MUMBAI: For two-wheeler industry players, the last couple of years have been tough as soaring inflation hurt rural demand and also compressed profitability of companies significantly.
But these challenges did not hold back Dalal Street bulls from buying stocks of two-wheeler companies, particularly Bajaj Auto.
Shares of Bajaj Auto is the 3rd best performing stock year-to-date, with more than 23% returns. This is the best returns that the stock has given at least in the last 5 years.
In 2022, the stock gave over 11% returns, followed by negative 6% returns in 2021.
The stupendous rally this year saw the stock scale a lifetime high of Rs 4,506.50 earlier this month.
The steady gains in the stock since the last year has been backed by continued buying by foreign institutional investors.
FIIs have increased their stake in the two-wheeler major for four consecutive quarters. They cumulatively held 12.35% stake in the company at the end of March quarter, compared to 10.49% in the same period last year.
Earnings Catalyst
One of the reasons driving the stock is expectations of a recovery in both rural and international markets.
Exports form a major chunk of Bajaj Auto’s sales and the company faced significant challenges on this front in FY23. Despite this, the company managed to report a 10% growth in revenue to a record Rs 36,428 crore, primarily because of sustained momentum in the domestic market.
Although FY23 was challenging for exports, analysts do see volumes make a comeback in FY24. Thus, most of them raised their earnings estimates for the company for FY24 and FY25.
“We believe export volumes have reached their bottom and would pick up, once the dollar availability situation improves in the overseas market,” brokerage Sharekhan said.
Analysts believe that Bajaj Auto’s diversified geography mix and a strong presence in the domestic premium motorcycle segment will support its operating performance even in a weak business scenario.
“Going ahead, a re-rating could happen as exports recover from the low base and if the Triumph launch is successful,” Nomura analyst Kapil Singh said in his report.
Further, the company’s plans to expand its electric vehicle portfolio will act as another big catalyst to earnings and the stock.
Stock Talk
Despite the run-up the stock has had, most analysts find its valuations reasonable and have retained “buy” on the stock.
“Bajaj’s 17x/14x FY24E/FY25E P/E (price-to-earnings ratio) are reasonable, and 4-5% dividend yield is attractive,” said Jefferies India analyst Nitij Mangal in his report.
The brokerage has raised its target price for the stock to Rs 5,100 from Rs 4,800, while retaining a “buy” rating on the stock.
Deven Choksey of KR Choksey believes that recovery in export markets and further traction in the three-wheeler segment will bring back domestic institutional participation in the stock.
“In my viewpoint, two-wheelers would be a gradual accumulation and should the volume trend sustain, then the funds who are under owning this space, might probably add in their exposure more than they have done before,” Choksey said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
