Buy Bajaj Auto with target price of Rs.1593 - Motilal Oswal

BAJAJ AUTO: Mgmt meet takeaways; Domestic and export demand outlook positive; Levers to dilute cost push; Buy

It expects Feb-11 volumes of ~290-295k, a growth of 8-10%. It expects FY11 volumes at ~3.8m (v/s est of 3.9m) and FY12 at 4.5-4.8m (v/s est of 4.6m).

It is witnessing improvement in demand and not witnessing any impact of interest rate or petrol price increase.

Inventory at ~160-170k is comfortable, although they would have liked it to be lower by 10k units.

Interest rate for 2W financing has been increased by Bajaj Auto Finance (BAFL) by 1% to IRR of 29% from Jan-11.

3W domestic demand is steady at ~17,000 units/month. It expects ~1,500-2,000 units/month addition from opening up of permits in 2-3 states in FY12.

Bajaj Auto, with its well diversified product and market mix is best placed to benefit from increasing penetration in both India and other emerging markets. We estimate volume growth of 17.3% to 4.6m units and EBITDA margin decline of 100bp to 19.4%. Post correction, the stock is attractively valued at 12.7x FY12 EPS of Rs106 and 11.5x FY13 EPS of Rs118. Buy with target price of Rs1,593 (~15x FY12 EPS).

Source : Equity Bulls

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