Accumulate Bajaj Auto; target Rs 2190: Sushil Finance

Sushil Finance's research report on Bajaj Auto (BAL)

"Bajaj Auto (BAL) has a strong balance sheet with cash & cash equivalents to the tune of ~Rs.66.2 bn as on FY13 which is likely to increase to ~Rs.104.4 bn by FY15E as we expect the company to generate strong cash flows to the tune of Rs.41.6 bn & Rs.39.8 bn in FY14E & FY15E respectively, thus giving it enough room to fund its entire capex plans. BAL also has healthy return ratios with ROE & ROCE pegged at 38.5% and 44.6% respectively for FY14E. We expect BAL’s revenues & PAT to increase at a CAGR of 7.7% & 9.2% over FY13- 15E led by volume growth from the current levels & margin expansion." Outlook & valuation: "Even though domestic motorcycle growth is likely to remain moderate in FY14E, BAL is betting on Discover launches, upcoming festive season and good monsoons to revive its market share. On the 3W front, issuance of new permits in Hyderabad & Maharashtra coupled with recovery in SL & new upcoming upgrades is likely to provide the growth impetus going forward. Despite factoring in muted volume growth in FY14E, we expect EBITDA margin to remain strong (20%+ in FY14E&15E) on the back of higher export realization ($740mn hedged in the range of Rs.56-Rs.66) & strong 3W export growth. Given the healthy balance sheet, strong cash generation ability & high dividend yield we find the stock attractive & thereby initiate coverage on BAL with an ACCUMULATE rating with a target of Rs.2190 (based on 17x FY15E EPS)," says Sushil Finance research report. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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