Buy Bajaj Auto - BRICS Research

Bajaj Auto (CMP Rs1,426, BUY)

Lower earnings and volume estimates

- Cut volume estimates for FY12 by 4% and FY13 by 6%

- Reduce target price to Rs1,718 from Rs1,808 earlier; upgrade to Buy

- High interest rates and fuel cost are impacting premium motorcycles, will affect Bajaj Auto sales volume too

- Exports remain strong

Valuation: We like Bajaj Auto’s strong positioning in premium motorcycles, high margins (around 20% and highest in the industry), rising exports (37% of total sales), and high return ratios (we see 41% ROCE in FY13).

The stock trades at a P/E of 15x FY12 and 12x FY13 on our estimates vs. a peer average of 15x and 13x. We expect the stock to trade in line with the peer average and value Bajaj Auto at 14x our FY13 earnings (Rs1,572 per share) and its investments and cash at Rs146 per share. This gives us a target price of Rs1,718 per share (earlier Rs1,808). We recommend a Buy on the stock because with the recent selloff, it is trading below the industry average.

Source : Equity Bulls

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