MOSL: BAJAJ AUTO (Buy)-Finally, all three engines firing in unison-Product actions drive volume recovery

Bajaj Auto: Finally, all three engines firing in unison; Product actions drive volume recovery in domestic motorcycle market

(BJAUT IN, Mkt Cap USD13.1b, CMP INR3102, TP INR3686, 19% Upside, Buy)

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.

 Product actions, rural recovery drive BJAUT's domestic motorcycle recovery

• BJAUT's domestic motorcycle business is showing initial signs of recovery, led by several product/pricing actions like the launch of Pulsar twin disc, the re-launch of Discover 110, and price cut for CT100 KS/Pulsar Classic by ~INR3k.
• BJAUT's domestic motorcycle volumes grew 30% in CY18YTD (v/s 22.7% growth for domestic 2W industry), leading to a market share recovery of 90bp YoY to 15.8% in 1HCY18 (1QFY19 market share at 16.3%).
• Domestic motorcycle industry grew at a CAGR of just 2% over FY12-17 due to weak monsoon (FY15/16), scooterization, and demonetization (FY17), etc. However, rural markets have witnessed a sharp recovery since Nov-17, as evident from domestic motorcycle growth of ~13.7%/19.5% in FY18/1QFY19.