New strategy execution & success key! Bajaj Auto :: ::ICICI Securities, link

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New strategy execution & success key!
The Bajaj Auto (BAL) management met investors to give an insight into
future strategies on product, marketing side coupled with financials. They
remain focused on to the idea of “supplying a reason to buy” for the
customer and not become commoditised like competition.
Management expects to sandwich competitors with clear positioning
The management is targeting an increase of the domestic market share in
the motorcycle space to 24% cumulating ~218,000 monthly units
(increase of 6% from YTD levels). This was further segregated into market
share gains in the commuter space via Platina (expect volumes to rise
70% from YTD levels to 70,000 units), premium space via Pulsar (expect
volumes to rise 30% from YTD levels to ~78,000 units). BAL is aiming to
pull customers away from Hero’s bread and butter segment
(Splendor/Passion) either down to Platina or up to 150 cc Discover. The
new Platina variant aided with self start capability, new family of Pulsars
[(Adventure sport (150cc), Super Sport (200cc), Cruiser Sport (400 cc)] is
expected to increase both appeal and volumes.
Export momentum to remain strong!
On exports, the management is aiming to double exports from the
current 1.9 million units in the coming years. In the current 48 countries
Bajaj operates in, it has ~5.7 million as the target market size in the
motorcycle space, with market share of ~23% in total. They are targeting
14 new geographies in FY15E and 14 in FY16E that cumulatively have a
market potential of ~2.8 million units. This could easily lead BAL to
maintain export growth momentum of >20% considering it manages to
gain ~ 20% market share in newer markets in the coming years.
“Cash cow” three-wheeler segment to receive RE-60 boost…
In three-wheelers, the management is trying to look at RE-60 Quadricycle
launch with much expectation and feels it could be a game-changer in
terms of urban, Tier-1 transportation. They have received a favourable
response from private fleet operators like Meru, Ola, etc. in inducting the
product in their fleet. BAL in domestic market expects to close the year at
250,000 units while in exports it expects it at ~294,000 units.
Financials performance to remain strong head & shoulders above peers
On the financials front, BAL highlighted the fact that ~82% of business
operates at >20% EBITDA margin while for the remaining Platina (7%),
Discover (11%), BAL expects the latter to improve in line with industry
averages. BAL remains one of the lowest in the industry in terms of fixed
cost structure (~7%), thus leading to negative working capital and
>200% operating RoCE (current). It is expected to receive a boost in
FY16E on the earnings side with FMP maturities of ~ | 500 crore.
Indian-Global manufacturing OEM…but wait for better entry price
BAL is one of the few Indian manufacturing OEMs with a global
presence/market share coupled with global R&D standards along with
quality management in the automotive space. It remains a decent play
among peers considering the stability & quality of earnings coupled with
possibility of upsides on success in domestic motorcycle. We believe
BAL’s earnings trajectory will remain strong with a CAGR of ~17% in
FY14-17E and remains a low-risk, high RoCE business. We value BAL on
an SOTP basis, valuing the core business at 15x FY17E EPS and
investment in KTM to arrive at a target price of | 2833. We have a BUY
rating as we believe the risk-reward remains favourable for the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_BajajAuto_CoUpdate_Dec14.pdf