Broker's call: Bajaj Auto (Buy)

Target: ₹3,500

CMP:₹3,044.05

We expect Bajaj Auto to deliver profitable growth going ahead on the back of improvement in domestic two-wheeler (2W) profitability on account of a richer mix; improvement in export mix (gross margins in export business are higher); and sustained cost reduction efforts by the company.

The company will be following a three-fold strategy to gain market share in the domestic 2W market – aggressive product launches in 125 cc segment; retaining dominant position in the sports motorcycle segment; and providing innovative offerings in top-end of the entry motorcycle segment.

While the company already held a dominant position in premium segment, it was successful in skimming share in entry segment and also has now been able to capture close to 16 per cent market share in 125cc segment. Pulsar 125cc (despite being the most expensive 125cc motorcycle in the market) has seen good traction and even helped in expanding the 125cc market.

The company is targeting leadership in this segment by launching lower priced variants to cater to all market and stepping up on promotion and marketing activities as well. KTM & Husqvarna brands are also clocking their highest ever sales.

As per the management, margin of the domestic business during 2Q-FY21 was at multi-quarter high despite lower share of 3Ws.