BUY

Bajaj Auto (BJAUT)

Automobiles & Components MAY 20, 2020
RESULT
Sector view: Neutral

Strong operating performance. Bajaj Auto reported 4QFY20 EBITDA of Rs12.5 bn CMP (`): 2,558
(+2% yoy), which was 15% above our estimates led by better gross margin and Fair Value (`): 3,000
improvement in product mix. The near term will remain challenging for domestic and
BSE-30: 30,819
export markets; however, the company will maintain operating margins in these
challenging times as well, a positive. We expect demand to recover in FY2022E, the
stock is inexpensive in our view. Maintain BUY with revised FV of Rs3,000 (from Rs3,100).

Bajaj Auto
Stock data Forecasts/valuations 2020 2021E 2022E
52-week range (Rs) (high,low) 3,315-1,789 EPS (Rs) 176.2 158.3 190.0
Mcap (bn) (Rs/US$) 741/9.8 EPS growth (%) 15.0 (10.1) 20.0
ADTV-3M (mn) (Rs/US$) 2,038/27 P/E (X) 14.5 16.2 13.5
Shareholding pattern (%) P/B (X) 3.7 3.4 3.1
Promoters 53.5 EV/EBITDA (X) 11.4 12.1 9.5
FIIs 13.9 RoE (%) 24.5 22.0 24.1
MFs/BFIs 2.9/6.6 Div. yield (%) 4.7 3.7 4.5
Price performance (%) 1M 3M 12M Sales (Rs bn) 299 277 334
Absolute 8 (17) (15) EBITDA (Rs bn) 51 47 59
Rel. to BSE-30 10 11 9 Net profits (Rs bn) 51 46 55

4QFY20 results: EBITDA 15% above expectations

Bajaj Auto reported 4QFY20 EBITDA of Rs12.5 bn (+2% yoy), which was 15% above our
estimates led by better-than-expected gross margins and improvement in product mix.
Revenues declined by 8% yoy led by (1) 17% yoy decline in volumes and (2) 10% yoy
improvement in net ASPs due to cost push by the company on account of implementation of
stricter safety norms (ABS) and improvement in product mix. Net realizations improved by 8%
sequentially (4% above our estimates) led by higher mix of export motorcycle segment in the
overall mix (+510 bps qoq) and lower mix of economy motorcycle segment (-660 bps qoq) in
4QFY20. EBITDA margin came in at 18.4% (+190 bps yoy and +50 bps qoq), which was 180
bps above our estimates led by (1) improvement in product mix (higher mix of exports), (2)
migration of consumers towards higher cc product under the same model and (3) forex benefits.
The company reported net profit of Rs13.1 bn (+15% yoy), which was 25% above our
estimates due to outperformance at EBITDA level in 4QFY20.

Cut FY2021-22E EPS estimates by 5-7%; maintain BUY

We have cut our FY2021-22E EPS estimates by 5-7% due to 11-14% cut in volume
assumptions owing to the extension of lockdown in India and export markets, partly offset by
70-100 bps increase in our EBITDA margin assumptions. We believe the 2W segment is well-
positioned (given lower ticket size) to gain from consumer preference for personal mobility
given fear of contracting coronavirus while using public transport and ride-sharing services. As a
result, we expect Bajaj Auto to benefit in both domestic as well as export geographies. The
company has improved its EBITDA per vehicle to Rs11,042 in FY2020 from Rs10,345 in FY2019
Hitesh Goel
(Rs12,629 in 4QFY20), despite sharp fall in volumes, which is quite commendable. Also, the
hitesh.goel@kotak.com
company has improved its EBITDA margin trajectory in 4QFY20 despite only 1 mn units of sales. Mumbai: +91-22-4336-0878
We expect strong volume recovery going into FY2022E. Over the medium term, we believe
Rishi Vora
Bajaj Auto will continue to gain market share from Chinese players in African markets as rishi.vora@kotak.com
Chinese competition is quite fragmented with weaker balance sheet than Bajaj Auto. Maintain Mumbai: +91-22-4336 0874

BUY. FV revised to Rs3,000 (from Rs3,100 earlier) based on 15X March 2022E core EPS +
Rs142/share for KTM stake + Rs625/share value of cash and cash equivalents.

