1

Bajaj Auto Limited

BUY Target Price: Rs.2060.00

CMP: Rs.1792.75 Market Cap. : Rs.259375.07mn.

Date: January 23rd

, 2010

Key Ratios:

Particulars FY09

(12 m)

FY10E

(12 m)

FY11E

(12 m)

OPM (%) 13 21 21

NPM (%) 7 14 14

ROE (%) 35 47 35

ROCE (%) 28 45 38

P/BV(x) 13.87 7.41 4.83

P/E(x) 39.63 15.90 13.90

EV/EBDITA(x) 6.00 11.73 11.43

Debt equity ratio 0.84 0.47 0.32

Key Data:

Sector Automobile

Face Value Rs.10.00

52 wk. High/Low Rs.1836.40/445.00

Volume (2 wk. Avg.) 51000

BSE Code 532977

SYNOPSIS • Bajaj Auto Ltd is the largest exporter of two and three

wheelers and the company has a technical tie-up with

Kawasaki Heavy Industries of Japan.

• The company regained market share in the domestic

market to 27% in the December quarter from 22% in

2008-09.

• The company has registered a growth of 85% in sales of

two wheelers in December 2009 at 2, 20,429 units.

• The company hopes to reach a sales target of one

million in the year 2010-11 with the launch of its new

Pulsar 135 LS. It is the world’s first four valve DTS i-

engine bike and the only light sports bike in the

country.

• The company has launched its much-awaited More

Pictures 250cc motorcycle Kawasaki Ninja, priced at Rs

2.7 lakh.

• The company is planning to set up an assembly plant in

a free trade zone in Manaus in Brazil next financial

year.

• The company’s top line and bottom line are expected

to grow at a CAGR of 15% and 35% over FY08 to FY11E.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

2

Table of Content

Content Page No.

1. Investment Highlights 03

2. Peer Group Comparison 08

3. Key Concerns 08

4. Financials 09

5. Charts & Graph 11

6. Outlook and Conclusion 13

7. Industry Overview 14

3

Investment Highlights

• Result Updates (Q3FY10) (standalone):

For the third quarter, the top line of the company increased 57%YoY and stood at

Rs.32955.50mn against Rs.21031.00mn of the same period of the last year. The bottom

line of the company for the quarter stood at Rs.4751.40mn from Rs.1642.70mn of the

corresponding period of the previous year i.e., an increase of 189%YoY.

EPS of the company for the quarter stood at Rs.32.84 for equity share of Rs.10.00 each.

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Expenditure for the quarter stood at Rs.26178.40mn, which is around 41% higher than

the corresponding period of the previous year. Raw material cost of the company for

the quarter accounts for 64% of the sales of the company and stood at Rs.21002.20mn

from Rs.12981.10mn of the corresponding period of the previous year i.e., an increase

of 62%YoY. Employee cost stood at Rs.929.80mn from Rs.761.50mn of the

corresponding period of the previous year i.e., an increase of 22%YoY accounts for 3% of

the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 22% and 14% respectively from 13% and 8%

respectively of the same period of the last year.

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The company reported sales of 809218 units compared to 493748, up by 63.89% units

sold in the same quarter last fiscal. For the nine month ended December 31, 2009 the

company reported total sales of 2043607 units compared to 1753885 units sold in the

same period last year. Helped by brisk sales of its Discover DTS-I motorcycle, of which

350,000 units have been sold since 1 April, Pulsar 135cc, which has been averaging

50,000 units a month, and a greater contribution of higher powered motorcycles, Bajaj

has been able to offset increased costs to guard its margins.

Bike sales in domestic and export markets rose 72% to 711,911 units, and three-wheeler

sales rose 25% to 96,167 units. Segment wise, the company from its automotive sales

reported revenue of Rs 3295.55 crore in December 2009 quarter up by 56.70%

compared to Rs 2103.10 crore in same quarter last year, while its revenue from

investment declined by 7.26% to Rs 35.13 crore from 37.88 crore.

In the 75-250cc range, Bajaj sold 21, 65,591 motorcycles in the December quarter, a

growth of 35% over the same period in 2008. (As per the data of Society of Indian

Automobile Manufacturers).

Exports, too, saw good growth, surging 27% in the quarter. Bajaj Auto is the largest

exporter outside India and analysts expect the export numbers to remain steady in the

coming quarters. In the December quarter, the company exported 273,902 units, or 33%

of its volume. The two-wheeler maker in December announced that it was exiting the

scooter segment, in which it was once an iconic company, and, currently, has only one

product in that category.

The good news for the company was that it regained market share in the domestic

market to 27% in the December quarter from 22% in 2008-09.

