Bajaj Auto shares at Rs 6,200 or Rs 12,000! Why its CNG-bike launch left analysts divided

Brokerage firms continue to remain divided on the fate of two-wheeler manufacturer Bajaj Auto, where domestic analysts have a mixed view on the stock after the company recently announced to launch the first ever CNG-run motorcycle. Overseas brokerage firms, however, are mostly positive on the stock.
 

Bajaj Auto Ltd has launched the world’s first CNG-integrated motorcycle named ‘Freedom 125’ with an ex-showroom price of Rs 95,000-1,10,000. It is the world's first CNG-motorcycle, aiming to disrupt the 125cc commuter’s segment. The bi-fuel vehicle is claimed to be one of the most economical options in the segment.
 

The pricing is attractive and competitive in upto 125cc segment owing to its favourable TCO. Freedom 125 model has 2 kg of CNG kit and 2 ltr of petrol tank and claims mileage of 102km/kg for CNG and 65km/ltr for petrol and, thus, claims a total run of 330km on a single fill. Hence, fuel cost for CNG is expected to be only Rs 1.07 per km, said JM Financial in its note.
 

"The bike is priced attractively and targets both 100cc and 125cc segment owing to its favourable TCO, as per our calculations. The company also plans to export the model. Given the launch price, the model is likely to be margin dilutive initially. Backed by successful track record of product intervention by Bajaj Auto," it said with a target price of Rs 10,850 and 'buy' tag on the stock.
 

The CNG bike is Bajaj Auto's attempt to cater to a fuel-conscious customer. The 125cc motorcycle category is 266,000 units per month, said Elara Capital's IPO note. "We believe the 125cc segment will be the key target market for the Bajaj CNG bike. "While 60 per cent of 700 districts in India are covered by CNG stations, the queues are long during refueling as seen in PV and 3W."
 

A two-wheeler customer will find this inconvenient, and we need to monitor how it is able to address it. We believe it could touch 10,000 units per month and increase if the issue to refueling stations is addressed. We reiterate Accumulate with a higher target price of Rs 10,717 from Rs 10,050 based on 26 times, Elara said.
 

The CNG bike, designed smartly, demands a change in customer behaviour, said InCred Equities. "The initial volume plan is in line with our estimate. We will look for customer response and behavioural changes needed to make it a game-changer product in the 2W space. Maintain our 'hold' rating on the stock with a target price of Rs 9,205."
 

Shares of Bajaj Auto Ltd were trading marginally lower at Rs 9,520 on Tuesday, commanding a total market capitalization of more than Rs 2.65 lakh crore. The stock has settled at Rs 9,527.80 on Monday. The stock has surged more than 110 per cent from its 52-week lows at Rs 4,544 hit in August 2023.
 

Bajaj Auto's Freedom 125cc offers better cost of ownership, in comparison to petrol motorcycles, and should attract cost-conscious customers. This powertrain is likely to be adapted for multiple engine displacements ahead. We have built in volumes of 10,000 units/month in H2FY25E, and 20,000 units/month in FY26E for this model, said Nuvama Institutional Equities.
 

Nuvama expects Bajaj Auto revenue and Ebitda CAGR at 12 per cent and 15 per cent over FY24–26E, with average RoE of 35 per cent. "All in all, we maintain ‘buy’ with a target price of Rs 12,000 (earlier Rs 10,340) based on 35times Sep-26E core earnings along with cash/investments of Rs 876 per share," Nuvama added. It sees 26 per cent upside in the stock.
 

Despite superior mileage, Kotak Institutional Equities expect a limited impact in the 75-110 cc motorcycle segment due to higher upfront costs. In addition, we believe the adoption in 125 cc will remain restricted to the executive motorcycle segment, and the expansion of CNG network will remain key to drive pan-India adoption, it said.
 

"Demand trends in Gujarat and Maharashtra remain the key monitorable in the coming months. Maintain 'sell' with an unchanged fair value of Rs 6,200 on expensive valuations," added Kotak, citing a 35 per cent fall in the stock.

 

 

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