Kotak Institutional Equities Research

kotak.research@kotak.com
Mumbai: +91-22-4336-0000

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Automobiles & Components Bajaj Auto

Conference call key takeaways

 Domestic two-wheeler segment. Domestic motorcycle volumes declined by 34% yoy

led by (1) 98% yoy decline in executive segment as Discover model failed to attract
customer demand, (2) 39% yoy decline in economy segment and (3) 25% yoy decline in
premium segment in 4QFY20. For FY2020, the company’s domestic motorcycle volumes
declined by 18% yoy led by (1) 78% yoy decline in executive segment, (2) 23% yoy
decline in economy segment and (3) 5% yoy decline in premium segment. Bajaj Auto’s
market share stood at 18.5% (-20 bps yoy) in the domestic market in FY2020 led by
market share loss in the economy and executive motorcycle segments, which was offset
by market share gain in the premium motorcycle segment. The company highlighted that
all plants have started production (with 50-60% capacity utilization); however, retail
demand has reached only 25% of the normalized levels. The company expects demand
recovery in 2HFY21 led by (1) consumer preference for personal mobility (two-wheeler
segment will be the top pick given low per capita income of Indian consumers) and (2)
some pick-up in pent-up demand. The company also highlighted that financing in the
two-wheeler segment has not been impacted.

 Domestic three-wheeler segment. Domestic three-wheeler segment volumes declined

by 27% yoy in 4QFY20 and 8% yoy in FY2020. The company recorded market share of
57.3% in FY2020. RE three-wheeler brand continues to have dominant market share of
89.7% (+360 bps yoy) in the small three-wheeler segment in FY2020. In the goods carrier
segment, the company recorded decline of 2% as against an industry decline of 13%
resulting in market share of 27.2% (+330 bps yoy) in FY2020. The company expects the
mix to shift towards small three-wheeler segment (where the company has significant
market share) due to stringent social-distancing norms, which augurs well for the
company. The company also expects cargo segment to do well given increased
penetration of e-commerce. However, the company highlighted that financing has been
an issue given B2B nature of the business.

 Two-wheeler export segment. Export motorcycle volumes grew by 15% yoy in 4QFY20.
For FY2020, export volumes were up by 10% yoy driven by strong growth in Africa,
LATAM, South Asia and Middle East. The company has 38% market share in African
market and the company is ranked either as No. 1 or No. 2 in 22 out of 79 export
destinations. The company will continue to focus on ASEAN region and is looking for the
right entry point into Brazil and EU.

 Three-wheeler export segment. Volumes declined by 25% yoy in 4QFY20 and 21%
yoy in FY2020 mainly due to regulatory challenges in Egypt. Excluding Egypt, export
volumes grew by 6% yoy in FY2020.

 Three new launches in 4QFY20. The company improved its market share by 270 bps to
10.1% in the super sport segment. In order to strengthen their presence, the company
launched three new models – Husqvarna Svartpilen 250, Husqvama Vitpilen 250 and
Dominar 250 in this quarter.

 Other key points. (1) Export revenues stood at Rs29.1 bn in 4QFY20 versus Rs28 bn in
4QFY19, (2) the company has taken price increase (2-3%) in domestic two-wheeler and
three-wheeler segments in 4QFY20, (3) realization per USD was ~ 71 in 4QFY20 as
against ~ 68.5 in FY2019, the company has hedged 75% of its forward one-year
receivables at USD:INR rate of ~75, (4) mix of first time buyers stood at 56-59% in
FY2020, (5) international retails has reached 35% of their normalized levels, (6) 110 cc
now accounts for 43% of the total 100 cc and 110 cc segments versus earlier levels of 8%
and (7) the company will continue to support dealers and will provide higher margins.

