Exports demand likely to keep Bajaj Auto's shares under pressure

Investors will have to weigh conflicting information about Bajaj Auto.

On the exports front, Bajaj is under pressure in Bangladesh and Africa.

On the domestic front, it could ride improvement in rural demand and new launches but it also has to cope with competitive intensity and a high base.

The management projects 7-8 per cent volume growth in domestic 2W in financial year 2025 (FY25) with moderation in H2FY25 due to a high base Y-o-Y.

In exports, good demand in Latin America and ASEAN is offset by slowdowns in Africa and Bangladesh.

The 3W electric vehicles in the domestic segment have witnessed growth. On the flip side, there’s weakness in the KTM sport bike market and margin pressures.

While domestic 2W will grow by 7-8 per cent (13 per cent up in motorcycle volumes in FY25 till August), there’s weakness in the 100cc segment with low single-digit growth.

A high base in H2FY24 could lead to lower Y-o-Y growth in H2FY25 unless festive demand is higher than estimated.

The CNG Freedom 125 aims to cover 80 per cent of the addressable market.

It was well received with 50 per cent savings on fuel bills.

It targets mileage-conscious, entry-level users.

The 100cc-125cc segment accounts for 75 per cent of the 1mn motorcycles sold every month and CNG pump coverage exists across 60 per cent of India.

The addressable market for Freedom is 450-500,000 units per month and it is currently available in 33 per cent of the addressable market.

The model sold 10,000 units in August and targets 20,000 units in September and by January ’25, production may ramp up to 40,000 units.

Bajaj also looks to launch another CNG two wheeler by FY25 end.

In the 400cc plus segment, Bajaj aims for 10,000 unit monthly volume, with Triumph selling 3.5-4,000 units per month, Pulsar 400 selling 3-4,000 units and while the rest is expected to come from KTM.

Triumphs are available in 100 stores.

Triumph exports reach 50-plus countries including the UK, US, Australia, and Japan.

The Pulsar 400cc is also witnessing good demand.

In EVs, the launch of the Chetak 2901 was well received.

It addresses sub-Rs 1 lakh market, which is about 50 per cent of the e-2W industry.

Bajaj is in the run for second spot in the e-2W market.

A new affordable 2W EV and a premium 2W EV are also on the cards.

In 3W EVs, sales hit 9,350 units in Q1, about 9-10 per cent of the 3W mix.

An e-rickshaw is planned in FY26.

While profitability of 3W EVs is about the same as 3W internal combustion engine units (post-PLI benefits), 2W EVs are still not close to break-even.

Exports should be a little better in Q2 than Q1 with single-digit growth across FY25.

Nigeria, which contributes 50 per cent of Africa volumes is being hurt by inflation and currency volatility.

Bajaj is selling at constant currency pricing, and this has helped in some volume recovery.

In Bangladesh, which is the second-largest market, weak demand is likely.

However, demand in Latin America and ASEAN are strong and a new plant in Brazil has started to produce 20,000 units per annum.

Bajaj’s domestic growth rate will moderate in FY25 as Honda recovers lost share leading to higher competition.

In exports, there could be a slow down through FY25, followed by a sharp rebound in FY26.

Analysts are downgrading earnings in FY25.

Valuations appear to be around 40X PE of expected FY25 earnings.

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