• Segment-Wise revenue for the quarter

Segment Revenue (Rs. million)

Automotive 32955.50

Investments 351.30

Total 33306.80

Less: Inter Segment Revenue 0.00

Net sales/income from Operations 33306.80

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• Capital Employed for the quarter

Capital Employed (Rs. million)

Automotive 8,802.70

Investments 33,888.80

Total 42,691.50

Other Unallocable Items 169.50

Total 42,861.00

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• Bajaj Auto registers 85% growth in December 2009

The company sold 2, 20,429 two-wheelers in December 2009 compared to 1, 19,215

units sold in the same month of the previous year, registering a growth of 85%.

Motorcycle sales went up from 118,510 units in December 2008 to 219,920 units in

December 2009.

• Bajaj expecting sales boost with its Pulsar 135 LS launch

The company hopes to reach a sales target of one million in the year 2010-11 with the

launch of its new Pulsar 135 LS. It is the world’s first four valve DTS i-engine bike and the

only light sports bike in the country.

Positioned as a light sports bike for customers in the age group of 18-30, it has been

designed for those who aspired for a bike but found acquisition, operation cost and

weight as barriers. The company at present is selling 50,000 Pulsars a month and with

the introduction of this variant they hope to sell 35,000 more per month. The new

variant is estimated to grow the sports bike market segment from 16% to about 20-25%

by the end of next fiscal.

• Bajaj kicks off sports bike Kawasaki Ninja for Rs 2.7 lakh

The company has launched its much-awaited More Pictures 250cc motorcycle Kawasaki

Ninja, priced at Rs 2.7 lakh (ex-showroom, Delhi). The 4-stroke bike, Kawasaki Ninja

250R, would be retailed exclusively through Bajaj`s Probiking showrooms.

The company claimed that Ninja 250R is the largest selling 250cc motorcycle in the

world and it will assemble the imported completely-knocked-down (CKD) units from its

technology partner Kawasaki at the company`s Chakan plant. The company is aiming to

sell about 1,000 units in the first 12 months of the launch. The Kawasaki Ninja 250R will

be backed with Probiking service facilities and spare parts availability.

• Bajaj Auto likely to set up assembly plant in Brazil

The company is planning to set up an assembly plant in a free trade zone in Manaus in

Brazil next financial year. The company is in the process of studying the site and working

out financial details. It operates an assembly plant in Indonesia. The company has been

mulling setting up of its plant in Brazil for over six-years now. One of their distributors

has already set up a plant in Egypt. They are also looking to set up plants in Nigeria, Iran

and Colombia. The company may also take up expansion of its facility at Waluj near

Aurangabad, where it manufactures the Kawasaki range of motorcycles and three-

wheelers.

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• Bajaj Auto unveils cargo 3-wheeler priced at Rs. 1 Lakh

The company unveiled a cargo three-wheeler – RE 600 – priced at Rs 1, 03,686 (ex-

showroom Pune). The cargo carrier offers a mileage of 5 km per litre of diesel, reported

to be the best in the segment, and payloads up to 600 kg. The cargo carrier is focused at

cargo movement in congested cities and towns. The vehicle has the lowest turning

radius for high manoeuvrability on narrow roads, a twin-front suspension and high

torque for quick pick-up. The vehicle is set to compete with Tata Motors’ Ace and

Piaggio’s Ape in the mini cargo carrier segment.

• Bajaj Auto to hike stake in Austria`s KTM

The stake holding of Bajaj Auto in Austria`s power bike company KTM Power Sport will

be increased in the coming years to leverage on the foreign company`s superior

expertise in technology and brand name. The company, through its 100% Dutch

subsidiary, Bajaj Auto International Holding BV, will buy the additional stakes in the

Vienna Stock Exchange-listed KTM on-behalf of the company. The company has so far

spent Rs 7-8 billion in buying 31.72% stake in KTM. KTM will form a crucial part of Bajaj

Auto`s overseas strategy, including merger and acquisition, as the European company

brings with it intricate knowledge of key overseas markets like Europe and North

America.

Peer Group Comparison Name of the

company

CMP(Rs.)

(As on

January

23rd

,2010)

Market Cap.

(Rs. Mn.)

EPS

(Rs.)

P/E (x) P/BV

(x)

Dividend

(%)

BAJAJ AUTO 1792.75 259375.07 89.97 19.93 13.87 220.00

HERO HONDA 1665.00 332479.70 90.13 18.47 8.75 1000.00

TVS MOTORS 74.30 17649.50 3.40 21.85 2.17 70.00

Key Concerns

� Fluctuations in exchange rates.

� High competition from global players.

� Increasing number of models in domestic market.

� Adverse Govt. policies.

� Threat of cheap imported motorcycles from China.

