LKP Securities has a buy call on Bajaj Auto Ltd.
with a target price of Rs 3164.
The current market price of Bajaj Auto Ltd.
is Rs 2795.35.
Time period given by the brokerage is a year when Bajaj Auto Ltd.
price can reach defined target.
Bajaj Auto Ltd., incorporated in 2007, is a large-cap company with a market cap of Rs 80322.50 crore..
Investment rationale by LKPOn the domestic motorcycle front we believe that the company will perform well hereon through the comeback of Discover model sales and new launches of Discover, Avenger refreshes and V family upgrades.
We expect market share to move up from the current levels on these launches.
On the 3W business front, triggers from various states mentioned above will lead to the passenger 3W segment sales moving up.
Bajajs higher sales from cargo and diesel segments too will provide the necessary fillip.
On the exports front, we are seeing a strong growth through entry into new geographies like Turkey and Iran.
The most heartening sign is Nigeria coming back to normalcy, with volumes surging in both 2W as well as 3W business.
Egypt too has gain stability.
On the back of this, margins are expected to move up on high margin 3W and exports and price hikes taken recently.
However, we may see some downward pressure on margins on account of higher RM costs.
Extinction of the Pantnagar(~25% of domestic production) tax benefits from Q4 has led to increase in tax rate(32.2%) from the ensuing quarters, which may result into bottomline getting a bit depressed.
The effect of that was seen in Q4 as well.
On the other hand, higher other income expectations on regular FMP maturity may augur well for the bottomline on and off (also seen in Q4).
We believe the risk to reward ratio is high for this company considering good bottomline growth despite the negatives stated above, clean cash rich balance sheet, robust return ratios and above all, a proxy to the domestic as well as global 2W industry .
We maintain BUY rating on the stock with a reduced target of 3,164 on some margin concerns.