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BAJAJ AUTO: BUY, TP-Rs1,855 (49% upside)
What’s the theme?
With the success of Pulsar135 and Discover twins (100cc and 150cc), Bajaj Auto's brand-centric strategy has
been validated. The high-margin brands, Pulsar and Discover, now account for 70% of the company's motorcycle
sales. In addition, continued demand for three-wheelers and robust exports would help Bajaj Auto achieve
volume growth of 37.8% and 13.8% in FY11E and FY12E respectively. We expect profitability to be maintained
at current levels of 20%.
What will move the stock?
Despite increasing competition, we expect Bajaj Auto to maintain its market share with domestic volume
growth of 14%, in line with the industry. The exports outlook continues to be stable with total exports
expected to touch 1.4mn in FY12. Increased proportion of high-margin motorcycles and continued
contribution of three-wheelers would enable the company to keep margins at current levels. Bajaj Auto is
expected to make a new launch in the motorcycle space in Q1FY12 in association with KTM.
Our FY11 and FY12 earnings estimates are Rs88.8 and Rs103.1 respectively. We have a 'BUY'
recommendation on the stock with a target price of Rs1,855, discounting FY12E earnings at 18x. Our
FY12 earnings estimate is 2.5% higher than consensus estimate of Rs100.5.
What will challenge our target price?
Significant increase in prices of commodities such as steel and rubber are likely to increasingly pressurise
margins. Any increase in excise duty would lead to downward revision in growth estimates.
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