Bajaj Auto

ABOUT THE BAJAJ GROUP: Bajaj Group is an Indian Conglomerate founded by Freedom Fighter, Philanthropist & Disciple of Mahatma Gandhi- Jamnalal Bajaj in 1926 in Mumbai, The BAJAJ GROUP is one of the most respected & renowned Business houses of India. The Group comprises 34 companies & its flagship company Bajaj Auto is ranked as the Worlds Fourth Largest and Indias Second Largest 2-3 wheeler manufacturer. Some of the notable Companies apart from Bajaj Auto are Bajaj Electricals, Bajaj Allianz , Mukand Ltd & Bajaj Hindustan Ltd.

Mergers & Acquisitions

The demerger of Bajaj auto ltd. Into three separate corporate entities Bajaj Finserv Ltd. (BFL), Bajaj auto ltd. (BAL), and Bajaj holding and investment ltd. (BHIL) was completed with the shares listing on may 26, 2008 In November 2007, Bajaj auto acquired 14.5% stake in KTM power project sports AG (holding company of KTM sports motorcycles AG). The two companies have signed a cooperation deal, by which KTM will provide the know how for joint development of the water cooled four stroke 125 and 250 cc engines, and Bajaj will take over the distribution of KTM products in India and some other southeast Asian nations. Bajaj said it is open to taking a majority stake in KTM and is also looking at other takeover opportunities. On the 8th of January 2008, managing director Rajiv Bajaj confirmed the collaboration and announced his intention to gradually increase Bajaj's stake in KTM to 25%. As of today they have 45% stake in KTM.

Management Control

Founder Chairman Managing Director Non Executive Director Vice Chairman

Jamnalal Bajaj Rahul Bajaj Rajiv Bajaj Sanjiv Bajaj Madhur Bajaj

Products
Bajaj has made a number of motorcycles, scooters and cars. Motorcycles in current production are the Platina, Discover, Pulsar, Avenger and many more. Bajaj also produce many motorcycles for other manufacturers, such as the Kawasaki ninja 250R, Yamaha YZF, and new for 2011, the KTM Duke 125. Cars include the Bajaj ULC ultra-low-cost car. Bajaj auto says its $2,500 car, which it is building with Renault and Nissan motor, will aim at a fuel-efficiency of 30 kilometers per litre. The car is scheduled to be launched in 2012. it is a Tata Nano competitor. The Bajaj venture will have an initial capacity of 400,000 units.

Bajaj RE60

Raw Materials
The primary raw materials used in the manufacture of the body of motorcycle are metal, plastic and rubber. The motorcycle frame is composed almost completely of metal, as are the wheels. The frame may be overlaid with plastic. The tires are composed of rubber. The seat is made from a synthetic substance, such as polyurethane. The power system consists of a four-stroke engine, a carburetor to transform incoming fuel into vapor, a choke to control the air-fuel ratio, transmission, and drum brakes. The transmission system contains a clutch, consisting of steel ball flyweights and metal plates, a crankshaft, gears, pulleys, rubber belts or metal chains, and a sprocket. The electrical system contains a battery, ignition wires and coils, diodes, spark plugs, head-lamps and taillights, turn signals and a horn.

A cylindrical piston, made of aluminum alloy (preferred because it is lightweight and conducts heat well), is an essential component of the engine. It is fitted with piston rings made of cast iron. The crankshaft and crankcase are made of aluminum. The engine also contains a cylinder barrel, typically made of cast iron or light alloy.

Management Outlook
SALES (2 &3 WHEELERS)

The strategy consists of a proper alignment of the front end and the back end. The front end is driven by a proposition that while products may generate market share, it is brands that provide pricing power and create higher profits. This is supported by a strong back end. Consisting of R&D, quality, production efficiency, logistics and throughput, these efforts are guided by The Prime Mover of Excellence.

Management Outlook (Cont.)

EBITDA & ROCE

FY2010 saw the coming together of the front end and the back end, which delivered even better results in FY2011. This alignment has led to Bajaj Auto growing faster than the market, gaining market share and, more importantly, earning the highest operating profit rate in the industry.

