Bajaj Auto Ltd (BAL) reported Q3FY09 results which were in line with our expectations. However, we were slightly surprised by the 21% y-o-y realizations, which is due to richer product mix of 125cc+ segment bikes.

BAL’s net sales fell by 15.9% y-o-y which was slightly better than our expectations due to improvement in realizations. While the net profit declined by 23% y-o-y. Exports revenue during the quarter grew by 56% y-o-y and helped the company in minimizing the severe impact in the domestic sales

volume.The company has announced that they will launch a new motorcycle every month for the next 6 months and the first one to be rolled out will be XCD 135 ‘Sport Commuter’ in the next week. Apart from the new launches of motorcycles the company will also be launching LCV’s. We expect margins

to remain at ~13.7% for FY09E as most of these products would be in 125cc+ category and in FY10E we expect the margins to improve to 14% on the back of benefit from softening of raw material prices. But due to poor demand and we estimate net profit to decline at a CAGR of ~4% for FY08-10E. We recommend a SELL with price target of Rs.394.

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