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Bajaj Auto: Reports steady Q2FY25 results, paints muted festive demand picture

ICICIdirect Research 18 Oct 2024 DISCLAIMER

Bajaj Auto reported steady performance in Q2FY25. Total operating income for the quarter came in at ₹ 13,127, up ~22% YoY amidst 16% YoY growth in volumes at 12.21 lakh units.

EBITDA for the quarter came in at ₹2,652 crore with EBITDA margins at 20.2% (flat QoQ).

PAT in Q2FY25 stood at ₹2,005 crore (up 9.2% YoY) despite accounting for an exceptional one-time deferred tax provision. Excluding this provision, PAT grew 21% YoY to ₹2,216 crores.

Company generated >₹ 2,000 crore as FCF during the quarter with surplus cash as of Q2FY25 end at ~₹ 16,400 crore.

Bajaj auto has successfully augmented market share in premium motorcycle segment (>=125cc) and EV space, which now contributes significantly to the revenue.

EV sales now contribute ~20% of its domestic revenues while EV+CNG contribution is pegged at ~44%.
Going forward management expects to carry forward this growth momentum and also hinted at new platform launch of Bajaj Chetak (E-2W) in near future.

The festive demand is the current season is tad below expectations with industry poised to clock ~3-5% growth in sales volumes vs. earlier expectation of ~5-8% YoY growth.

Moreover, management indicated that for the industry as a whole the volume growth for FY25E could be closer to 5% (lower end of 5-8% range) with high base limiting growth in the rest of the year.
This coupled with its forward valuations at ~25x+ PE vs. ~17-19x PE in the past, lead to sharp correction in the stock price post management commentary.

Stock is down 20% from its high, but at the same time had a very stellar run and was nearly up 100% over the past 1 year.

So, we see this as a profit booking with structurally things not deteriorating at Bajaj Auto.  

With calibrated capex spends and new product launches, alongside a growing financing arm (BACL), it is well positioned to drive sustainable double digit topline and earnings growth going forward.

With valuations nearing full, we assign HOLD rating and value Bajaj Auto at ₹ 11,820 on SoTP basis (Avg. of FY26-27E). We have valued its core earnings at 30x PE on FY26-27E average.

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