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Automobiles
India
Signs of increase in competitive intensity in two-wheeler industry. Bajaj Auto is
offering a 0% finance scheme on its Discover models and has launched Boxer 150cc at
an attractive price point to boost its market share in the domestic motorcycle industry.
We believe this strategy could result in increase in market share but could be negative
for margins. We maintain our SELL rating on both Bajaj Auto and Hero Motocorp as
valuations price in the positives but ignore risks due to the increase in competition.
We expect Bajaj Auto to gain market share in 2HFY12E
We estimate Bajaj Auto to gain 200 bps market share in 2HFY12E due to launch of Boxer 150cc at
an aggressive price point, new launches of Pulsar in 4QFY12E and introduction of 0% finance
scheme on the Discover model. The company is offering 0% finance scheme for 10 months on
Discover model (upfront payment of 60% of price + Rs 3,000 processing fee) and 8.9% finance
scheme for 18-24 months. EBITDA margins could also be impacted due to these subvention
schemes as Bajaj Auto compensates Bajaj Auto Finance on such schemes. We believe this
aggressive strategy could result in improvement in market share for Bajaj Auto in 2HFY12E but
could come at a cost of margins.
We estimate a 9% and 22% yoy volume growth in the domestic motorcycle industry for Hero
Motocorp and Bajaj Auto, respectively, between September and March 2012. We believe Hero
Honda’s EBITDA margins will remain at 1QFY12 levels as the company will spend on rebranding
and R&D, which will offset the positive impact of raw material cost savings.
Share of economy segment has increased while premium segment has declined
Share of the economy segment in the domestic motorcycle industry volumes has increased by
1.5% since 2QFY11 taking share from executive and premium bike segments. Although the shift
towards the economy segment is not very prominent but it reflects that consumers are shifting
towards lower-priced and better fuel-efficient vehicles. Bajaj Auto has lost market share in both
executive and premium segments but increased market share in the economy segment. On the
other hand, Hero Motocorp has gained market share in both executive and premium segments.
We believe Honda’s strategy will be the key for industry profitability. Honda has delayed the
launch of its 100cc bike till 1QFY13E. We highlight that Honda’s products are at a significant
premium to both Hero Motocorp and Bajaj Auto in the executive segment. If Honda launches a
100cc bike at an attractive price point, we believe it could pose significant risks to Hero Honda’s
and Bajaj Auto’s market shares and EBITDA margins.
We maintain our SELL rating on both Hero Motocorp and Bajaj Auto
Bajaj Auto trades at a 15% discount to Hero Motocorp on our estimates (Bajaj Auto trades at
14.3X PE on our FY2013E EPS and Hero Motocorp trades at 16.8X PE on our FY2013E EPS). We
believe while Bajaj Auto is currently trading at fair valuations, Hero Motocorp is trading at
significantly higher valuations on expectations of improvement in market share and EBITDA
margins in FY2013E. We see significant risks to Hero Motocorp’s pricing premium in the executive
segment in FY2013E if Honda prices its 100cc product aggressively. Honda has already indicated
its intent to increase market share in the passenger car segment by cutting prices of Honda City
and Jazz, we believe Honda could follow the same strategy in the motorcycle segment once its
capacity increases. We retain our target price of Rs1,585 for Bajaj Auto and Rs1,800 for Hero
Honda, both based on 14X PE multiple on our FY2013E EPS.
We expect Bajaj Auto to gain market share in 2HFY12E
Hero Motocorp has gained 220 bps market share during the April-August 2011 period
primarily from Bajaj Auto. Hero Motocorp has gained market share in executive as well as
premium segments while Bajaj has lost market share in the premium segment to both
Yamaha and Hero Motocorp and in the executive segment to Hero Motocorp. Bajaj Auto
has, however, gained market share in the economy segment.
Over the past few quarters, the economy segment share has increased in the domestic
motorcycle industry while the premium segment share has declined. We believe this could
be due to (1) higher interest rates that impact the premium segment more than the lowerend
segment and (2) shift towards lower-priced and more fuel-efficient bikes by customers.
Bajaj has recently launched Boxer 150cc at a very attractive price point to target the
Splendor/Passion customers. We believe this aggressive strategy could result in improvement
in market share for Bajaj Auto in 2HFY12E but could come at a cost of margins. We model
in 200 bps improvement in market share for Bajaj Auto in 2HFY12E driven by (1) new Boxer
150cc launch and (2) new Pulsar launch in 4QFY12E. We believe Bajaj Auto’s EBITDA
margins could be under pressure despite decline in raw material costs due to deterioration in
product mix.
