>BAJAJ HOLDINGS & INVESTMENT

Recommendation: Buy
Price target: Rs1,131
Current market price: Rs735

Price target revised to Rs1,131

Result highlights

• The consolidated income of Bajaj Holdings and Investment Ltd (BHIL) declined by 7.8% year on year (YoY) to Rs72.4 crore in Q1FY2013 against Rs78.5 crore reported in the corresponding period of the previous year. During the last six quarters the company has reported a lacklustre top line of under Rs100 crore. The subdued equity market has presented limited profit-booking opportunities for the company in recent times.
• However, the income from the company?s associates improved by 8.7% YoY in the same quarter. This led to a 6% year-on-year (Y-o-Y) increase in the profit after tax (PAT) to Rs349 crore.
• During Q1FY2013, the total market value of the company?s investments declined by 2.1% sequentially whereas the cost of investments rose by 0.9% due to an increased exposure to the equity market.
• The market value of its equity investments in the core associate companies (accounting for 78% contribution) declined by 2.9% sequentially while the value in the other equity investments increased by 6% quarter on quarter (QoQ).

ValuationBajaj Auto is the key investment of BHIL and has been valued at 12.5x FY2014 earnings per share (EPS). Though the company reported quarterly results in line with expectations but there are concerns over a sharp moderation in the domestic volume growth. Our price target for Bajaj FinServ is based on the sum-of-the-parts (SOTP) valuation method.

Given the strategic nature of BHIL's investments, we have given a holding company discount of 50% to BHIL?s equity investments. The liquid investments have been valued at cost. Our price target of Rs1,131 implies a 51% upside for the stock. We maintain our Buy recommendation on BHIL. 


RISH TRADER