Bajaj Auto - Strong volume growth outlook : UBS

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UBS Investment Research
Bajaj Auto
Strong volume growth outlook


􀂄 New product cycle should help drive market share growth
We believe the successful launch of Bajaj Auto’s (Bajaj) Discover 100cc marks the
start of a new product cycle. We expect the Discover to continue to drive domestic
market share gains for Bajaj in FY12 and outpace industry growth. We forecast
20% YoY growth for Bajaj’s domestic motorcycle volume in FY12/13.
Management expects domestic two wheeler (2W) growth to remain strong at 13%-
15% over the next two to three years.
􀂄 Targeting 5m vehicles in FY12; export outlook remains strong
Management is targeting 5m in vehicle sales in FY12 (+20% YoY) and is planning
to shift its focus to export growth rather than competing for incremental domestic
market share. We expect its exports to continue to grow strongly, led by Africa and
other emerging markets. We estimate motorcycle export volume growth of
30%/20% YoY in FY12/13.
􀂄 Margin outlook remains robust despite rising raw material prices
Bajaj has continued to demonstrate strong pricing power with its regular price
increases in the domestic market. We estimate EBITDA margins will decline 50bp
in FY11 to 21.4% and 110bp in FY12 to 20.3%.
􀂄 Valuation: maintain Buy rating and Rs1,775.00 price target
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11.3%.