We maintain our ‘hold’ rating on Bajaj Auto as we believe its 15.3x FY15e P/E restricts re-rating potential from current levels. We raise our six-month target price to R2,210 (earlier R1,914), now based on a P/E of 15x (formerly 14.5x) applied to our FY15e EPS (formerly average of FY14e/ FY15e.) We assign a target multiple in line with its past three-year average.
We raise our EPS by 3.2% for FY14e, 1.7% for FY15e and 1.4% for FY16e, mainly due to increases in our export sales-volume growth forecasts for all three years, and a higher $/INR rate we now assume for FY14.
While the company's export sales volume outlook appears more positive, we remain cautious on the near-term sales prospects for its two-wheeler segment in the domestic market. Further, we believe the Q2FY14 operational performance is near its peak level as we foresee cost pressures in H2FY14.
A better-than-expected response to its new bike launches is an upside risk, while rupee appreciation versus the dollar from current levels would be a key downside risk to our view.
The company expects domestic two-wheeler industry sales-volume growth of 2-3% y-o-y over the October-November festival season and 5% y-o-y in H2FY14 overall. Bajaj Auto expects to outpace industry sales volume in H2FY14, as it is rolling out new executive bikes under its Discover brand.
Domestic three-wheeler volume growth would hinge on the timing of new driving permits being issued in Maharashtra, in our view.