KRChoksey Research has maintained an "Accumulate" rating for Bajaj Auto Ltd., raising its target price to Rs 9,900. This implies a 14.8% upside potential from the current market price of Rs 8,626. Despite modest domestic growth, the company’s export strength, improved product mix, and gains from its electric vehicle (EV) segment are driving profitability. However, delays in two-wheeler CNG adoption and intense competition remain near-term challenges. KRChoksey expects Bajaj Auto to achieve revenue, EBITDA, and PAT CAGR of 17%, 19%, and 16.3%, respectively, between FY24 and FY27.

Q3FY25 Financial Performance: Strong Export Boost

Bajaj Auto’s Q3FY25 revenue rose 8.2% YoY to Rs 131,689 million, primarily driven by strong export performance, improved realization, and a better product mix. Total vehicle sales volumes increased modestly by 2.0% YoY to 1,224,472 units.

Revenue Highlights:

Revenue growth was supported by a 4.7% increase in average realization, benefiting from favorable currency movements.
Domestic two-wheeler sales declined, but exports, particularly to Latin America and Africa, surged, leading to a 21.3% YoY growth in two-wheeler exports.
Three-wheeler (3W) exports also recorded a 33% YoY increase.
EBITDA grew 13.9% YoY to Rs 27,508 million, with the EBITDA margin improving to 20.9%. The company benefited from operating leverage, cost controls, and reduced raw material expenses.

Profitability and Net Margins

Adjusted net profit rose 8% YoY to Rs 21,957 million, though this fell short of estimates due to higher-than-expected depreciation and interest expenses.

Key Metrics:

EBITDA margin expanded by 104 basis points (bps) YoY, supported by better currency gains and reduced input costs.
The net profit margin stood at 16.7%, remaining stable on a YoY basis.
Bajaj Auto’s positive EBITDA from its EV segment for the first time contributed significantly to profitability.

Segment Performance Overview

Bajaj Auto operates across multiple product segments, including motorcycles, scooters, and three-wheelers. Export growth has been a standout driver of overall performance in recent quarters.

1. Two-Wheelers:

Domestic two-wheeler sales declined by 10.3% YoY, with competition and price pressures affecting volumes.
In contrast, two-wheeler exports grew by 21.3%, driven by strong demand in Latin America and the ASEAN region.
The company plans to launch nine new models by March 2025, focusing on the 125cc+ segment, which is growing faster than the sub-125cc category.
2. Three-Wheelers (3W):

Three-wheeler exports surged by 33.2% YoY, while domestic 3W sales declined slightly.
Bajaj Auto introduced price reductions in select markets to remain competitive. The L5 EV category is expected to grow between 5-7%, with new launches planned to capture further market share.
3. Electric Vehicles (EVs):

Bajaj Auto sold 17,000 electric three-wheelers in Q3FY25, gaining a 37% market share in the passenger segment.
The Chetak EV scooter’s market share rose from 13% to 22% YoY, driven by the launch of a premium variant.

Capital Allocation and Investment Strategy

Bajaj Auto has allocated significant capital towards its EV business under the Production-Linked Incentive (PLI) scheme.

Key Investment Highlights:

Capital Expenditure (CapEx): The company invested Rs 4,500 million during the first nine months of FY25, primarily in EV infrastructure.
Future Plans: Over the next five years, Bajaj Auto will invest Rs 10,000 million to enhance EV production capabilities.

Guidance and Future Outlook

KRChoksey forecasts revenue, EBITDA, and PAT to grow at 17%, 19%, and 16.3% CAGR, respectively, from FY24 to FY27.

Market Expectations:

The domestic motorcycle market is projected to grow 6-8%, with Bajaj Auto focusing on outpacing this growth through the 125cc+ segment.
Export growth is expected to exceed 20% YoY, driven by strong demand in Latin America, Africa, and the ASEAN region.
The company’s long-term strategy includes expanding its EV portfolio and maintaining leadership in internal combustion engine (ICE) motorcycles.

Valuation and Target Price

KRChoksey has rolled forward its valuation to FY27 estimates, assigning a P/E multiple of 23x on FY27E EPS of Rs 434.2, resulting in a target price of Rs 9,900. This is a revision from the previous target of Rs 11,446, reflecting the near-term challenges associated with CNG adoption delays and competitive pressures in the domestic two-wheeler market.

Key Valuation Metrics:

Current Price: Rs 8,626
Target Price: Rs 9,900
Potential Upside: 14.8%

Support and Resistance Levels

Bajaj Auto's stock price is trading near critical technical levels, indicating potential for further upside if key resistance levels are breached.

Support and Resistance:

Support Levels: Rs 8,400 and Rs 8,200
Resistance Levels: Rs 8,900 and Rs 9,900
Trading Insight: Investors may consider accumulating Bajaj Auto at current levels, with a view toward the target price of Rs 9,900.

Bottomline for Investors

Bajaj Auto continues to demonstrate resilience and growth, driven by export strength, product innovation, and EV advancements. While challenges such as intense competition and delayed adoption of CNG technology affect short-term prospects, the company’s long-term fundamentals remain solid. Investors are encouraged to hold or accumulate shares with a target price of Rs 9,900, as Bajaj Auto is poised to capitalize on emerging opportunities in both the domestic and international markets.