Bajaj Auto a market performer: Prabhudas Lilladher

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Bajaj Auto a market performer: Prabhudas Lilladher

Prabhudas Lilladher research has maintained a market performer rating on Bajaj Auto.

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Prabhudas Lilladher research has maintained a market performer rating on Bajaj Auto.

Prabhudas Lilladher research report on Bajaj Auto

Bajaj Auto has been attempting a breakaway branding exercise, aimed at enhancing the brand values of speed, innovation, and perfection features of the "Distinctly Ahead" campaign. Our assessment points to a high degree of acceptance and success of the engine. The "packaging" of a motorcycle around the core engine will be a value-enhancer. This packaging, called 'Exceed', will be unveiled next week.

We value Bajaj's two insurance businesses at Rs 70billion, while the investment book value is estimated at Rs 96.5billion. With the auto business expected to yield an EPS of Rs 85.8 and Rs 119.9 in FY08 and FY09 respectively, we value it at Rs 117.2billion. Potential upside here could spring from the sales thrust regarding the new engine (on the new platform).

The total fair valuation settles eventually to Rs 283.7billion, around Rs 2,800 a share. But the uncertainty and the extended listing time frame related to the spun off entities, coupled with the holding-structure maze, discounts the fair value by 15% at least.  Valuations In FY07, Bajaj Auto's life insurance business had an NBAP (new business achieved profit) of Rs 7billion. This confers it with a full value of Rs 126.6billion. Toting up a fair value of Rs 10.6billion for the general insurance business assigns a total value (at a 51% stake) of Rs 70billion (51% of Rs 142.2billion) for the two insurance businesses.

Valuation

The investment book value is estimated at Rs 96.5billion. With the auto business expected to yield an EPS of Rs 85.8 and Rs 119.9 in FY08 and FY09 respectively, we value it at Rs 117.2billion. The potential upside here could come from the sales thrust expected regarding the new engine (based on an entirely different platform). The total fair valuation resolves to eventually to Rs 283.7billion, around Rs 2,800 a share. But the uncertainty and the extended listing time frame related to the spun off entities, coupled with the holding-structure maze, discounts the fair value by 15% at least. Maintain MARKET PERFORMER.