>Bajaj Auto (MERRILL LYNCH)

BAJAJ AUTO - NEUTRAL

SOME MORE STEAM.......

Raise PO, but maintain Neutral
We are raising PO by 11% to Rs 585, as we expect valuation multiples to expand on improved earnings visibility. This follows upward revision to domestic bike sales and EPS forecasts by 3/4% over FY10/FY11. Post-revision, we estimate 7.5% EPS CAGR over our forecast period. Maintain Neutral rating on modest growth prospects.

Domestic bike sales raised
Following positive customer response to XCD 135cc motorcycle, we have greater confidence for 4 upcoming launches by Sept. We raise domestic two wheeler sales estimates to 1.36mn units in FY10 (5% growth, earlier 5% decline), and retain 5% growth on higher base in FY11.

Vulnerable to further slowdown in exports
While management maintains positive for exports next year, albeit with slower growth trajectory, we estimate 10% decline in two wheelers and 5% in three wheelers. Recent trends are worrying, with sharp contraction in sales to Latin America (~30% of exports), and there could be downside risk to our forecasts.

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