Bajaj Auto Ltd (BAL) is the world’s largest three-wheeler (3W) manufacturer having domestic market share of 55% (FY15). Set up in 1930, the company is the largest 3W, the largest premium motorcycle, and the second largest two-wheeler (2W) maker in the Indian passenger vehicle market. BAL is the largest exporter of 2W and 3W in the country with exports forming 44% of its total sales. The company has two subsidiaries, namely Bajaj Auto International Holdings BV and PT Bajaj Indonesia. The company operates in two segments namely, Automotive and Investments.
Valuation and view
BAL bestowed by its varied geographical presence, product mix, and greater product pipeline visibility is all set to compete with tough market environment. Further, low commodity price and higher export realization can be strong margin drivers ahead. Thus, we believe that with new launches across the motorcycle segment viz commuter, executive and premium, BAL is expected to perform well in the coming quarters.
We initiate BUY rating on BAL. At a current CMP of Rs 2,286, BAL is currently trading at an EV/EBITDA of 13.3x for FY16E and 10.8x for FY17E. Considering the company’s strong fundamentals, we recommend ‘BUY’ with a target price of Rs 2,600, which implies potential upside of ~14% to the CMP from 1 year perspective.
Research Report Bajaj Auto Ltd
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