CMP = Rs 2,718
Price Target = Rs 3,500
- With the help of new product launches over the last few years, Bajaj Auto Ltd (BAL) is well poised to take advantage of the secular growth in the two-wheeler market. BAL is likely to consolidate its position in the market further as the new product launches continue.
- The three-wheeler segment, which is a high-margin business, is turning around after a brief lull. The changes in the regulatory regime in favour of vehicles using cleaner fuel is likely to boost the demand for threewheelers where BAL is the undisputed leader.
- With the increased contribution of high-margin vehicles and the softening of the prices of steel, BAL is expected to see a 23% compounded annual growth in its earnings over FY2006-08E.
- The stock is currently quoting at a PER of 16.1x its FY2008E earnings. The investment on the company.s books (Rs 648 per share) and the insurance subsidiaries (Rs920 per share) add substantial value to BAL.s fair value.
