Sharekhan has reiterated its Buy rating on Bajaj Auto Ltd (BAL), raising the price target to Rs. 12,584 from its previous level. The brokerage cites BAL's strong domestic volume growth, positive response to its CNG motorcycle offering, and expanding electric vehicle (EV) market share as key drivers for this positive outlook. Despite challenges in export markets, Sharekhan believes BAL's superior profitability, focus on premiumization, and gradual export recovery warrant the continued Buy recommendation. The stock currently trades at a P/E multiple of 29.7x and EV/EBITDA multiple of 22.3x its FY2026E estimates.
Key Highlights from the Report:
- Robust Domestic Growth: BAL has recorded 9.8% volume growth in YTD FY25, driven by a 12.6% increase in domestic volumes, partially offsetting slower export growth.
- CNG Motorcycle Success: The launch of the Freedom 125 CNG motorcycle has been well-received, prompting BAL to plan capacity expansion to meet demand.
- Expanding EV Footprint: BAL's market share in the domestic electric 2W segment has grown to ~14%, supported by network expansion. The company plans to launch new electric scooters in both affordable and premium segments.
- Sustained Profitability: Despite headwinds in the export market and investments in the EV segment, BAL has maintained strong double-digit EBITDA margins (~20%) due to a favorable product mix and cost reduction initiatives.
- Export Recovery Expected: While export volumes remain subdued due to macroeconomic challenges in key markets, Sharekhan anticipates a gradual recovery in the coming quarters.
Crucial Takeaways:
BAL's strategic focus on the domestic market has delivered strong volume growth, particularly in the 125cc+ motorcycle segment, where its Pulsar models have performed well. The company's entry into the CNG motorcycle segment is gaining traction and could help expand its market share in the lower-end motorcycle market.
Furthermore, BAL is rapidly establishing itself in the electric two-wheeler space, achieving a significant market share in a relatively short period. The company's plans to expand its EV product portfolio indicate its commitment to this growing segment.
While export markets have posed challenges, particularly in Africa, BAL has managed to retain its leadership position in most overseas markets. The company's diversified geographical presence and strong brand equity provide a solid foundation for future export growth.
Risks and Challenges:
The report highlights continued weakness in export markets and unfavorable foreign exchange fluctuations as potential risks to the company's profitability. Additionally, the profitability of the electric 2W business remains a concern, although the company expects to achieve profitability in the future.
Outlook and Valuation:
Sharekhan anticipates continued domestic growth for BAL, driven by a revival in rural demand, traction in the 125cc segment, and a strong festive season. The brokerage expects a gradual recovery in export markets in the coming quarters.
The valuation of Rs. 12,584 is based on the company's strong financial performance, premiumization strategy, and the expected gradual recovery in exports.
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