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UBS Investment Research
Bajaj Auto
Strong exports, robust domestic
�� Export growth likely to remain strong
The company expects strong momentum in exports and targets 20%YoY growth in
FY12 lead by strong growth in Africa and other emerging markets. 3W exports could
grow equally quickly in FY12. Bajaj has debottlenecked 3W capacity from 40,000
units/month to 45,000 units/month in Apr 2011. We raise our EPS estimates, driven by
higher-than-expected 3W volume in FY11 and stronger growth in export markets for
3Ws in FY12, in line with guidance.
�� New launches, dealership expansion to help drive domestic growth
Given the slowdown in growth momentum for domestic motorcycles due to the weak
performance in the under 125cc segment, we forecast only 15%YoY growth in FY12,
below guidance of 20% YoY. However, we believe momentum will improve given the
sharp increase in dealerships and the launch of Discover 125cc from April 2011, and
potential launch of the Boxer in Q2 FY12.
�� Regular price hikes, imply upside to margins
The company remains focused on maintaining margins and continues to make regular
price increases to offset rising raw material cost pressure in the overseas and domestic
markets. Our estimates assume margins compress 200bp between FY11-13, which we
believe is conservative and takes into account mix deterioration due to the launch of
potential cheaper bikes like the Boxer in the domestic market.
�� Valuation: maintain Buy, raise price target from Rs1,600 to Rs1,750
We derive our price target from a DCF-based methodology and explicitly forecast longterm
valuation driver using UBS’s VCAM tool, assuming a WACC of 11.5%. At our
price target, the shares would trade at 16x FY12E PE.
Bajaj Auto
Bajaj Auto was India's largest two-wheeler manufacturer until 2000. It is present
in all product segments, including three-wheelers. Bajaj has a technical tie-up
with Kawasaki in the motorcycle segment. Bajaj was strongest in scooters,
although its position has declined sharply in recent years. Bajaj is now
attempting to gain market share through the launch of new motorcycle models.
The company is also trying to gain a foothold in the two-wheeler markets in
Southeast Asia and Latin America via CKD assembly facilities set up by its
distributors.
Statement of Risk
We think the key risks for Bajaj remain rising commodity prices, a potential
price war with Hero Honda in the domestic market, a sharp decline in 3W
volumes, and a drop in export sales.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bajaj Auto
Strong exports, robust domestic
�� Export growth likely to remain strong
The company expects strong momentum in exports and targets 20%YoY growth in
FY12 lead by strong growth in Africa and other emerging markets. 3W exports could
grow equally quickly in FY12. Bajaj has debottlenecked 3W capacity from 40,000
units/month to 45,000 units/month in Apr 2011. We raise our EPS estimates, driven by
higher-than-expected 3W volume in FY11 and stronger growth in export markets for
3Ws in FY12, in line with guidance.
�� New launches, dealership expansion to help drive domestic growth
Given the slowdown in growth momentum for domestic motorcycles due to the weak
performance in the under 125cc segment, we forecast only 15%YoY growth in FY12,
below guidance of 20% YoY. However, we believe momentum will improve given the
sharp increase in dealerships and the launch of Discover 125cc from April 2011, and
potential launch of the Boxer in Q2 FY12.
The company remains focused on maintaining margins and continues to make regular
price increases to offset rising raw material cost pressure in the overseas and domestic
markets. Our estimates assume margins compress 200bp between FY11-13, which we
believe is conservative and takes into account mix deterioration due to the launch of
potential cheaper bikes like the Boxer in the domestic market.
�� Valuation: maintain Buy, raise price target from Rs1,600 to Rs1,750
We derive our price target from a DCF-based methodology and explicitly forecast longterm
valuation driver using UBS’s VCAM tool, assuming a WACC of 11.5%. At our
price target, the shares would trade at 16x FY12E PE.
Bajaj Auto
Bajaj Auto was India's largest two-wheeler manufacturer until 2000. It is present
in all product segments, including three-wheelers. Bajaj has a technical tie-up
with Kawasaki in the motorcycle segment. Bajaj was strongest in scooters,
although its position has declined sharply in recent years. Bajaj is now
attempting to gain market share through the launch of new motorcycle models.
The company is also trying to gain a foothold in the two-wheeler markets in
Southeast Asia and Latin America via CKD assembly facilities set up by its
distributors.
Statement of Risk
We think the key risks for Bajaj remain rising commodity prices, a potential
price war with Hero Honda in the domestic market, a sharp decline in 3W
volumes, and a drop in export sales.
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