KRChoksey has maintained hold rating on Bajaj Auto with a target of Rs 1567 in its April 20, 2011 research report.

"Bajaj Auto is the largest exporter of two and three wheelers, founded in 1926. The brand, Pulsar is continually dominating the Indian motorcycle market in the premium segment. Its Discover DTSi is also a successful bike on Indian roads. Distribution network covers 50 countries with dominant presence in Sri Lanka, Bangladesh, Columbia, Guatemala, Peru, Egypt, Iran and Indonesia. Bajaj auto has increased its focus & aligned its resources into its core profitable businesses. The company exited the scooter segment & is strengthening its position in the motorcycle segment through its 3 key brands Pulsar (Premium), Discover (Executive) & Platina (economy)."

"Bajaj is market leader in the premium segment & is increasing penetration in the executive segment. We believe Bajaj Auto's motorcycle volumes to remain strong on the back of strong brand equity (Pulsar & Discover), higher rural income & availability of financing. Bajaj Auto has a dominant position in the 125+cc premium motorcycle category (high-margin segment) and in passenger threewheelers. Also the company Exports to countries like Africa, Middle east, & Latin America which enables the company to maintain superior margins & highest profitability compared to the industry peers. Overall the company has healthy regional mix & product mix that drive overall volumes & help it to sustain margins."

"The three wheelers have contributed handsomely to the margins. The company has current capacity to produce 1.5 million three wheelers. There is huge demand for the company's three wheelers in export markets largely in Africa where three wheelers are very highly under penetrated. The only problem with three wheelers is that there is constraint for 4-stroke engines. Majority of customer are asking for 4-stroke vehicles even form the export markets of Africa, Sri Lanka, etc. Bajaj is planning to launch new products in the coming fiscal. The new discover will be launched right at the start of the next fiscal in April 2011. The new Pulsar will be launched in the coming diwali. This will be the fifth generation of the pulsar. The new product from its acquired company, KTM, will be launched in FY12. On the whole the company has strong plans to keep the growth momentum going in years to come."

"We continue to maintain our positive outlook on Bajaj Auto. The company managed to achieve operating margins of 20% even at a time when RM prices are affecting profitability of all OEM's. The increasing share of exports in overall volumes and strong performance achieved by its bigger bikes continue to drive the overall profitability of the company. The only area of concern remains the rise in prices of plastics. We expect the company to record EPS of Rs 89.2 & Rs 90.9 in FY11 and FY12 respectively. At the CMP of Rs 1473, Bajaj Auto is trading at 16.5x its FY11E and 16x its FY12E EPS. We value Bajaj Auto at 15.6x FY12E earnings, arriving at a Price target of Rs 1527 per share implying an upside of 6.4% from the current levels. We recommend "Hold" on the stock," says KRChoksey research report.

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