Bajaj Auto investors get a demand reality check

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Subscribe to enjoy similar stories. MUMBAI : Bajaj Auto Ltd’s shares fell 11% on Thursday after its management painted a sombre picture of domestic two-wheeler demand for the ongoing festive season while announcing the September quarter results (Q2FY25).

Of course, it didn’t help that the stock’s valuations had become steeper thanks to the strong 70% gain seen until then in 2024. While the industry expected around 5-8% on-year sales growth, actual figures till Dussehra are closer to 1-2%, similar to 2023's performance.

Even a demand revival ahead of Diwali might only lead to a 3-5% on-year sales growth during this festive season. At a time when premium motorcycles are driving most of the industry’s sales while entry-level products are languishing, a muted festive season questions the industry’s growth prospects for the entire fiscal year.

Moreover, Bajaj’s Q2 earnings before interest, taxes, depreciation, and amortization (Ebitda) at ₹2,652 crore came in lower than analysts’ expectations even though it was up 24% year-on-year. Sure, the Ebitda margin was at 20% for the fourth consecutive quarter, but can it sustain? That is the moot question.

While Bajaj plans to continue its premiumization play moving forward, its internal combustion engine (ICE) products have limited room to grow due to the existing high base of sales volume and a saturating market. Analysts from Kotak Institutional Equities believe margins have peaked out and will face downward pressures over the coming quarters due to a recovery in export volumes led by Africa (lower average selling prices and margins), a rise in the mix of electric vehicles (EV) and CNG two-wheeler segments (margin-dilutive segments), and moderation in growth for the three-wheeler