Religare Research has downgraded its rating on Bajaj Auto from buy to hold with a target price of Rs 510 in its July 14, 2008 research report. "Bajaj Auto's (BAL) Q1FY09 results were in line with our expectations, backed by a 9% YoY growth in volume sales and stable realisations. Margins, however, posted lower growth than expected due to the spike in raw material costs and a forex loss of Rs 985 million."

"BAL will launch four new products in the executive and premium motorcycle segments and two models in the three-wheeler space during FY09. However, the confluence of higher interest rates, rising inflation and increased input costs will dent volume sales. Exports, which constitute over 30% of BAL's volume sales, will provide some solace with a continued trend of double-digit growth. Margins are likely to remain under pressure during FY09. We have assigned BAL a P/E multiple of 8x on FY10E, given the volume and margin pressures that are evident in the two-wheeler industry. This leads us to a fair value of Rs 510 for the stock. Considering the limited upside from current levels we are downgrading our rating from Buy to Hold," says Religare's research report.

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