Bajaj Auto has also launched attractive finance schemes on Discover in a bid to increase
market share. The company is offering 0% finance scheme for 10 months on Discover
model (upfront payment of 60% of price + Rs 3,000 processing fee) and 8.9% finance
scheme for 18-24 months. EBITDA margins could also be impacted due to these subvention
schemes as Bajaj Auto compensates Bajaj Auto Finance on such schemes.
We estimate a 9% and 22% yoy volume growth in the domestic motorcycle industry for
Hero Motocorp and Bajaj Auto during September-March 2012. We believe Hero Honda’s
EBITDA margins will remain at 1QFY12 levels despite no adverse impact due to product mix
as the company will spend on rebranding and R&D which will offset the positive impact due
to raw material cost savings.
We believe Honda’s strategy will be the key for industry profitability. Honda has delayed the
launch of its 100cc bike till 1QFY13E. We highlight that Honda’s products are at a significant
premium to both Hero Motocorp and Bajaj Auto in the executive segment. We think if
Honda launches 100cc bike at an attractive price point, it could pose significant risks to Hero
Honda’s and Bajaj Auto’s market share and EBITDA margins.
We maintain our SELL rating on both Bajaj Auto and Hero Motocorp due to expensive
valuations and we see risks to market share for both players in FY2013E which is being
ignored by the market. Bajaj Auto trades at a 15% discount to Hero Motocorp on our
estimates (Bajaj Auto trades at 14.3X PE on our FY2013E EPS and Hero Motocorp trades at
16.8X PE on our FY2013E EPS). We believe while Bajaj Auto is currently trading at fair
valuations, Hero Motocorp is trading at significantly higher valuations on expectations of
improvement in market share and EBITDA margins in FY2013E. We see significant risks to
Hero Motocorp’s pricing premium in the executive segment in FY2013E if Honda prices its
100cc product aggressively. Honda has already indicated its intent to increase market share
in the passenger car segment by cutting prices of Honda City and Jazz, we believe Honda
could follow the same strategy in the motorcycle segment once its capacity increases.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Automobiles
India
Signs of increase in competitive intensity in two-wheeler industry. Bajaj Auto is
offering a 0% finance scheme on its Discover models and has launched Boxer 150cc at
an attractive price point to boost its market share in the domestic motorcycle industry.
We believe this strategy could result in increase in market share but could be negative
for margins. We maintain our SELL rating on both Bajaj Auto and Hero Motocorp as
valuations price in the positives but ignore risks due to the increase in competition.
We expect Bajaj Auto to gain market share in 2HFY12E
We estimate Bajaj Auto to gain 200 bps market share in 2HFY12E due to launch of Boxer 150cc at
an aggressive price point, new launches of Pulsar in 4QFY12E and introduction of 0% finance
scheme on the Discover model. The company is offering 0% finance scheme for 10 months on
Discover model (upfront payment of 60% of price + Rs 3,000 processing fee) and 8.9% finance
scheme for 18-24 months. EBITDA margins could also be impacted due to these subvention
schemes as Bajaj Auto compensates Bajaj Auto Finance on such schemes. We believe this
aggressive strategy could result in improvement in market share for Bajaj Auto in 2HFY12E but
could come at a cost of margins.
We estimate a 9% and 22% yoy volume growth in the domestic motorcycle industry for Hero
Motocorp and Bajaj Auto, respectively, between September and March 2012. We believe Hero
Honda’s EBITDA margins will remain at 1QFY12 levels as the company will spend on rebranding
and R&D, which will offset the positive impact of raw material cost savings.
Share of economy segment has increased while premium segment has declined
Share of the economy segment in the domestic motorcycle industry volumes has increased by
1.5% since 2QFY11 taking share from executive and premium bike segments. Although the shift
towards the economy segment is not very prominent but it reflects that consumers are shifting
towards lower-priced and better fuel-efficient vehicles. Bajaj Auto has lost market share in both
executive and premium segments but increased market share in the economy segment. On the
other hand, Hero Motocorp has gained market share in both executive and premium segments.
We believe Honda’s strategy will be the key for industry profitability. Honda has delayed the
launch of its 100cc bike till 1QFY13E. We highlight that Honda’s products are at a significant
premium to both Hero Motocorp and Bajaj Auto in the executive segment. If Honda launches a
100cc bike at an attractive price point, we believe it could pose significant risks to Hero Honda’s
and Bajaj Auto’s market shares and EBITDA margins.
