17 January 2013
3QFY13 Results Update |
Sector: Automobiles
Bajaj Auto
BSE Sensex
19,987
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
1,6,12 Rel.Perf.(%)
S&P CNX
6,057
BJAUT IN
289.4
601/11
-4/21/23
CMP: INR2,076
TP: INR2,250
Buy
52-Week Range (INR) 2,229/1,410
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
NP
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
2013E 2014E 2015E
202.9
37.3
30.3
(2.5)
45.2
62.5
55.9
19.8
8.1
14.0
2.4
239.1
47.1
38.3
26.4
46.3
63.7
53.0
15.7
6.5
10.6
2.9
276.2
53.8
43.4
13.2
42.3
58.1
50.8
13.9
5.3
8.8
3.1
Adj. EPS (INR) 104.7 132.4 149.8
255.0 317.2 391.0
Bajaj Auto (BJAUT) posted above estimate results, with EBITDA margins at 18.7%
(v/s est 18.2%) and adj. PAT at INR8.2b (v/s est. INR7.7b), driven by richer product
mix and higher export realizations. New launches helped 5% volume growth.
Earnings call highlights
Management expects 4Q volumes to remain muted ; however, no discounts/
subventions being offered, even in 3Ws.
Expects domestic motorcycle growth to pick up in FY14 on better consumer
sentiments and new launches. Exports to grow by over 10% in FY14; expects
15-18% CAGR in exports over 3-5 years, led primarily by Africa.
FY14 export exposure of USD900m hedged at a base rate of 53 INR/USD
(average 54, v/s 49 in FY13); benefit of favorable currency could be passed on
to boost volumes.
Upgrade FY13E/FY14E EPS est by ~1.2%/2.9%
We upgrade FY13E/FY14E EPS by 1.2%/2.9% to factor higher export realizations
driven by INR depreciation. We model INR/USD rate of 49/54 for FY13E/FY14E.
Valuation and view
New launches and recovery in domestic two-wheeler industry to drive 13%
volume CAGR over FY13E-15E in domestic motorcycles. This coupled with a
recovery in export volumes and 3Ws (launch of a completely new range) to
drive 14.6% overall volume CAGR. Volume growth coupled with favorable
currency will drive 19.6% earnings CAGR over FY13E-15E.
The stock is valued at 15.7x FY14E EPS of INR132.4 and 13.9x FY15E EPS of
INR149.8. Our estimates could see upgrades for export realizations above 54
(every INR1 depreciation would boost margins by 65bp, EPS by 3.2% for FY14E/
15E). Maintain
Buy
with a target price of INR2,250 (15x FY15E EPS).
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
Chirag Jain
(Chirag.Jain@MotilalOswal.com) + 91 22 3982 5418
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Bajaj Auto
Festive demand recovery and new launches drive growth in motorcycles;
3Ws benefit from higher diesel sales
Volumes grew 5% YoY (+7.5% QoQ) to 1.13 m units (v/s est 1.11 m) driven by
domestic markets as exports were impacted due to global slowdown and import
duty hike in Sri Lanka effective Apr-12.
Domestic motorcycles registered a growth of 7% YoY (+14.2% QoQ) driven by ramp-
up in recent launches and festive demand. On a sequential basis, market share
improves by 30bp in the domestic motorcycles helped by recent launches.
Despite sluggish demand trends, the company has not been providing any
discounts/subventions to drive sales, both in the motorcycle and 3Ws.
Bajaj enjoys 40% market share (including exports) in 125cc & above motorcycle
segment (~35% of industry volumes). In another 65%, Bajaj has 20% market share.
Motorcycle exports declined by 1% YoY (-8.5% QoQ), reflecting slowdown in the
global economy. However, Africa (Bajaj's biggest export market) continues to
perform well with Nigeria recording highest ever retails in Dec-12.
Considering the balance of payment situation and inflationary trends, Govt. actions
in key export markets are artificially curbing demand for the two-wheeler industry.
However, Bajaj (being the market leader in most markets) have gained market
share as customers prefer established brands during uncertain times.
Export volumes to the Sri Lanka market have stabilized at 7.5k for 3Ws (v/s earlier
12k) and 5.5-6k for motorcycles (v/s 10k) per month.
Growth of in 3Ws was largely driven by higher sales of diesel 3Ws (24% YoY) in the
domestic market. Bajaj continues to enjoy market leadership with 89% share in
the petrol/alternative fuel 3W segment.
Realizations were up 3.5% YoY (+1.3% QoQ) to INR47,996/unit (v/s est INR47,113),
driven by better mix (higher share of 3Ws and better motorcycle mix) together
with higher realizations on exports (+9% QoQ). Higher export realizations is despite
DEPB reduction of 3.5% effective Oct-12, and is driven by higher 3W contribution,
price increase for DEPB reduction (effective Nov-12).
Driven by 5.1% YoY volume growth and 3.5% YoY realization growth, net revenues
grew by 8.6% YoY (+8.9% QoQ) to INR54.1b (v/s est INR52.2b).
Trend in product mix
3QFY13
Motorcycles
Domestic
Exports
Total Motorcycles
% of total
Three Wheelers
Domestic
Exports
Total 3Ws
% of total
Total Volumes
687,351
298,912
986,263
87.5
3QFY12 YoY (%)
642,395
301,654
944,049
88.0
7.0
-0.9
4.5
2QFY13 QoQ (%) FY13-YTD FY12-YTD YoY (%)
601,876
326,648
928,524
88.5
14.2 1,907,716 1,950,241
-8.5 989,694 984,216
6.2 2,897,410 2,934,457
89.0
88.1
12.5
21.5
17.2
166,052 149,742
192,458 245,494
358,510 395,236
11.0
11.9
7.5 3,255,920 3,329,720
Source: Company,
-2.2
0.6
-1.3
64,168
52,134
77,310
76,558
141,478 128,692
12.5
12.0
1,127,741 1,072,741
23.1
1.0
9.9
57,047
63,637
120,684
11.5
5.1 1,049,208
10.9
-21.6
-9.3
-2.2
MOSL
17 January 2013
2

