Two-wheeler giant Bajaj Auto is one of the stable performers in the segment, even as the competition has intensified. The company has been gaining market share due to its aggressive pricing, coupled with new product launches which have stirred demand for the brand. Following which, analysts at Sharekhan are upbeat on Bajaj Auto's growth, however, have still given hold rating due to various factors. The target price given by Sharekhan reveals that the stock will rise ahead but will give a single-digit return compared to the current price. On Sensex, the stock is trading at Rs 2940.80 up by Rs 22.30  or 0.76% at around 1312 hours. However, in the early hours of opening, the stock has touched an intraday high of Rs 2943.95 per piece. 

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In its research note, Sharekhan states that Bajaj Auto has been successful in gaining market share in the domestic motorcycle segment, led by its strategy of aggressive pricing (direct discounts and free insurance). Moreover, the company has been introducing new products with additional features (enhanced braking and superior suspension and LED lighting), which enhance the performance/safety of the vehicle. 

As on December 2018, the market share of Bajaj Auto has risen to 18.4% compared to  15.6% in overall  FY2018.  Management has stated that the strategy would continue and targeting 24% market share in FY2020.

"Outlook for the export segment is healthy. Stable crude oil prices and enhanced availability of USD in key export markets provide decent growth visibility. In addition, BAL’s strategy to enter new markets would further aid export volumes. Cumulatively, we expect the top line to report a 12% CAGR over FY2019-FY2021," Sharekhan said.

However, it does not rule out the impact of intense competition. It explains that the two-wheeler (2W) industry’s demand has moderated sharply in the past two to three months with flat to a marginal drop in volumes. February 2019 wholesales are also expected to be subdued with expectations of a marginal drop. Weak consumer demand, NBFC crunching and a steep rise in mandatory insurance costs have dampened demand.

That said, BAL’s topline is expected to grow by 12% over FY2019-FY2021, driven by market share gains domestically and healthy export outlook. However, margin drop (on account of aggressive pricing, intense competition and regulatory cost-push) would result in earnings growing at a slower rate of 8%. Earnings growth would be lower than the long-term historical average of 12%, as per Sharekhan. 

Hence, Sharekhan said, "We have introduced FY2021 earnings estimates in this note. We rollover our target is multiple on FY2021 earnings and arrive at a revised PT of Rs. 3,100 for the stock (earlier PT of Rs. 2,800). We retain Hold rating on the stock."