Bajaj Auto Stock Hits A Record High As Analysts Laud Q3 Results

Analysts raised price targets on Bajaj Auto Ltd. after the third quarter, citing better outlook for exports, increased traction for premium motorcycles and attractive valuations.

The two-wheeler maker, according to research reports of brokerages, including Investec, HSBC, can offset the commodity headwinds through modest price hikes. Also, improving product mix and recovery in three-wheelers are other positive triggers.

Bajaj Auto, in its post-earnings release, said its overall share in the domestic market has risen from 17.5% to 18.6%, and it sold record Pulsar motorcycles in the domestic and international markets. The company’s exports at 6.87 lakh units during the quarter were also the highest-ever.

The two-wheeler aims to restart bookings of electric scooter Chetak over the next two-three months. Bookings were stalled in March and had not resumed since, owing to supply-side constraints.

Bajaj Auto reported the highest-ever quarterly profit, revenue, Ebitda and turnover during the three months ended December. Its overall sales increased 8% over the year-earlier during the reported period.

Shares of Bajaj Auto gained as much as 8.4% to an all-time high of Rs 4,012.9 apiece. The stock is up for the fourth straight day.

Of the 51 analysts tracking Bajaj Auto, 34 have a ‘buy’ rating, 12 suggest a ‘hold’ and five recommend a ‘sell’. The stock crossed its Bloomberg consensus 12-month price target of Rs 3,779 apiece on Friday.

Here’s what analysts have to say:

Morgan Stanley

• Maintains ‘overweight’ rating; raises price target to Rs 4,400 apiece from Rs 3,900.
• Premiumisation strategy working well.
• Robust export franchise.
• Announcements around the production-linked incentive scheme and remission of duties or taxes on export products are key catalysts to watch.
• “Valuations are at a steep discount to the Nifty, keeping us bullish”.

Jefferies

• Maintains ‘buy’ rating; hikes price target to Rs 4,300 apiece from Rs 4,200.
• Higher metal prices will pull down margin but factored into estimates.
• Outlook for exports is strong.
• Domestic demand improving too but cautious on sustainability.
• Raises FY21 EPS estimates by 8%.
• Expects volumes to rise at a 17% CAGR in FY21-23, driven by a double-digit growth in exports and domestic business.
• Finds valuations to be reasonable.

Credit Suisse

• Maintains ‘neutral’ rating; raises price target to Rs 3,800 apiece from Rs 3,140.
• Good beat on the margins.
• Exports are strong, though impacted by container availability.
• Margin will come off sequentially in the fourth quarter.
• Electric three-wheeler launch in H2 FY22 may also impact margin.
• Share of sales financed by Bajaj Finance remains materially lower than last year.
• Full valuations and likely near-term margin pressure keep us neutral.

Investec

• Maintains ‘buy’ rating; hikes price target to Rs 4,210 apiece from Rs 3,515.
• Well placed for recovery after stellar quarter.
• Commodity inflation may be a headwind in the near term but price increases, higher traction in premium bikes and rising exports can offset this.
• Outlook is encouraging.
• Sees 17% EPS CAGR over FY21-23 and raise FY21-23 estimates by 8%.
• Valuations are supportive considering strong financials and post-tax RoCE of 23%.

HSBC

• Maintains ‘buy’ rating; raises price target to Rs 4,000 apiece from Rs 3,500.
• Highest-ever profit is reflection of strong positioning in export markets.
• Recovery in three-wheelers, premium motorcycle portfolio, ramp-up and traction in e-scooters likely upside triggers.
• Factor in the impact of commodity price rise and mix normalisation into forecasts.
• “Strong exports and margin execution underpin the upward revision to our long-term growth assumptions.”
• Resilient performance warrants higher valuations and relative premium.

Emkay

• Maintains ‘buy’ rating; hikes price target to Rs 4,370 apiece from Rs 3,976.
• Expects turnaround in volumes with growth of 16% and 21% in Q4 FY21 and FY22, respectively.
• Expects 11% earnings CAGR, RoE of about 25% and strong free cash flow generation during FY20-23.
• Raises FY21-23 EPS estimates by 1-6% on higher volume and margin assumptions.
• Key risks: Lower-than-expected demand in key geographies, increase in competitive intensity and higher commodity prices, along with adverse exchange rates.