Bajaj Auto may ride on post-festive demand and rural recovery while export pain continues

Bajaj Auto’s sales numbers for August have left analysts divided. A few expect a good fiscal year for the two-wheeler segment as demand returns to normal after the pandemic. In contrast, others are concerned about the dip in exports.

Bajaj Auto’s total vehicle sales grew 8 percent to 4,01,595 units in August as against the same month last year, the company said on September 1. Since then, the auto stock has fallen nearly 5 percent to a low of Rs 3889.30 on BSE on Wednesday, September 7. At 9:32 am, it was trading at Rs 3,910, down 0.5 percent from the previous close.

The downtrend comes after the small jump in total sales and a massive 28 percent plunge in export volume. Its commercial vehicles’ registered a 31 percent growth at 45,970 units against August 2021.

Following the decline in exports and only a small increase in total sales, global brokerage CLSA has downgraded its rating on the stock to ‘outperform’ from ‘buy’ and cut its target price by 7 percent from Rs 4,677 to Rs 4,343 per share. This, however, still implies a 10 percent upside from the last closing price on Tuesday.

CLSA expects exports to remain under pressure. It said that lower export volume assumptions may lead to 6-9 percent cuts in FY23-24 earnings.

The sharp fall in two-wheeler exports came as Nigeria has restricted two-wheeler movement. Nigeria retails were down 25-30 percent for Bajaj Auto, which gets 20 percent of its export volumes from the African country.

The brokerage suggests watching out for post-festive season demand and rural recovery as key factors.

Auto analyst Ashwin Patil said last week that two-wheelers are likely to report good numbers in FY23, and the trend will likely continue in FY24, with the EV scooters' launch and overall demand coming up with new launches.

A report by brokerage firm Sharekhan, last week said that the festive season will continue the growth momentum for the auto sector in India on the back of new launches.

“Rural demand is expected to be driven by normal monsoon and government subsidies. We expect two-wheeler volumes to recover, especially in the entry and executive motorcycle segment, which has been sluggish lately and has started showing improvement in the previous months,” the brokerage said.