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Bajaj Auto's shares have taken a hit due to a slower-than-expected festival season and weak demand for entry-level motorcycles, causing a ripple effect on the market.
Analysts from Citi, Macquarie, and HDFC Securities have issued negative calls on Bajaj Auto, citing concerns like higher ad spending, slower recovery in key export markets, and disappointing gross margins.
Despite a 9% increase in net profit, the company's shares are underperforming, with the Nifty Auto index slipping 3%.

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Nifty Auto index slipped 3% to 25,148 points

Leading auto shares witness steepest decline in 2-years: Here's why

By Mudit Dube

Oct 17, 2024

01:01 pm

What's the story

Shares of leading two-wheeler manufacturers, Hero MotoCorp, Bajaj Auto, and TVS Motor Company, have taken a major hit. The companies witnessed their stocks plummet by as much as 12% today, their biggest single-day fall in two years. At the time of writing, Hero, Bajaj, and TVS were down 2.97%, 11.75%, and 3.4%, respectively. The downward trend comes as Bajaj Auto revised its growth forecast for domestic two-wheeler sales to a modest 5%, down from its earlier estimate of 5-8%.

Market reaction

Bajaj Auto's cautious forecast impacts market

Bajaj Auto's revised growth outlook comes on the back of a slower-than-anticipated festival season, affected by Shradha Paksha and weak demand for entry-level motorcycles. This cautious forecast has had a ripple effect on the market, with Eicher Motors's shares also witnessing a slight dip. For the second quarter of FY2024-25, Bajaj Auto reported a net profit increase of 9% to ₹2,005 crore, missing brokerage estimates polled by Moneycontrol.

Analyst outlook

Analysts issue negative calls on Bajaj Auto

After Bajaj Auto's Q2 results and management conference call, several analysts including Citi, Macquarie, and HDFC Securities have issued negative calls. HDFC Securities said they expect higher advertisement spending for promoting new launches and a slower recovery in key export markets to impact margins in the near term. Citi issued a 'sell' call on Bajaj Auto shares after its Q2 performance slightly missed estimates due to lower average selling prices (ASPs) and gross margins.

Market ratings

Macquarie maintains neutral rating on Bajaj Auto

Macquarie has retained its neutral rating on Bajaj Auto with a target price of ₹11,200 per share. The firm observed that while the company's Q2 performance was in line with expectations, gross margins were disappointing on account of a higher proportion of new products. Further, Macquarie also noted a subdued festive outlook which did not meet its expectations. This analysis comes as the Nifty Auto index underperformed, slipping 3% at 25,148 points.