Buy Bajaj Auto; target of Rs 2272: Angel Broking
Brokerage house Angel Broking is bullish on Bajaj Auto (BJAUT) and has recommended 'Buy' rating on the stock with a target price of Rs 2,272 in its research report dated December 14, 2013.
December 16, 2013 / 12:20 IST
Angel Broking's report on Bajaj Auto (BJAUT)
"Bajaj Auto's (BJAUT) motorcycle export volume, which declined by ~9 percent in 1HFY2014, is expected to recover and grow at a strong double-digit rate going ahead, leading to a ~10 percent CAGR over FY2013-15E. We expect the growth to be driven by market share gains in Africa and Latin America at the expense of Chinese players who currently dominate these regions with a market share of ~70 percent. We believe that the dual effect of INR depreciation and Yuan appreciation against the USD, has made Indian players more competitive globally and reduced the pricing advantage which Chinese manufacturers have been enjoying over the years. Thus the value proposition of Indian products which are superior in quality has increased and should therefore pave the way for rapid market share gains going ahead. Among the Indian manufacturers, we expect BJAUT to be the biggest beneficiary of this opportunity given that it has the first mover advantage, wide-spread reach with an established distribution network and a strong brand presence in the major markets of Africa and Latin America. We reckon the opportunity in Africa and Latin America to be in excess of ~7mn units annually (growing in double digits over the last five years) of which BJAUT has less than 15 percent share as of FY2013.""BJAUT's domestic motorcycle performance has been severely impacted in 1HFY2014 due to slowdown in demand and increasing competition, leading to poor volumes (down ~12 percent yoy) and erosion in market share (down ~300bp to 24.6 percent). We attribute this to the disappointing performance of the flagship brand, Discover whose monthly run rate has dropped by 25-30 percent. We expect new Discover launches to provide stability to domestic volumes going ahead and gradually help the company to consolidate its market share. We expect demand in the premium motorcycle segment to accelerate in FY2015 on expected recovery in urban demand and expect BJAUT to be the key beneficiary of this trend. Thus, we expect domestic motorcycle volumes to revive in FY2015 and post a growth of ~10 percent led by a ~14 percent growth in the greater-than-125cc segment."Outlook and valuation: "We expect the company's top-line to register a strong CAGR of ~12 percent over FY2013-15E driven by robust export revenue growth of ~24 percent, aided by the INR depreciation. The domestic revenue growth, however, is expected to remain muted at ~5 percent due to modest growth in volumes. We expect EBITDA margins to sustain around ~20 percent levels in FY2014/15 led by favorable exchange rate and superior product-mix. Consequently we expect the earnings to increase at a strong CAGR of ~16 percent over FY2013-15E. We maintain our positive stance on the company given its diversified business model, strong focus on profitable growth, widening reach in the export markets and strategic alliances with global majors. At the CMP of Rs 1,908, the stock is trading at 13.4x FY2015E earnings. We recommend a Buy rating on the stock with a target price of Rs 2,272," says Angel Broking 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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