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Bajaj Auto Automobiles & Components

Exhibit 1: 4QFY20 EBITDA was 15% above our estimates due to better-than-expected GM and improvement in product mix
Interim result of Bajaj Auto, March fiscal year-ends (Rs mn)
(% chg.)
4QFY20 4QFY20E 4QFY19 3QFY20 4QFY20E 4QFY19 3QFY20 FY2020 FY2019 Yoy chg (%) FY2021E FY2020 Yoy chg (%)
Volumes (units) 991,961 991,961 1,193,590 1,202,486 (16.9) (17.5) 4,615,212 5,019,503 (8.1) 4,023,660 4,615,212 (12.8)
Net realisations 66,645 64,168 60,533 61,842 3.9 10.1 7.8 63,077 58,905 7.1 66,622 63,077
Net sales 66,109 63,652 72,252 74,364 3.9 (8.5) (11.1) 291,115 295,673 268,066 291,115
Operating income 2,050 2,000 1,953 2,032 2.5 4.9 0.8 8,071 7,903 8,585 8,071
Net sales (including op income) 68,159 65,652 74,205 76,397 3.8 (8.1) (10.8) 299,187 303,576 (1.4) 276,651 299,187 (7.5)
Inc/dec in stock 2,363 — 993 (1,774) 630 564 (1,474) 630
Raw materials (49,016) (45,943) (54,305) (51,649) 1.5 (12.5) (12.7) (210,713) (218,541) (195,598) (210,713)
Staff costs (3,421) (3,300) (3,126) (3,482) 3.7 9.4 (1.8) (13,892) (12,554) (13,558) (13,892)
Other expenses (5,557) (5,500) (5,498) (5,820) 1.0 1.1 (4.5) (24,249) (21,120) (18,530) (24,249)
Total expenses (55,631) (54,743) (61,936) (62,725) 1.6 (10.2) (11.3) (248,224) (251,651) (229,161) (248,224)
EBITDA 12,528 10,908 12,270 13,672 14.8 2.1 (8.4) 50,962 51,925 (1.9) 47,490 50,962 (6.8)
Other income 5,327 3,662 3,680 3,662 45.4 44.7 45.4 17,336 14,389 16,211 17,336
Interest expense (9) (5) (3) (5) (32) (45) — (32)
Depreciation expense (633) (617) (608) (617) 2.6 4.0 2.6 (2,464) (2,657) (2,602) (2,464)
Profit before tax before exceptional 17,212 13,949 15,339 16,713 23.4 12.2 3.0 65,802 63,612 61,099 65,802
Extraordinary income/(expense) — — 3,420 — — 3,420 — —
Profit before tax 17,212 13,949 18,759 16,713 23.4 (8.2) 3.0 65,802 67,032 (1.8) 61,099 65,802 (7.1)
Tax expense (4,109) (3,487) (5,703) (4,097) 17.8 (27.9) 0.3 (14,802) (20,280) (15,275) (14,802)
Profit after tax 13,103 10,462 13,056 12,616 25.2 0.4 3.9 51,000 46,752 45,824 51,000
Adj. PAT 13,103 10,462 10,662 12,616 25.2 22.9 3.9 51,000 44,358 15.0 45,824 51,000 (10.1)
Raw material cost as % of net sales 68.4 70.0 71.8 69.9 70.2 71.8 71.2 70.2
Staff cost as % of net sales 5.0 5.0 4.2 4.6 4.6 4.1 4.9 4.6
Other expenses as % of net sales 8.2 8.4 7.4 7.6 8.1 7.0 6.7 8.1
EBITDA margin (%) 18.4 16.6 16.5 17.9 17.0 17.1 17.2 17.0
No of shares 289 289 289 289 289 289 289 289
