Bajaj Auto- Angel Broking - May 2011
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Please refer to important disclosures at the end of this report 1
Y/E March (` cr) 4QFY11 4QFY10 % chg (yoy) Angel est. % diffNet sales 4,200 3,399 23.5 4,223 (0.6)EBITDA 862 777 10.9 822 4.8
EBITDA margin (%) 20.5 22.9 (235)bp 19.5 105bp
Reported PAT 1,401 529 165.0 630 122.4Source: Company, Angel ResearchBajaj Auto (BAL) reported its 4QFY2011 results, with revenue in line and earnings
above our estimates. Performance was driven by strong sales of premium
motorcycles, improved operating leverage and higher other income on account of
prepayment of sales tax deferral incentive. We remain positive on BAL though the
DEPB issue remains an area of concern. We recommend Buy on the stock.In-line operating performance driven by favourable product mix: BAL reported astrong 23.5% yoy increase in net sales to `4,200cr (`3,399cr), which was in line
with our expectations of `4,223cr. Revenue growth was driven by 17.2% yoy
growth in volumes with high-margin motorcycles, Pulsar and Discover,
contributing ~70% to total motorcycle sales. Favourable product mix along with
price hikes helped the company to post ~5.05% yoy growth in average net
realisation. EBITDA margin came in 105bp ahead of our estimate at 20.5%,
posting a decline of 235bp yoy. However, better product mix and reduced staff
and other expenditure limited the contraction in operating margin to a certain
extent. As a result, net profit (adjusted for one-time extraordinary items) surged by27.9% yoy to `676cr, better than our estimates of `630cr. There was an
exceptional item related to sales tax deferral incentive/loan to the amount of
`827cr, which boosted the bottom line by 165% to `1,401cr. For FY2011, the
company posted strong top-line growth of 40%, mainly driven by strong volume
growth. Adjusting for the exceptional items, the companys bottom line grew by
nearly 40%.
Outlook and valuation: At `1,291, the stock is trading at 13.3x FY2012E and 12xFY2013E earnings. We remain positive on BAL in the two-wheeler segment,
owing to its diversified business model and strong revenue and earnings visibility.
Currently, the stock is available at reasonable valuations due to the recent decline
in its price. Hence, we recommend Buy on the stock with a Target Price of `1,610,valuing it at 15x FY2013E earnings.Key financials
Y/E March (` cr) FY2010 FY2011E FY2012E FY2013ENet sales 11,921 16,639 19,535 22,122% chg 35.3 39.6 17.4 13.2
Adj. net profit 1,784 2,565 2,799 3,101% chg 132.0 43.8 9.1 10.8
EBITDA margin (%) 20.2 20.0 18.5 18.0
Adj. EPS (`) 58.8 88.7 96.7 107.2P/E (x) 21.9 14.6 13.3 12.0
P/BV (x) 12.8 10.1 7.3 5.4
RoE (%) 74.4 77.3 63.2 51.5RoCE (%) 58.8 69.9 62.5 54.4
EV/Sales (x) 2.9 2.0 1.6 1.4
EV/EBITDA (x) 14.4 10.1 9.1 7.9
Source: Company, Angel Research
BUYCMP `1,291
Target Price `1,610
Investment Period 12 Months
Stock Info
Sector
Bloomberg Code BJAUT@IN
Shareholding Pattern (%)
Promoters 50.0
MF / Banks / Indian Fls 16.5
FII / NRIs / OCBs 16.5
Indian Public / Others 17.0
Abs. (%) 3m 1yr 3yr
Sensex (0.4) 10.6 11.0
Bajaj Auto (3.3) 21.0 327.1
Note: * Listed on May 26, 2008
10
18,141
5,428
BAJA.BO
37,385
0.7
1,665/1,000
63,185
Automobile
Avg. Daily Volume
Market Cap (`cr)
Beta
52 Week High / Low
Face Value (`)
BSE Sensex
Nifty
Reuters Code
Amit Bagaria022-39357800 Ext: 6824
[email protected] Yaresh Kothari022-39357800 Ext: [email protected]
Bajaj AutoPerformance Highlights
4QFY2011 Result Update | Automobile
May 19, 2011
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 2
Exhibit 1:Quarterly performanceY/E March (` cr) 4QFY11 4QFY10 % chg FY2011 FY2010 % chgNet sales (incl. other op. income) 4,200 3,399 23.5 16,609 11,921 39.3Consumption of RM 2,854 2,237 27.6 11,230 7,651 46.8(% of sales) 68.0 65.8 3.3 67.6 64.2
Staff costs 129.6 86.2 50.4 476.8 399.5 19.4
(% of sales) 3.1 2.5 2.9 3.4
Purchases of goods 122.7 117.7 4.2 568.4 419.8 35.4
(% of sales) 2.9 3.5 3.4 3.5
Other expenses 232.0 181.8 27.6 948.4 858.5 10.5
