Bajaj Auto Limited - Book Partial Profits - Sushil Finance

CMP Rs.2154, Neutral.

We had initiated coverage on Bajaj Auto Ltd. with an ‘ACCUMULATE' recommendation on 02nd September 2013 at Rs.1840 with a target price of Rs.2190. Since the release of our report, the stock price has posted a high of Rs. 2154. At CMP of Rs.2154, it reflects a gain of ~17% from our recommendation vis-à-vis S&P BSE SENSEX return of ~6%.

In the month of Sept 2013, BAL registered a growth of 2.1% YoY, driven largely by strong growth of 10.2% YoY on the exports front. Domestic sales however, declined by 2.6% YoY during the month. 3W sales too declined by 2% YoY as dispatches to Egypt continue to remain impacted.

On a MoM basis, total sales grew by 17.8% led by inventory build-up at the dealers end in anticipation of strong demand ahead of the festive season. The growth was driven by 16.3% and 30.7% growth in the motorcycle and 3W sales respectively. Export sales registered a muted growth of 1.9% during the month.

However on a YTD (Apr-Sept 13) basis, BAL saw its volumes dip by 8.8% to 19,40,605 units v/s 21,28,179 units in the same period last year. Even though, we believe this in part reflects the overall slowdown in the sector, however, with a lack of new models launched in the domestic space, increased competition & the impact of the strike at its Chakkan plant, BAL has lost market share across categories (as visible in the table on page 2) & the domestic volumes going forward would be highly dependent on the company's 6 new discover launches expected in H2FY14. With Hero expected to launch several refreshes/variants of its existing products in the next 6 months coupled with its strong reach in the rural market we believe all eyes will be on BAL's ability to re-gain its lost market share in the 75-100cc, 110-125cc & 125-150cc categories.

The comforting factor for the company has been the export motorcycle segment (recorded a 5% growth in Q2FY14 after a 21% de-growth in Q1FY14), a favourable currency & a possible issuance of 3W permits which would drive volumes in 3W. With the competitive scenario & new model launch intensity turning aggressive in a sluggish market we believe significant upsides are likely only if the new vehicle launches are successful for BAL. We thereby change our rating on the stock to NEUTRAL & recommend to book partial profits since the stock has seen a strong run up in anticipation of the tables turning in H2FY14. With the positives & negatives at balance, we will review our rating post a correction in the stock, if any.

Source : Equity Bulls

Keywords