Net sales grew 6.9% YoY on 6% YoY (+0.8% QoQ) realization growth: Bajaj Auto’s (BJAUT) net sales grew by 6.9% YoY (+6.5%) to INR52.5b (est. INR52.6b), led by 6% YoY growth (+0.8% QoQ) in realizations, while volumes grew marginally by 0.9% YoY (+5.6% QoQ) to 9.88m units.

1. 17 July 2014
1QFY15 Results Update | Sector: Automobiles
Bajaj Auto
Jinesh Gandhi (Jinesh@MotilalOswal.com); +91 22 3982 5416
Chirag Jain (Chirag.Jain@MotilalOswal.com); +91 22 3982 5418
BSE SENSEX S&P CNX
CMP: INR2,092 TP: INR2,333 Buy25,561 7,640
Bloomberg BJAUT IN
Equity Shares (m) 289.4
M.Cap. (INR b) / (USD
b)
605/10.1
52-Week Range (INR) 2,092/1,683
1, 6, 12 Rel. Per (%) -3/-13/-19
Financials & Valuation (INR Billion)
Y/E Mar 2015E 2016E 2017E
Sales 228.6 258.5 293.5
EBITDA 45.0 52.9 60.1
NP 35.9 42.2 48.0
Adj. EPS
(INR)
124.2 145.8 165.9
EPS Gr. (%) 10.9 17.4 13.7
BV/Sh.
(INR)
392.3 462.6 558.7
RoE (%) 34.3 34.1 32.5
RoCE (%) 47.8 47.4 44.9
Payout (%) 51.5 51.8 42.0
Valuation
P/E (x) 16.8 14.3 12.6
P/BV (x) 5.3 4.5 3.7
EV/EBITDA
( )
11.0 8.9 7.4
Div. Yield
( )
2.6 3.1 2.9
Margins disappoint as Discover woes continue
 Net sales grew 6.9% YoY on 6% YoY (+0.8% QoQ) realization growth: Bajaj Auto’s
(BJAUT) net sales grew by 6.9% YoY (+6.5%) to INR52.5b (est. INR52.6b), led by 6%
YoY growth (+0.8% QoQ) in realizations, while volumes grew marginally by 0.9%
YoY (+5.6% QoQ) to 9.88m units.
 Adjusted margin declined 70bp QoQ to 18.9% (v/s est. 19.2%) on higher RM cost
pressures: RM cost rose 70bp YoY (+40bp QoQ) to 70.1% (est. 69.5%) on higher
material cost pressures. Employee cost increased by 40bp YoY (+50bp QoQ) on
negative operating leverage.
 PAT below estimate at INR7.4b (flat YoY) v/s our estimate of INR8.1b, driven by
lower-than-expected EBITDA and increase in depreciation charges (in-line with
revised Schedule VI requirements).
Management commentary: Exports and 3W growth outlook remain healthy, with
18-20% FY15 growth guidance. However, Discover remains a cause of concern. With
150cc Discover launch in August 2014, market share to improve over two to three
quarters. Margin guidance of 19-20% for FY15 based on recovery in Discover portfolio.
Valuation and view: We downgrade FY15E/FY16E EPS by 5.5%/3.2% led by a cut in
EBITDA margin on higher RM cost pressures coupled with higher depreciation charge
as per revised Schedule VI requirements. Demand recovery along with stability in
competitive intensity would be the key driver for stock’s performance. BJAUT trades at
16.8x/14.3x FY15E/FY16E EPS respectively. Maintain Buy with a target price of
INR2,333 (16x FY16E EPS).
Investors are advised to refer through disclosures made at the end of the Research Report.

