8/9/2019 krc_bajaj_10Mar08

1/3

KRC RESEARCH 1

March 10th 2008

Bajaj Auto Ltd.

Q3FY08 Result Update

Key Data

CMP Rs 1985

Date March 10th 2008

Sector Automobiles

Face Value Rs.10

BSE Code 500490

52 Week H/ L Rs 2880/ 1735

Market Cap Rs 20084 Cr

Investment RationaleBajaj Auto is the second largest two-wheeler manufacturer in India with a market share of35%. The groups flagship company, Bajaj Auto, is ranked as the worlds fourth largest two-

and three- wheeler manufacturer and the Bajaj brand is well-known in over a dozencountries in Europe, Latin America, the US and Asia. It offers products in all motorcycle

segmentsPlatina (entry), Discover (executive), and Pulsar (premium). It is also the largest

three-wheeler manufacturer in India. In addition, it has presence in the life and generalinsurance businesses (74% stake in each business) in joint venture with Allianz AG ofGermany.

Net sales declined by 2.6% for the quarter Q3FY08 to Rs2501.7 crore one of the reason wasdiscounts offered during the festive season along with reduction in prices of Platina to the

tune of Rs2k/unit. Overall growth in 100cc industry is down by 20%. However, 125 ccmarket grew from 1.83 lakh units to 1.88 lakh units. BAL continued to lose market share on

YoY basis, losing 130 bps YoY to 31.7%. However, on a sequential basis, it has beenimproving its market share for the past 2 quarters which rose by 160 bps QoQ in Q3FY08.

This was primarily due to the launch of Xceed in Sep07, which clocked volumes of more

than 90k units in Q3FY08. Despite a richer product mix in favour of more than 100ccmotorcycles, BALs realizations inched up by only 1% YoY to Rs 35k / unit due to discounts

offered during the festive season along with reduction in prices of Platina to the tune ofRs2k/unit. The company also availed the benefit of excise duty exemption at its Uttaranchal

plant which helped curtail fall in net sales by 2.6% to Rs25bn.

February YTD

Company/Segment 2008 2007 % chg FY2008 FY2007 % chg

Bajaj Auto 183807 202212 (9.1) 2274657 2525223 (9.9)

-MotorCycle 158662 171780 (7.6) 1984859 2210995 (10.2)

-Scooters 846 2440 (65.3) 20254 17018 19.0

-Total Two-wheeles 159508 174220 (8.4) 2005113 2228013 (10.0)

8/9/2019 krc_bajaj_10Mar08

2/3

Bajaj Auto Ltd.

March 10th 2008

KRC RESEARCH 2

-Three-wheelers 24299 27992 (13.2) 269544 297220 (9.3)

Source: Company

Piaggio was the biggest gainer of market share in 3-Wheeler. Volumes were also impacteddue to Tatas Ace which has eaten into share of 3-wheelers. BAL continued to be the largest

exporter of motorcycles & 3-W from India.

We believe that the strategy to focus on higher-end motorcycles places the company in a

better position vis a vis its competitors. Having said that, we have a cautious view on themotorcycle segment largely due to non availability of consumer finance. However, we

believe that this is a short-term phenomenon, as we understand that demand cycle is stillstrong. Rise in interest rates and tightening of financing norms by banks contributed to the

fall in domestic motorcycle sales. While we expect strong growth in motorcycles in the

longer term due to low penetration, higher disposable income, shortening replacementcycles & new product launches. BAL has indicated its long-term strategy to exit from the

100cc motorcycle segment and further strengthen its position in higher displacementmotorcycles which offer higher OPM. This is a very aggressive move considering that the

segment constituted almost 50% of BAL's volumes which has come down to ~35% inQ3FY08. The primary reason for this strategy, as cited by the company, is the increasing

commoditization of this segment coupled with increasing competition, leading to segmental

margins declining below 10%. To further strengthen its product offerings, it launched Pulsar200 DTSi (Feb'07), Discover 135 DTSi (Apr'07) & Pulsar 220 DTS-Fi (Jan'07). Also, to

minimize cannibalization the company would be upgrading Discover to 150cc. The companyshifted production of the Platina to its Uttaranchal facility. It is entitled to excise duty, sales

tax and income tax exemption at this facility which helped improve profitability. However,post reduction in prices by Rs2k/unit on Platina, margins of the company are getting

pressurised, partly offset by better profitability of Xceed.

Key Developments

Success of Xceed platform crucial to growthBAL is banking heavily on the success of the Xceed platform launched in Sep07. Till date,the model has done volumes in excess of 150k units meeting expectations of 30k units /

month. Further, BAL plans to launch 2 new models on the same platform and hopes toramp-up volumes to 75k units / month over the next 12 months.

Reduction in Excise DutyUnion Budget 2008-09 has reduced excise duty on Two and Three -wheeler to 12% from

16%. This has resulted in cutting of prices by the company to the extent of Rs3000 and thiswill boost volume of the vehicle and which will lead to increase in earnings.

Financial Performance

Net Sales declined by 2.6%Net sales declined by 2.6% for the quarter Q3FY08 to Rs2501.7 crore one of the reason was

discounts offered during the festive season along with reduction in prices of Platina to thetune of Rs2k/unit. Overall growth in 100cc industry is down by 20%. However, 125 cc

market grew from 1.83 lakh units to 1.88 lakh units.

Valuations

At current market price of Rs1985, Bajaj Auto is quoting at a PER of 16.6x. On EV/Sales andon EV/ EBIDTA basis it is quoting at 2.34x and 11.68x of its TTM earnings respectively.

8/9/2019 krc_bajaj_10Mar08

3/3

Bajaj Auto Ltd.

March 10th 2008

KRC RESEARCH 3

Disclaimer:This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. Whilethe information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before makingany investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained inthe reports and consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide informationupdates and analysis. All opinion for buying and selling are available to investors when they are registered clients of KRC Investment AdvisoryServices. As a matter of practice, KRC refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,KisanRatilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or salethereof while this report is in circulation.

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.1102, Stock Exchange Tower, Dalal Street, Mumbai400 001. Phone : 91-22-56338050 Fax : 5633 8060

Members: BSE & NSEwww.krchoksey.com