EPS 45.3 36.2 36.8 43.6 176.2 153.3 158.3 176.2
Tax rate (%) 23.9 25.0 37.2 24.5 22.5 31.9 25.0 22.5
Revenue breakdown (Rs mn)
Export revenues 29,106 28,000 30,374 4.0 (4.2)
Export ASPs (Rs/unit) 56,648 58,183 53,972 (2.6) 5.0
Domestic revenues 37,003 44,252 43,990 (16.4) (15.9)
Domestic ASPs (Rs/unit) 77,386 62,121 68,766 24.6 12.5
Volume breakdown (units)
Economy 179,066 295,243 296,444 (39.3) (39.6) 1,058,441 1,368,980 (22.7) 952,597 1,058,441 (10.0)
Executive 285 16,656 3,132 (98.3) (90.9) 29,495 133,786 (78.0) 29,495 29,495 -
Premium 223,733 298,195 243,402 (25.0) (8.1) 990,412 1,038,554 (4.6) 841,850 990,412 (15.0)
Domestic motorcycle 403,084 610,094 542,978 (33.9) (25.8) 2,078,348 2,541,320 (18.2) 1,823,942 2,078,348 (12.2)
Platina 93,117 173,794 159,395 (46.4) (41.6) 578,237 626,781 (7.7) 520,413 578,237 (10.0)
CT 85,949 121,449 137,049 (29.2) (37.3) 480,204 742,199 (35.3) 432,184 480,204 (10.0)
Discover/V15 285 16,656 3,132 (98.3) (90.9) 29,495 133,786 (78.0) 29,495 29,495 -
Pemium bikes (Pulsar, Avenger, KTM) 223,733 298,195 243,402 (25.0) (8.1) 990,412 1,038,554 (4.6) 841,850 990,412 (15.0)
Export motorcycle 450,456 391,889 484,183 14.9 (7.0) 1,869,220 1,695,553 10.2 1,588,837 1,869,220 (15.0)
Total motorcycle 853,540 1,001,983 1,027,161 (14.8) (16.9) 3,947,568 4,236,873 (6.8) 3,412,779 3,947,568 (13.5)
Domestic 3 wheelers 75,076 102,258 96,736 (26.6) (22.4) 365,759 399,453 (8.4) 324,090 365,759 (11.4)
Export 3 wheelers 63,345 89,349 78,589 (29.1) (19.4) 301,885 383,177 (21.2) 286,791 301,885 (5.0)
3 wheelers 138,421 191,607 175,325 (27.8) (21.0) 667,644 782,630 (14.7) 610,881 667,644 (8.5)
Total volumes 991,961 1,193,590 1,202,486 (16.9) (17.5) 4,615,212 5,019,503 (8.1) 4,023,660 4,615,212 (12.8)
Volume mix (%)
Economy 18.1 24.7 24.7 22.9 27.3 23.7 22.9
Executive 0.0 1.4 0.3 0.6 2.7 0.7 0.6
Premium 22.6 25.0 20.2 21.5 20.7 20.9 21.5
Domestic motorcycle 40.6 51.1 45.2 45.0 50.6 45.3 45.0
Platina 9.4 14.6 13.3 12.5 12.5 12.9 12.5
CT 8.7 10.2 11.4 10.4 14.8 10.7 10.4
Discover/V15 0.0 1.4 0.3 0.6 2.7 0.7 0.6
Pemium bikes (Pulsar, Avenger, KTM) 22.6 25.0 20.2 21.5 20.7 20.9 21.5
Export motorcycle 45.4 32.8 40.3 40.5 33.8 39.5 40.5
Total motorcycle 86.0 83.9 85.4 85.5 84.4 84.8 85.5
Domestic 3 wheelers 7.6 8.6 8.0 7.9 8.0 8.1 7.9
Export 3 wheelers 6.4 7.5 6.5 6.5 7.6 7.1 6.5
3 wheelers 14.0 16.1 14.6 14.5 15.6 15.2 14.5
Total volumes 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Automobiles & Components Bajaj Auto

