Bajaj Auto share price gains despite Q1 profit falling by half; should you buy or sell? Check target price

Bajaj auto, bajaj auto share priceBajaj Auto results were operationally better with positive surprise on EBITDA margins

Bajaj Auto share price gained nearly one per cent to Rs 3,011.80 apiece on BSE after the company reported better-than-expected April-June quarter earnings. The automaker posted a 53 per cent fall in its standalone profit at Rs 528 crore in first quarter of the current fiscal, which was higher than the Street’s estimates. The company had reported a standalone profit of Rs 1,126 crore in the corresponding quarter of the previous fiscal. Bajaj Auto said that the company has adequate capital and financial resources to manage its business and continues to remain debt-free. Brokerage firms are mixed on Bajaj Auto stock. Some brokerages have recommended to buy while others stayed neutral on the stock. Foreign brokerage firm CLSA has revised its target price to Rs 3,550, an upside of 19 per cent with a ‘buy’ rating. CLSA in its report said that Q1 operating results beat consensus.

Bajaj Auto share has rallied 68 per cent from March lows of Rs 1,793 apiece. Bajaj Auto said that due to Covid-19 lockdown and other measures, revenue from operations declined 60 per cent to Rs 3,079 crore in the first quarter from Rs 7,756 crore in Q1 FY20. “With large surplus cash and cash equivalents, liquidity position continues to be strong and we do not foresee any challenge in meeting our financial/other obligations,” Bajaj Auto said. “We managed a decent performance in a desperate quarter,” said Rajiv Bajaj, MD and CEO of Bajaj Auto. On the back of strong brand and financial stability coupled with committed suppliers and dealers, the company is confident to get back to doing business and adjust to the new normal.

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Bajaj Auto results were operationally better with positive surprise on EBITDA margins at 13.3% led by three year high gross margins at 32.9%. The beat was led by favourable forex impact, says Prabhudas Lilladher. The brokerage firm has recommended to ‘hold’ the stock, as Bajaj Auto said that demand and supply are balanced so far. “We believe 2W recovery both in domestic and exports markets have been encouraging (to an extent 80-85% of normal), Bajaj Auto’s 3W portfolio to remain under pressure,” Prabhudas Lilladher said in its report.

Commending the margin beat in tumultuous times, ICICI Direct has given an ‘add’ rating to the stock. It also said that Bajaj Auto is likely to benefit from improving exports profitability and enhanced focus on profitable domestic motorcycle market share growth strategy. “In the near term, as economic challenges in Africa, particularly Nigeria, ease, export growth momentum is likely to pick-up in H2FY21,” it added.

On the other hand, considering tepid earnings growth, even after factoring good volume recovery, Motilal Oswal Financial Services, remained ‘neutral’ on the stock. “Bajaj Auto’s operating performance was driven by the mix, Fx, and lower other expenses, supporting our view that the company has several levers to protect its margins,” it added in the report

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