2. 15 May 2014 2
Bajaj Auto
Volumes continue to remain weak; market share declines further
 Volumes have grown marginally by 0.9% YoY (+5.6% QoQ) to 9.88m units driven
by motorcycle exports and recovery in domestic 3Ws
 Domestic volumes have declined by 11.4% YoY with motorcycle volumes
declining by 14.1% YoY, while 3Ws have recovered strongly with 23.4% volume
growth
 Exports have recovered with growth of 21.9%. Motorcycle exports grew by 33%
YoY, while 3Ws exports declined by 22% YoY impacted by Egypt crisis.
 Domestic motorcycle market share declined further by 230bp QoQ to 17.7% as
the Discover portfolio continues to remain weak
 Realizations improved by 6% YoY (led primarily by favorable currency), while on
QoQ increased by 0.8% to INR53,139/unit. USD realizations stood at
INR59.9/USD v/s 55.6% during 1QFY14
 As a result, net sales increased by 6.9% YoY (+6.5%) to INR52.5b (est INR52.6b),
led by growth in realizations.
Trend in product mix
1QFY15 1QFY14 YoY (%) 4QFY14 QoQ (%) FY14 FY13 YoY (%)
Motorcycles
Domestic 490,841 571,655 -14.1 493,922 -0.6 2,099,230 2,464,144 -14.8
% of total domestic 89.8 92.7 91.8 91.8 91.6
Exports 384,017 288,496 33.1 331,369 15.9 1,323,173 1,293,231 2.3
% of total exports 86.9 79.6 83.3 83.5 83.6
Total Motorcycles 874,858 860,151 1.7 825,291 6.0 3,422,403 3,757,375 -8.9
% of total volumes 141.4 87.8 144.1 88.4 88.7
Three Wheelers
Domestic 55,622 45,057 23.4 44,024 26.3 186,912 226,131 -17.3
% of total domestic 10.2 7.3 8.2 8.2 8.4
Exports 57,950 74,067 -21.8 66,467 -12.8 260,762 253,926 2.7
% of total exports 13.1 20.4 16.7 16.5 16.4
Total 3Ws 113,572 119,124 -4.7 110,491 2.8 447,674 480,057 -6.7
% of total volumes 11.5 12.2 11.8 11.6 11.3
Total Volumes 988,430 979,275 0.9 935,782 5.6 3,870,104 4,237,432 -8.7
Source: Company, MOSL
Trend in market share
(%) 1QFY15 1QFY14 YoY (bp) 4QFY14 QoQ (bp)
Dom. Motorcycles 17.7 22.6 -490 20.1 -230
Total Motorcycles 26.2 29.0 -280 28.3 -200
Total Dom. 2W 12.4 16.4 -400 14.6 -220
Total 2W (incl exports) 19.2 21.8 -260 27.3 -810
Dom. 3W 45.8 41.5 440 32.3 1,360
3W (incl exports) 54.3 58.8 -450 51.7 270
Source: Company, MOSL
EBITDA margin declines 70bp QoQ to 18.9% (adjusted for MTM loss)
 Adjusted margin declines 70bp QoQ to 18.9% (v/s est 19.2%)
 RM cost went up 70bp YoY (+40bp QoQ) to 70.1% (est 69.5%) on higher material
cost pressures.
 Emp. cost increased by 40bp (+50bp QoQ) on negative operating leverage.

