Bajaj Auto - 'Margin'al disappointment, Remain Positive: PINC Result Review

Bajaj Auto (BJAUT) Q1FY11 profits despite meeting our expectation fell short on quality. The company reported higher margin contraction due to increase in raw material prices. The increase in investment income boosted the profits for the quarter which stood at Rs5.9bn

Outlook: Considering the strong demand for the company's products in Q1FY11, we have raised our volume estimates for FY11 to 3.9mn units. We expect margins to improve from the current levels due to operating leverage. We have raised our FY11 margin estimate by 70bps to 20.3%. As a result of these, we expect BJAUT to achieve earnings of Rs165.3 and Rs179.7 in FY11 and FY12 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 14.6x and 13.4x FY11E and FY12E earnings respectively. We maintain our 'BUY' rating with a revised target price of Rs2,875 discounting FY12E earnings 16x.

Source : Equity Bulls

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