Bajaj Auto's exceptional financial results for the fourth quarter have captivated the financial community, significantly surpassing expectations.

However, a significant rise in the company's stock price over the past year has raised concerns about the sustainability of this rally due to what many analysts consider to be already steep valuations.

During this quarter, Bajaj Auto reported a robust 18 per cent increase in net profit, which rose to Rs 2,011.4 crore, while revenue climbed an impressive 30 per cent year-over-year to Rs 11,249.8 crore.

Furthermore, the company's EBITDA saw a significant jump of 34.4 per cent year-over-year, and operating margins improved by over 180 basis points, reaching 19.7 per cent.

These strong financial metrics underscore Bajaj Auto's solid domestic performance, which has compensated for somewhat lacklustre export sales.

Despite these strong results, the company's stock price experienced a downturn, dropping by as much as 2.5 per cent to Rs 8,795 on April 19.

This decline reflects market concerns that the stock's rapid appreciation—over 32 per cent so far this year to Rs 9,021 at the previous close, far outstripping the 1.2 per cent gain in the benchmark Nifty 50 index—may have outpaced its intrinsic value, as indicated by multiple brokerage firms setting target prices well below current levels.

Analysts from CLSA and Kotak Institutional Equities have issued 'sell' ratings on Bajaj Auto shares, citing overvaluation after the recent stock rally.

CLSA has adjusted its target price to Rs 6,889 per share, suggesting a potential 24 per cent downside, despite anticipating growth in the domestic motorcycle segment driven by new product launches.

Similarly, Kotak Institutional Equities remarked that the stock is expensive at 30 times FY25 core earnings per share (EPS) and maintained its sell stance with a target price of Rs 6,200 per share.

On the other hand, Jefferies has issued a 'buy' rating with an optimistic target price of Rs 10,500, projecting a 19 per cent EPS compounded annual growth rate (CAGR) over FY24-26.

Likewise, Citi has raised its target price to Rs 6,500, buoyed by Bajaj Auto's upbeat Q4 performance, but maintained a 'sell' rating due to expected moderation in three-wheeler demand growth.

Exports, a key component of Bajaj Auto's business strategy, remain a point of concern.

Analysts are cautious about the export outlook amid geopolitical tensions and economic instability in key markets, which could lead to unpredictable demand and logistical challenges.

Motilal Oswal has expressed a 'neutral' stance with a target price of Rs 8,360, reflecting these uncertainties.

In summary, while Bajaj Auto has showcased commendable financial performance in the recent quarter, the significant stock price rally, combined with concerns about global economic conditions and valuation levels, suggests that the potential for further stock appreciation may be limited.

This scenario creates a complex landscape for investors, balancing strong fundamental company performance against broader economic and valuation concerns.