Bajaj Auto share price rallies over 2% after upbeat Q3 results; Should you buy, sell or hold the stock?

Bajaj Auto share price rallied over 2% in the early trade on Thursday after the company reported upbeat earnings for the December quarter of FY24 led by high operating profit and strong volume growth. Bajaj Auto shares gained as much as 2.26% to ₹7,374.95 apiece on the BSE.

Two-wheeler major Bajaj Auto reported a net profit of ₹2,042 crore in Q3FY24, a growth of 37% from ₹1,491 crore in the year-ago quarter.

The company’s revenue from operations during the quarter rose by 30% to ₹12,114 crore from ₹9,315 crore, YoY.

Bajaj Auto posted its highest-ever quarterly EBITDA at ₹2,430 crore, which increased by 37% YoY, while its margins improved by 100 basis points (bps) to 20.1% due to better realisations, dynamic cost management and operating leverage.

Read here: Bajaj Auto Q3 Results: Net profit rises 37% to ₹2,042 crore, revenue up 30% YoY; 5 key highlights

Most analysts raised their earnings estimates and target price for Bajaj Auto shares after Q3 results. Here's what brokerages have to say on Bajaj Auto Q3 results and Bajaj Auto share price:

Motilal Oswal Financial Services

Motilal Oswal Financial Services expects both domestic and export volumes of Bajaj Auto to recover in FY25 from the low base, driving a healthy earnings recovery. It expects the company to benefit from market share gains over the long term, driven by the premiumization trend, the opportunity in exports, and the potential sizeable position in the Scooter market via EVs.

However, a large part of its India profit pool (of premium motorcycle and 3Ws) is vulnerable to possible disruption from electrification. At ~26x/23x FY24E/FY25E consolidated EPS, the stock’s valuation fairly reflects the expected recovery as well as the risk of EVs, Motilal Oswal said.

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Nuvama Institutional Equities

Nuvama Institutional Equities slightly increased its FY24–26E EPS estimates by 2–4%. The two-wheeler volume prospects remain positive, and it expects 9% CAGR over FY23–26E, led by continuing domestic growth. However, it believes a recovery in exports could be gradual, and depends on USD availability and economic conditions in Africa/Asia markets. 

Post the stock rally of ~30% over the past three months, it trades at a P/E of 24x/22x FY25E/26E EPS, limiting upside potential. The brokerage firm retained its ‘Hold’ rating on the stock and raised the target price to ₹6,850 per share from ₹6,700 earlier.

It expects domestic three-wheelers to post 23% CAGR over FY23–26E led by replacement demand, an uptick in business/economic activity and ample finance availability. In comparison, it expects a 2% CAGR in 3W exports, factoring in a gradual recovery. 

It reiterated a ‘Neutral’ rating on the stock and raised the target price to ₹6,775 per share.

Also Read: Tech Mahindra share price cracks over 6% after Q3 result; what should you do?

Kotak Institutional Equities

The brokerage expects domestic two-wheeler segment recovery to continue, but downside risks persist (exports), given higher inflation environment and geopolitical tensions. In its view, current profitability trends are likely to partly reverse, as the mix normalizes. 

It has increased FY2024-26E EPS estimates by 1-2% on higher EBITDA margin assumptions. Overall, it expects the domestic two-wheeler industry volumes to increase at a CAGR of 7-8% over FY2024-26E, driven by strong growth in the 125 cc segment. 

Kotak Institutional Equities believes most positives are already being factored in at current market price of Bajaj Auto and hence, maintained a ‘Sell’ call and raised the target price to ₹5,000 per share from ₹4,900 earlier. It values the standalone business at ₹4,723 per share and ascribes ₹277 per share to the stake in the KTM business.

Antique Stock Broking

Bajaj Auto posted a strong set of numbers, while revenue was in line with our estimates, margins came ahead of our estimates. Going ahead, we anticipate domestic volume growth to be in line with the industry growth over the next two years, partly supported by new model launches and recovery in the commuter segment. Export recovery seems to be taking longer; further, the Red Sea crisis poses a threat to export volumes going ahead, said Antique Stock Broking. 

In terms of profitability, the brokerage firm expects to see some pressure on margins going ahead as the share of E2Ws and exports go up. 

It raised FY25/ 26 EPS estimates by 11%/ 8% and retained a ‘Hold’ and raised the target price to ₹7,417 per share.

Our valuation factors in better risk-reward owing to the company’s policy of generously rewarding shareholders via buyback and dividend, making risk-reward slightly favorable, it said.

At 9:25 am, Bajaj Auto shares were trading 0.12% higher at ₹7,220.00 apiece on the BSE.

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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 taking any investment decisions.