Industrys Sales of Two-wheelers (domestic + exports)

In FY2011, India continued to witness robust demand for motorcycles. During FY2010, motorcycle sales, by volume, had increased by 24%
This high growth rate was maintained yet again in FY2011 As Chart shows, from 6.54 million units in FY2008, motorcycle sales rose marginally by 4% in FY2009, and then grew at a much faster rate of 24%, becoming a 10.5 mn market Motorcycles now account for nearly 79% of two-wheeler sales

Bajajs Autos Changing Mix, Motorcycles

As Chart shows, through Discover and Pulsar, Bajaj Auto has successfully transited from the low profit Commuter STD segment in favour of the two better brand positioned and higher profit segments the Commuter DLX and Sports. In addition to products, branding and the back-end, the Company has significantly strengthened its dealer network. In FY2011, Bajaj Auto increased its dealerships by 159 to raise the total number of dealers to 589.

Three-Wheeler Sales (in numbers)

In FY2010, Bajaj Auto witnessed a revival in domestic sales. This has continued in FY2011. The year saw 28% growth in the number of Bajaj Auto three-wheelers sold from 340,937 in FY2010 to 436,884 units The Company remains the leading threewheeler player from India, accounting for 55% of total sales among all Indian manufacturers of three-wheelers. For the first time in its history, Bajaj Auto sold over 200,000 vehicles in the domestic market. It continues to dominate the petrol and alternate fuel passenger vehicles segment in India with a market share of 85%.

Geographical Spread of Exports

Volume mix

Competition
Bajaj Auto LTP Change 52 W H/L Results (Cr) Sales PAT Equity Ratios EPS CEPS PE Ownership Promoter & Promoter Grp Indian Foreign 14,47,33,332 14,47,33,332 -10,42,59,490 10,42,59,490 -28,17,75,786 28,17,75,786 -26.7 28.18 14.65 30.22 44.27 15.7 1.19 1.81 6.83 4,651.44 772 289.37 6,034.93 603.59 39.94 1,762.22 56.53 47.51 % 1,511.40 -0.72 1,839.00 / 1,282.20 Hero MotoCorp 1,861.00 -0.47 2,278.50 / 1,482.25 TVS Motor 33.7 0.3 70.30 / 32.10

Public
Institution FII DII Non Institution Bodies Corporate MARKET CAP (Cr)

14,46,33,688
7,19,33,497 4,75,16,700 2,44,16,797 7,27,00,191 2,45,51,913 43,781

9,54,28,010
7,79,34,137 6,66,63,855 1,12,70,282 1,74,93,873 29,29,500 37,121

19,33,11,328
9,09,35,902 1,24,86,824 7,84,49,078 10,23,75,426 2,13,10,687 1,605

Balance sheet

Kotak view
Upgrade to ADD on attractive valuations Upgrade the stock to ADD (from SELL earlier) due to attractive valuations. Key reasons for upgrade The stock has corrected by 15% in past three months due to concerns on slowdown in domestic volume growth. The stock trades at 13X multiple on our one-year forward earnings estimate which we believe is cheap considering the company is likely to report 11% earnings CAGR over the next two years, strong cash flow yield of ~5% and dividend yield of 3%. Exports volume growth is likely to remain strong and offset the muted growth in domestic volumes. The company is also expanding reach in new markets like Sudan, Cameroon and Tanzania in Africa New launches like Discover 125cc and new Pulsar bikes are likely to limit market share decline in the domestic market in our view. However, it will be difficult for Bajaj Auto to raise market share in the domestic market given increased competition from new players in the 100cc segment. Bajaj Autos domestic motorcycle volumes to grow at 5% yoy in FY2013E while we expect the domestic motorcycle industry to grow at 6% yoy in FY2013E. We estimate a flat volume growth for domestic threewheelers as state Governments are not likely to open new permits which could have been a potential trigger for three-wheeler volume growth, in our view. We believe EBITDA margins are likely to remain steady due to benefit of Rupee depreciation on exports and slow ramp-up by competitors in the 100cc. The company indicated that it has hedged 85% of its estimated exports in FY2013E between Rs 48 and Rs51/USD and expects export average selling prices to rise by 2% due to better realization on exports than FY2012.
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