3. 15 May 2014 3
Bajaj Auto
 Advertisement spends though have increased in absolute terms continue to
remain similar to FY14 levels as a %age of sales, as per management.
 PAT below estimate at INR7.4b (flat YoY) v/s our est of INR8.1b driven by lower-
than-anticipated EBITDA and increase in depreciation charges (in-line with
revised Schedule VI requirements).
Sequential improvement in realizations (INR ‘000/unit)
39 41 45 43 41 43 46 44 52 53 50 52 54
45 47 47 47 48 50 49 51 49
54 53 53 55
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
FY12 FY13 FY14 FY15
Export Realizations Domestic Realizations
Source: Company, MOSL
Domestic motorcycle shares drops further QoQ (%)
25 27 25 25 24 26 26
23 23 20 19 20 18
33 34 32
31 31
33
32
13
29 28 27 28 26
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
FY12 FY13 FY14 FY15
Domestic Motorcycle Total Motorcycle
Source: Company, MOSL
RM cost rise on cost pressures
31,715
32,319
33,118
32,567
32,513
34,013
34,769
34,740
34,788
36,081
35,889
36,709
37,233
73.6 72.6 71.471.2 72.171.8
72.4 71.8
69.4
67.0
69.5 69.6 70.1
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
FY12 FY13 FY14 FY15
Raw Material (INR / unit) % tosales
Source: Company, MOSL
Adj. EBITDA margin declines by 70bp QoQ to 18.9%
7,685
8,379
9,151
9,050
8,079
8,723
8,971
8,526
9,259
11,775
11,424
9,953
9,360
17.8
18.8
19.7 19.8
17.9 18.4 18.7
17.6
18.5
21.9 22.1
18.9
17.6
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
FY12 FY13 FY14 FY15
EBITDA (INR/Unit) EBITDA Margins (%)
Source: Company, MOSL
Management commentary: New Discover launch to watch out for
 Exports and 3Ws growth outlook remains healthy: Management highlighted
that demand and margin outlook for exports and 3W business appears healthy
with 18-20% volume growth for both for FY15.
 New permits in Maharashtra to benefit domestic 3Ws: Domestic 3W segment
should benefit from the recent opening up of permits by Maharashtra
Government.
 Pulsar and KTM to grow strongly in FY15: Management guides 15% and 25-30%
volume growth for Pulsar and KTM brand respectively for FY15.
 Discover continues to remain a cause of concern; upcoming launch of 150cc in
Aug-14 to watch out for: Management expects Discover volumes to improve
but over 2-3 quarters. Expect 2Q to see bottoming-out of Discover volumes with
pick-up 3QFY15 onwards.
 Adverse mix in favor of Discover could dilute current margins, though
individual segment-wise margins to remain strong
 Advertisement spends remain within the normal benchmark. Though on a
quarterly basis there might be few variations based on product launches.

4. 15 May 2014 4
Bajaj Auto
 Margin guidance of 19-20% for FY15 subject to recovery in Discover portfolio.
 Outlook on RM cost remain stable for 2QFY15
Revised Estimates: Downgrade FY15E/16E EPS by 5.5%/3.2%
We downgrade our FY15E/FY16E EPS by 5.5%/3.2% led by cut in EBITDA margins on
higher RM cost pressures coupled higher depreciation charge as per revised
Schedule VI requirements.
Revised Forecast
FY15E FY16E
Rev Old Chg (%) Rev Old Chg (%)
Volumes (units) 4,220,571 4,220,571 0.0 4,796,293 4,796,293 0.0
Net Sales 228,640 226,400 1.0 258,515 258,515 0.0
EBITDA 45,022 46,984 -4.2 52,867 53,832 -1.8
EBITDA Margins (%) 19.7 20.8 -110bp 20.5 20.8 -40bp
Net Profit 35,938 38,026 -5.5 42,199 43,578 -3.2
EPS (INR) 124.2 131.4 -5.5 145.8 150.6 -3.2
Source: Company, MOSL
Valuation & view
 Demand recovery along with stability in competitive intensity would be the key
driver for the stock performance.
 The stock trades at 16.8x/14.3x FY15E/FY16E EPS respectively. Maintain Buy
with a target price of INR2,333 (16x FY16E EPS).

