KR Choksey upgrades rating on Bajaj Auto to ’buy’, sets record target price - key reasons
The 125cc+ segment now accounts for 65.0% of Bajaj Auto's domestic 2W volumes as compared to 50.0% for the industry. The company has gained 500 bps market share on a YoY basis in this segment and is betting big with new product launches.
Bajaj Auto has witnessed a remarkable 70% rally in its share price this year so far, marking the best yearly performance since 2009. This stellar performance can be attributed to a surge in domestic sales, sequential improvement in exports, strong growth in the 125cc+ bike segment, a significant rise in Triumph sales, and strong financial performance.
On November 28, the stock achieved a significant milestone by surpassing the ₹6,000 mark and has since maintained its upward trajectory, reaching an all-time high of ₹6,217 apiece during Monday's trade. Projections from domestic brokerage firm KR Choksey indicate that the stock is poised for further upward momentum.
In its recent report, the brokerage highlighted the company's strong volume growth in the domestic market during the festive season, and it says that the company is witnessing healthy demand even after the end of the festive season.
It further added that the company's sharp focus on the 125cc+ segment within domestic 2W is yielding market share gains and positive mix change. During Sep-Oct-Nov 2023 period, retail growth for the domestic motorcycle industry stood at 8.0% YoY, while Bajaj Auto grew at 2x that rate. Notably, in the 125cc+ segment, Bajaj Auto grew by 3x the industry growth rate of 9.0% YoY, KR Choksey noted.
According to the brokerage, the 125cc+ segment now accounts for 65% of Bajaj Auto's domestic 2W volumes as compared to 50% for the industry. The company has gained 500 basis points market share on a YoY basis in this segment and is betting big with new product launches.
Further, the brokerage said that the uptick in demand for Triumph in the pro biking segment has surprised positively and will contribute incrementally to volumes and mix going ahead as Bajaj Auto ramps up capacity and distribution. For the 2 months of September–October 2023, its pro-biking segment (KTM+Triumph) saw a growth of 50% YoY.
The company had prepared for an average of 5,000 monthly capacity for Triumph but was surprised positively by the market demand. In Q2FY24, the company sold 8,000 units of Triumph and is planning to take it up to 18,000 units in Q3FY24E by stretching the capacities.
Furthermore, Bajaj Auto achieved its best-ever festive performance for Pulsar this year, surpassing 0.5 million units in sales. Additionally, Chetak e-scooter substantially increased its VAHAN market share from 5% to 15% within two months, securing the third position in the market, KR Choksey highlighted.
With monthly sales averaging 10,000 units, the brokerage said the company plans to expand its capacity to reach 20,000 units per month by the end of Q3FY24E.
A strong trajectory in the domestic CV segment is expected to continue, driven by increasing penetration of CNG and EVs. The export market remains subdued, though, but is seeing sequential improvements in terms of volumes, it added.
The brokerage forecasts a stable margin environment for BJAUT as the input costs are largely steady and the margin uptick from a higher share of 125cc+ within domestic 2w will possibly be nullified by unfavourable improvement in sales of 2w in export markets.
The brokerage revised its FY24E and FY25E EPS estimates upwards by 1.1% and 1.2%, respectively, and introduced estimates for FY26E. It expects revenue, EBITDA, and adj. PAT to grow at CAGR of 15.9%, 19.3%, and 16.4%, respectively, over FY23–FY26E.
The brokerage assigns a P/E multiple of 21.0x on FY26E EPS of ₹337.8, resulting in a target price of ₹7,093 apiece for the stock, implying an upside potential of 17.7%. Accordingly, it upgraded the recommendation to 'buy' from 'accumulated' on the stock.
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.
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