Enam remain positive on Bajaj Auto; target of Rs 3077

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Enam remain positive on Bajaj Auto; target of Rs 3077

Broking house, Enam remain positive on Bajaj Auto with a target price of Rs 3077.

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Broking house, Enam remain positive on Bajaj Auto with a target price of Rs 3077.

Enam report on Bajaj Auto:

"We believe current valuations of Bajaj Auto (BAL) adequately factor in  the market response to its disappointing operating level performance  in Q2FY07, and the concerns are over done at the current juncture.  We reiterate our sector Outperformer rating on BAL."

Investment Argument

"We expect BAL to register better than industry growth rate owing   to successful launches in the recent past, and its ability to close the fuel efficiency and design gaps with its competitors."

"While domestic growth is likely to remain strong, we are positive on its export strategy. We believe exports can account for 13% of total sales in FY08E driven by three-wheelers and high-end bikes. BAL has launched Pulsar in Indonesia, and plans to set up a manufacturing facility in Nigeria."

"While the price cut of Rs.2,000 had negatively impacted BAL's  operating performance in Q2FY07, it helped achieve volumes. BAL sold more than 100,000 units in Sep-06, and successfully weaned consumer preference away from CT-100. Post festive season, BAL has increased the price of Platina models by Rs 500."

Valuation and Outlook

"We continue to remain positive on BAL's prospects, in the medium as well as long term. BAL trades at a premium to Hero Honda and we believe it should continue to do so. Though a price war will impact margins, rising volumes of BAL will mitigate a part of it. We maintain our estimates, outlook and rating on the stock."

"At CMP of Rs 2,639, BAL trades at 16x and 13x FY07E and FY08E Core EPS of Rs.82 and Rs.101, respectively. Our target price of Rs 3077 is based on 16x FY08 Core EPS + Insurance value of Rs 720 per share + Cash per share of Rs.638 (at a discount of 15%)."

"Our order of preference on the stocks in this sector (most preferred to least): BAL, Hero Honda and TVS Motors."