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What’s the theme?
With the success of Pulsar135 and Discover twins (100cc and 150cc), Bajaj Auto's brand-centric strategy has
been validated. In its attempt to leverage its highly successful 'Pulsar' and 'Discover' brands Bajai Auto recently
launched Discover125cc and is all set to launch Pulsar250cc in September'11. These high-margin brands 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 16.2% in FY12 and 11.9% in FY13.
What will move the stock?
1) Despite rising macro headwinds, we expect Bajaj Auto to be less sensitive to such concerns and the slew of
product launches in the future would help the company maintain its market share with domestic volume growth
of 16%, in line with industry. 2) Export outlook continues to be stable with total exports expected to touch 1.4mn
in FY12. 3) Management expects to improve market share with growth of 22% to 4.8mn units during FY12 as
against our volume estimate of 4.5mn units. 4) Increased proportion of high-margin motorcycles and continued
contribution of three-wheelers would enable the company to tide over the input cost pressures and restrict the
contraction in margins to 70bps 5) The DEPB export incentive was extended by three months up to end Sep'11
post which incentive in the form of duty drawback are expected to continue with a reduced rate of 4-5%. With
price increases in the export markets and better cost efficiency, management expects to maintain margins.
Where are we stacked versus consensus?
Our FY12 and FY13 earnings estimates are Rs107.5 and Rs123.3 respectively. We have a 'BUY'
recommendation on the stock with a target price of Rs1,665, discounting FY13E earnings at 13.5x. Our
FY12 earnings estimate is 6.1% higher than consensus estimate of Rs101.3.
What will challenge our target price?
1) Significant increase in prices of commodities such as steel and rubber are likely to increasingly pressurise
margins. 2) The company draws significant benefits from DEPB export benefit scheme and in case the
scheme is entirely withdrawn our earnings estimate would reduce to the tune of 10%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s the theme?
With the success of Pulsar135 and Discover twins (100cc and 150cc), Bajaj Auto's brand-centric strategy has
been validated. In its attempt to leverage its highly successful 'Pulsar' and 'Discover' brands Bajai Auto recently
launched Discover125cc and is all set to launch Pulsar250cc in September'11. These high-margin brands 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 16.2% in FY12 and 11.9% in FY13.
What will move the stock?
1) Despite rising macro headwinds, we expect Bajaj Auto to be less sensitive to such concerns and the slew of
product launches in the future would help the company maintain its market share with domestic volume growth
of 16%, in line with industry. 2) Export outlook continues to be stable with total exports expected to touch 1.4mn
in FY12. 3) Management expects to improve market share with growth of 22% to 4.8mn units during FY12 as
against our volume estimate of 4.5mn units. 4) Increased proportion of high-margin motorcycles and continued
contribution of three-wheelers would enable the company to tide over the input cost pressures and restrict the
contraction in margins to 70bps 5) The DEPB export incentive was extended by three months up to end Sep'11
post which incentive in the form of duty drawback are expected to continue with a reduced rate of 4-5%. With
price increases in the export markets and better cost efficiency, management expects to maintain margins.
Where are we stacked versus consensus?
Our FY12 and FY13 earnings estimates are Rs107.5 and Rs123.3 respectively. We have a 'BUY'
recommendation on the stock with a target price of Rs1,665, discounting FY13E earnings at 13.5x. Our
FY12 earnings estimate is 6.1% higher than consensus estimate of Rs101.3.
What will challenge our target price?
1) Significant increase in prices of commodities such as steel and rubber are likely to increasingly pressurise
margins. 2) The company draws significant benefits from DEPB export benefit scheme and in case the
scheme is entirely withdrawn our earnings estimate would reduce to the tune of 10%.
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