Bajaj Auto Q2 Review: Shares Rise Despite Weak Outlook For Exports

Shares of Bajaj Auto Ltd. rose after its net profit for the July-September quarter beat estimates. Most analysts, however, maintained a ‘neutral’ rating due to the weak outlook on exports, which comprise a large chunk of total sales.

Sales in global markets may have bottomed out as the management guided for sequentially higher volumes in the third quarter. But, analysts said, the outlook remains weak due to depreciating currencies, high inflation, and unfavourable government policies in key regions.

In the quarter ended September, the two-wheeler company beat consensus estimates on all fronts. However, the company’s exports declined 25% year-on-year in the three-month period.

In the domestic market, some brokerages expect the weak demand scenario to continue in the near term.

According to Nomura, Bajaj Auto will continue to face headwinds on volume growth due to a slower recovery in the domestic two-wheeler market and risks to exports.

Motilal Oswal Financial Services Ltd. said the worst is behind and sales will rise for the maker of Pulsar motorcycles.

Sales of its electric two-wheeler Chetak increased to 9,800 over the July-September period from 6,300 units in the previous quarter. The company said it expects to reach of 6,000 units a month by the end of the current financial year.

Shares of Bajaj Auto gained as much as 2.9% to Rs 3,674.85 apiece on Monday. As of 1:45 p.m., the scrip traded 1.23% higher on the NSE.

Of the 54 analysts tracking the company, 31 maintain a 'buy', 18 suggest a 'hold' and five recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 12.4%.

Here’s what brokerages had to say about Bajaj Auto’s quarterly results:

• Better-than-expected average selling price and operating margin rose despite a lower share of exports.

• Exports may improve but the outlook remains weak amid foreign exchange and U.S. dollar availability issues in key markets.

• Diverging trends are visible across segments with declining sales in entry-level bike and higher sales in the mid and premium segments.

• Maintain ‘buy’ with target price of Rs 4,200, implying a return of 18%.

• The company is witnessing moderation in declining sales in markets such as Africa and Latin America, which may aid exports.

• Demand outlook in India is bottoming out. The industry is expected to grow in single digits.

• Company to expand sales of Chetak to 85 cities by FY23-end and plans to launch three to four electric two-wheelers in the next 18 months.

• Reiterate ‘neutral’ rating with a target price of Rs 4,000, an upside of 12%.

• Bajaj Auto should benefit from the higher growth in 125cc segment with chip supply improvement also aiding availability.

• Third-quarter performance to get a boost from lower commodity costs and favourable forex, as the company doesn’t intend to pass on the benefit to customers.

• Lack of catalysts and volume growth risks to be a challenge.

• Maintain a ‘neutral’ rating with target price of Rs 4,021, which implies a growth of 12.6%.

• Expect 5% CAGR in volumes over FY22-25 due to higher exposure to overseas markets, which is lower than 8-11% for peers like Hero MotoCorp Ltd. and TVS Motor Co.

• Expect domestic volumes to grow 13% in FY23 driven by urban demand and favourable base effect.

• Chip supply issues are mostly resolved after addition of vendors.

• The new launch in the electric three-wheeler segment has been delayed but is expected by FY23-end.

• Maintain ‘hold’ with a target price of Rs 4,200 per share, implying a return of 15%.