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14.3x FY2012E
CMP : Rs1581
RECO : ACCUMULATE
TP : Rs1710
Investment Rationale
§ We expect company to report strong volumes beyond 1HFY11 due to general strength in demand and new
product introduction. We do not rule out upward revision to our FY11 volumes estimates of 3.8 mn vehicles
§ We expect exports to be a strong growth driver over next three years (upwards of 15% CAGR) on volumes as
well as profitability due to the strategy of focusing on new markets and increasing market share in existing
markets
§ Contrary to the perception, we believe that recent changes in product mix (higher share of Pulsar 135 cc and
Discover 100cc/150c) will be margin remunerative as the share of entry level products will reduce further. We do
not rule out strong EBIDTA margins surprises in 2QFY11
Valuations
§ We have valued the stock at a target PER of 15x our FY12 estimates.
§ The key trigger in the stock will be capacity expansion, which shall result in volume upgrades in 2HFY1.
§ Recent downward trend in metal prices can provide further upside to earnings estimates.
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