Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,500
Current market price: Rs2840
As Bajaj Auto has cited in its quarterly report, there is huge headroom for growth of the motorcycle industry in India, looking at the low penetration of motorcycles in India at just 31 motorcycles per 1,000 citizens. The ratio is much lower in comparison with that in some of the other developing nations like Indonesia, Vietnam, Malaysia and Thailand. We believe that BAL is in a good position to capitalise on this opportunity and would continue to perform well in the motorcycle market. Further, taking into account the good track record of the company, its strong brands across segments in the motorcycle business, the emerging opportunities in the retail finance space and the insurance businesses, we maintain our positive outlook on BAL.
At the current market price of Rs2840, the stock discounts its FY2008 earnings by 16.5x and quotes at an FY2008 enterprise value/earnings before interest, depreciation, tax and amortisation of 10.5x. We maintain our Buy recommendation on the stock with the price target of Rs3,500.
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