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UBS Investment Research
Bajaj Auto
D EPB withdrawal factored in [EXTRACT]
Strong export growth likely to continue
We like Bajaj Auto (Bajaj) for its strong exports volume growth potential. It
reported a 36% YoY increase in export volumes in FY12 YTD, and targets 20%
YoY growth in FY12, based on strong growth in Africa and emerging economies.
We expect three-wheeler exports to grow equally rapidly in FY12. Bajaj
debottlenecked 3W capacity from 40,000 units/month to 45,000 units/month in
April 2011.
Domestic volume growth momentum picking up
Bajaj has reported a 9% YoY increase in motorcycle sales FY12 YTD. We believe
domestic volume growth will improve further, given the sharp increase in
dealerships and the launch of Discover (125cc) and the potential launch of Boxer
in Q2 FY12. We expect 15%/15% YoY domestic volume growth in FY12/FY13.
Near-term margin pressure; remove DEPB benefit from FY13
According to recent media reports, the Duty Entitlement Pass Book (DEPB)
scheme has been extended by three months from original deadline of 30 June 2011.
We remove the DEPB benefit from FY13 onwards, which results in 8%/11%
declines in our EPS estimates to Rs92.82/101.04 for FY12/FY13. We believe the
EBITDA margin will be under pressure in the near term due to potential mix
deterioration with the launch of cheap two-wheelers such as Boxer in the domestic
market.
Valuation: maintain Buy rating and lower our price target
We lower our price target from Rs1,750 to Rs1,600 to factor in lower earnings
margins because of the withdrawal of DEPB. We derive our price target from a
DCF-based methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool, assuming a WACC of 11.5%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bajaj Auto
D EPB withdrawal factored in [EXTRACT]
Strong export growth likely to continue
We like Bajaj Auto (Bajaj) for its strong exports volume growth potential. It
reported a 36% YoY increase in export volumes in FY12 YTD, and targets 20%
YoY growth in FY12, based on strong growth in Africa and emerging economies.
We expect three-wheeler exports to grow equally rapidly in FY12. Bajaj
debottlenecked 3W capacity from 40,000 units/month to 45,000 units/month in
April 2011.
Domestic volume growth momentum picking up
Bajaj has reported a 9% YoY increase in motorcycle sales FY12 YTD. We believe
domestic volume growth will improve further, given the sharp increase in
dealerships and the launch of Discover (125cc) and the potential launch of Boxer
in Q2 FY12. We expect 15%/15% YoY domestic volume growth in FY12/FY13.
Near-term margin pressure; remove DEPB benefit from FY13
According to recent media reports, the Duty Entitlement Pass Book (DEPB)
scheme has been extended by three months from original deadline of 30 June 2011.
We remove the DEPB benefit from FY13 onwards, which results in 8%/11%
declines in our EPS estimates to Rs92.82/101.04 for FY12/FY13. We believe the
EBITDA margin will be under pressure in the near term due to potential mix
deterioration with the launch of cheap two-wheelers such as Boxer in the domestic
market.
Valuation: maintain Buy rating and lower our price target
We lower our price target from Rs1,750 to Rs1,600 to factor in lower earnings
margins because of the withdrawal of DEPB. We derive our price target from a
DCF-based methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool, assuming a WACC of 11.5%.
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