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Synopsis :Bajaj Auto’s shares plunged by 11% following the release of Q2 FY24 results, disappointing investors due to a lower-than-expected EBITDA margin and weak product mix. Despite a 22% increase in revenue, the stock was downgraded by analysts, citing unfavorable risk-reward ratios and a muted festive season. The company’s market share gains in motorcycles and electric vehicles remain strong, yet valuation concerns persist, prompting mixed views on future performance.
Bajaj Auto Ltd's stock faced a significant decline of 11% following the release of its Q2 FY24 results, primarily due to lower-than-expected performance. Despite an overall increase in revenue, the market's reaction was negative, leading to a sharp drop in share prices to ?10,380 on the BSE.
Key Takeaways from Q2 Results
Earnings Miss: Analysts noted that Bajaj Auto's Q2 results fell short of market expectations. The company's operating profit (EBITDA) grew 24% year-on-year, reaching ?2,650 crore, but still missed estimates due to a weaker product mix. The EBITDA margin expanded by 40 basis points to 20.2%, below the forecasted figures, which led to investor disappointment.
Revenue and Volume Performance: Revenue increased by 22% year-on-year, driven by a 16% growth in volume to 12 lakh units. However, the net revenue per unit rose only 5%, leading to concerns about profitability. Analysts attributed this to lower-than-expected realisation per unit, highlighting the company's struggle with a less favorable product mix.
Muted Festive Season Start: Market experts have also pointed to a slow start to the festive season, which traditionally drives sales in the automotive sector. This has raised concerns about the potential for revenue growth in the upcoming quarter.
Analyst Downgrades: Following the earnings report, Emkay Global downgraded Bajaj Auto’s stock from 'Reduce' to 'Sell,' citing an unfavorable risk-reward ratio after the recent rally. The brokerage set a new target price of ?9,500, preferring competitors like Hero MotoCorp and TVS Motor, which are seen to have better growth prospects and risk-reward balance.
Market Share and Strategy: Despite the dip in share prices, Bajaj Auto has managed to capture significant market share in the 125cc+ motorcycle segment. It continues to benefit from a diverse product portfolio, including strengths in the electric two- and three-wheeler market, which have shown solid growth due to strategic execution. Looking ahead, analysts believe Bajaj Auto could leverage its robust market presence in the electric vehicle segment.
Valuation Concerns: Market experts from MOFSL noted that the stock, which had gained 55% year-to-date before the Q2 results, now appears fairly valued. They maintained a neutral stance, with a revised target price of ?11,450.
Disclaimer:The information provided in this article is for educational purposes and should not be considered as financial advice. Readers are advised to conduct their own research or consult with a financial advisor before making investment decisions.
