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BAJAJ AUTO LIMITED
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1464 FY12E P/E: 14.3X
q BAL remains confident of carrying the growth momentum in FY12. After
growing at 38% in FY11, the company expects 20% volume growth in
FY12.
q We expect 3-4 new launches planned by the company in FY12 will help
them sustain the growth momentum. Discover model motorcycles will
play a significant role in our view towards contributing additional volumes
in FY12.
q Export demand for both the motorcycle and the 3W stays strong.
q Company will continue with its focus on maintaining strong EBITDA
margins and preserving the ~700bps lead over its peers margins.
q New product launch schedule and addition of new dealership provides
us with volume growth visibility. Add to that the company's perseverance
towards maintaining healthy margins augers well for the overall
profit growth for BAL. We remain positive on the stock and continue to
maintain our price target of Rs1,464. We rate the stock as ACCUMULATE.
New launches should help the company grow volumes in FY12
n BAL has lined up 3-4 new product launches with an aim to achieve 20% jump in
volumes in FY12.
n In the last week of March 2011, the company launched - Discover 125cc.
Through this the company has tried to plug the big gap that was lying between
Discover 100 and Discover 150.
n In order to further grab market share in the deluxe segment, the company plans
to launch a new Boxer around August 2011.
n In 2HFY12, the company has planned to launch motorcycles from the Pulsar and
the KTM stable.
n 3W demand remains robust both in the domestic and the overseas market.
n In order to increase their reach, the company has added around 130 new
dealerships in 4QFY11 in order to widen its reach.
n On back of the above mentioned reasons, we believe that BAL is better placed
than its peers in terms of volume growth visibility.
n After growing at a significant pace, we expect the volume growth for BAL and
industry to moderate in FY12.
n Given the current macro headwind like rising interest rate and a relatively high
base we have factored in a reasonable volume growth of 12.5% in our assumptions.
Nonetheless the company's 20% volume growth target only provides with
further upside opportunity.
Diversified product-mix provides comfort
n BAL has a diversified its product portfolio with reasonable contribution coming
from various segment/sub-segments and geographies.
n 2W volumes account for 80% of the company's revenues and 3W contribute the
remaining 20%.
n 53% of the company's motorcycle sales come from the sub125cc segment and
remaining 47% from the 125cc+ category. Company has done well to diversify
the risk in the 2W space despite its presence limited to the motorcycle segment.
n Company generates around 72% of its revenues from the domestic market and
the balance 28% through exports. Even on the export side, sales are branched
out to various countries and regions.
n We therefore believe the company is relatively well insulated in an event of
slowdown in demand from a particular segment or geography.
Healthy margins will remain the focal point
n Over the past few quarters the company has reported robust margins despite raw
material cost pressures.
n Company has hedged majority part of their FY12 forex exposure at Rs46.7/$.
n In order to pass on the impact of higher input cost the company has increased
prices on quite a few occasions in the past one year. However now that volume
growth is expected to moderate, we believe that passing on higher cost to the
consumers will become relatively difficult
n For FY12E, we have therefore factored 120 bps fall in margins for the company.
n Management has indicated that the company will continue to focus on maintaining
healthy margins. They are confident of maintaining the gap in the EBITDA
margin between the industry average and the company. We do not expect the
company to garner market share at the expense of profitability.
Valuations
n We expect the company to report EPS of Rs89.7 and Rs97.6 in FY11E and FY12E
respectively. Currently the stock trades at 14.3x its FY12E EPS.
n Better volume growth visibility for BAL as compared to its peers provides comfort.
Furthermore the company's decision to focus on profitability is positive. BAL is a
cash rich company with strong return ratios.
n We continue to maintain our positive stance on the stock. However due to limited
upside from the current levels, we rate the stock as ACCUMULATE with an
unchanged price target of Rs1,464.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BAJAJ AUTO LIMITED
RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.1464 FY12E P/E: 14.3X
q BAL remains confident of carrying the growth momentum in FY12. After
growing at 38% in FY11, the company expects 20% volume growth in
FY12.
q We expect 3-4 new launches planned by the company in FY12 will help
them sustain the growth momentum. Discover model motorcycles will
play a significant role in our view towards contributing additional volumes
in FY12.
q Export demand for both the motorcycle and the 3W stays strong.
q Company will continue with its focus on maintaining strong EBITDA
margins and preserving the ~700bps lead over its peers margins.
q New product launch schedule and addition of new dealership provides
us with volume growth visibility. Add to that the company's perseverance
towards maintaining healthy margins augers well for the overall
profit growth for BAL. We remain positive on the stock and continue to
maintain our price target of Rs1,464. We rate the stock as ACCUMULATE.
New launches should help the company grow volumes in FY12
n BAL has lined up 3-4 new product launches with an aim to achieve 20% jump in
volumes in FY12.
n In the last week of March 2011, the company launched - Discover 125cc.
Through this the company has tried to plug the big gap that was lying between
Discover 100 and Discover 150.
n In order to further grab market share in the deluxe segment, the company plans
to launch a new Boxer around August 2011.
n In 2HFY12, the company has planned to launch motorcycles from the Pulsar and
the KTM stable.
n 3W demand remains robust both in the domestic and the overseas market.
n In order to increase their reach, the company has added around 130 new
dealerships in 4QFY11 in order to widen its reach.
n On back of the above mentioned reasons, we believe that BAL is better placed
than its peers in terms of volume growth visibility.
n After growing at a significant pace, we expect the volume growth for BAL and
industry to moderate in FY12.
n Given the current macro headwind like rising interest rate and a relatively high
base we have factored in a reasonable volume growth of 12.5% in our assumptions.
Nonetheless the company's 20% volume growth target only provides with
further upside opportunity.
Diversified product-mix provides comfort
n BAL has a diversified its product portfolio with reasonable contribution coming
from various segment/sub-segments and geographies.
n 2W volumes account for 80% of the company's revenues and 3W contribute the
remaining 20%.
n 53% of the company's motorcycle sales come from the sub125cc segment and
remaining 47% from the 125cc+ category. Company has done well to diversify
the risk in the 2W space despite its presence limited to the motorcycle segment.
n Company generates around 72% of its revenues from the domestic market and
the balance 28% through exports. Even on the export side, sales are branched
out to various countries and regions.
n We therefore believe the company is relatively well insulated in an event of
slowdown in demand from a particular segment or geography.
Healthy margins will remain the focal point
n Over the past few quarters the company has reported robust margins despite raw
material cost pressures.
n Company has hedged majority part of their FY12 forex exposure at Rs46.7/$.
n In order to pass on the impact of higher input cost the company has increased
prices on quite a few occasions in the past one year. However now that volume
growth is expected to moderate, we believe that passing on higher cost to the
consumers will become relatively difficult
n For FY12E, we have therefore factored 120 bps fall in margins for the company.
n Management has indicated that the company will continue to focus on maintaining
healthy margins. They are confident of maintaining the gap in the EBITDA
margin between the industry average and the company. We do not expect the
company to garner market share at the expense of profitability.
Valuations
n We expect the company to report EPS of Rs89.7 and Rs97.6 in FY11E and FY12E
respectively. Currently the stock trades at 14.3x its FY12E EPS.
n Better volume growth visibility for BAL as compared to its peers provides comfort.
Furthermore the company's decision to focus on profitability is positive. BAL is a
cash rich company with strong return ratios.
n We continue to maintain our positive stance on the stock. However due to limited
upside from the current levels, we rate the stock as ACCUMULATE with an
unchanged price target of Rs1,464.
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