Exhibit 2: Strong yoy growth in Pulsar exports (+28% yoy) and Boxer exports (+32% yoy) in 4QFY20
Volume mix of two-wheeler exports, 4QFY17-4QFY20 (units, %)
4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20
Export volumes (units)
Platina 14,772 14,791 13,542 12,612 13,567 11,823 15,421 17,808 13,906 13,068 15,015 9,864 7,861
Boxer 112,936 136,114 140,804 173,678 186,474 230,654 214,696 246,352 216,498 275,874 252,255 280,036 285,286
CT 49,044 53,302 43,230 48,300 52,474 54,224 71,072 62,981 69,456 63,818 57,956 71,782 61,704
Discover/V series 38,476 40,367 36,280 37,421 29,986 37,019 31,887 39,391 32,648 43,897 37,652 36,893 19,980
Pulsar 59,728 78,515 72,558 67,904 63,953 76,353 87,563 56,849 42,718 60,234 86,882 74,094 54,535
KTM/Avenger/Others 12,522 26,063 28,310 12,164 12,348 25,657 13,004 10,910 16,663 14,800 13,130 11,514 21,090
Total volumes 287,478 349,152 334,724 352,079 358,802 435,730 433,643 434,291 391,889 471,691 462,890 484,183 450,456
Volume mix %)
Platina 5.1 4.2 4.0 3.6 3.8 2.7 3.6 4.1 3.5 2.8 3.2 2.0 1.7
Boxer 39.3 39.0 42.1 49.3 52.0 52.9 49.5 56.7 55.2 58.5 54.5 57.8 63.3
CT 17.1 15.3 12.9 13.7 14.6 12.4 16.4 14.5 17.7 13.5 12.5 14.8 13.7
Discover 13.4 11.6 10.8 10.6 8.4 8.5 7.4 9.1 8.3 9.3 8.1 7.6 4.4
Pulsar 20.8 22.5 21.7 19.3 17.8 17.5 20.2 13.1 10.9 12.8 18.8 15.3 12.1
KTM/Avenger/Others 4.4 7.5 8.5 3.5 3.4 5.9 3.0 2.5 4.3 3.1 2.8 2.4 4.7
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: SIAM, Kotak Institutional Equities

