investors eye

stock update

Bajaj Auto
Stock Update

Reco: Buy

Better outlook for FY2015; upgrade to Buy

Company details Price target: Market cap: Rs2,284 Rs56,108 cr

CMP: Rs1,939

Domestic motorcycle demand to recover in FY2015 After two consecutive years of slowdown (ie FY2013 and FY2014), the domestic motorcycle industry is expected to recover in FY2015, retracting to its long-term compound average growth rate (CAGR) of 10-12%. Favourable macro-economic factors such as higher economic growth, easing of interest rates and stability in fuel prices would lead to the demand recovery. Further, rural income is expected to rise given the expected higher crop output and the increase in the minimum support prices (MSP). The two-wheeler segment derives a significant chunk of revenues from rural areas, about 45%, and is likely to see an increase in the demand. To regain market share from Q4FY2014 on the back of new product launches and increased capacity Bajaj Auto Ltd (BAL) has underperformed in the domestic motorcycle industry in the last six months on the back of a decline in the sales of their flagship Discover (executive segment) brand. Its overall motorcycle market share has declined from 24.5% in FY2013 to 21.5% in H1FY2014. The market share loss can be attributed to the increase in competition and the production constraints on the newly launched models. Over the next six months, BAL has planned new launches in the executive segment to regain its lost market share. Also, the capacity of the newly launched Discover series would be ramped up from January 2014. We expect BAL to gradually regain its market share from Q4FY2014 on the back of new launches and the increase in the production capacity. Export segment revives; to tap new markets Export sales had rebounded in the last quarter on the back of a recovery in the demand in Sri Lanka and the Egyptian markets. Further, BAL plans to tap into new markets in Africa and Latin America to ramp up exports. BAL has also commenced exports to the Indonesian market using, its partner, Kawasakis distribution network.

52 week high/low: Rs2,229/1,658 NSE volume: (no. of shares) BSE code: NSE code: Sharekhan code: Free float: (no. of shares) 3.6 lakh 532977 BAJAJ-AUTO BAJAJ-AUTO 14.5 cr

Shareholding pattern
Public & Others 16% Foreign 18% Non-promoter corp holding 8% Promoters 50% Institutions 8%

Price chart
2250 2120 1990 1860 1730 1600 Mar-13 Dec-12 Jun-13 Sep-13 Dec-13

Valuations Particulars Income (Rs cr) Growth (%) EBIDTA (Rs cr) OPM (%) PAT (Rs cr) Growth (%) FD EPS (Rs) P/E (x) P/B (x) EV/EBIDTA (x) RoE (%) RoCE (%) FY2011 16,398.2 37.6 3,171.2 19.3 2,615.2 44.1 90.4 21.4 11.4 16.6 53.3 66.8 FY2012 19,529.0 19.1 3,720.0 19.0 3,138.1 20.0 108.5 17.9 9.3 13.7 51.9 65.9 FY2013 19,997.3 2.4 3,635.3 18.2 3,043.6 -3.0 105.2 18.4 7.1 13.9 38.5 52.0 FY2014E 21,960.2 9.8 4,604.2 21.0 3,698.8 21.5 127.9 15.2 5.6 10.6 36.7 50.6 FY2015E 26,581.7 21.0 5,695.3 21.4 4,630.7 25.2 160.1 12.1 4.4 7.9 36.1 47.1

Price performance (%) Absolute 1m -8.4 3m -7.5 6m 12m 5.5 -9.5

Relative -9.4 -11.2 to Sensex

-1.8 -16.9

Sharekhan

December 18, 2013

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investors eye

stock update

BAL executive motorcycle sales and market share

600000 500000 400000 300000 200000 100000 0 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 25% 20% 15% 10% 5% 0%

Quadricycle provides the next growth opportunity BAL plans to introduce its Quadricycle (RE60) in FY2015 which would open up a new growth avenue. BAL plans to commercially launch the Quadricycle in the Asian region in February 2014, followed by a debut in the South American market in April 2014. It is already testing out the Quadricycle in Sri Lanka, Egypt, Peru and South America. The Quadricycle in the domestic market has been delayed, as the Government is still to decide on the regulation for the new category of vehicles and the basic parameters are yet to be finalised. Valuationcorrection offers an entry opportunity The domestic motorcycle demand is expected to recover in FY2015. Also, the new product launches and increased capacity would enable BAL to regain its market share in the motorcycle space. Further, BAL has witnessed a recovery in the export volumes and plans to enter new markets to boost volumes. We have broadly maintained our earnings estimates for FY2014 and FY2015. The recent correction in the stock price offers an attractive entry point for investors. Given the favourable outlook, we upgrade our recommendation to Buy with a price target of Rs2,284. BAL remains our preferred pick in the two-wheeler space.

BA L V ols

M Shar e

BAL domestic motorcycle sales and market share

800000 700000 600000 500000 400000 300000 200000 100000 0 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14
8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14

30% 25% 20% 15% 10% 5% 0%

BA L V ols

M Share

Export volume and growth trend

420000 410000 400000 390000 380000 370000 360000 350000 340000 330000

Export volumes

Grow th Y oY (% )

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sharekhan

December 18, 2013

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September 21, 2011

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