1. Bajaj Auto: Speeding on global roads

Bajaj Auto: Speeding on global roads

Bajaj is targeting to double its export volumes over the next four-five years led by industry growth and market share gains in existing markets and entry into newer markets.

Updated: February 3, 2015 2:37 PM

Bajaj Auto
Rating: Neutral

We organised an investor meeting for Bajaj Auto on 19th December where the company discussed its strategy across different business segments. Overall, the company highlighted the strong growth potential that exists in export markets – Bajaj is targeting to double its export volumes over the next four-five years led by industry growth and market share gains in existing markets and entry into newer markets. Further, Bajaj also outlined its strategy for domestic motorcycles where it targets (i) to focus on entry level commuter segment (through Platina and a newer brand) and the premium segment (via Pulsar and Avenger) and (ii) to reposition its Discover brand to target the high-end commuter segment (125/ 150cc).

We remain convinced that there will be strong growth in Bajaj export volumes over the next three-five years.  We don’t see any material changes to our FY15/16F (forecast) earnings estimates. Valuations are demanding at 17.5x FY16F EPS of R141; maintain Neutral rating on the stock.

Key takeaways
Domestic motorcycles
*The segment accounts for 36% of revenues, with 18% market share. Bajaj aims to increase its market share to 24%, with new model launches and better brand positioning of its current models.
*In the entry level commuter segment (100cc; up to R44,000), Bajaj plans to increase market share to 35% from 22%. It will launch a new Platina with electric-start in Q4, which will double its addressable market in this segment. It also plans to launch a new brand in this segment in FY16.

graph-bajaj1
*Bajaj plans to launch four new models in the Pulsar segment over the next year – (i) Adventure Sport in 150cc and 200cc in Q4 and (ii) new 200 CS (Cruiser Sport) and 200SS. The management says these new models will widen the customer base and help increase market share to 52% from 44%.
*For Discover, Bajaj plans a more ‘youthful’ brand positioning to target the high-end commuters. It will focus more on 125-150 cc models than 100cc. Bajaj expects Discover to have a volume target of just 70,000 units/ month with 30,000 units from the 150cc model.
*The company believes Bajaj Avenger has the potential to double its monthly volumes via better marketing activities. It also plans to launch a new model in this segment to improve its market share.
*With KTM, Bajaj will continue to target the high-end Sports bike segment; it plans for 90-100% volume growth in FY15F and another 50% growth in FY16F.

graph-bajaj2

Domestic 3-wheelers and RE60
*Currently, Bajaj has offerings only in the passenger carrier segment, which accounts for 84% of industry volumes. The company plans to enter the three-wheeler cargo segment in July 2015.
*In the passenger carrier segment, small 3W (three-wheeler) accounts for 59% of industry volumes where Bajaj has about 80% market share. Bajaj plans to protect its market leadership with new model launches.
*Big 3Ws account for the other 41% of the passenger carrier segment; Bajaj has 18% market share in this segment. It has detailed plans at the Tehsil level across India to increase its market share by 5% annually.The company will (i) significantly expand its dealer network; (ii) offer focused promotion schemes for different types of customers; and (iii) competitive financing through Bajaj Finance.
*Overall, the company expects 30% plus volume growth in this segment in FY15F.
*As for RE60, Bajaj is awaiting final approval from the government as some petitions are pending in the Supreme Court. Some export markets will likely have good demand for the product.

Exports
*The company is present in 48 overseas markets with a market size of 5.7m units. It plans to enter 28 new countries in next two years (13-14 countries by end FY15) with a market size of 2.7m units and another 22 new countries over the next three to five years (market size of 0.75m units).
*Africa is the key market (40% volume share): Bajaj is the market leader in most large African countries where it is present–in Nigeria, Bajaj has 42% market share in bikes and 52% in 3Ws.
*Bajaj expects 21% volume growth in exports in FY15F – 23% growth in motorcycles to 1.62m units and 13% growth in three-wheelers to 0.3m units. Note that FY15F growth will be helped by one-off Discover 125M order from Sri Lanka for 173,000 units; of this 125,000 units is a new order (received in Dec.) which will be executed over the next four months.
*While in the near-term, there may be demand uncertainty in some markets due to the dip in oil prices and sharp currency movements, Bajaj is confident of doubling its export volumes over four-five years. Around two thirds of the growth will come from existing markets, with newer markets contributing the rest.

—Nomura

Tags: Bajaj Auto
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