Exhibit 3: Bajaj Auto has lost 220 bps market share on a yoy share basis in the domestic motorcycle segment in 4QFY20
Domestic motorcycle market share of major two-wheeler players, 4QFY17-4QFY20 (%)

4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20
Economy
Bajaj Auto 25.5 25.3 32.0 31.8 24.1 31.8 37.2 37.4 33.8 33.4 32.4 36.1 25.7
Hero Motocorp 65.3 59.8 56.0 56.5 65.8 58.1 52.7 53.1 60.3 60.6 61.9 59.0 69.3
Executive
Bajaj Auto 5.0 3.8 3.0 2.8 5.2 3.0 2.1 1.7 1.2 1.1 0.6 0.3 0.0
Hero Motocorp 72.9 69.3 69.0 69.6 69.6 71.0 72.0 72.3 73.5 69.1 68.3 72.8 75.4
HMSI 19.5 24.2 24.1 23.8 22.4 23.7 22.8 20.7 19.2 23.9 26.2 22.8 22.7
Premium
Bajaj Auto 31.5 26.1 31.3 28.3 28.3 28.3 30.0 33.1 38.5 36.7 35.7 37.9 39.4
Hero Motocorp 5.0 3.8 3.0 1.9 1.2 1.2 1.5 1.9 0.9 1.3 2.5 1.9 0.2
HMSI 12.8 15.9 14.5 11.8 13.9 16.0 14.9 12.6 8.6 12.8 13.9 8.5 8.2
Royal Enfield 27.8 26.3 25.0 31.3 28.7 25.5 24.2 25.8 24.5 22.4 22.9 27.1 27.3
Total
Bajaj Auto 16.1 14.0 16.9 16.4 15.3 16.3 18.6 20.4 20.0 18.4 17.9 20.0 17.8
Hero Motocorp 54.7 52.4 50.5 50.8 52.4 51.3 50.4 49.8 51.4 50.9 51.4 51.8 54.6
HMSI 13.4 16.5 15.7 14.7 15.0 15.8 14.4 12.2 11.0 14.7 15.7 12.5 12.0

