Moneycontrol
Dec 17, 2012 04:22 PM IST | Source: Moneycontrol.com

Nomura sees Bajaj Auto volume growth outpace Hero Moto

Nomura Financial Advisory and Securities India on Monday downgraded Bajaj Auto to "neutral" from "buy", saying the stock was now trading in the fair value zone.

 
 
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Moneycontrol Bureau


Nomura Financial Advisory and Securities India on Monday downgraded Bajaj Auto to "neutral" from "buy", saying the stock was now trading in the fair value zone. It however, raised its target price on the India's second largest two-wheeler maker to Rs 2,130 from Rs 2,051 and said its volume growth will likely to continue to race ahead of rival Hero MotoCorp over the next few months.


Bajaj Auto shares hit a 52-week high of Rs 2,121 in morning trade and at 10:45 hrs, were up 1.6 percent at Rs 2,113.85.


"Bajaj has had a strong run in the domestic motorcycle market - with its market share increasing by around 4 percentage point in the past six months on successful launches. Furthermore, due to its strong pricing power. the company has been able to recover from recent overhangs of higher import duties in Sri Lanka and a cut in export incentives in India. We continue to like the underlying business of the company...We still believe that its volume growth should continue to beat Hero MotoCorp over the next few months," said analysts Kapil Singh and Nishit Jalan.


The new Discover 125 ST and Pulsar 200NS launched this year by Bajaj Auto have been quite successful and there has also been a strong pick up in three-wheeler exports (25,000 units a months now from 10,000-15,000 units in May-June), which has driven the stock.


Also Read: Bajaj alliance key to growth in India, says KTM CEO


However, they say that the stock, which has outperformed the broader sensex by 23 percent in last six months and other auto companies, including Hero Moto, by 3-42 percent, is now fairly priced.

"Post its recent outperformance, the stock is currently trading at 15.5 times our FY14F EPS of Rs 134.7, which is above its the past three-year average of around 15 times," Singh and Jalan said.

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