LSE Securities

Bajaj Auto - Buy Stock Data 31/01/2011

Investment overview
Current Mkt Price (Rs) 1248.65
• Bajaj Auto is the second largest two wheeler makers of
the country and one among India’s top ten companies 52 Week High 1664.50
in terms of market capitalization and one of the top 52 Week Low 810.00
five in terms of annual turnover.
Mkt Cap (Rs. in Cr.) 36131.00
• The company reported a 40% rise in net profit
in the third quarter, on the back of higher sales of Return in last one Month (%) -14.70
motorcycles and commercial vehicles.
Share Holding
• Bajaj Auto is the leading three-wheeler player from
India with a market share of over 55%.
• The auto industry has been witnessing robust growth
for more than a year with a significant uptick in
demand for two-wheelers and three-wheelers.
• The company’s exercise of dealership expansion
will help it to rapidly cover key emerging markets,
strengthen existing markets and also to increase
sales and market share.
Business Overview
Bajaj Auto is ranked as the world’s fourth largest two- and
three- wheeler manufacturer and the Bajaj brand is well-
known across several countries in Latin America, Africa,
Middle East, South and South East Asia. The company got Performance in last one year
a production license in the year 1959 and entered into
a technical collaboration with Italian PIAGGIO in 1960
for manufacturing scooters. Its collaboration with Piaggio
expired in 1971 and since then, it is selling scooters and
three-wheelers with the brand name ‘BAJAJ’.
Bajaj Auto has in all three plants, two at Waluj and
Chakan in Maharashtra and one plant at Pant Nagar in
Uttranchal, western India. The Bajaj brand is well-known
across several countries in Latin America, Africa, Middle
East, South and South East Asia. It has a distribution
network in 50 countries with a dominant presence in Sri
Lanka, Colombia, Bangladesh, Mexico, Central America,
Peru and Egypt. It has technical tie up with Kawasaki
Heavy Industries of Japan to manufacture latest models
in the two-wheeler space.
Bajaj Auto was demerged into three separate corporate
entities- Bajaj Finserv (BFL), Bajaj Auto (BAL), and Bajaj Y-o-Y Performance
Holdings and Investment (BHIL) and was the shares (Rs. in Million)
were listed on May 26, 2008.
Particulars Mar 2010 Mar 2009 Change(%)
Bajaj Auto now offer products in all segments, in two Net Sales 11508.50 8436.94 36.41
wheeler segment, it produces different variants of Other Income 534.98 495.60 7.95
Avenger, Pulsar, Discover, Platina and Ninja. While in
Total Expenditure 9328.42 7618.55 22.44
commercial vehicles it offers a wide range of Goods
Operating Profit 2715.06 1313.99 106.63
carrier and Passenger Carriers.
Interest 5.98 21.01 -71.54
Financial Health Profits After Tax 1703.63 656.48 159.51
The company posted the highest-ever third-quarter net Reserve & Surplus 0.00 0.00 61.37
profit of Rs 667.11 crore for the quarter ended December Reported EPS(Rs) 117.75 45.37 159.51
31, 2010, up by 40.40% compared with Rs 475.14 crore Core EBITDA Margin (%) 17.99 9.04 98.93
 LSE Securities
from last year. Q-o-Q Performance
Net sales of the company for the reporting quarter (Rs. in Million)
stood at Rs 4028.18 crore, up by 27.24% compared to Particulars Dec 2010 Dec 2009 Change(%)
Rs 3165.84 crore in the same quarter last year, while Net Sales 4177.08 3295.55 26.75
other operating income was Rs 148.90 crore, up by
Expenditure 3327.76 2572.02 29.38
114.79% from Rs 129.71 crore in the corresponding
previous quarter. On the numbers basis the net sales for Other Income 99.46 35.13 183.12
the quarter stood at 946850 as against 809218 crore in EBITDA 948.78 758.66 25.06
quarter ended December 31, 2009.
Interest 0.36 0.02 1700
During the quarter, revenue from the ‘Automotive’ Net Profit 667.11 475.14 40.4
segment increased by 26.75% to Rs 4177.08 crore from
EBITDA Margin (%) 0.23 0.23 -1.33
the Rs 3295.55 crore in the year-ago quarter, while that
of ‘Investment’ surged by 183.12% to Rs 99.46 crore NPM (%) 0.16 0.14 10.77
from the Rs 35.13 crore in the same quarter last year. EPS 23.1 32.8 -29.57
The overall commercial vehicle sales were up by 13%
of which Domestic Commercial vehicle sales were up by Profit & Loss
11% to 51648 units as against 46578 units, while the (Rs. in Million)

