Bajaj Auto: A Contrarian Play in a Slowing Auto Market

The Indian two-wheeler sector has faced turbulence in FY2025/26, with domestic demand contracting and global macroeconomic headwinds casting a shadow. Yet, Bajaj Auto (BAJFINVSS.NS) has emerged as a resilient outlier, defying the slowdown through strategic bets on exports, electric vehicles (EVs), and commercial vehicles (CVs). For contrarian investors, this presents a compelling opportunity to capitalize on undervalued shares of a company poised to outperform peers in a challenged market.

Export Dominance: A Buffer Against Domestic Weakness

While domestic two-wheeler sales declined 6% YTD through May 2025, Bajaj's exports surged 13% to 3.04 million units, driven by strong demand in emerging markets. The company's export mix—40% of total sales—has become a critical growth lever. Key markets like Brazil (where Bajaj's Manaus plant now produces 20,000 units annually) and the Philippines (sales up 70% YoY) are fueling this momentum.

The contrast with peers is stark. Honda Motorcycle & Scooter India, once the sector's leader, saw domestic sales drop 0.6%, while Hero MotoCorp struggled with a 12.6% decline. Bajaj's focus on high-margin export markets—where it holds a 40% export market share—ensures revenue stability even as local demand stagnates.

Commercial Vehicles: A Hidden Growth Engine

Bajaj's CV segment, often overlooked, grew 4% YTD through May 2025, outperforming the 2W segment. The company's dominance in 3-wheelers (78% market share) and expanding electric auto sales (26% of 3W sales) highlight its ability to capitalize on niche markets. The CV portfolio now includes the Freedom 125 CNG, which garnered 4,200 pre-bookings in Q1, signaling strong demand for cost-efficient commercial solutions.

EVs: Betting on Scalability Amid Short-Term Pain

The company's Chetak electric scooter is its crown jewel. Q1 FY2026 sales hit 64,099 units, a 148% YoY jump, securing a 21% market share in the EV segment. Despite current unprofitability in EV operations, Bajaj is investing in cost reduction, with plans to expand its retail network to 1,000 Chetak experience centers by end-FY2026. The launch of the Chetak 3001, priced at ₹99,990, targets mass-market adoption, leveraging its 3 kWh battery and modern chassis.

While EV margins remain thin, the long-term bet is clear: India's EV market is expected to grow at 19% CAGR through 2026, and Bajaj's early leadership positions it to capture scale advantages as battery costs decline.

YTD Sales Stability: A Contrarian Signal

Despite domestic 2W sales falling 6% YTD (April-May 2025), Bajaj's total sales grew 1% to 7.5 million units, outperforming the sector's 3.6% contraction. This stability underscores the company's diversified strategy—balancing domestic EVs with export-driven 2Ws and CVs.

Valuation and Investment Thesis

Bajaj trades at a P/E of 18x (FY2026E), below its 5-year average of 22x, reflecting investor skepticism about the broader auto sector. However, the company's 20.2% EBITDA margin and 16% YoY revenue growth in Q1 FY2026 suggest it can sustain profitability despite headwinds.

Buy Recommendation:
- Price Target: ₹5,000 (25% upside from current ₹4,000 price).
- Catalysts: Export ramp-up in Brazil, EV cost reductions, and CV market share gains.
- Risk: EV profitability delays, global forex volatility.

Conclusion

In a sector riddled with domestic demand risks and EV execution challenges, Bajaj Auto's focus on exports, EV scalability, and commercial vehicles makes it a contrarian gem. Investors should view dips as buying opportunities, as the company's strategic bets position it to outperform peers in FY2026. For those willing to look past short-term macro noise, Bajaj offers a rare blend of resilience and growth in a slowing market.

Investment advice: Consider accumulating Bajaj Auto shares at current levels, with a long-term horizon of 3–5 years.