5. 15 May 2014 5
Bajaj Auto
Bajaj Auto| Story in Charts: Exports & 3W recovery to drive earnings growth
Exports & 3Ws to drive volume growth
4,350
4,237
3,870
4,221
4,796
13.7
(2.6)
(8.7)
9.1
13.6
FY12 FY13 FY14 FY15E FY16E
Volumes ('000 Units) Growth(%)
Source: Company, MOSL
Share of exports motorcycles to increase
51 49 41 40 40
8 8
7 7 7
21 23
27 28 28
13 11 14 14 14
7 9 10 11 11
FY12 FY13 FY14E FY15E FY16E
Dom - 2W Dom - 3W Exports - 2W
Exports - 3W Spare sales
Source: Company, MOSL
EBITDA margins to moderate but remain healthy
37,200
36,353
41,057
45,022
52,867
19.0
18.2
20.4
19.7
20.5
FY12 FY13 FY14 FY15E FY16E
EBITDA (INR m) EBITDA Margins (%)
Source: Company, MOSL
Domestic recovery to drive earnings growth
31,069
30,436
32,420
35,938
42,199
15.9
15.2
16.1
15.7
16.3
FY12 FY13 FY14 FY15E FY16E
PAT PAT Margins (%)
Source: Company, MOSL
Return ratios to moderate on lower profitability
73.0
59.8
51.8
47.8 47.0
56.7
43.7
37.0 34.3 33.9
FY12 FY13 FY14 FY15E FY16E
RoCE (%) RoE (%)
Source: Company, MOSL
Dividend payout to remain healthy
48.7
49.7
52.2
51.5 51.8
2.0 2.0
2.2
2.4
2.8
FY12 FY13 FY14 FY15E FY16E
Dividend Payout (%) Dividend Yield(%)
Source: Company, MOSL

6. 15 May 2014 6
Bajaj Auto

Bajaj Auto: an investment profile
Company Background
Bajaj Auto (BJAUT), the flagship of the Bajaj group, is a
leading manufacturer of two-wheelers (~88% of
volumes) and three-wheelers (~12% of volumes). It is
the market leader in three-wheelers, and is the second
largest player in motorcycles and enjoys leadership in
the premium segment. It is also the largest exporter of
two-wheelers and three-wheelers (~41% of its
volumes).
Key investment arguments
 Well diversified product and market mix, with
motorcycle and three-wheelers in domestic and
export markets.
 Renewed strategy with focus on Discover and Pulsar
– two of its most profitable brands
 Largest exporter of two-wheelers (~64% of exports)
and three-wheelers (~74% of exports), with scope
to drive overall volume growth
Key investments risks
 Increasing competitiveness in two-wheeler industry
could restrict pricing power.
 Economic and political risk in key export markets
Recent developments
 Domestic motorcycle market share declined further
by 230bp QoQ to 17.7% as the Discover portfolio
continues to remain weak
 Plans to launch an all-new Discover 150 in Aug-14
Valuation and view
 Demand recovery along with stability in competitive
intensity would be the key driver for the stock
performance.
 The stock trades at 16.8x/14.3x FY15E/FY16E EPS
respectively. Maintain Buy with a target price of
INR2,333 (16x FY16E EPS).
Sector view
 Long term demand drivers in place, driven by
increasing penetration in rural markets and
replacement demand from urban markets
 2W export provides huge opportunity, with ~2x India
opportunity in the markets similar to India.
 Industry dynamics favorable, with focus on
profitability rather than market share.
Comparative valuations
Bajaj
Auto
Hero
Moto
Eicher
Motors
P/E (x) FY15E 16.8 16.9 39.1
FY16E 14.3 13.8 26.3
EPS Gr (%) FY15E 10.9 36.7 52.2
FY16E 17.4 22.6 48.9
RoE (%) FY15E 34.3 46.3 26.9
FY16E 34.1 46.3 32.3
EV/EBITDA (x) FY15E 11.0 11.8 25.3
FY16E 8.9 9.6 16.7
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
Consensus
Forecast
Variation
(%)
FY14 124.2 130.7 -5.0
FY15 145.8 151.3 -3.6
Target price and recommendation
Current
Price (INR)
Target
Price (INR)
Upside
(%)
Reco
2,092 2,333 11.5 Buy
Shareholding pattern (%)
Mar-14 Dec-13 Mar-13
Promoter 50.0 50.0 50.0
DII 7.0 6.9 7.3
FII 18.7 18.7 18.2
Others 24.3 24.4 24.5
Note: FII Includes depository receipts
Stock performance (1-year)

7. 15 May 2014 7
Bajaj Auto
Financials and valuation

8. 15 May 2014 8
Bajaj Auto
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Disclosure of Interest Statement BAJAJ AUTO LTD
 Analyst ownership of the stock No
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