Bajaj Auto m-cap nears Rs 3 trn; what drove the stock to record high today?

Thus far in the calendar year 2024, Bajaj Auto has outperformed the market by surging 50 per cent, as against 12 per cent rise in the BSE Sensex.

Shares of Bajaj Auto hit a record high of Rs 10,213.10, gaining 3 per cent on the BSE in Friday’s intra-day trade in an otherwise subdued market, on a healthy outlook. In comparison, the BSE Sensex was down 0.09 per cent at 80,980 at 10:22 AM.

The stock of the two and three-wheeler manufacturer has surpassed its previous high of Rs 10,037.30 that it touched on June 18, 2024. Thus far in the calendar year 2024, Bajaj Auto has outperformed the market by surging 50 per cent, compared to the 12 per cent rise in the BSE Sensex.

The recent sharp run-up in Bajaj Auto’s stock price has seen the company’s market capitalisation inche towards Rs 3 trillion. Currently, the company’s market capitalisation stands at Rs 2.85 trillion, a mere 5 per cent away from the milestone figure.

According to JP Morgan, the two-wheeler industry has outperformed other segments with an 18 per cent growth rate for FY25 year-to-date. The firm noted that the industry continues to see strong demand and favorable conditions, including healthy inventory levels and easier financing.

They project an 8 per cent compound annual growth rate (CAGR) for volumes between FY24 and FY27.

Bajaj Auto is engaged in the business of development, manufacturing and distribution of automobiles, such as motorcycles, commercial vehicles, scooters and electric two-wheelers, etc. The Company sells its products in India as well as in various other international markets.

Meanwhile, the company's management expects the motorcycle (MC) industry volume growth to be in the range of  six to eight per cent in FY25, and the premium segment to outperform.

It expects the gradual revival of exports to continue, with exports in the July to September (Q2FY25) quarter expected to be better than the April to June (Q1FY25) quarter, despite its key market, Nigeria, facing a demand slowdown from average 50,000 units per month to 15,000 units per month currently. This has been offset by a strong performance in the LATAM region, where sales were up 26 per cent year-on-year (YoY). 

Bajaj Auto has received production linked incentive (PLI) certificates for five of its electric vehicles (EV), consisting of 3 e3W (electric three-wheeler) and two Chetak scooters, while the company has also applied for a PLI certificate for the newly launched Chetak 2901.

It has accrued PLI benefits in revenue this quarter, which has led to a positive margin of ~50bp. The company's management also expects the e2W (electric two-wheeler) business profitability to improve gradually, driven by cost control measures and volume growth, while e3W profitability remains similar to ICE (internal combustion engine), according to analysts of Elara Capital. This includes PLI benefits, the analysts added.

According to the brokerage firm, Bajaj Auto’s overdependence on 3W for profitability has reduced, with profitability for the domestic 2W segment also improving.

The brokerage firm expects new launches and an expanding distribution network to result in market share gains for the e2W segment, it added while reiterating an 'Accumulate' rating for the company with a target price of Rs 11,590, based on 28x (from 26x) September 2026E P/E.

Meanwhile, brokerage firm Geojit Financial Services, said that Bajaj Auto is expected to strengthen its presence in the domestic market through its premium products, competitive pricing and ability to cater to consumer needs.

In addition to that, the company's new products, such as the Freedom 125 and Chetak variant, are expected to boost Bajaj Auto's sales.

However, in the global market, Africa has not yet fully recovered, although the management expects a gradual recovery in exports and is expecting its performance in Q2FY25 to be better than that in Q1FY25, the brokerage firm stated in its Q1FY25 result update for the company.

It had recommended a ‘hold’ rating for the stock.