Bajaj Auto - No Surprises - PINC Result Review

Bajaj Auto's Q2FY11 results were broadly inline with our estimates with a reported profit of Rs6.8bn as against our estimate of Rs7bn. Operating margins despite expanding by 70bps sequentially to 20.7% fell short of our estimate of 22.1%. However, a higher other income and lower depreciation compensated for the same.

Outlook: The company has expanded motorcycle capacity at Pantnagar from 75k to 125k units/month. We expect the company to achieve volumes of 3.9mn and 4.5mn units in FY11 and FY12 respectively. The recent price hike of 2% undertaken would help the company maintain margins at current levels. We maintain our earnings estimates for FY11 and FY12 at Rs89 and Rs103 respectively.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 17x and 14.7x FY11E and FY12E earnings respectively. We reiterate 'BUY' rating while maintaining our target price of Rs1,854 discounting FY12E earnings 18x.

Source : Equity Bulls

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