Bajaj Auto, TVS, Hero slip up to 11% on below expectation festive demand

Shares of automobiles companies, mainly two-wheelers, are under pressure, having fallen by up to 11 per cent on profit booking as the festive season has started on a weak note for them. Demand during the current festive season is a tad below expectations, with the industry pegged to clock growth of around 3-5 per cent in sales volumes compared to the earlier expectation of a 5-8 per cent YoY growth.

At 10:15 AM, the BSE Auto index, the top loser among sectoral indices, was down 3 per cent, as compared to the 0.33 per cent decline in the BSE Sensex. The auto index hit a low of 56,874 in Thursday’s intraday trade, correcting 9 per cent from its record high level of 62,443 that it touched on September 27. Despite its recent decline, the BSE Auto index has outperformed the market by surging 35 per cent so far in calendar year 2024, compared to a 12.3 per cent rise in the benchmark index.

Motorcycle sales during the ongoing festive season so far have been below expectations as demand is muted and the industry will be lucky if it sees 3-5 per cent growth compared to last year, Bajaj Auto Executive Director Rakesh Sharma said on Wednesday.

While around 15 days remain in this month for festive sales to run their course, he said, muted growth in motorcycle sales during this period will also dampen the overall growth prospects of the two-wheeler industry for the full fiscal, PTI reported.

Among individual stocks, Bajaj Auto has tanked 11 per cent to Rs 10,380 on the BSE in today’s intraday trade on profit booking after the company reported almost in line growth in Q2 revenue growth, while net profit for the quarter missed Bloomberg estimates. READ MORE

The company's earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin remained stable sequentially at 20.2 per cent as the impact of an adverse mix and raw material inflation was offset by price hikes, favorable forex rates, and operating leverage benefits.

Bajaj Auto has outperformed the Nifty Auto Index over the past 12 months, fuelled by market share gains in the 125cc-plus domestic motorcycle segment, improved margins, and a unique shareholder reward policy.

However, the stock now trades at approximately 38.5x/30x FY25E/26E EPS and appears fairly valued, Motilal Oswal Financial Services said in the company's result update.

However, the festive season has started on a weak note, with the industry posting just 1-2 per cent YoY growth as of Dussehra and expecting 3-5 per cent YoY growth during the season, assuming a revival before Diwali.

In the case of Bajaj Auto, the outlook for its key export market, Africa, remains uncertain, though the margin outlook is improving, the brokerage firm said.

With calibrated capex spending and new product launches, alongside a growing financing arm (Bajaj Auto Credit), it is well positioned to drive sustainable double digit topline and earnings growth going forward. However, it now trades at more than 30x PE to its earnings as of FY26E, which shall limit the stock price appreciation, ICICI Securities said in a note.

Despite today’s sharp fall, the stock price of Bajaj Auto has more than doubled, or zoomed 103 per cent, in one year. It had hit a record high of Rs 12,772 on September 27, 2024.

On the festive season front, Bajaj Auto indicated that so far, demand has been flattish (below expectation of 5-6 per cent growth). But the management is hopeful of demand bouncing back in the latter part of the festive season.

Overall, the company expects the domestic 2W industry to grow by c.5 per cent in FY25 led by premium (125cc+) segments. In the case of domestic 3Ws, growth going forward will be driven by E3Ws (new products + geography), expansion in CNG network and healthy retail finance penetration, analysts at JM Financial Institutional Securities noted.

Besides Bajaj Auto, TVS Motor Company (down 6 per cent at Rs 2,596.35), Hero MotoCorp (down 5 per cent at Rs 5,101) and Eicher Motors (down 3 per cent at Rs 4,521.60) from the two-wheeler segment, had declined up to 6 per cent on the BSE.

Mahindra & Mahindra (Rs 2,963) and Maruti Suzuki India (Rs 12,070) were down 3 per cent and 2 per cent, respectively, in today's intraday trade.