Bajaj Auto
Trend in market share (%)
75cc - 125cc
125cc - 250cc
Dom. Motorcycles
Total Motorcycles
Total Dom. 2W
Total 2W (incl exports)
Dom. 3W
3W (incl exports)
3QFY13
22.4
44.8
26.0
31.8
19.0
24.2
42.3
58.7
3QFY12
20.2
48.6
25.3
32.7
19.4
26.1
38.3
61.3
YoY (bp)
220
-370
60
-90
-40
-180
400
-260
2QFY13
QoQ (bp)
22.2
30
44.2
60
25.7
30
33.2
-140
18.3
70
24.8
-60
41.0
140
56.0
270
Source: SIAM, MOSL
Realizations improves in export markets
Market share improves in domestic segment QoQ
Source: Company, MOSL
Richer mix and higher export realizations drive QoQ margin improvement
despite reduction in export incentives
EBITDA margin improved by 30bp QoQ (-100bp YoY) to 18.7% (v/s est 18.3%), driven
by richer product mix, higher export realizations and operating leverage benefits,
despite RM cost increasing by ~60bp QoQ to 72.4%.
During the quarter, export incentives (DEPB) were reduced from 5.5% to 2% on
exports effective Oct-12. To pass the impact, Bajaj increased its export prices
effective Nov-12.
RM cost increased QoQ by 60bp
Trend in EBITDA (INR/unit) and EBITDA margin (%)
Source: Company, MOSL
17 January 2013
3

Bajaj Auto
Mix within motorcycles improved driven by recent launches i.e. Pulsar 200NS and
Discover 125ST. During the quarter, the Pulsar and Discover brand contributed
~70% of motorcycle volumes.
EBITDA grew by 2.8% YoY (+10.5% QoQ) to INR10.1b (v/s est INR9.48b).
Adj. PAT declined marginally by 2% YoY (+10.5% QoQ) to INR 8.2b (v/s est 7.69) due
to higher tax rate at 30.2% (v/s 25.1% in 3QFY12) on partial expiry of Pantnagar tax
benefits.
Other takeaways
Management expects 4QFY13 volumes to remain muted (flat YoY). Dec-12
wholesale dispatches were higher than retails to fill in channel inventory to ~30
days, post correction during festive season.
Bajaj Auto has increased its export prices to pass on ~70-75% of the impact of
DEPB (export incentive) reduction. Despite that, export realizations were up due
to higher 3W sales driven by recovery in demand from Sri Lanka and Egypt.
Management expects profitability to improve significantly in FY14 primarily driven
by higher export realizations on INR depreciation. FY14, the company has hedged
USD900m of export exposure at a base rate of INR53/USD (average rate of 54 for
FY14, v/s INR49 in FY13), although it could partly pass-on the benefit to drive
volumes.
The company expects volume and margins could get a significant boost in FY14, if
the recently launched 100c Discover (100T) is accepted well by the customers. At
similar price and mileage, the company claims it offers 30% higher power compared
to competition in the 100-110cc space.
The company expects a monthly run-rate of 45-47k units of 3Ws; benefits from
issuance of new permits in the domestic market would be additional.
Management believes that its strategy of differentiation and deeper segmentation
of the market would enable it to withstand competition from Honda, which follows
a strategy of familiarity.
Management expects its export volumes to grow by 15-18% CAGR over the 3-5
year period driven by 1) benefits accruing Kawasaki/KTM partnership, 2) entry
into newer markets (for instance Brazil), and 3) continued growth from Africa and
other key markets. Penetration levels in several African countries are below 5%
levels (compared to 10-11% in India).
The company plans to introduce a new range of 3Ws in FY14. Moreover, if the
regulatory approvals are received, the company plans to launch the 4-wheeler
(RE 60) in FY14.
Current capacity stands at 6.0m units (including 0.6m for 3Ws). Company claims
that capacity expansion, when needed, can be carried out a notice of 5-6 months.
Due to partial expiry of tax benefits at Pantnagar plant, tax rates have increased in
FY13 onwards. The company expects FY13 tax rate to be high at 29% levels (v/s
25% in FY12).
As on Dec-12, surplus cash stood at INR53.7b (v/s INR45.2b as on Jun-12).
17 January 2013
4

