Bajaj Auto. Institutional Equity Research. Automobiles May 02, 2017

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1 Bajaj Auto Reco Range Stop Loss Target Automobiles May 02, 2017 Background & Business Bajaj Auto (BAL) is one of the leading manufacturers of two-wheelers (88% of volumes) and three-wheelers (12% of volumes) in India. BAL is the market leader in three-wheeler segment. It is the second largest player in motor cycle space with leadership in premium segment. The Company is also the largest exporter of two-wheelers and three-wheelers, which accounted for 43% of its total revenue in FY16. Investment Rationale Premium Segment Volume Expected to Grow: BAL the volume leader in 125cc+ segment is well-placed to benefit from industry demand shifting to higher-cc bikes. We believe that successful entry into 250cc+ segment with Dominar 400 would push volumes in the premium segment in coming years. 1 Year Stock Price Performance Wide Product Portfolio with Strong Focus on Profitability: BAL has a wide product portfolio with a strong focus on profitability, superior product-mix in domestic and overseas markets. Further, eicient management of R&D expenses has enabled BAL to sustain margin, which is one of the best in the industry. With higher average realisation compared to its peers we believe BAL is well-placed to manage higher commodity prices, going forward Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Overseas Sales to Revive: Over last years, BAL s exports faced rough patch on the back of declining crude price, adverse currency movement and geo-political issues etc. However, the management has indicated strong gain in market share in all major markets in coming years. Further, new launches and stable commodity prices are expected to drive volume growth in extant as well as new markets of Africa and Latin America. Outlook & Valuation BAL continues to enjoy a balanced revenue mix (domestic and overseas) and a strong foothold vis-à-vis competitors. We believe that new launch of dierentiated products, revival in exports, recovery in domestic demand (especially in the wake of demonetization drive), and increasing contribution of high-margin products augur well for BAL for scaling up growth in coming years. Risks Failure of new product launches and deterioration in product-mix. Key Figure Market Cap ( Rsbn/US$mn ) 837/127.9 Current Price 2,895 Target Price 3,190 Promoters / Public & Others 49.3/50.7 FY18E P/E (x) 19.2 Revenues CAGR (FY16-18 %) 6.4 PAT CAGR (FY16-18 %) 10.6 Continued weakness in exports markets. Y/E Mar (Rs mn) FY16 FY17E FY18E Key Ratios FY16 FY17E FY18E Revenues 222, , ,838 P/E (x) EBITDA 48,358 45,437 50,766 P/BV (x) Ebitda Margin % EV/EBITDA (x) Adj.PAT 3,585 4,019 4,389 ROE (%) Source: Company, Bloomberg Estimates Research Team; Contact: (022) ; rsec.research@rcap.co.in 1

2 MOIL Reco Range Stop Loss Target Metal & Mining May 02, 2017 Background & Business MOIL formerly known as Manganese Ore (India) Ltd. is the largest manganese ore producer in India. It produced ~1.32mnT of manganese ore in FY16. The Company has ~24mnT reserves, which represents ~18% of Indian s total reserve base. Notably, ~50% of MOIL s reserves has an average manganese content of >40%, while 27.5% of its reserves has an average manganese content ranging from %. None of its mines produces low-grade manganese (<30% of manganese content). MOIL operates in10 mines i.e. 4 in Madhya Pradesh and 6 in Maharashtra. Investment Rationale Manganese Prices Expected to Remain Firm: Staging a bounce back in last year, the global manganese price is currently prevailing at US$5.2/dmtu. Looking ahead, we believe that US$4-4.5/dmtu is sustainable as that the prices at these levels are not remunerative enough for moth-balled capacity to restart and supplies from Kalahari mines (South Africa) are not economical below US$5/dmtu. Indirect Steel Play in Import-dependent Market: In FY16, the demand for manganese ore stood at ~4.9mnT in India, which was met through domestic production (~2.8mnT) and imports (2.1mnT). Moreover, expected up-tick in steel consumption due to thrust on infrastructure developments provides good consumption visibility for manganese ore as well. It is to be noted that ~33kg of manganese ore is required for production of one tonne of steel. FY18E Net Cash Forms ~60% of Current Mkt. Cap: MOIL s production cost is expected to be ~Rs4,400/tonne in FY18E, and this coupled with a low capex (~Rs8bn) spread over next five years, will enable MOIL to generate free cash-flows even in a distress cycle. Accordingly, we estimate MOIL s net cash per share would reach Rs190 by FY18E. Outlook & Valuation MOIL has reported good performance with improvement in volumes and realization in 9MFY17, which is likely to sustain owing to higher domestic steel production and firm global manganese prices, which provides potential headroom for meaningful upside, going forward. Also, net cash per share is slated to rise to Rs190/share by FY18E (after considering Rs 8.63bn incurred towards share buy-back). Risks Weaker than estimated manganese ore prices. 1 Year Stock Price Performance Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 Key Figure Market Cap ( Rsbn/US$mn ) 42.4/6.6 Current Price Target Price Promoters / Public & Others 65.6/34.4 FY18E P/E (x) 7.9 Revenues CAGR (FY16-18 %) 34.4 PAT CAGR (FY16-18 %) 75.8 Inordinate delay in capex implementation due to regulatory overhang. Y/E Mar (Rs mn) FY16 FY17E FY18E Key Ratios FY16 FY17E FY18E Net Revenues 6,580 8,437 11,884 P/E (x) NIM % 1,711 2,447 5,288 P/BV (x) Operating Profit EV/EBITDA (x) Adj.PAT 1,730 3,682 5,382 ROE (%) Source: Company, Bloomberg Estimates Research Team; Contact: (022) ; rsec.research@rcap.co.in 2

