We, therefore, expect only a muted 10% EPS CAGR over the FY14-16 period. The domestic motorcycle market share recovery will be crucial for re-rating of the stock. For Bajaj Auto, while export margins remain strong, we believe domestic motorcycle weakness can no longer be ignored. We see downside risk to domestic motorcycles given strong competition from Hero Honda and no exposure to the fast growing scooter segment. We also see risks to the domestic 3W business given rising interest rates.
We cut our FY15 EPS by 4% as we adjust our volumes and margin estimates. We expect Ebitda margins to come off from the FY14 levels of 21% due to pressure in the domestic motorcycle business although we expect it to remain above 20% (in line with the management guidance) given strong growth in 3Ws in FY15. We expect no growth in the domestic motorcycle volume for Bajaj in FY15.
We are concerned over the sharp erosion in market share for Bajaj in the domestic motorcycles business, which has dipped by 709 bps y-o-y to 19% in Q3FY14. Recent data show no market share recovery since Discover 100M launch (in October 2013). We believe Bajaj may need to cut prices/up spec levels to recover lost market share.