The festive season is typically among the best periods for automobile companies. However, an update from Bajaj Auto management this week dampened the mood in the market.
Overall, in the past few months, passenger vehicle sales hit the slow lane. But, with a good monsoon season and signs of rural recovery, the expectation was that two-wheelers would continue to see good traction. If we were to consider the period of Navratri, the picture is not as rosy as was earlier expected, and there is uncertainty on how things will pan out in Diwali too, although Bajaj Auto management is still upbeat about things picking up in the last few weeks of the festive season.
"The like-for-like comparison for the same days last year and this year, till Dussehra, is a bit muted and less than what was expected. The motorcycle industry is flattish, with almost 1–2 per cent growth only. We had thought it would be upwards of 5–6 per cent," Rakesh Sharma, the executive director of Bajaj Auto, said in a post-earnings call with analysts.
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Segment-wise, Sharma pointed out that the entry-level 100cc segment remained negative, and the 125cc and above segment was marginally positive. In the July-September quarter, the 125cc and above segments accounted for 55 per cent of the overall motorcycle industry, up from 42 per cent five years ago.
He said one shouldn't draw full-season conclusions just yet, and things could pick up in the later part of the festive season. But clearly, the momentum is nowhere near what was earlier expected.
"I don't think we will reach 8–9 per cent growth, but I hope we should be there at 3–5 per cent as an industry," Sharma pointed.
Not surprisingly, Bajaj Auto shares tumbled more than 13 per cent since Wednesday. Its rivals, too, have skidded. Market leader Hero MotoCorp is down over 3 per cent. TVS Motor declined over 3 per cent on Thursday before recouping some of the losses on Friday.
Analysts also pointed to input cost pressures, which would need to be monitored in addition to slow sales. "After a 13–14 per cent year-on-year growth in FY24, the two-wheeler domestic industry is expected to grow by 7–8 per cent in FY25. Raw material inflation, particularly in commodities like copper, aluminium and precious metals, has been rising in Q2 (July–September) FY25 and requires close monitoring as it may hinder further improvements in EBITDA margins," pointed Shridhar Kallani, auto analyst at Axis Securities.
Companies like Bajaj Auto saw a strong run on the stock market over the past year. With the near-term demand outlook muted, analysts say it would, therefore, be hard to justify the valuations it now trades at.
"Bajaj Auto has had a stellar run in the recent past (stock up more than 100 per cent in the past year) largely driven by its successful navigation of premiumisation drive in the domestic motorcycle segment. However, it now trades at over 25x PE (price to earnings) to its core forward earnings, which shall limit the stock price appreciation," said Shashank Kanodia, research analyst at ICICI Direct.
