Bajaj’s outlook continues to oscillate between the domestic and export businesses. In the past few years, domestic business was struggling (led by the Discover) and export was doing well.
In recent months, with the launch of new products in the domestic market (new Avenger, CT100 and V15), the domestic business is back on strong growth trajectory (at least as of now), but exports continue to slope down. Exports are still bulk of the earnings for Bajaj and in light of the currency and macro risks in key markets like Nigeria, Egypt and Columbia, it’s difficult for us to get more constructive on Bajaj’s outlook.
Bajaj stock is trading at the higher end of the historic valuation range. This is despite the consistent slow earnings downward revision the stock has witnessed over the recent quarters. Consensus earnings expectations have been cut by 15% in the past few months.
We believe in light of the uncertainty around the export markets its tough for the stock to re-rate further and it may remain in a range underlying our Hold rating on the stock. We see limited upside risk to our overall volume growth expectation of 7% y-o-y for FY17, which already assumes a strong growth of c14% in domestic market sales and moderation in export sales decline (-2% y-o-y) as compared to FY16. We revise downward earnings estimates by 3% for FY17/18 due to lower volume growth estimates. We cut our DCF based fair value targte price to Rs 2,500 (from Rs 2,570) and maintain a ‘hold’ rating on the stock.