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STOCK IN FOCUS
* Bajaj Auto (BAL) closed 2% up as against Nifty rising by 1.7% yesterday.
* BAL’s strategy of focusing overseas markets coupled with higher crude price would result in strong export volume. Management expects exports to grow by ~15% CAGR over next 5 years, while we expect its exports to grow >20% YoY over FY18-FY19E.
* Moreover, favourable exchange rate would take care of higher commodity cost. Envisaging a strong bounce back in export volume coupled with INR depreciation, we expect BAL to record an EPS of Rs179 in FY20E.
* Post sharp correction, currently stock is trading at 14X FY20E EPS, which appears attractive in valuation.
* In view of ~22% RoE, healthy margin profile and positive export outlook, we recommend BUY on BAL with a Target Price of Rs3,015, valuing the stock at 16x FY20E EPS and adding Rs150/ share for BAL’s stake in KTM.
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