Source: SIAM, Kotak Institutional Equities

Exhibit 4: We have cut our FY2020-22E EPS estimates by 5-7% due to 11-14% cut in volume assumptions
Earnings estimates revision, March fiscal year-ends, 2020-22E (Rs mn, units)

New estimates Old estimates % change

2020 2021E 2022E 2021E 2022E 2021E 2022E
Domestic two-wheelers 2,078,348 1,823,942 2,135,202 2,031,693 2,334,440 (10.2) (8.5)
Domestic three-wheelers 365,759 324,090 369,404 368,880 396,630 (12.1) (6.9)
Export two-wheelers 1,869,220 1,588,837 1,986,046 1,967,265 2,360,718 (19.2) (15.9)
Export three-wheelers 301,885 286,791 329,809 318,037 349,841 (9.8) (5.7)
Total volumes (units) 4,615,212 4,023,660 4,820,461 4,685,875 5,441,630 (14.1) (11.4)
Average net realization 64,826 68,756 69,367 67,874 67,682 1.3 2.5
Net sales (incl. operating income) 299,187 276,651 334,381 318,048 368,303 (13.0) (9.2)
EBITDA 50,962 47,490 58,880 51,559 62,128 (7.9) (5.2)
EBITDA margin (%) 17.0 17.2 17.6 16.2 16.9
Profit after tax 51,000 45,824 54,974 49,189 57,793 (6.8) (4.9)
EPS (Rs/share) 176.2 158.3 190.0 170.0 199.7 (6.8) (4.9)

Source: Company, Kotak Institutional Equities estimates

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Bajaj Auto Automobiles & Components

Exhibit 5: Bajaj Auto’s total volumes are expected to grow at 6% CAGR over FY2020-23E
Bajaj Auto volume projections, March fiscal year-ends, 2013-23E (units, %)
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Sales volume (units)
Motorcycles 3,757,105 3,422,403 3,291,315 3,358,252 3,179,521 3,369,334 4,236,873 3,947,568 3,412,779 4,121,248 4,746,674
Domestic 2,463,874 2,099,230 1,770,009 1,898,957 1,960,980 1,974,577 2,541,320 2,078,348 1,823,942 2,135,202 2,363,419
Platina 484,600 465,111 486,568 275,276 383,542 435,180 626,781 578,237 520,413 598,475 640,369
CT100 — — 29,189 590,067 452,712 466,897 742,199 480,204 432,184 497,011 531,802
Discover 1,311,843 992,176 557,942 238,098 303,032 244,315 133,786 29,495 29,495 29,495 29,495
Pulsar/Avenger/KTM 667,431 641,943 696,310 795,516 821,694 828,185 1,038,554 990,412 841,850 1,010,220 1,161,753
Export two-wheelers 1,293,231 1,323,173 1,521,306 1,459,295 1,218,541 1,394,757 1,695,553 1,869,220 1,588,837 1,986,046 2,383,256
Total two-wheelers 3,757,105 3,422,403 3,291,315 3,358,252 3,179,521 3,369,334 4,236,873 3,947,568 3,412,779 4,121,248 4,746,674
RE 60 — — — 334 2,000 — — — — — —
Domestic three-wheelers 226,131 186,912 234,345 256,320 253,147 369,637 399,453 365,759 324,090 369,404 386,774
Passenger three-wheelers 223,287 186,856 234,345 254,995 239,985 346,846 368,825 335,656 302,090 347,404 364,774
Goods three-wheelers 2,844 56 — 1,325 13,162 22,791 30,628 30,103 22,000 22,000 22,000
Export three-wheelers 253,926 260,762 285,541 280,000 191,236 267,820 383,177 301,885 286,791 329,809 362,790
Total three-wheelers 480,057 447,674 519,886 536,320 444,383 637,457 782,630 667,644 610,881 699,213 749,564
Total vehicles 4,237,162 3,870,077 3,811,201 3,894,906 3,625,904 4,006,791 5,019,503 4,615,212 4,023,660 4,820,461 5,496,239
Growth (yoy %)
Motorcycles (2.0) (8.9) (3.8) 2.0 (5.3) 6.0 25.7 (6.8) (13.5) 20.8 15.2
Domestic (4.0) (14.8) (15.7) 7.3 3.3 0.7 28.7 (18.2) (12.2) 17.1 10.7
Platina (9.5) (4.0) 4.6 (43.4) 39.3 13.5 44.0 (7.7) (10.0) 15.0 7.0
CT100 — — — — (23.3) 3.1 59.0 (35.3) (10.0) 15.0 7.0
Discover (0.3) (24.4) (43.8) (57.3) 27.3 (19.4) (45.2) (78.0) — — —
Pulsar/Avenger/KTM (6.7) (3.8) 8.5 14.2 3.3 0.8 25.4 (4.6) (15.0) 20.0 15.0
Export two-wheelers 2.0 2.3 15.0 (4.1) (16.5) 14.5 21.6 10.2 (15.0) 25.0 20.0
Total two-wheelers (2.0) (8.9) (3.8) 2.0 (5.3) 6.0 25.7 (6.8) (13.5) 20.8 15.2
Domestic three-wheelers 11.4 (17.3) 25.4 9.4 (1.2) 46.0 8.1 (8.4) (11.4) 14.0 4.7
Export three-wheelers (18.7) 2.7 9.5 (1.9) (31.7) 40.0 43.1 (21.2) (5.0) 15.0 10.0
Total three-wheelers (6.8) (6.7) 16.1 3.2 (17.1) 43.4 22.8 (14.7) (8.5) 14.5 7.2
Total vehicles (2.6) (8.7) (1.5) 2.2 (6.9) 10.5 25.3 (8.1) (12.8) 19.8 14.0