(% of sales) 5.5 5.3 5.7 7.2
Total expenditure 3,338 2,622 27.3 13,224 9,328 41.8EBITDA 862 777 10.9 3,385 2,593 30.6EBITDA margin (%) 20.5 22.9 20.4 21.7
Interest 0.1 (0.0) - 1.7 6.0 (71.7)
Depreciation 30.1 34.1 (11.9) 122.8 136.5 (10.0)
Other income 101.0 42.5 137.6 365.8 122.5 198.6
PBT (excl. extr. items) 932 786 18.7 3,626 2,573 41.0Extr. income/(expense) 724.6 (49.4) - 724.6 (162.4) -
PBT (incl. extr. items) 1,657 736 125.1 4,351 2,410 80.5(% of sales) 39.5 21.7 26.2 20.2
Provision for taxation 256.2 207.5 23.5 1,011.0 707.5 42.9
(% of PBT) 15.5 28.2 23.2 29.4
Reported PAT 1,401 529 165.0 3,340 1,703 96.1PATM (%) 33.4 15.6 20.1 14.3
Equity capital (cr) 289.4 144.7 289.4 144.7
EPS (`) 48.4 18.3 165.0 115.4 58.8 96.1Source: Company, Angel Research; Note: EPS adjusted for 1:1 bonus issue
Exhibit 2: Volume performance
Y/E March (units) 4QFY11 4QFY10 % chg FY2011 FY2010 % chgTotal two-wheelers 948,195 808,973 17.2 3,823,929 2,852,676 34.0
Motorcycles 836,668 712,432 17.4 3,387,018 2,506,887 35.1
Scooters 0 259 - 27 4,852 (99.4)
Three-wheelers 836,668 712,691 17.4 3,387,045 2,511,739 34.8Total volume 111,527 96,282 15.8 436,884 340,937 28.1Exports (inc above ) 275,843 214,471 28.6 1,203,718 891,098 35.1
Source: Company, Angel Research
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 3
Net sales up 23.5%, driven by 17.2% volume and 5.05% realisation growth: BALreported strong 23.5% yoy growth in net sales to `4,200cr (`3,399cr), driven by a
17.2% yoy increase in total volumes and a 5.05% yoy increase in average net
realisation. For FY2011, domestic volume grew by 36% yoy, while the domestic
two-wheeler auto industry grew by 23% yoy, resulting in a gain of 2.4% in
domestic market share.
Exhibit 3: Sales growth driven by volume and realisation
Source: Company, Angel Research; Note: Net sales excludes other operating income
EBITDA margin down 235bp yoy to 20.5%, marginally ahead of estimates: During4QFY2011, EBITDA margin came in 105bp ahead of our estimate at 20.5%,
down 235bp yoy. Margin contraction was primarily on account of a 330bp yoy
increase in raw-material cost, which accounted for 68% of net sales during thequarter. Improved operating leverage and better product mix along with higher
commercial vehicle volumes helped the company to restrict yoy and qoq margin
contraction to a certain extent. As a result, overall operating profit for the quarter
increased by 10.9% yoy to `862cr (`777cr). Management has guided to sustain
EBITDA margin at 20% levels in FY2011 and FY2012.
Exhibit 4: 20% EBITDA margin guidance achieved
Source: Company, Angel Research
Exhibit 5: Net profit up 165% yoy, above our estimates
Source: Company, Angel Research; Note: Net sales excludes other
operating income
Net profit up 165% yoy on higher other income: BAL reported net profit growth of165% yoy to `1,401cr (`529cr), which was higher than our expectation of `630cr,
largely due to higher extraordinary income of `725cr on account of exceptional
item related to sales tax deferral incentive/loan to the amount of `827cr. Adjusting
for other income, net profit surged by 27.9% yoy to `676cr, better than our
estimates of `630cr.
1.6
14.0
57.9
84.1
65.4
49.7
27.223.1
0
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1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
(%)(`cr) Net sales (LHS) Net sales growth (RHS)
19.5 22.0 22.022.9 20.0 20.7 20.3 20.5
68.5 68.5 71.3 71.674.1 73.5 74.0 73.5
0
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1QFY10
2QFY10
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4QFY10
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(%) EBIT DA margin Raw material cost/sales
13.0 14.415.0 16.1 15.8 16.3 16.6
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(%)(` cr) Net profit (LHS) Net prof it margin (RHS)
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 4
Conference call Key highlights
Production: Management has given volume guidance for FY2012 of ~4.6mnunits with monthly run rate of 0.24mn domestic bikes and 0.14mn exports.