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Financials

Results Update

12 months ended Profit and Loss A/C (standalone):

Value(Rs in million) FY08A FY09A FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 90461.50 88103.60 118500.36 136275.41

Other Income 1226.90 1116.70 1116.17 1171.98

Total Income 91688.40 89220.30 119616.53 137447.39

Expenditure -78549.90 -78131.40 -94845.44 -109072.26

Operating Profit 13138.50 11088.90 24771.08 28375.13

Interest -51.60 -210.10 -90.48 -173.09

Gross Profit 13086.90 10878.80 24680.60 28202.03

Depreciation -1739.60 -1297.90 -1401.61 -1541.77

Profit before Tax 11347.30 9580.90 23278.99 26660.26

Tax -3787.80 -3016.10 -6969.32 -7998.08

Profit after Tax 7559.50 6564.80 16309.68 18662.19

Extraordinary Items -1.70 -19.80 - -

Net Profit 7557.80 6545.00 16309.68 18662.19

Equity Capital 1446.80 1446.80 1446.80 1446.80

Reserves 14429.10 17250.10 33559.78 52221.96

Face Value 10.00 10.00 10.00 10.00

Total No. of Shares 144.68 144.68 144.68 144.68

EPS 52.24 45.24 112.73 128.99

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Quarterly ended Profit and Loss A/C (standalone):

Value(Rs. in million) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E

Description 3m 3m 3m 3m

Net Sales 23384.70 28875.10 32955.50 33285.06

Other Income 231.40 217.30 351.30 316.17

Total Income 23616.10 29092.40 33306.80 33601.23

Expenditure -19070.70 -22968.30 -26178.40 -26628.04

Operating Profit 4545.40 6124.10 7128.40 6973.18

Interest -59.70 - -0.20 -30.58

Gross Profit 4485.70 6124.10 7128.20 6942.60

Depreciation -330.80 -335.80 -356.80 -378.21

Profit before Tax 4154.90 5788.30 6771.40 6564.39

Tax -1220.00 -1760.00 -2020.00 -1969.32

Profit after Tax 2934.90 4028.30 4751.40 4595.08

Extraordinary Items - - - -

Net Profit 2934.90 4028.30 4751.40 4595.08

Equity Capital 1446.80 1446.80 1446.80 1446.80

Face Value 10.00 10.00 10.00 10.00

Total No. of Shares 144.68 144.68 144.68 144.68

EPS 20.29 27.84 32.84 31.76

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Charts

• Net sales & PAT

• P/E Ratio (x)

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• P/BV (X)

• EV/EBITDA(X)

13

1 Year Comparative Graph

Outlook and Conclusion

• At the market price of Rs.1792.75, the stock is trading at 15.90 x and 13.90 x for FY10E and

FY11E respectively.

• EPS of the company is expected to be at Rs.112.73 and Rs.128.99 for the earnings of FY10E

and FY11E respectively.

• On the basis of EV/EBDITA, the stock trades at 11.73 x and 11.43 x for FY10E and FY11E

respectively.

• The price to book value of the company is expected to be at 7.41 x and 4.83 x for FY10E and

FY11E respectively.

• The company’s top line and bottom line are expected to grow at a CAGR of 15% and 35%

over FY08 to FY11E.

• The good news for the company was that it regained market share in the domestic market

to 27% in the December quarter from 22% in 2008-09.

Bajaj Auto BSE SENSEX

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• The company sold 2, 20,429 two-wheelers in December 2009 compared to 1, 19,215 units

sold in the same month of the previous year, registering a growth of 85%.

• The company hopes to reach a sales target of one million in the year 2010-11 with the

launch of its new Pulsar 135 LS. It is the world’s first four valve DTS i-engine bike and the

only light sports bike in the country.

• The company is planning to set up an assembly plant in a free trade zone in Manaus in Brazil

next financial year.

• To address the tight competition in the two wheeler market, the company is introducing

new models time-to-time.

• The company had introduced DTSi engine for better fuel efficiency and lower emissions.

• The company as always has been the favorite pick for investors among the auto sector

stocks. Company has been on aggressive mode to tame the competition created by its

competitors. It has been launching various new entrants in the markets recently.

Considering an expected improvement in two-wheeler industry in fourth quarter of the

current fiscal on increased liquidity, Bajaj Auto is certainly a very good option one can go

for.

• We recommend ‘BUY’ for this stock with a target price of Rs.2060.00 for long term.

Industry Overview

The growth of the Indian middle class along with the growth of the economy over the past few

years has attracted global auto majors to the Indian market. Moreover, India provides trained

manpower at competitive costs making India a favored global manufacturing hub. The

attractiveness of the Indian markets on one hand and the stagnation of the auto sector in

markets such as Europe, US and Japan on the other have resulted in shifting of new capacities

and flow of capital to the Indian automobile industry.

