Motilal Oswal - Bajaj Auto Limited. (BAJAJ-AUTO) MOSL: BAJAJ AUTO | Annual Report Update-To compete like never before in Commuter/Deluxe segment

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Motilal Oswal

Jinesh Gandhi

MOSL: BAJAJ AUTO | Annual Report Update-To compete like never before in Commuter/Deluxe segment

Bajaj Auto | Annual Report Update: To compete like never before in Commuter/Deluxe segment; Tight control on capex: 3-year cum. capex < FY18 capex for HMCL/TVSL!

(BJAUT IN, Mkt Cap USD13b, CMP INR3113, TP INR3686, 18% Upside, Buy)

We studied Bajaj Auto’s (BJAUT) FY18 annual report to get insights into: (a) management’s view on the domestic motorcycle business, (b) drivers and sustainability of exports, (c) Fx hedging and (d) utilization of cash. While management has come out aggressively on its missing link in the domestic motorcycle business, it is optimistic on the exports business for FY19. BJAUT’s Fx hedges for FY19 stood at ~USD1.33b (similar to FY18 exports), leaving room for further upside from spot rates. Key insights from the FY18 annual report:

Strategy revolves around value migration to Entry and Premium segments

The domestic 2W industry is expected to grow at a CAGR of ~10% until FY22, led by the Scooter (CAGR of 12-14%) and Motorcycle (CAGR of 8-9%) segments.
We expect continued value migration away from the Executive motorcycle 100/125cc segment toward the Scooters (driven by wider appeal), Premium >150cc (driven by need for uniqueness and upgrade) and Entry motorcycle 100cc (driven by substantial value proposition) segments.
BJAUT's strategy is to capitalize on this value migration by focusing on the Entry and Premium motorcycle segments. In the Premium segment, BJAUT enjoys strong positioning with its market leadership (~30% market share) and widest portfolio (150-400cc), which will strengthen further with the addition of Husqvarna and Triumph over the next two years.

20/07/2018 10 EN

Underlying

Bajaj Auto Limited.

Bajaj Auto is an auto-manufacturing company which is based in India. Co. is engaged in the manufacturing, selling, and exporting of two- and three-wheeler vehicles and spare parts and accessories. Co.'s products include scooters, motorcycles, and mopeds, as well as autorickshaws, such as goods carriers, delivery vans, and passenger carriers. Co. also provides related spare parts and after sales service. Co. offers its products through a network of dealers and maintains a presence in over a dozen countries in Europe, Latin America, the U.S. and Asia.

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INE917I01010 National Stock Exchange of India India

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Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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Analysts

Jinesh Gandhi

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MOSL: BAJAJ AUTO | Annual Report Update-To compete like never before in Commuter/Deluxe segment

Bajaj Auto Ltd: 2 directors

MOSL: BAJAJ AUTO: Worst behind in both exports and India

MOSL: BAJAJ AUTO: Better mix and higher other income drive beat on 1Q result (BJAUT IN, Mkt Cap USD14b, CMP INR3878, TP INR4200, 8% Upside, Neutral)

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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