LKP has recommended an underperformer rating on Bajaj Auto with a target of Rs 1830 in its July 18, 2014 research report.
"Bajaj's domestic sales may find it difficult to improve volumes/market share despite new launches and strategies. Concerns of cannibalization within the same brand of Discover may continue and not help a strong growth to arise. With continuation of strong competition and discounting/subvention schems from rivals continuing , we expect a subdued performance from motorcycles going forward. Though 3W sales were strong in Q1, there is an air of uncertainty surrounding permits. Exports markets other than Nigeria are showing a strong traction with Egypt and Sri Lanka leading to a recovery. We do not expect great benefits for the company from currency movement as stable government at centre has already started showing rupee appreciation. Also marketing spend associated with the new launches of the low margin Discover models may drag the margins downwards. Assumptions of higher 3W sales in FY15E due to permit opening in H2 and higher exports through new markets entry may support the margins upto some extent in FY 16E. We have cut our estimates on volumes as well as margins for FY14E/15E leading us to continue with our Underperformer rating on the stock with a target price of Rs 1,830. We arrive at a core business value of Rs 1,740, to which we add subsidiaries value of Rs 86 from KTM and Rs5 from Indonesian subsidiary. We have reduced our core business value from Rs 1790 earlier but due to rally in KTM stock price, our subsidiary value has gone up, thus maintaining our target price", says LKP research report.
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