According to the International Yearbook of Industrial Statistics 2008 released by United Nations

Industrial Development Organization (UNIDO), India ranks 12th in the list of the world’s top 15

automakers.

Moreover, according to a new study released by global consultancy firm Deloitte, at least one

Indian company will be among the top six carmakers that would dominate the global auto

industry by 2020. According to the study, the car industry would see a massive capacity building

in low-cost locations like India and China as manufacturers shift base from developed regions.

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Production

Although the sector was hit by economic slowdown, overall production (passenger vehicles,

commercial vehicles, two wheelers and three wheelers) increased from 10.85 million vehicles in

2007-08 to 11.17 million vehicles in 2008-09. Passenger vehicles increased marginally from 1.77

million to 1.83 million while two-wheelers increased from 8.02 million to 8.41 million.

In recent times, India has emerged as one of the favorite investment destinations for

automotive manufacturers.

• Mercedes-Benz is planning to launch over-dimensional-cargo (ODC) vehicles and long-

haulage trucks that can carry up to 240 tonnes in India soon.

• Japanese major Nissan has decided to shift the entire production of its small car, Micra,

from the UK to India. After production of the Micra begins here, Nissan plans to

manufacture four more models in India, involving a total investment of over US$ 412.2

million.

• Toyota Motors (TMC) plans to utilize the proposed Indo-Thai free trade agreement (FTA)

to make India a hub for small cars to be exported to its global markets. Toyota has

earmarked US$ 657.1 million for 2008-11 to set up a second plant in Bangalore to make

200,000 cars from the current 80,000 units.

• Hyundai has made India its global hub for manufacturing small cars. It will invest US$ 1

billion in its second plant in Chennai by 2013. In addition, it is also investing US$ 40

million in its research and development (R&D) facility in Hyderabad.

• General Motors has so far invested about US$ 1 billion into its Indian operations.

Domestic Market

Sales of cars and commercial vehicles have been impacted due to global economic slowdown.

However, in spite of that there has been a marginal increase in the number of vehicles sold in

2008-09 as compared to 2007-08. Total number of vehicles sold including passenger vehicles,

commercial vehicles, two-wheelers and three-wheelers in 2008-09 was 9.72 million as

compared to 9.65 million in 2007-08.

According to an Ernst & Young analysis, passenger vehicle sales in the country will grow at a

CAGR of 12 per cent to touch 3.75 million units by 2014 as against 1.89 million units at the end

of 2008-09. While domestic market is expected to contribute 2.75 million units to the total tally,

the remaining 1 million units would contribute towards exports. Likewise, as per estimates by

CARE Research, the domestic two-wheeler sales will grow at a CAGR of 8.8 per cent by 2014 at

11.3 million units vis-a-vis 7.43 million units in 2008-09. German luxury car manufacturer Audi

is eyeing higher sales this year than its earlier target of 1,500 units. This would make Audi India

the third largest luxury car manufacturer in the country after BMW India and Mercedes Benz

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India. Audi aims to register a 70 per cent growth vis-à-vis last year by selling nearly 1,700-1,800

units in 2009.

Exports

According to the Society of Indian Automobile Manufacturers (SIAM), automobile sales

(including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the

overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in 2007-08.

Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739 units in 2008-09.

Moreover, growth continued during the first half of the current year. India exported a total of

230,000 cars, vans, SUVs and trucks between January and July 2009, a growth of 18 per cent.

India Yamaha Motor Ltd (IYML) plans to double its exports from India to 140,000 units by 2010.

Maruti Suzuki India expects to export 120,000 cars during 2009-10. Of this, a lakh will be the A-

Star, its newest hatchback.

Policy

In order to make India a power to reckon with in the automotive sector the government

launched the Automotive Mission Plan (AMP) 2006-2016. The vision of the AMP is "to emerge

as the destination of choice in the world for design and manufacture of automobiles and auto

components with output reaching a level of US$ 145 billion accounting for more than 10 per

cent of the GDP and providing additional employment to 25 million people by 2016." As per the

AMP, it is estimated that the total turnover of the automotive industry in India would be in the

order of US$ 122 billion - US$ 159 billion in 2016. It is expected that in real terms, India would

continue to enjoy its eminent position of being the largest tractor and three-wheeler

manufacturers in the world and the world's second largest two-wheeler manufacturer. By 2016,

India will emerge as the world's seventh largest car producer (as compared to the eleventh

largest currently) and retain the fourth largest position in world truck manufacturing sector.

Further, by 2016, the automotive sector would double its contribution to the country's GDP

from current levels of five per cent to 10 per cent.

___________________________________________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but we do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

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