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Turn more positive on two-wheelers; Buy Bajaj, Hero up to Neutral
Turning more positive: Strong demand/pricing, export potential
We turn more positive on Indian 2-wheeler companies for the following
reasons: 1) Recent 2QFY12 results of both market leaders Hero Motocorp
and Bajaj Auto suggest that demand and pricing environment still remains
strong, with an average 120 bp qoq margin expansion announced by both
companies. 2) We believe that the Indian 2-wheeler industry faces
attractive export opportunities in lower income markets such as Africa,
South Asia and Latin America owing to their low cost manufacturing
capabilities, and limited competition from large global automakers. 3) We
believe Bajaj Auto and Hero Motocorp have a strong track record of
defending market share and margins against new competition, and look
well positioned to sustain their top quartile returns on capital.
Upgrade Hero Motocorp to Neutral from Sell; raise TVS estimates
We upgrade Hero Motocorp to Neutral from Sell, due to higher than
expected FY12 ytd 2-wheeler demand and corresponding improvement in
margins driving earnings growth for the company over past 3 quarters. We
raise our FY12E-FY14E EPS by 5%-8% and our 12-m FY13E P/E-based TP to
Rs1,909 (from Rs1,711). We raise our FY12E-FY14E EPS for TVS Motors by
4%-6% (on higher volume and margins) and consequently our 12-m FY13E
P/E-based TP to Rs56 (from Rs52).
Prefer Bajaj Auto—ahead of peers on product strategy, experience
We believe Bajaj Auto is ahead of Hero Motocorp in technology and market
strategy: 1) Stronger product development capabilities developed in house
over more than 10 years, and also through collaboration with Kawasaki
and KTM. 2) First mover advantage in fast growing export markets and
track record of competing directly with Honda in the domestic premium
motorcycles segment. 3) Higher stability in margins during the strong
demand environment over past few quarters.
Key risks: Competition from Honda, decline in commodity cost
(1) We believe Honda’s launch of an economy motorcycle will be a
challenge, particularly to commuter segment market leader Hero
Motocorp. (2) Lower commodity costs could offer margin expansion
opportunity in our view, if domestic two-wheeler demand remains resilient.
(3) Other risks include higher/lower than expected consumer confidence.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Turn more positive on two-wheelers; Buy Bajaj, Hero up to Neutral
Turning more positive: Strong demand/pricing, export potential
We turn more positive on Indian 2-wheeler companies for the following
reasons: 1) Recent 2QFY12 results of both market leaders Hero Motocorp
and Bajaj Auto suggest that demand and pricing environment still remains
strong, with an average 120 bp qoq margin expansion announced by both
companies. 2) We believe that the Indian 2-wheeler industry faces
attractive export opportunities in lower income markets such as Africa,
South Asia and Latin America owing to their low cost manufacturing
capabilities, and limited competition from large global automakers. 3) We
believe Bajaj Auto and Hero Motocorp have a strong track record of
defending market share and margins against new competition, and look
well positioned to sustain their top quartile returns on capital.
Upgrade Hero Motocorp to Neutral from Sell; raise TVS estimates
We upgrade Hero Motocorp to Neutral from Sell, due to higher than
expected FY12 ytd 2-wheeler demand and corresponding improvement in
margins driving earnings growth for the company over past 3 quarters. We
raise our FY12E-FY14E EPS by 5%-8% and our 12-m FY13E P/E-based TP to
Rs1,909 (from Rs1,711). We raise our FY12E-FY14E EPS for TVS Motors by
4%-6% (on higher volume and margins) and consequently our 12-m FY13E
P/E-based TP to Rs56 (from Rs52).
Prefer Bajaj Auto—ahead of peers on product strategy, experience
We believe Bajaj Auto is ahead of Hero Motocorp in technology and market
strategy: 1) Stronger product development capabilities developed in house
over more than 10 years, and also through collaboration with Kawasaki
and KTM. 2) First mover advantage in fast growing export markets and
track record of competing directly with Honda in the domestic premium
motorcycles segment. 3) Higher stability in margins during the strong
demand environment over past few quarters.
Key risks: Competition from Honda, decline in commodity cost
(1) We believe Honda’s launch of an economy motorcycle will be a
challenge, particularly to commuter segment market leader Hero
Motocorp. (2) Lower commodity costs could offer margin expansion
opportunity in our view, if domestic two-wheeler demand remains resilient.
(3) Other risks include higher/lower than expected consumer confidence.
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