Bajaj Auto stock down 31% from Sept high; can Chetak 35 series launch lift sentiment?

Bajaj Auto Ltd shares have fallen 31 per cent from September 27 high and if one were to go by what Nomura India says Bajaj Auto as a company and stock may perform well going ahead, driven by continued success in the CNG segment, recovery in exports, and further success in electric two-wheelers. This, it said, would be led by affordable models and network expansion. The brokerage has set a target price that suggests 33 per cent upside potential on Bajaj Auto. 

Nomura India noted that Bajaj Auto has plans to expand Chetak’s reach to 4,000 stores by January 2025 from 3,000 in Q2. Scooters, from which Bajaj was absent, form nearly one-third of the 2W Industry in India, it noted. 

"EV scooters has opened up a new segment for the company. We have appreciated Bajaj’s clear focus on leadership, even though margins have been negative. The company has been able to reduce the cost of Chetak EVs by 45 per cent over the past year. The New Chetak models should result in further improvement in volumes, in our view," Nomura India said.

As volumes build and costs keep coming down, the foreign brokerage believes that the product has the potential to contribute handsomely in the long term.

"We maintain our SOTP-based valuation methodology with a target price of Rs 11,737," Nomura said. That said, the brokerage has reiterated its 'Neutral' rating on the stock.

Nomura said noted Bajaj Auto has launched new Chetak models – 3501 and 3502 on December 20 at starting prices of Rs 1,32,000 and Rs 1,20,000, respectively (ex-showroom). The details of the 3503 variant have not been made public yet. The new Bajaj Chetak 35 series will compete with the Ola S1, TVS iQube, and other EVs in the market. 

Nomura said while the Chetak 35 Series carries forward the same brand name and exterior design, it is actually a new product based on a new platform. The product has evolved to offer much more to the customer in terms of technology, features and range.

"We note that Chetak became the leader in EV 2W segment in December 2024. This was achieved due to its strong focus on build quality (metallic body) and service network (3,500 service centers and 4,500 mechanics trained). However, we estimate 70 per cent-plus of sales are from the lower-priced Chetak variant 2901 at Rs 95,000 (ex showroom). Thus, when a lower-priced variant of this product is launched, we believe the volume impact is likely to be higher," Nomura said.