The stock fell to Rs 1,720 from its previous close of Rs 1,741.05 after the brokerage cited the company's shrinking market share consequent to weak demand, adverse shifts in demand profile and rising competition mainly from Honda as reasons for the downgrade.
Two-wheeler maker Bajaj AutoBSE -0.75 % fell more than a percent on the BSE after Asia Pacific-focused broker CLSA downgraded its share to 'Sell' from 'Underperform'.
The stock fell to Rs 1,720 from its previous close of Rs 1,741.05 after the brokerage cited the company's shrinking market share consequent to weak demand, adverse shifts in demand profile and rising competition mainly from Honda as reasons for the downgrade. CLSA also cut Bajaj Auto's earnings per share (EPS) for 2012-13, 2013-14 and 2014-15 by 1-4%.
The share, however, recovered later, closing the day with a gain of 1.09% at Rs 1,760. CLSA's report comes days after Deutsche Bank retained a 'Buy' on the share with a target price of Rs 2,000. Deutsche Bank attributed margin improvement and exports recovery for its decision to continue the positive rating.
Despite a fall in EPS, Bajaj Auto commands a price-to-earnings multiple of 16.72 times its trailing 12 months earnings, above that of its nearest competitors Hero MotocorpBSE -1.64 % (14.84) and TVS Motors (8). The Bajaj stock has risen 9% in the year-to-date compared with a 5% decline in Hero Motocorp's share and a 28% fall in TVS Motors.
"We expect Bajaj's domestic motorcycle market share to shrink from 25.4% in FY12 to 23.6% in FY15, resulting in just 4% volume CAGR in domestic motorcycle sales over FY12-15," CLSA said in its report while setting a target price of Rs 1,610. "Overall, we see Bajaj's earnings growing at 9% CAGR over FY12-15.
For September, Bajaj Auto registered a 14% year-on-year (yoy) decline in sales volume, with exports slipping by 6%. Total two-wheeler sales declined 13% y-o-y, continuing last month's 5% fall, which was led by motorcycle segment, which fell 19%. The scooter segment continued to report growth at 10% y-o-y, though this was at slower pace from a year earlier.
CLSA expects overall domestic two-wheeler demand to grow at 4.8% and 9.7% in FY13 and FY14 compared with the earlier forecast of 7.8% and 10.2%. It expects motorcycle exports to grow faster at 11% CAGR, boosting total two-wheeler growth to 6% over this period.
