Merrill Lynch maintains 'Neutral' rating on Bajaj Auto
Merrill Lynch maintains 'Neutral' rating on Bajaj Auto, however, it has raised the target price by 11% to Rs 585, as it expects valuation multiples to expand on improved earnings visibility.
BAJAJ AUTO
RESEARCH: MERRILL LYNCH
RATING: NEUTRAL
CMP: Rs 487.50
Merrill Lynch maintains 'Neutral' rating on Bajaj Auto, however, it has raised the target price by 11% to Rs 585, as it expects valuation multiples to expand on improved earnings visibility. This follows an upward revision to domestic bike sales and EPS forecasts by 3/4% over FY10/FY11.
Following positive customer response to the XCD 135cc motorcycle, Merrill Lynch has greater confidence for four upcoming launches by September. While the management maintains a positives stance for exports next year, albeit with slower growth trajectory, Merrill Lynch estimates 10% decline in twowheelers and 5% in three-wheelers. Recent trends are cause for worry, with sharp contraction in sales in Latin America (~ 30% of exports), and there could be downside risk to our forecasts.
Despite a steep discount on valuations (30/35% on FY10E P/E and EV/EBITDA) and similar potential upside on price target, Merrill Lynch prefers Hero Honda, on (1) differential growth prospects, and (2) more consistent track record of profitability. Also, Hero Honda's dividend payout policy appears more liberal.
RESEARCH: MERRILL LYNCH
RATING: NEUTRAL
CMP: Rs 487.50
Merrill Lynch maintains 'Neutral' rating on Bajaj Auto, however, it has raised the target price by 11% to Rs 585, as it expects valuation multiples to expand on improved earnings visibility. This follows an upward revision to domestic bike sales and EPS forecasts by 3/4% over FY10/FY11.
Following positive customer response to the XCD 135cc motorcycle, Merrill Lynch has greater confidence for four upcoming launches by September. While the management maintains a positives stance for exports next year, albeit with slower growth trajectory, Merrill Lynch estimates 10% decline in twowheelers and 5% in three-wheelers. Recent trends are cause for worry, with sharp contraction in sales in Latin America (~ 30% of exports), and there could be downside risk to our forecasts.
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Despite a steep discount on valuations (30/35% on FY10E P/E and EV/EBITDA) and similar potential upside on price target, Merrill Lynch prefers Hero Honda, on (1) differential growth prospects, and (2) more consistent track record of profitability. Also, Hero Honda's dividend payout policy appears more liberal.
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