Source: Company, Kotak Institutional Equities estimates

Exhibit 6: We expect Bajaj Auto’s earnings to grow at 7% CAGR over FY2020-23E

Bajaj Auto – financial summary, March fiscal year-ends, 2013-23E (Rs mn)
2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E
Profit model (Rs mn)
Net sales 204,684 205,147 216,120 225,865 217,636 252,189 303,576 299,187 276,651 334,381 382,943
EBITDA 41,064 44,710 41,166 47,820 44,223 48,374 51,925 50,962 47,490 58,880 68,453
Other income 3,244 3,412 10,736 10,736 12,220 12,933 14,389 17,336 16,211 17,296 18,733
Interest (5) (5) (65) (11) (14) (13) (45) (32) — — —
Depreciation (1,640) (1,796) (2,674) (3,072) (3,073) (3,148) (2,657) (2,464) (2,602) (2,877) (3,152)
Profit before tax 42,662 46,321 49,162 55,474 53,355 58,146 63,612 65,802 61,099 73,299 84,034
Extra-ordinary items — — (3,403) — — (320) 3,420 — — — —
Taxes (12,227) (13,887) (12,711) (16,177) (15,080) (17,145) (20,280) (14,802) (15,275) (18,325) (21,009)
Net profit 30,436 32,433 33,049 39,298 38,276 40,681 46,752 51,000 45,824 54,974 63,026
Adjusted net profit 30,436 32,433 36,452 39,298 38,276 40,905 44,366 51,000 45,824 54,974 63,026
Adjusted earnings per share (Rs) 105.2 112.1 126.0 135.8 132.3 141.3 153.3 176.2 158.3 190.0 217.8
Balance sheet (Rs mn)
Equity 79,020 96,080 106,922 132,666 170,341 191,039 217,799 199,255 217,585 239,574 264,784
Deferred tax liability 1,151 1,432 1,416 2,028 3,136 3,234 5,427 3,464 3,464 3,464 3,464
Total borrowings 2,105 1,466 1,699 — — — — — — — —
Current liabilities 42,511 48,498 45,587 30,172 34,671 43,922 50,578 45,014 33,042 37,548 41,256
Total liabilities 124,786 147,476 155,623 164,865 208,149 238,195 273,804 247,733 254,090 280,586 309,505
Net fixed assets 20,277 20,386 20,190 21,383 20,440 19,349 18,120 17,592 19,990 22,113 23,961
Investments 64,305 85,496 91,533 90,379 135,088 163,656 179,366 169,627 179,627 189,260 208,137
Cash 5,589 4,955 5,862 8,595 2,937 7,780 9,228 3,083 1,366 7,494 8,357
Other current assets 33,913 35,524 36,507 43,615 49,239 47,411 67,090 57,431 53,108 61,719 69,050
Miscellaneous expenditure 703 1,115 1,532 893 447 — — — — — —
Total assets 124,786 147,476 155,623 164,865 208,149 238,195 273,804 247,733 254,090 280,586 309,505
Free cash flow (Rs mn)
Operating cash flow excl. working capital 26,557 31,419 27,611 30,816 30,859 32,157 31,925 34,855 39,841 47,529 54,168
Working capital changes (5,213) 4,039 (6,138) 5,753 2,533 10,451 (7,030) 3,763 (7,648) (4,106) (3,622)
Capital expenditure (5,082) (2,201) (2,697) (2,651) (1,994) (1,826) (1,635) (2,828) (5,000) (5,000) (5,000)
Free cash flow 16,262 33,257 18,777 33,917 31,398 40,782 23,260 35,790 27,193 38,423 45,545
Ratios
Gross margin (%) 29.6 32.4 31.3 33.3 32.8 31.0 28.2 29.8 28.8 29.5 29.5
EBITDA margin (%) 20.1 21.8 19.0 21.2 20.3 19.2 17.1 17.0 17.2 17.6 17.9
PAT margin (%) 14.9 15.8 16.9 17.4 17.6 16.2 14.6 17.0 16.6 16.4 16.5
Book Value (Rs/share) 273.0 332.0 369.5 458.4 588.6 660.1 752.6 688.5 751.8 827.8 914.9
RoAE (%) 43.2 36.5 32.1 32.3 24.8 22.1 22.4 23.9 21.6 23.7 24.7
Gross profit per vehicle (Rs/vehicle) 14,291 17,173 17,743 19,332 19,690 19,489 17,053 19,307 19,778 20,474 20,561
EBITDA per vehicle (Rs/vehicle) 9,691 11,553 10,801 12,278 12,196 12,073 10,345 11,042 11,803 12,215 12,455

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

Disclosures

"Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which
the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views
about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views expressed in this report: Hitesh Goel, Rishi Vora."

Kotak Institutional Equities Research coverage universe

Distribution of ratings/investment banking relationships
Percentage of companies covered by Kotak Institutional
70%
Equities, within the specified category.

60%
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided
50% 47.1%
investment banking services within the previous 12 months.

40% * The above categories are defined as follows: Buy = We

expect this stock to deliver more than 15% returns over the next
12 months; Add = We expect this stock to deliver 5-15% returns
30%
over the next 12 months; Reduce = We expect this stock to
23.0%
deliver -5-+5% returns over the next 12 months; Sell = We
20% 17.2% expect this stock to deliver less than -5% returns over the next
12.7% 12 months. Our target prices are also on a 12-month horizon
basis. These ratings are used illustratively to comply with
10%
3.9% applicable regulations. As of 31/03/2020 Kotak Institutional
2.0% 1.5%
0.0% Equities Investment Research had investment ratings on 204
0% equity securities.
BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of March 31, 2020

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our Fair Value estimates are also on a 12-month horizon basis.

Our Ratings System does not take into account short-term volatility in stock prices related to movements in the market. Hence, a particular Rating may not
strictly be in accordance with the Rating System at all times.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and fair value, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and fair value, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or fair value. The previous investment rating and fair value, if any, are no longer in effect for this stock
and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

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