EBITDA margin: Management has guided for margins to be sustainable at thecurrent levels of ~20%. As per management, the company enjoys superior
margins in the domestic two-wheeler segment compared to its peers. On the
exports front, EBITDA margin is currently at ~20%. In the three-wheeler and
spare parts business, BAL enjoys EBITDA margins in excess of ~30%.
Exports: On the exports front, BAL continues to witness strong demand from Africa, Nigeria, Sri Lanka, Bangladesh and Colombia. The company sees
Africa as a major growth driver for exports.
Management guided that advertisement cost has gone down in absolute termsin FY2011. Going forward, although it will be higher than FY2011 in
absolute terms but as a percentage of sales, it would more or less remain in
the same range.
Management has guided capex of close to `500cr over the next two years,
mainly towards R&D and the four-wheeler segment.
Management also came out strongly about its view on the DEPB scheme.
Management believes that DEPB is here to stay. It is not about only auto, other
sectors such as textiles work on wafer thin margins and removal of DEPB will
majorly hamper the sectors, and the government is unlikely to take such astand. We are of the opinion that DEPB will not be completely removed, but
surely it can be reduced from its current level of 9%. We will factor removal of
DEPB in our numbers only after there is complete clarity on the
same. However, if DEPB does end, then it can negatively affect BALs bottom
line by 78%.
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 5
Investment arguments Focus on Discover and Pulsar to improve market share: BAL continues to
witness strong demand in the two-wheeler segment from its strong dual
offering of Discover and Pulsar. BAL is positioning itself in line with its strategyof value and price products, wherein it proposes to tap higher-value bike
segments, which have a high-growth potential and fetch better realisations.
BAL has also launched new products in the high-margin 125cc+ segment.
Three-wheeler registering healthy growth: BAL has a strong presence in thethree-wheeler market, with an overall market share (including exports) of
around 55.7% in December 2010. The company tops the passenger
auto-rickshaw segment (62.9% market share), which accounts for ~88% of the
three-wheeler market. The three-wheeler segment fetches higher margins than
the companys two-wheeler business. Although the company has lost some
market share in the three-wheeler domestic market, improving export volumes
have more than compensated to post higher volume growth. We expect thecompanys three-wheeler volumes to grow by 1213% over FY201113E.
High growth potential in export volumes: BAL registered a strong exportsCAGR of 37% during FY200511, aided by a 43% CAGR in two-wheeler
exports and a 22% CAGR in three-wheeler exports. Going ahead, we estimate
BAL to register a 24.6% CAGR over FY201113E, driven by the strong
demand outlook from the exports market. BAL has also hedged around 90%
of its FY2012 exports. Hence, any sharp appreciation of the INR in FY2012
will not have a significant impact on the companys margins.
Outlook and valuationAt `1,291, the stock is trading at 13.3x FY2012E and 12x FY2013E earnings.
We remain positive on BAL in the two-wheeler segment, owing to its diversified
business model and strong revenue and earnings visibility. Currently, the stock isavailable at reasonable valuations; hence, we recommend Buy on the stock with atarget price of `1,610, valuing it at 15x FY2013E earnings.
