Bajaj Auto shares: The economic slump is causing a shift in the domestic two-wheeler market towards mileage and the leader, thereby hurting Bajaj. While Bajaj Auto has maintained share in the premium segment, sales in the key executive segment have taken a beating. Near-term momentum should improve on upcoming new launches and festival season; key would be to sustain it post that.
On the exports side, the momentum is however returning. While Africa has continued to grow, the Bajaj Auto is passing on FX benefit by reducing prices in some lower growth markets to revive volumes. The Kawasaki tie-up has also been extended to other SE Asian countries.
The three-wheeler domestic market should remain flat for the year. However, with the recent issues in Egypt, exports have become a dampener and growth would be subdued unless the situation in the country recovers.
We cut our domestic two-wheeler volumes growth to a 5% decline for FY14; however with R depreciation, Bajaj Auto should realise R/$ of >59 from Q3.
Consequently, we increase Bajaj Auto margin assumption to approximately 21% for FY15/16; earnings remain broadly unchanged. Given the economic slowdown, the overall market continues to see downtrading and a shift towards market leader Hero MotoCorp.
