Citing improving outlook and attractive valuations, brokerages on Dalal Street see up to 31 per cent upside in Bajaj Auto NSE 1.39 %.

                                

Industry demand in the second quarter has inched closer towards the normal level, according to market watchers. Domestic two-wheeler demand is at 90 per cent of the normal, while exports are at 90 per cent in Africa, South Asia and Middle East and 80 per cent in Latin America. Exports of three-wheelers have also reached to 80 per cent of the normal levels .

While retaining a buy rating on the two-and-three-wheeler maker with a price target of Rs 3,976, Emkay Global Financial Services expects further improvement in the industry. The target price indicates 31 per cent upside in the Bajaj Auto going ahead.

“Baja Auto is witnessing flat growth in initial days of the festive season, and expects double-digit growth in exports for Oct-Nov’20,” Emkay said adding its positive stance on Bajaj Auto is on account of the expected recovery in domestic growth and improving growth prospects in exports.

Shares of Bajaj Auto traded 0.59 per cent higher at Rs 3,027 at around 10.10 am (IST), while the benchmark BSE Sensex traded 0.45 per cent up at 40,739.

“We have increased volume estimates by 5-8 per cent over FY21-23E. In addition, valuations are inexpensive in comparison with historical multiples,” it added.

The projection came after Bajaj Auto on Thursday posted an 18.84 per cent YoY drop in net profit at Rs 1,138.20 crore for the quarter ended September 30. Analysts polled by ET NOW had projected the figure at Rs 1,210 crore. The auto major had reported Rs 1,402.42 crore profit for the corresponding quarter last year.

Brokerage Prabhudas Lilladher upped the target price to Rs 3,108 (from Rs 3,014 earlier) post Q2 earnings. “Bajaj Auto Q2FY21 revenues and EBITDA were in-line while adjusted  PAT slightly missed estimates led by lower other income,” it said.

Sharekhan also added that valuations of Bajaj Auto, at 14.8 times FY23 earnings, are lower than the long-term historical average. It also maintained ‘Buy’ with a price target of Rs 3,500.

“The Q2FY21 operating results of Bajaj were ahead of our as well as street estimates. While volumes declined 10 per cent YoY, realisations improved by 3 per cent driven by better export realisations and price hikes. Despite the fall in its topline, Bajaj improved its margins by 110 bps YoY to 17.7 per cent which were ahead of estimates,” Sharekhan said.