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 6
Exhibit 6 Key assumptions
Y/E March FY2009 FY2010 FY2011E FY2012E FY2013ETotal volume (units) 2,451,396 2,194,108 2,851,518 3,847,290 4,314,745Domestic 1,658,230 1,276,427 1,781,748 2,423,177 2,713,959Export 481,549 631,383 725,097 1,000,634 1,140,723
Total motorcycle 2,139,779 1,907,810 2,506,845 3,423,811 3,854,681
Scooters 21,316 11,772 3,737 - -
Total two-wheelers 2,161,095 1,919,582 2,510,582 3,423,811 3,854,681Passenger domestic 127,379 125,273 164,493 197,392 207,261
Goods domestic 26,607 10,197 11,534 3,460 3,460
Exports 136,315 139,056 164,909 222,627 249,342
Total three-wheelers 290,301 274,526 340,936 423,479 460,064Total change (%)Total volume (9.8) (10.5) 30.0 34.9 12.2Domestic (20.2) (23.0) 39.6 36.0 12.0
Export 61.8 31.1 14.8 38.0 14.0
Total motorcycle (10.0) (10.8) 31.4 36.6 12.6
Scooters 4.1 (44.8) (68.3) -
Total two-wheelers (9.8) (11.2) 30.8 36.4 12.6Passenger domestic (8.2) (1.7) 31.3 20.0 5.0
Goods domestic (37.2) (61.7) 13.1 (70.0) -
Exports (3.1) 2.0 18.6 35.0 12.0
Total three-wheelers (9.8) (5.4) 24.2 24.2 8.6Source: Company, Angel Research
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 7
Exhibit 7: One-year forward P/E band
Source: Company, Bloomberg, Angel Research
Exhibit 8: One-year forward P/E chart
Source: Company, Bloomberg, Angel Research
Exhibit 9: BAL Premium/Discount to Sensex P/E
Source: Company, Bloomberg, Angel Research
Exhibit 10: Auto stocks vs. Sensex
Source: Company, Bloomberg, Angel Research
Exhibit 11: Valuation summary
Reco CMP TP Upside P/E (x) EV/EBITDA (x) RoE (%) FY2010-13E EPSAutomobile (`) (`) (%) FY12E FY13E FY12E FY13E FY12E FY13E CAGR (%)Ashok Leyland Buy 49 64 31.2 10.3 9.1 7.4 6.6 15.0 15.2 22.6
Bajaj Auto Buy 1,291 1,610 24.7 13.3 12.0 9.1 7.8 63.2 51.4 22.2Hero Honda Neutral 1,794 1,753 (2.3) 17.3 15.4 9.4 7.8 62.4 59.5 3.9
Maruti Buy 1,214 1,506 24.1 13.5 12.1 7.5 6.0 16.9 15.8 6.3
Mahindra and Mahindra Buy 677 881 30.2 13.8 12.7 8.3 7.2 27.3 24.4 14.1
Tata Motors Buy 1,154 1,456 26.2 7.5 6.9 4.9 4.1 39.2 31.4 109.5
TVS Motor Buy 52 62 18.8 11.9 10.1 6.0 5.1 20.7 21.0 41.0
Source: Company, Angel Research
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(100)
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TVS HH BAL Sensex
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 8
Profit & Loss Statement
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013EGross sales 9,050 12,118 16,951 19,985 22,648Less: Excise duty 613 610 932 1,099 1,246Net sales 8,437 11,509 16,019 18,886 21,402
Other operating income 373 412 621 649 720
Total operating income 8,810 11,921 16,639 19,535 22,122% chg (2.3) 35.3 39.6 17.4 13.2
Total expenditure 7,829 9,515 13,311 15,928 18,139
Net raw materials 6,463 8,070 11,854 14,032 15,945
Other mfg. costs 192 214 240 283 321
Personnel 538 583 465 612 685
Other 635 648 753 1,001 1,188
EBITDA 982 2,406 3,328 3,607 3,984% chg (15.7) 145.0 38.3 8.4 10.5
(% of Net Sales) 11.1 20.2 20.0 18.5 18.0
Depreciation & Amortisation 130 136 127 136 147
EBIT 852 2,269 3,201 3,471 3,836% chg (14.0) 166.3 41.1 8.4 10.5
(% of Net Sales) 10.1 19.7 20.0 18.4 17.9
Interest & other Charges 21 6 2 4 4
Other Income 122 144 364 421 476
(% of PBT) 14.6 6.2 10.2 10.8 11.1
Recurring PBT 953 2,408 3,563 3,887 4,308% chg (15.9) 152.6 48.0 9.1 10.8
Extraordinary (Expense)/Inc. (115) (82) - - -
PBT 838 2,326 3,563 3,887 4,308Tax 299 705 998 1,088 1,206
(% of PBT) 35.6 30.3 28.0 28.0 28.0
PAT (reported) 655 1,703 2,565 2,799 3,101ADJ. PAT 769 1,784 2,565 2,799 3,101% chg (4.9) 132.0 43.8 9.1 10.8
(% of Net Sales) 9.1 15.5 16.0 14.8 14.5
Basic EPS (`) 26.6 58.8 88.7 96.7 107.2Fully Diluted EPS ( ) 26.6 58.8 88.7 96.7 107.2% chg (4.9) 121.3 50.7 9.1 10.8