3 Recommendations Summary Total Recommendations Numbers STOCKS 40 CLOSED 36 POSITIVE 25 NEGATIVE 11 We do not keep open positions more than four at any point of time. Assuming Rs1 lakh investment in every stock, the cumulative investment stand at Rs4 lakh. Till date, our closed calls have given profit to the tune of Rs93,362 since inception. Amount Invested (Rs) Cumulative Profit (Rs) % Return 400,000 93, % OPEN 4 Strike Rate on closed calls 69% Open Positions Stock Symbol Sector Reco Date Reco Price CMP SL Target Remarks BAJAJ-AUTO Auto 2-May BUY MOIL Metals 2-May BUY EMAMILTD FMCG 18-Apr HOLD PIDILITIND FMCG 5-Apr HOLD 3

4 Closed Positions Stock Symbol Sector Reco Date Reco Price Exit Price Exit Date Return % Remarks EQUITAS Banking 18-Apr Apr % Booked Profit AUROPHARMA Pharma 2-Mar Apr % Booked Loss NIITTECH IT 17-Feb Apr % Booked Profit JSWENERGY Power 5-Apr Apr % Booked Profit DABUR FMCG 3-Feb Mar % Booked Profit NCC Construction 2-Mar Mar % Booked Loss ABFRL Retailing 17-Feb Feb % Booked Profit HCLTECH IT 3-Feb Feb % Booked Profit INOXWIND Capital Goods 17-Jan Feb % Booked Loss JUBLFOOD FMCG 17-Jan Jan % Booked Profit ASIANPAINT FMCG 4-Jan Jan % Booked Profit CROMPTON Capital Goods 1-Dec Jan % Booked Profit CADILAHC Pharma 4-Jan Jan % Booked Profit ASHOKLEY Auto 16-Dec Dec % Booked Profit TITAN FMCG 16-Dec Dec % Booked Profit FEDERALBANK Banking 1-Dec Dec % Booked Loss CADILAHC Pharma 16-Nov Nov % Booked Profit TECHM IT 16-Nov Nov % Booked Profit AMBUJACEM Cement 3-Oct Nov % Booked Loss Continued... 4

5 Closed Positions Stock Symbol Sector Reco Date Reco Price Exit Price Exit Date Return % Remarks INFY IT 17-Oct Nov % Booked Loss ABFRL Retailing 3-Oct Oct % Booked Profit ASHOKLEY Auto 17-Oct Oct % Booked Profit BAJAJCORP Consumer 1-Sep Oct % Booked Profit SUNPHARMA Pharma 17-Aug Sep % Booked Loss NAVKARCORP Logistics 16-Sep Sep % Booked Loss AUROPHARMA Pharma 16-Sep Sep % Booked Profit INFY IT 1-Sep Sep % Booked Profit KEC Capital Goods 30-Jul Sep % Booked Loss MGL Oil-Gas 17-Aug Aug % Booked Profit ABFRL Retailing 30-Jul Aug % Booked Profit PFS NBFC 2-Jul Aug % Booked Loss UPL Agrochemicals 15-Jul Jul % Booked Profit CROMPTON Capital Goods 15-Jul Jul % Booked Profit SUNPHARMA Pharma 2-Jul Jul % Booked Profit PERSISTENT IT 21-Jun Jul % Booked Loss NBCC Infrastructure 21-Jun Jul % Booked Profit 5

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