Mumbai, July 20, 2007:  Bajaj Auto (BAL) is set to return to its winning ways with a refreshing new strategy, which is more focused towards high-end high-margin two wheelers. BAL is set to reclaim its numero uno position in the auto space with its multi-pronged strategy of a richer product mix which is more focused towards high-end motorcycles, renewed focus on its high-margin three wheeler segment. The broking house sees significant volume growth coming from the increased capacities in both the 2- and 3-wheeler segments. BAL`s capacity is set to increase to 5.5 million units in FY09 from 4.2 million units in FY07 and aid in topline growth.

Also productivity and efficiency gains will help BAL counter high input cost and maintain margins at 15%. Bajaj Auto has 74% stake each in Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance and currently enjoys the number two position in both segments among private players. The demerger of the insurance and finance businesses would enable the management focus on two key businesses and deploy money in high return avenues. The only concern is the call option available to the joint venture partner to increase its stake up to 74% in the life insurance and 50% in general insurance business.

Going forward, ICICI Direct expects the company on standalone basis to grow at CAGR of 17.4% in net sales and 5.8% in net profit over FY07-09 and report net sales of Rs 12,9737 million and net profit of Rs13,848 million in FY09. At CMP of Rs 2,260, the stock trades at 17.5x and 16.5x its FY08E and FY09E EPS respectively and 8.5x and 7.8x its core FY08E and FY09E EPS respectively.