4 days ago
Bajaj Auto skids in Q1; bets on exports and festive season for revival
Bajaj Auto Ltd's struggles with muted profitability persisted in the June quarter (Q1FY26). A notable slowdown in domestic two-wheelers (2W) led to a mere 3% year-on-year improvement in Ebitda to ₹2,500 crore.
Revenue rose 6% to ₹12,584 crore thanks to improved realisation, led by higher exports and sales of premium motorcycles. Average realisation per vehicle was up about 5% to ₹1.13 lakh, but Ebitda per vehicle increased by less than 2% to ₹22,300, weighed down by higher raw-material costs and other expenses. Consequently,Ebitda margin fell below 20% for the first time in seven quarters, coming in at 19.7%, down 53 basis points year-on-year.
Domestic slowdown continues
July auto sales numbers indicated a continued slowdown in the domestic market, with 2W volumes falling 18% year-on-year. Three-wheelers (3W) did better, with 4% growth. Exports of 2Ws and 3Ws grew 22% and 79%, respectively, pushing total volumes up 3%.
Management said it expected exports to grow at 15-20% in FY26, and domestic sales at 5-6%, which also seems difficult. It attributed stress in domestic 2W market to lower urban disposable incomeand the postponing of purchases to the upcoming festive season. Total exports grew by 16% in Q1, against an 8% decline in domestic volumes, leading to marginal aggregate growth of 1%.
EV boost may be short-lived
Growth in the electric vehicle (EV) portfolio remained robust, accounting for more than 20% of domestic revenue against 14% a year ago. Nuvama Research projected the company would record a 20% compound annual growth rate (CAGR) in EVs over FY25-28. However, Bajaj facessupply disruptions owing to the unavailability of rare earth magnets, which may lead to a production shortfall of 25-50% in Q2.
Investors must also keep an eye on developments related to the government's mandate for all models of bikes toswitch to the anti-lock braking system (this currently applies only to 125cc+ bikes) from 1 January 2026.
Whilethe acquisition of KTM AG, which is in the process of being approved, would expand Bajaj's presence in the premium segment worldwide, much would depend on its ability to turn the business around.
Stock lacks re-rating triggers
Marred by bleak earnings and downgrades, Bajaj Auto stock has declined nearly 17% over the past year, far more than the 6% fall in the Nifty Auto index.
'While a recovery in exports and a healthy ramp-up of Chetak and 3Ws are key positives, its market share loss in domestic motorcycles, especially in its bread-and-butter 125cc+ segment, remains the key concern. Further, the ramp-up of its CNG bike, Freedom, has been slower than expected," said a Motilal Oswal Financial Services report dated 7 August.
The stock trades at 24 times estimated FY26 earnings, according to Bloomberg data, and currently lacks re-rating triggers.
