East India Securities recommended accumulate rating on Bajaj Auto with a target price of Rs 2747 in its research report dated May 21, 2020.
East India Securities' research report on Bajaj Auto
The operational performance in Q4FY20 was commendable due to better product mix and forex benefits. We believe it is not sustainable due to lower scale in FY21 and Bajaj would need to absorb some of the BS6 cost to pull customers towards showrooms. Lower commodity price benefits would continue in the coming quarters. The domestic & exports outlook looks subdued to us due to uncertainty, suppressed purchasing power & weak oil prices. A possible risk for Bajaj’s market share is due to downtrading, where its competitor has a strong hold. While 2nd half looks better and any improvement in the economic situation in export markets would yield in better volumes. However, we believe that near term uncertainties and positivity of a pick-up in the 2nd half is almost factored into the current levels of Bajaj Auto and hence, we see a limited upside.
We have factored in some of the uncertainties of Covid-19 and built a gradual recovery in FY22e. However, we believe most of the positives are factored into the valuation. Hence, we have ‘Accumulate’ rating with a target price of Rs 2,747 (15x FY22e EPS of Rs 176 plus the value of KTM at Rs 109/share).
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