Bajaj Auto
Upgrade FY13/FY14 EPS est by ~1.%/2.9% to factor in for higher export
realizations
We upgrade our FY13/FY14 EPS estimates by 1.2%/2.9% to factor in for higher
export realizations driven by INR depreciation. We model INR/USD rate of 49/54
for FY13/FY14.
Revised forecast (INR m)
Rev
4,305,046
202,891
37,285
18.4
30,299
104.7
FY13E
Old
4,305,669
201,478
36,625
18.2
29,938
103.5
Chg (%)
0.0
0.7
1.8
20bp
1.2
1.2
Rev
4,886,648
239,146
47,124
19.7
38,312
132.4
FY14E
Old
Chg (%)
4,883,205
0.1
235,748
1.4
45,587
3.4
19.3
40bp
37,226
2.9
128.6
2.9
Source: MOSL
Volumes (units)
Net Sales
EBITDA
EBITDA Margins (%)
Net Profit
EPS (INR)
Valuation and view
Expect recovery in domestic two-wheeler industry together with new launches
to drive 13% volume CAGR for Bajaj over FY13-15 in domestic motorcycles. This
coupled with recovery in export volumes and 3Ws (launch of completely new
range) to drive 14.6% overall volume CAGR. Volume growth coupled with
favorable currency will drive 19.6% earnings CAGR over FY13-15E.
The stock is valued at 15.7x FY14E EPS of INR132.4 and 13.9x FY15E EPS of INR149.8.
Our estimates could see meaningful upgrades for export realizations above 54
(every INR1 depreciation would boost margins by 65bp, EPS by 3.2% for FY14/15).
Maintain
Buy
with TP of INR2,250 (15x FY15 EPS).
17 January 2013
5

Bajaj Auto
Bajaj Auto: an investment profile
Company description
Bajaj Auto (BJAUT), the flagship of the Bajaj group, is a
leading manufacturer of two-wheelers (~88% of
volumes) and three-wheelers (~12% of volumes). It is
the market leader in three-wheelers, and is the second
largest player in motorcycles and enjoys leadership in
the premium segment. It is also the largest exporter of
two-wheelers and three-wheelers (~36% of its volumes).
Recent developments
Has launched a new 100cc motorcycle (Discover
100T), providing higher power and features/style at
mileage similar to competition in that segment.
Valuation and view
The stock is valued at 15.7x FY14E EPS of INR132.4
and 13.9x FY15E EPS of INR149.8. Our estimates could
see meaningful upgrades for export realizations
above 54 (every INR1 depreciation would boost
margins by 65bp, EPS by 3.2% for FY14/15).
Maintain
Buy
with TP of INR2,250 (15x FY15E EPS).
Key investment arguments
Well diversified product and market mix, with
motorcycle and three-wheelers in domestic and
export markets.
Renewed strategy with focus on Discover and Pulsar
- two of its most profitable brands
Largest exporter of two-wheelers (~63.7% of
exports) and three-wheelers (~95% of exports), with
scope to drive overall volume growth
Sector view
Demand drivers in place, driven by increasing
penetration in rural markets and replacement
demand from urban markets
2W export provides huge opportunity, with ~2x India
opportunity in the markets similar to India.
Industry dynamics favorable, with focus on
profitability rather than market share.
Key investments risks
Strengthening-up of commodity prices to put
pressure on margins.
Increasing competitiveness in two-wheeler industry
could restrict pricing power.
Comparative valuations
P/E (x)
EPS Gr (%)
RoE (%)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Bajaj Auto
19.8
15.7
-2.5
26.4
45.2
46.3
14.0
10.6
Hero MotoCorp
16.0
14.7
-3.6
8.7
43.3
39.0
9.9
8.3
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
104.7
132.4
Consensus
Forecast
110.1
130.0
Variation
(%)
-4.9
1.8
FY13
FY14
Target price and recommendation
Current
Price (INR)
2,076
Target
Price (INR)
2,250
Upside
(%)
8.4
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Dec-12
Promoter
Domestic Inst
Foreign
Others
17 January 2013
50.0
8.3
17.4
24.3
Sep-12
50.0
10.0
15.5
24.5
Dec-11
50.0
8.5
16.6
24.9
6

Bajaj Auto
Financials and Valuation
17 January 2013
7

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Bajaj Auto
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