Bajaj Auto's (BAL) Q1FY10 standalone numbers were significantly above our estimates, driven by sharp increase in average realizations. Average realization per vehicle grew by 15.6%YoY to Rs 41,248 (V/s our estimate of Rs 36,410), resulted in 793 bps YoY expansion in EBITDA margins to 19.5% and strong earning surprises. We have upgraded our FY10 and FY11 earnings estimates by 22% and 31% to Rs 86.4 and Rs 101.9 per share respectively to factor in the better than expected realizations.
It should be noted that our earnings upgrade represents sharp increase in average realizations. We are maintaining our volume estimates. We have factored in strong YoY volume growth of 12%, 40% and 33% for motorcycles in Q2FY10, Q3FY10, Q4FY10 on expectation of success of new 100cc 'Discover'. We do not rule out the risk of downward revision of our volume estimates.
We have revised our target multiple on the stock from 12x to 13.5x 1 year forward PER to factor in strong EBIDTA margins and return ratios. We have valued the stock at 10% discount to Hero Honda (HH), primarily to due to the risk of product failure. We upgrade our rating on the stock from REDUCE to ACCUMULATE with target price of Rs 1370.
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