Bajaj Auto rallies 5% after Q2 earnings beat Street, despite caution from analysts

The Bajaj Auto stock jumped nearly 5 percent on October 19, after the automobile major beat analyst estimates with a 20 percent increase in net profit for the second quarter. However, brokerage firms seem unimpressed as several concerns still linger for the automobile major such as muted exports and competition in electric vehicles space.

Bajaj’s exports for the second quarter slumped 9 percent amid currency-led inflation hampering the overall affordability. Broking house Nuvama Institutional Equities, with a ‘hold’ rating on the stock, has said that the company would underperform peers such as TVS Motors, owing to its weak presence in scooters, not to mention its large exposure to overseas markets.

At 9:20am on October 20, the Bajaj Auto stock was trading at Rs 5,375, up 4.65 percent, from the previous close on the NSE.

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Motilal Oswal states that even as Bajaj Auto has a potential sizeable position in the scooter market through electric vehicles, a large part of its India profit pool (of premium motorcycles and three-wheelers) is vulnerable to possible disruption from electrification. Analysts at the firm have maintained their ‘neutral’ stance on the company.

Analysts at Macquarie, with a ‘neutral’ call on the stock, suggest that exports have bottomed out, and recovery in the business is slated to witness a gradual recovery.

On the other hand, global firm Morgan Stanley remains bullish on the company and has assigned an ‘overweight’ call. Morgan Stanley attributed its rationale to a promising three-wheeler outlook and labelled it as a ‘whitespace’ opportunity. The EV three-wheeler margins are at par with the ICE vehicles in the same segment.

Key risks

Lower-than-expected growth in India due to slowdown in macros, a
delay in recovery in demand in Africa, Asia and Latin America regions because of weak fundamentals, failure of new products in EVs, scooters and premium motorcycles, a spike in commodity prices, and an adverse currency movement, are some of the key risks for the Pune-headquartered company.

During the quarter, the company reported a net profit of Rs 1,836.14 crore. Bajaj’s revenue from operations rose 5.6 percent to Rs 10,777.27 crore vis-à-vis Rs 10,203 crore in the corresponding period last year, largely aided by falling commodity costs and the price hikes the company effected.

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