Exports of the commercial vehicle increased by good Particulars Mar 2010 Mar 2009 Change(%)
14% to 56715 units from 49589 units. Net Sales 11508.50 8436.94 36.41
Industry Scenario Total Income 12043.48 8932.54 34.83
The automobile industry in India is the tenth largest Total Expenditure 9328.42 7618.55 22.44
in the world and is all set to become one of the major Operating Profit 2715.06 1313.99 106.63
global automotive industries in the future. A number
Profits After Tax 1703.63 656.48 159.51
of domestic companies along with growing presence of
multinationals are active in India. Following the economic Balance Sheet
reforms of 1991 the Indian automotive industry has (Rs. in Million)
demonstrated sustained growth as a result of increased Particulars Mar 2010 Mar 2009 Change(%)
competitiveness and reduced restrictions. Several Indian
automobile manufacturers have spread their operations Share Capital 144.68 144.68 0.00
globally as well, asking for more investments in the Reserve & Surplus 2783.66 1725.01 61.37
Indian automobile sector by the MNCs. Total Liabilities 4266.92 3439.69 24.05
Today Indian automotive industry can be broadly divided Investments 4021.52 1808.52 122.37
into three categories: Cars, two-wheelers and heavy Current Liabilities 2026.25 1213.41 66.99
vehicles. Among the two-wheeler segment, motorcycles
have major share in the market while 40% of the three- Net Current Assets -1274.02 -112.29 1034.58
wheelers are used as goods transport purpose, while Total Assests 4266.92 3439.69 24.05
cars dominate the passenger vehicle market.
Much in line with its global counterparts, the Indian Key Ratios
industry witnessed one of the worst years in 2008-09,
primarily owing to the plunge in sales witnessed in the Particulars Mar 2010 Mar 2009
second half of the fiscal as the global economic turmoil hit Reported EPS (Rs) 117.75 45.37
the sector. But a number of factors including the stimulus Core EBITDA Margin (%) 17.99 9.04
packages launched by the government, eased liquidity
conditions and softening interest rate scenario is helping EBIT Margin (%) 19.95 10.82
the recovery of the industry. While the passenger vehicle ROA (%) 44.21 20.64
segment has made modest recovery only, two wheelers ROE (%) 73.83 42.48
seem to be back on the growth path.
ROCE (%) 64.26 32.66
The performance of the auto industry over last one year
Price/Book (x) 9.94 5.31
points towards a stylised fact. The size of the Indian
economy now seems to have crossed a critical minimum Net Sales Growth (%) 36.41 -2.61
level where the auto demand starts turning around in a EBIT Growth (%) 146.87 -14.11
big way, as was seen in China in late 1990s or the US in PAT Growth (%) 159.51 -13.16
1970s. On a medium term note, the auto industry seems
to be on an inflexion point and growth is likely to remain Total Debt/Mcap (%) 0.09 0.35
 LSE Securities
Peer group comparison (Rs. crore)
Company Year End Net Sales
Bajaj Auto 201003 11508.5
Hero Honda 201003 15758.18
TVS Motors 201003 4363.11
Kinetic Engg 201003 48.98
strong for an extended period now.
Latest developments:
Bajaj Auto has completed the dealership expansion
programme and these new dealerships will commence
temporary operations by end of March 2011 with final
operations commencing by June 2011.
To reach out to the rural masses Bajaj Auto, plans to
quadr¬uple the amount of money it spends on advertising
on state owned broadcaster Doordarshan from 4 per cent
to 16 per cent.
Investment Rationale
• Despite a good rise in input cost Bajaj Auto was able
to report a highest margin growth in the industry for
the passing quarter, mainly due to its focus on high-
end motorcycles like Pulsar and Discover brands. Its
Chakan plant produced various upgrade versions of
Pulsar. It is now ready to deliver the new KTM bikes.
Bigger and sportier bikes such as Discover and Pulsar
now contribute over 70 per cent of the company’s
total motorcycle sales, in view of the good earning
potential and growth prospects the R&D department
of the company is now working on next generation
bikes to maintain this momentum. The company
has set an ambitious target to achieve a 34 per cent
