Financial Trend: From Negative to Flat Performance
The primary catalyst for the rating upgrade is the marked improvement in Bajaj Auto’s financial trend. The company reported a flat financial performance for the quarter ended December 2025, a notable turnaround from the negative trend observed in the preceding three months. The financial trend score improved from -11 to 0, signalling stabilisation after a period of volatility.
Key financial highlights for the quarter include record-breaking figures: net sales reached ₹16,204.45 crores, PBDIT surged to ₹3,729.75 crores, and operating profit margin to net sales peaked at 23.02%. Profit before tax (excluding other income) stood at ₹3,296.86 crores, while profit after tax hit ₹2,807.53 crores. Earnings per share (EPS) also reached a high of ₹98.38, underscoring robust profitability.
However, certain financial concerns remain. Interest expenses over the last six months rose sharply by 62.17% to ₹600.47 crores, which has exerted pressure on operating profit to interest coverage, now at a low of 11.89 times. Additionally, the return on capital employed (ROCE) for the half-year period declined to 22.46%, and the debt-to-equity ratio increased to 0.58 times, the highest in recent periods. These factors suggest that while the company is generating strong sales and profits, rising leverage and interest costs warrant close monitoring.
Valuation: Premium Pricing Amidst Strong Fundamentals
Bajaj Auto’s valuation remains on the expensive side relative to its peers. The company’s ROCE of 23.7% is accompanied by an enterprise value to capital employed ratio of 5.9, indicating a premium market valuation. This elevated valuation is supported by the company’s consistent long-term growth, with net sales expanding at an annualised rate of 17.33% and operating profit growing at 22.64% per annum.
Despite the premium, the stock’s price-to-earnings growth (PEG) ratio stands at 1.6, reflecting a reasonable balance between price and earnings growth. Over the past year, Bajaj Auto’s stock price has appreciated by 7.70%, while profits have increased by 18.7%, suggesting that earnings growth is outpacing price gains, a positive sign for investors.
Market capitalisation currently stands at ₹2,68,192 crores, making Bajaj Auto the largest company in the automobile two- and three-wheeler sector, representing 33.51% of the sector’s total market cap. Its annual sales of ₹57,718.86 crores constitute 32.02% of the industry, underscoring its dominant market position.
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Quality Assessment: Strong Fundamentals and Institutional Confidence
Bajaj Auto’s quality metrics remain robust, supporting the upgrade to a Buy rating. The company boasts an average return on equity (ROE) of 23.08%, reflecting efficient utilisation of shareholder capital. Its average debt-to-equity ratio is low at 0.08 times, indicating a conservative capital structure over the long term despite recent upticks in leverage.
Institutional investors hold a significant 22.91% stake in the company, signalling strong confidence from knowledgeable market participants. This institutional backing often correlates with better governance and a more stable shareholder base, which can be favourable for long-term investors.
Moreover, Bajaj Auto’s dominant market share and leadership in the two- and three-wheeler segment provide a competitive moat, further enhancing its quality credentials. The company’s ability to maintain steady sales growth and profitability amid sectoral challenges underscores its operational resilience.
Technical Indicators: Shift to Bullish Momentum
The technical outlook for Bajaj Auto has improved markedly, contributing to the upgrade. The technical trend has shifted from mildly bullish to bullish, supported by multiple indicators across different time frames.
On the weekly and monthly charts, the Moving Average Convergence Divergence (MACD) is bullish, signalling positive momentum. The Relative Strength Index (RSI) remains neutral with no strong signals, while Bollinger Bands indicate a mildly bullish stance on both weekly and monthly scales. Daily moving averages confirm a bullish trend, reinforcing short-term strength.
Other technical tools such as the Know Sure Thing (KST) indicator show a bullish weekly trend, though mildly bearish monthly readings suggest some caution. Dow Theory analysis aligns with a mildly bullish outlook on both weekly and monthly charts. On-balance volume (OBV) is mildly bullish weekly but lacks a clear trend monthly, indicating moderate buying interest.
Price action supports these technical signals, with the stock trading near its 52-week high of ₹9,900.00, closing at ₹9,595.50 on 4 February 2026, up 1.07% from the previous close. The stock’s recent performance outpaces the Sensex’s 1-month return of -2.36% and year-to-date return of -1.74%, highlighting relative strength.
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Comparative Returns and Market Position
Over longer time horizons, Bajaj Auto has delivered exceptional returns compared to the broader market. The stock’s 3-year return stands at 149.08%, significantly outperforming the Sensex’s 37.63% over the same period. Similarly, 5-year and 10-year returns of 126.41% and 308.66% respectively dwarf the Sensex’s 66.63% and 245.70% gains, underscoring the company’s strong growth trajectory.
These returns reflect Bajaj Auto’s ability to sustain growth and profitability through various economic cycles, reinforcing its status as a blue-chip stock within the automobile sector.
Risks and Considerations
Despite the positive upgrade, investors should remain mindful of certain risks. The flat financial results in December 2025 indicate that growth momentum may be moderating in the near term. The sharp increase in interest expenses and the consequent decline in operating profit to interest coverage ratio highlight potential cost pressures.
The elevated debt-to-equity ratio and lower ROCE compared to historical levels suggest that capital efficiency has weakened somewhat. Additionally, the premium valuation multiples imply that the stock is priced for continued strong performance, which may limit upside if growth disappoints.
Investors should also consider sectoral challenges such as raw material price volatility, regulatory changes, and competitive pressures in the two- and three-wheeler market segments.
Conclusion: A Balanced Upgrade Reflecting Strength and Caution
The upgrade of Bajaj Auto Ltd. from Hold to Buy is well justified by improvements in financial stability, strong quality metrics, and bullish technical signals. The company’s leadership position, robust sales and profit figures, and institutional backing provide a solid foundation for future growth.
However, rising interest costs, modest financial trend stabilisation, and premium valuation require investors to maintain a measured approach. Overall, Bajaj Auto presents a compelling investment opportunity for those seeking exposure to a dominant automobile manufacturer with a proven track record and positive momentum across key parameters.
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