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UBS Investment Research
Bajaj Auto
Positive pricing environment
„ Bajaj Auto announced price increase
Bajaj Auto announced plans to raise prices by upto Rs.1,000/bike (~2%) across
models effective Jan 1, 2011 to offset commodity price increases. We believe the
industry demand and pricing environment remains positive. The co. had previously
taken a price increase of ~2% on Oct 1. HH recently raised prices to the extent of
2% across models in its portfolio to effective Dec 1.
„ Price increases support margin outlook
We expect margin outlook to remain strong helped by the recent price increases by
the co. despite increase in raw material costs. We believe the current pricing of
Bajaj vs. HH makes Bajaj’s products relatively competitive and gives it leeway to
increase prices going forward
„ Remain positive on FY12 vol. growth
We expect new launches and distribution expansion to drive FY12 volume growth.
Bajaj has announced plans to add 130 dealerships in the next six months leading to
total dealerships of more than 600. We expect new model launches from Bajaj to
help drive higher than industry growth in FY12. We forecast 20% YoY growth for
Bajaj’s domestic motorcycle volume in FY12/13.
„ Valuation – Maintain Buy and price target of Rs.1,775
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers with UBS’s VCAM tool with a WACC of 11.3%.
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