Buy Bajaj Auto; target of Rs 2407: FinQuest Securities

FinQuest Securities is bullish on Bajaj Auto and has recommended buy rating on the stock with a target of Rs 2407 in its January 24, 2013 research report.

“Bajaj Auto’s Q3FY13 results came in line with ours as well as consensus estimates, the market was hoping for a higher outperformance on the back of higher 3W sales. BAL's reported PAT at Rs 8.19bn (up 3% Y-o-Y, 11% Q-o-Q) was marginally above ours (Rs 8.12bn) as well as consensus (Rs 8.17bn) estimates. Higher than expected other income of Rs 2,032mn (ours: Rs1,731mn) also aided in boosting the bottom line for BAL. Revenues came in at Rs 54.0bn (up 9% Y-o-Y, 7% Q-o-Q) was above ours (Rs52.6bn) as well as consensus (Rs 53.7bn) estimates. Realizations improved sequentially (up 4.6% Y-o-Y) on account of richer product mix (higher proportion of 3Ws & Discover/Pulsar) and better export realizations(up 3.6% Y-o-Y).”

“EBITDA margins came in at 18.7%, down 100bps (mainly due to 18.7% on reclassified accounting norms) slightly below our estimates of 19.2%. The lower sequential expansion was mainly due to lower export benefits and higher raw material costs increasing by ~ 60bps Q-o-Q despite a positive product mix. We expect margins to improve going ahead on the back of further improvement in product mix (new Pulsar 200 variants, the new Pulsar 375 & Duke 390 variants) coupled with better export realizations (USD/INR at Rs 54 to compared to Rs 49.9 in Q3FY13).”

“Q3FY13 results inline. Potential upsides coming from market share gains from the new Discover 100T coupled with the continued success of its recent models Discover 125ST, Pulsar 200NS. New permits, launch of new revamped 3Ws, RE60, traction in the export markets to drive the CV market. Launch of variants/new premium motorcycles, tie-up with Kawasaki in Indonesia, higher $/INR realization on exports, valuation re-rating w.r.t Hero motocorp (HMC) are the other positive catalysts for BAL. Reiterate buy, revise target price upwards to Rs 2,407,” says FinQuest securities research report.

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