Religare maintains ‘high conviction buy’ after large cap stock hits 52-week high

At the current market price (CMP) of ₹5,329, Religare has revised its target price upwards at ₹5,944 for Bajaj Auto and sees a potential upside of 11.5 per cent on the stock. On Thursday, shares of Bajaj Auto settled 2.89 per cent higher at ₹5,921.85 apiece on the BSE.

Also Read: Behind Bajaj Auto’s Q2 surge lies a tale of India’s failed urban transport

Better product mix and softer commodity prices will support the company in its overall performance. Here’s why the brokerage is bullish on Bajaj Auto: 

Bajaj Auto Q2 Results:

The Pune-based two-wheeler manufacturer reported a 20 per cent year-on-year (YoY) rise in net profit for the September quarter at ₹1,836.14 crore, compared to ₹1,530 crore in the year-ago period. The Bajaj Group company’s total revenue from operations increased by 5.6 per cent to ₹10,777.27 crore, compared to ₹10,202.8 crore in the same quarter a year ago.

Better operating leverage

Bajaj Auto’s gross profit came in at ₹3,126 crore, up by 15.1 per cent YoY with a margin of 29 per cent which expanded by 238 basis points (bps) YoY. One basis point is one-hundredth of a percentage point. The company’s earnings before interest, tax, depreciation, and amortization (EBITDA) increased by 21.3 per cent YoY at ₹2,133 crore and a margin of 19.8 per cent which expanded by 255 bps YoY.

‘’The strong operational growth was supported by better product mix and softer prices of commodities like metals, steel and aluminum which resulted in strong operating leverage,” said Religare Broking.

Strong domestic 3-wheeler volumes 

It was a landmark quarter for 3-wheeler segment as it reported highest quarterly volume of 132,236 units in the domestic market, registering a growth of 80.5 per cent year-on-year. The shift from diesel powered to CNG powered vehicles is aiding the growth for the company where it has a strong moat, according to the brokerage. 

The company will benefit from government’s initiative to increase the number of pumps across India by adding another ~4,000 pumps, shall support the demand resulting from the shift towards CNG vehicles, said Religare Broking.

Religare’s outlook on Bajaj Auto

Bajaj Auto is amongst leading players in the motorcycle space while it is a top exporter of 2/3 wheelers in the country. Its exports have remained under pressure; however on sequential basis it is witnessing a recovery in its key markets which will aid in volumes and revenue growth. 

‘’The strong domestic business outlook coupled with gradual recovery in exports, we remain bullish on growth prospects of the company and estimate its revenue/EBITDA/PAT to grow at 19.3 per cent/23.6 per cent/22.2 per cent CAGR over FY23-25E. We have assigned a PE of 20x on FY25E EPS and maintain a Buy rating with a revised target price upwards to Rs. 5,944,” said Religare Broking.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Updated: 23 Nov 2023, 08:39 PM IST