Is Bajaj Auto stock a buy after Q4? Brokerages remain divided

Bajaj Auto reported a 2.5 per cent decline in its net profit for the quarter ended March 31, 2023, at ₹1,432.88 crore, compared to a profit of ₹1,468.95 crore in the same period a year ago.

However, the automaker saw a 215 basis points improvement in its EBITDA to 19.3 per cent at ₹1,716.6 crore.

Read more: Bajaj Auto’s profit beats Street view

Brokerages remain divided

Most brokerage firms retained their views on Bajaj Auto after its Q4 numbers. Some of them see the stock buy-worthy at this juncture while some believe the stock has limited upside potential from the current market price.

Brokerage firm JM Financial has maintained a buy call on the stock and raised the target price to ₹4,600 from ₹4,400 as it said it remains positive on the stock given the successful track record of product intervention by Bajaj Auto in the last few years.

The brokerage firm highlighted that the company’s management expects the domestic two-wheeler industry to grow at about 6 to 8 per cent during FY24. During 4Q, Bajaj Auto’s domestic two-wheeler volume was led by premium products (125cc+). The strategy of upgrading customers to the 125cc segment is working well and the company’s market share in the 125-150cc segment has bounced back to about 50 per cent led by new launches.

As far as export volume is concerned, as per JM Financial, the management expects export volumes to gradually recover once USD availability improves.

Brokerage firm Motilal Oswal Financial Services has maintained a ‘neutral’ view on the stock with a target price of ₹4,400, citing at 17.7 times and 15.9 times FY24E and FY25E consolidated EPS, respectively, the stock’s valuation fairly reflects the expected recovery as well as the risk of EVs.

Motilal believes Bajaj Auto’s dividend yield of 4.5-5 per cent should support the stock.

While the brokerage firm underscored Bajaj Auto reported a better-than-estimated EBITDA margin of 19.3 per cent (nine-quarter high) driven by a better product mix, it does not expect any material margin expansion in the coming quarters as the improvement in EBITDA margin largely reflects the benefits of forex and improved mix.

Motilal said over the next two quarters, Bajaj Auto has three catalysts for growth: (a) Chetak EV ramp-up to 10k/month from Jun’23, (b) Triumph product launch, and (c) potential recovery in exports.

The brokerage firm has raised its FY24E and FY25E EPS by 7 per cent and 8 per cent, respectively, to factor in a sustained recovery in domestic two-wheelers and three-wheelers volumes and a better product mix.

Brokerage firm Kotak Institutional Equities has maintained a ‘reduce’ call on the stock with a target price of ₹4,000.

“We expect domestic two-wheeler industry volume growth to remain muted amid weak rural demand trends and incremental competitive intensity from HMSI. Besides, recovery in export segment volumes is being completely priced at the current market price; downside risk remains given the non-availability of USD in key geographies. We expect current profitability trends to partly reverse as the mix normalizes over the coming quarters,” said Kotak.

Disclaimer: The views and recommendations given in this article are those of brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.