With the success of Pulsar135 and Discover twins (100cc and 150cc), Bajaj Auto's brand-centric strategy has been validated. The high-margin brands, Pulsar and Discover, now account for 70% of the company's motorcycle sales. In addition, continued demand for three-wheelers and robust exports would help Bajaj Auto achieve volume growth of 37.8% and 13.8% in FY11E and FY12E respectively. We expect profitability to be maintained at current levels of 20%.

1) Despite increasing competition, we expect Bajaj Auto to maintain its market share with domestic volume growth of 14%, in line with the industry.

2) Export outlook continues to be stable with total exports expected to touch 1.4mn in FY12.

3) Increased proportion of high-margin motorcycles and stable contribution of three-wheelers would enable the company to maintain margins at current levels.

4) Bajaj Auto is expected to make a new launch in the motorcycle space in Q1FY12 in association with KTM. 5) Management expects to improve its market share with growth of 22% to 4.8mn units during FY12 as against our volume estimates of 4.5mn units.

Our FY11 and FY12 earnings estimates are Rs88.8 and Rs103.1 respectively. We have a 'BUY' recommendation on the stock with a target price of Rs1,649, discounting FY12E earnings at 16x. Our FY12 earnings estimate is 1.6% higher than consensus estimate of Rs101.4.

Significant increase in prices of commodities such as steel and rubber are likely to increasingly pressurise margins. Any increase in excise duty would lead to downward revision in growth estimates.