Nalanda Securities is bullish on Bajaj Auto has recommended buy rating on the stock with a target price of Rs 2978 in its research report dated October 25, 2018.
Nalanda Securities' research report on Bajaj Auto
The company’s 2nd quarter results were a marginal miss majorly due to lower margins. Its volumes grew higher by 25% YoY to 13.4L units in Q2FY19, but the realization declined by 2.7% YoY to Rs. 60,256, impacted due to inferior product mix and increase in the discounting. The volume sales were higher in the lower CC segment, where it has reported a 50% YoY growth during the quarter led by CT100 & Platina. The top-line grew well by 21.6% YoY to Rs. 8,071 crores in Q2FY19. On the operational front, the EBITDA Margin decelerated by 280bps YoY to 18.0% in Q2FY19, impacted as the company has shifted its focus on the domestic entry level bikes to gain the market share (which worked well). Additionally, increase in the commodity prices & slow start to the festivals increased the discounting in the market, which has added further pain. The bottom-line increased by 3.7% YoY to Rs. 1,152 crores in Q2FY19 was due to poor operational performance and higher effective tax rate, which increased by 350bps YoY to 30.3% for the quarter.
The company has been trading at a forward P/E of 16.0x in the past few years and looking at the current domestic environment, we have reduced the earnings multiple to 13.6x plus KTM and Cash per Share takes the fair value to 2,978 per share, seeking an upside of 20.3% from the current levels.
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