Morgan Stanley overweight rating on Bajaj Auto

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Morgan Stanley overweight rating on Bajaj Auto

Morgan Stanley has recommended overweight rating on Bajaj Auto with a target of Rs 3000.

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Bajaj Holdings BSE | NSE 28/05/12 Are Mutual Funds betting on Bajaj Holdings?

Morgan Stanley has recommended overweight rating on Bajaj Auto with a target of Rs 3000.

Morgan Stanley report on Bajaj Auto:

Conclusion:

"Bajaj Auto reported 3Q07 EPS of Rs35.0, in-line with our expectations despite operating margins coming nearly 270 bps lower than our estimates at 14.5% for the quarter. This was primarily due to a 56% increase in non operating income to Rs 1,506 million. Higher than expected increases in selling & promotion expenses, and a stable raw material prices led to the negative surprise at the operating line."

Implications:

"We retain our Overweight rating and price target of Rs 3,000 as we believe continuing growth in the high margin segments (exports, three wheelers and spare parts) will more than offset the pricing pressure in the entry level motorcycle segment. We are cutting our motorcycle volume and earnings estimates for F2007 by 9% and 11%, respectively. This reflects the slower industry growth in F3Q (up 11.1% vs. 1H07 growth of 18.5%) and higher than expected loses in the life insurance subsidiary partially offset by better than expected performance in the general insurance and automotive finance arm. We are also taking down our F2008 and F2009 consolidated EPS to reflect the continuing losses in the life insurance subsidiary."

Read Across:

"TVS Motors could be better off than   Hero Honda Motors as TVS Motors did not participate   in the incentive wars and lost market share because of   that and therefore TVS margins should be less   negatively impacted as compared to Hero Honda.  

Valuation:

Bajaj Auto currently trades at 16.5x our F2008 EPS estimate. We believe value from subsidiaries (16% of target price) and net cash of Rs450 per share would provide support to our target price.