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 9
Balance Sheet
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013ESOURCES OF FUNDSEquity Share Capital 145 145 289 289 289Preference Capital - - - - -
Reserves & Surplus 1,725 2,784 3,416 4,861 6,609
Shareholders Funds 1,870 2,928 3,705 5,150 6,898Total Loans 1,570 1,339 1,189 1,064 989
Deferred Tax Liability 4 2 2 2 2
Total Liabilities 3,444 4,269 4,896 6,215 7,889APPLICATION OF FUNDSGross Block 3,350 3,379 3,725 4,254 4,756
Less: Acc. Depreciation 1,808 1,900 2,026 2,162 2,310
Net Block 1,542 1,480 1,699 2,091 2,446Capital Work-in-Progress 22 42 37 43 48
Goodwill - - - - -
Investments 1,809 4,022 4,651 5,905 7,494Current Assets 2,325 3,001 4,260 4,443 4,768
Cash 137 101 263 (263) (459)
Loans & Advances 1,491 2,180 2,883 3,305 3,638
Other 697 719 1,114 1,401 1,588
Current liabilities 2,438 4,275 5,751 6,266 6,867
Net Current Assets (112) (1,274) (1,491) (1,823) (2,098)Mis. Exp. not written off 183 - - - -
Total Assets 3,444 4,269 4,896 6,215 7,889
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 10
Cash Flow Statement
Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013EProfit before tax 838 2,326 3,563 3,887 4,308
Depreciation 130 136 127 136 147Change in Working Capital 145 800 (175) 46 177
Less: Other income 402 (180) 334 600 511
Direct taxes paid 299 705 998 1,088 1,206
Cash flow from operations 413 2,737 2,183 2,381 2,915(Inc.)/Dec. in Fixed Assets (353) (49) (342) (534) (508)
(Inc.)/Dec. in Investments 49 (2,213) (629) (1,254) (1,589)
(Inc.)/Dec. in loans and advances (141) (10) (128) (240) (98)
Other income 122 144 364 421 476
Cash flow from investing (324) (2,127) (734) (1,606) (1,718)Issue of Equity - - 145 - -
Inc./(Dec.) in loans 236 (231) (150) (125) (75)
Dividend Paid (Incl. Tax) 339 372 1,354 1,354 1,354
Others (582) (786) (2,635) (2,530) (2,672)
Cash flow from financing (8) (645) (1,286) (1,301) (1,393)Inc./(Dec.) in Cash 81 (35) 162 (526) (196)
Opening cash balances 56 137 101 263 (263)Closing cash balances 137 101 263 (263) (459)
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Bajaj Auto | 4QFY2011 Result Update
May 19, 2011 11
Key Ratios
Y/E March FY2009 FY2010 FY2011E FY2012E FY2013EValuation ratio (x)P/E (on FDEPS) 48.6 21.9 14.6 13.3 12.0P/CEPS 47.6 20.3 13.9 12.7 11.5
P/BV 20.0 12.8 10.1 7.3 5.4
Dividend yield (%) 0.9 3.1 3.1 3.1 3.1
EV/Sales 4.1 2.9 2.0 1.6 1.4
EV/EBITDA 37.7 14.4 10.1 9.1 7.9
EV / Total Assets 10.7 8.1 6.9 5.3 4.0
Per share data (`)EPS (Basic) 26.6 58.8 88.7 96.7 107.2
EPS (fully diluted) 26.6 58.8 88.7 96.7 107.2
Cash EPS 27.1 63.6 93.0 101.4 112.3
DPS 11.0 40.0 40.0 40.0 40.0
Book Value 64.6 101.2 128.1 178.0 238.4
DuPont analysisEBIT margin (%) 10.1 19.7 20.0 18.4 17.9
Tax retention ratio (x) 0.6 0.7 0.7 0.7 0.7
Asset turnover (x) 2.8 3.2 3.8 3.5 3.0
RoIC (Post-tax) 18.5 43.8 54.4 46.5 38.5
Cost of Debt (Post Tax) 0.0 0.0 0.0 0.0 0.0
Leverage (x) 0.0 0.0 0.0 0.0 0.0
Operating RoE (%) 18.5 43.8 54.4 46.5 38.5
Returns (%)RoCE (Pre-tax) 26.7 58.8 69.9 62.5 54.4
Angel RoIC (Pre-tax) 25.8 54.5 69.1 53.6 46.0
RoE 44.5 74.4 77.3 63.2 51.5
Turnover ratios (x) Asset Turnover (Gross Block) 2.8 3.5 4.7 4.9 4.9
Inventory / Sales (days) 15 12 12 13 14
Receivables (days) 14 10 11 12 12
Payables (days) 49 51 49 48 48
WC cycle (ex-cash) (days) (11) (25) (34) (31) (26)
Solvency ratios (x)Net debt to equity (0.2) (1.0) (1.0) (0.9) (0.9)
Net debt to EBITDA (0.4) (1.2) (1.1) (1.3) (1.5)
Interest Coverage (EBIT/ Interest) 40.6 379.5 1,346.6 815.8 970.2
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Bajaj Auto | 4QFY2011 Result Update
May 19 2011 12
Disclosure of Interest Statement Bajaj Auto
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
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