Tax Scrutiny and Financial Health of Bajaj Auto: Assessing Valuation and Investor Confidence

Bajaj Auto, India's second-largest two-wheeler manufacturer, has faced mounting tax scrutiny in 2025, testing the resilience of its financial health and investor confidence. The company's legal battles with tax authorities-centered on GST classification disputes-have drawn significant attention, even as its core business continues to deliver robust revenue growth. This analysis evaluates the materiality of these tax demands on Bajaj Auto's valuation, stock performance, and broader market perception.

Tax Disputes: A Double-Edged Sword

Bajaj Auto's most high-profile tax challenge emerged in March 2025, when the Deputy Commissioner of State Tax, Pune, imposed a Rs. 138 crore demand under Section 73 of the Maharashtra GST Act, 2017. The authority argued that the company's custom-made spare parts should be taxed at 28% GST, compared to the 18% rate Bajaj Auto applied based on its HSN classification, according to an Economic Times report. The company contested the demand, citing three decades of consistent classification and judicial precedents, according to a Legal Era article.

A separate dispute in February 2025 saw Bajaj Auto hit with a Rs. 10 crore GST penalty for misclassifying its instrument cluster under HSN code 9029 instead of 8708/8714, according to a Hindustan Times article. While the company plans to challenge this in court, a partial reprieve came in August 2025, when the Addl. Commissioner (Appeals), CGST, set aside a Rs. 2.32 crore demand due to procedural discrepancies, according to a StockInsights announcement. These cases highlight the volatility of indirect tax enforcement in India, where classification disputes often hinge on subjective interpretations of GST rules.

Financial Performance: Growth Amid Headwinds

Despite these challenges, Bajaj Auto's FY2025 financials remain impressive. The company reported net sales of ₹48,247 crore, a 10.7% year-on-year increase, with EBITDA of ₹10,101 crore (20.2% margin) and a post-tax profit of ₹8,151 crore, according to its 2025 annual report. Export volumes surged by 20%, driven by strong demand in Southeast Asia and Africa. However, tax-related provisions and a net loss of ₹335 crore from its investment in Pierer Bajaj AG weighed on Q4 results, as noted in its annual report.

The tax disputes themselves, while not deemed "material" by the company, have introduced operational uncertainty. For instance, the Rs. 138 crore demand-if upheld-would represent ~1.7% of Bajaj Auto's FY2025 net profit, a non-trivial sum for a firm with otherwise healthy margins, the Economic Times report noted.

Stock Price Reactions: Mixed Signals for Investors

Bajaj Auto's stock price has exhibited pronounced volatility in response to tax-related announcements. On March 4, 2025, shares plummeted 3% to a 52-week low of ₹7,478 following the Rs. 138 crore demand, according to the Free Press Journal. By contrast, the August 2025 tax relief had a muted impact, with the stock rising 4% post-results but remaining 30% below its 52-week high of ₹12,772.15, according to an Economic Times liveblog.

Analysts remain divided. Yahoo Finance projects an average EPS of ₹85.68 for Q3 2025, with a price target of ₹9,307.39 (15% upside from October 7, 2025, levels), per a Yahoo Finance analysis. However, the stock's beta of 0.74 suggests lower volatility than the broader market, indicating that long-term fundamentals-such as PLI scheme benefits and EV expansion-may outweigh short-term tax risks, according to a Trendlyne report.

Investor Confidence: A Test of Resilience

Investor sentiment appears cautiously optimistic. ICICI Securities upgraded Bajaj Auto to "Buy" in August 2025, citing its export momentum and electrification strategy, as shown on Trendlyne's brokerage page. Conversely, the 25.33% 52-week stock decline reflects lingering concerns about regulatory overreach. Machine learning models predict a 14.44% annual growth rate, projecting a 2025 target of ₹10,061.83, according to a StockPriceArchive projection, but these forecasts assume swift resolution of tax disputes.

The company's liquidity position-supported by ₹2,332 crore in cash and equivalents-provides a buffer, per its annual report, yet repeated legal battles could erode operational efficiency and investor patience.

Conclusion: Navigating a Regulatory Gauntlet

Bajaj Auto's tax disputes underscore the risks of operating in a complex indirect tax regime. While the company's financials remain robust, the cumulative cost of litigation, penalties, and compliance could test its margins in the medium term. For investors, the key question is whether these challenges are a temporary distraction or a harbinger of deeper systemic risks. Given Bajaj Auto's strategic pivot to EVs and its strong balance sheet, the latter seems unlikely-but the road ahead remains bumpy.