Auto reported a 9.2% year-on-year increase in net profit for Q2, this figure fell short of analyst expectations. Investors were likely anticipating a stronger showing, particularly given the company’s previous track record.
Moreover, revenue surpassed the ₹13,000 crore milestone for the first time, reaching ₹13,247 crore for the quarter ending September 2024 – an increase of 20% compared to ₹10,838 crore in the same quarter last year. However, some analysts might have anticipated a more substantial growth. The profit for the quarter stood at ₹1,385 crore, reflecting a 37% decline from the ₹2,020 crore reported in the corresponding period of the previous year. Source: Moneycontrol
Financial Metrics:
Market Cap in Crores (as of 17.10.24) | CMP | PE Ratio | Revenue in Crores(Q2FY25) | Net Profit in crores(Q2Fy25) | Stock Price CAGR (5 Yrs) |
₹2,89, 219 | ₹10,357 | 39.2 | ₹!3,247 | ₹1,385 | 30% |
However, the bigger concern for investors was the company’s downward revision of its sales guidance for FY25. This suggests that Bajaj Auto is anticipating slower growth in the coming quarters than its initial projections.
Brokerages Turn Cautious
The weak Q2 performance and revised guidance have prompted several brokerages to adopt a more cautious stance on Bajaj Auto’s stock. While some analysts remain bullish on the company’s long-term prospects, they acknowledge the near-term challenges.
Brokerage Views:
- Macquarie: Maintains a “neutral” rating, citing disappointing gross margins.
- Jefferies: Expresses optimism on the auto sector overall but remains cautious about Bajaj Auto.
- Citi issued a ‘sell’ recommendation for Bajaj Auto with a target price of ₹7,800 per share, indicating a potential downside of 33% from the last closing price ₹11,616.Â
- Citi was surprised by the cautious outlook on festive demand despite Vahan data showing a 12% year-on-year increase in registrations.
- HSBC sets a target price of ₹14,000 per share for Bajaj Auto, highlighting its 30% growing market share.
These mixed brokerage signals have contributed to the uncertainty surrounding Bajaj Auto’s near-term prospects. Investors are likely waiting for further clarity before making any significant investment decisions.
Source: Moneycontrol
Potential Reasons for Lower-Than-Expected Performance
Multiple factors may have affected Bajaj Auto’s lackluster Q2 performance and lowered guidance. Some potential reasons include:
- The company’s Q2 performance fell slightly below expectations, primarily due to a marginal miss in average selling prices (ASPs) and gross margins.
- Slowdown in Domestic Demand: The Indian two-wheeler market may be experiencing a slowdown, which could impact Bajaj Auto’s sales volumes.
- Rising Input Costs: Inflationary pressures and an increase in the cost of raw materials could be squeezing profit margins.
- Supply Chain Disruptions: Ongoing global supply chain disruptions might hinder the company’s ability to meet production targets.
Can Bajaj Auto Recover?
Despite the recent setbacks, Bajaj Auto remains a leading player in the Indian two-wheeler market. HSBC expects the next major disruption to come from the formalization of the e-rickshaw market, with Bajaj Auto’s potential entry playing a key role in this development.
The company enjoys a strong brand reputation, a robust distribution network, and a commitment to innovation. Here are some key factors that could influence the company’s future performance:
- Demand Recovery: A potential rebound in domestic two-wheeler demand could significantly improve Bajaj Auto’s sales figures.
- Cost Management: Effective cost management strategies could help mitigate the impact of rising input costs and improve profitability.
- Focus on Exports: A continued focus on exports could provide a vital source of growth for Bajaj Auto.
- Product Launches: Introducing new and innovative products could help Bajaj Auto maintain its competitive edge in the market.
The coming quarters will be crucial for Bajaj Auto. The company’s ability to navigate the current challenges and capitalize on growth opportunities will determine its future trajectory.
Investor Takeaway
The recent sell-off in Bajaj Auto’s stock presents an opportunity for investors to take a calculated approach. The near-term outlook appears cautious, and investors should consider their risk tolerance and investment horizon before making any decisions.
Further Considerations:
- Monitor future company announcements and analyst reports for updates on Bajaj Auto’s performance.
- Analyze the overall health of the Indian two-wheeler market and the broader economic landscape.
- Compare Bajaj Auto’s performance with those of its competitors.
*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.