Bajaj Auto’s CNG Bike Offers Attractive Value Proposition, Jefferies Says

Jefferies said Bajaj Auto Ltd.’s CNG-powered motorcycle Freedom 125, the world’s first such vehicle, offers attractive value proposition.

The brokerage retained Buy call on Bajaj Auto and raised its base case target price to 11,630 rupees from 10,500 rupees per share.

The Indian two-wheelers and three-wheelers maker closed at 9,635.80 rupees on the National Stock Exchange on Friday.

Freedom 125, which was launched on 5 July, is available in three variants, starting from 95,000 rupees (ex-showroom Delhi). The motorcycle offers dual-fuel capability, integrating a 2-kg CNG with a 2-liter petrol tank, offering a combined range of around 330 kilometers (200-km on CNG and 130-km on petrol).

Jefferies said although the new bike is priced around 15%-20% above comparable petrol vehicles, it offers an attractive value proposition with about 50% lower operating cost due to lower per-kilometer fuel expense.

“We estimate that the higher initial cost of Freedom 125 versus comparable petrol bikes can breakeven in about two-three years of usage, and the total cost of ownership of the former can be around 15%-20% lower over a 10-year period,” Equity Analyst Nitij Mangal and Equity Associate Sagar Sahu said in the investor note.

The brokerage said the motorcycle demand has been shifting towards 110-125cc segment in recent years, led by new launches (Bajaj Auto’s Pulsar and TVS' Raider) and industry premiumization. Bajaj Auto's market share in 110-125cc bikes has risen from just 5% over FY17-FY19 to 27% in FY24, and the launch of Freedom 125 has potential to boost this further, it added.

Jefferies said it expects Bajaj Auto’s domestic two-wheeler volumes rising at 22% CAGR over FY24-FY26, outpacing industry volume CAGR of 15%. It sees a strong 15% volume and 17% EPS CAGR for the company over FY24-FY27.

“The stock has outperformed Nifty50 by around 30% CYTD, and is now trading at 30x/25x FY25E/FY26E PE versus last 10-year average of 17x. However, we believe premium valuations will sustain given the strong growth outlook,” Jefferies said.

The brokerage has a target price of 13,050 rupees on Bajaj Auto, based on its upside scenario assumptions.

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