market share in the motorcycles segment by the end
of the fiscal from about 24 per cent in 2009-10.
• The company has a 48 per cent market share in
passenger carriers. Its presence in the goods carrier
segment is limited to 11 per cent. It has embarked
on a brand-building exercise for its three-wheeler
portfolio under the ‘RE’ brand. RE passenger carriers
are expected to help the company regain its 50 per
cent market share in that space.
• Bajaj Auto is adding 130 new dealerships by June
for which selection has already been completed
by December last year. These new dealerships will
commence temporary operations by March-end, with
final operations commencing by June. These new
dealerships will help the company to increase the share
in the smaller towns, which are today inadequately
catered to by the secondary network on the same time
it will create 7,000 new jobs in the country.
• Bajaj Auto has commenced production at Plant II
*latest based on last traded price 
PBDIT PAT PATM% EPS* P/E*
2180.08 1703.63 14.8 85.41 14.57
2611.79 2231.83 14.16 106.76 15.23
120.3 88.01 2.02 3.64 14.9
-18.24 2.35 4.79 4.86 33.13
at Pantnagar taking the total annual motorcycle
capacity at 1.5mn units. Bajaj Auto’s production at
its Pantnagar plant, Uttarakhand, has been on the
rise. In 2009-10, it produced 577,947 vehicles, up by
82% compared to 2008-09. To maximise tax benefits
available at Uttarakhand, the Company has shifted
products like Discover and Pulsar 135 to Pantnagar.
With both the two plants working at its full the volume
is likely to increase by over 30% which in turn will
contribute over 35% to gross profit of the company
by FY12.
• Bajaj Auto will be bringing its Ultra Low cost car in
2012, in direct competition with Tata Motor’s Nano,
The design, marketing and sourcing of the car would
be handled by Bajaj while its JV partner, Renault-
Nissan will be taking care of the after marketing in
India and Overseas. Going further the company has
been reported to have set its eyes on beefing up its
car division the company would use the ultra low-cost
car platform to roll out more passenger vehicles in the
future, as the company expects a structural shift in
the domestic passenger three-wheeler segment, with
four-wheelers replacing them.
• Company’s concentration on Three Wheelers is likely
to pay a good return with its healthy geographical
spread, as its three-wheeler exports now account
for almost 50 percent of total three-wheeler sales. It
derives 11 per cent of its revenues from three-wheeler
sales enjoying a margin of over 30 per cent.
• At the CMP of Rs 1249, Bajaj Auto trades at 14.57x
P/E and 14.2x of FY11 (E), slightly lower than its
nearest peer Hero Honda, however the operating profit
margins of Bajaj Auto have been superior to its rival’s.
We would recommend a BUY in the scrip with a price
target of Rs 1424. Spiralling commodity prices have
been pressuring margins in the industry and, at such
times, Bajaj has been able to comfortably maintain
about 20 per cent EBITDA margins. However even
the management was pretty cautious on margins
for volumes and company’s miss on FY2011 volume
guidance. But even putting a conservative approach
in line with the management, the volume is likely to
grow by around 12% while its margin are likely to
remain stable around 20% in FY12 making it a good
buy for long term.
 LSE Securities

LSE Securities Ltd.

Disclaimer : This document has been prepared by LSE Securities and Accord Fintech Pvt. Ltd. and is being distributed in India by LSE Securities,
a registered broker dealer. This information in the document has been complied by the research department.
Due care has been taken in preparing the above document. However, this document is not, and should not be construed,
as an offer to sell or solicitation to buy any securities.
Any act of buying, selling or otherwise dealing in any securities referred to in this document shall be at investor’s sole risk and responsibility.
This document may not be reproduced, distributed or published , in whole or in part, without prior permission from the company.
© Copyright - 2009 - Accord Fintech Pvt. Ltd. and LSE Securities