We maintain our SELL rating on both Hero Motocorp and Bajaj Auto
Bajaj Auto trades at a 15% discount to Hero Motocorp on our estimates (Bajaj Auto trades at
14.3X PE on our FY2013E EPS and Hero Motocorp trades at 16.8X PE on our FY2013E EPS). We
believe while Bajaj Auto is currently trading at fair valuations, Hero Motocorp is trading at
significantly higher valuations on expectations of improvement in market share and EBITDA
margins in FY2013E. We see significant risks to Hero Motocorp’s pricing premium in the executive
segment in FY2013E if Honda prices its 100cc product aggressively. Honda has already indicated
its intent to increase market share in the passenger car segment by cutting prices of Honda City
and Jazz, we believe Honda could follow the same strategy in the motorcycle segment once its
capacity increases. We retain our target price of Rs1,585 for Bajaj Auto and Rs1,800 for Hero
Honda, both based on 14X PE multiple on our FY2013E EPS.
We expect Bajaj Auto to gain market share in 2HFY12E
Hero Motocorp has gained 220 bps market share during the April-August 2011 period
primarily from Bajaj Auto. Hero Motocorp has gained market share in executive as well as
premium segments while Bajaj has lost market share in the premium segment to both
Yamaha and Hero Motocorp and in the executive segment to Hero Motocorp. Bajaj Auto
has, however, gained market share in the economy segment.
Over the past few quarters, the economy segment share has increased in the domestic
motorcycle industry while the premium segment share has declined. We believe this could
be due to (1) higher interest rates that impact the premium segment more than the lowerend
segment and (2) shift towards lower-priced and more fuel-efficient bikes by customers.
Bajaj has recently launched Boxer 150cc at a very attractive price point to target the
Splendor/Passion customers. We believe this aggressive strategy could result in improvement
in market share for Bajaj Auto in 2HFY12E but could come at a cost of margins. We model
in 200 bps improvement in market share for Bajaj Auto in 2HFY12E driven by (1) new Boxer
150cc launch and (2) new Pulsar launch in 4QFY12E. We believe Bajaj Auto’s EBITDA
margins could be under pressure despite decline in raw material costs due to deterioration in
product mix.
Bajaj Auto has also launched attractive finance schemes on Discover in a bid to increase
market share. The company is offering 0% finance scheme for 10 months on Discover
model (upfront payment of 60% of price + Rs 3,000 processing fee) and 8.9% finance
scheme for 18-24 months. EBITDA margins could also be impacted due to these subvention
schemes as Bajaj Auto compensates Bajaj Auto Finance on such schemes.
We estimate a 9% and 22% yoy volume growth in the domestic motorcycle industry for
Hero Motocorp and Bajaj Auto during September-March 2012. We believe Hero Honda’s
EBITDA margins will remain at 1QFY12 levels despite no adverse impact due to product mix
as the company will spend on rebranding and R&D which will offset the positive impact due
to raw material cost savings.
We believe Honda’s strategy will be the key for industry profitability. Honda has delayed the
launch of its 100cc bike till 1QFY13E. We highlight that Honda’s products are at a significant
premium to both Hero Motocorp and Bajaj Auto in the executive segment. We think if
Honda launches 100cc bike at an attractive price point, it could pose significant risks to Hero
Honda’s and Bajaj Auto’s market share and EBITDA margins.
We maintain our SELL rating on both Bajaj Auto and Hero Motocorp due to expensive
valuations and we see risks to market share for both players in FY2013E which is being
ignored by the market. Bajaj Auto trades at a 15% discount to Hero Motocorp on our
estimates (Bajaj Auto trades at 14.3X PE on our FY2013E EPS and Hero Motocorp trades at
16.8X PE on our FY2013E EPS). We believe while Bajaj Auto is currently trading at fair
valuations, Hero Motocorp is trading at significantly higher valuations on expectations of
improvement in market share and EBITDA margins in FY2013E. We see significant risks to
Hero Motocorp’s pricing premium in the executive segment in FY2013E if Honda prices its
100cc product aggressively. Honda has already indicated its intent to increase market share
in the passenger car segment by cutting prices of Honda City and Jazz, we believe Honda
could follow the same strategy in the motorcycle segment once its capacity increases.
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