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WO-WHEELER AUTO SALES VOLUME

Two-wheeler sales for January saw strong sales volumes reported

by the industry. While Hero Honda benefited from its new launches

in the third quarter, Bajaj Auto also benefited from the market

demand during the period. We expect the strong volume growth to

continue in the fourth quarter, which has traditionally been one of

the better quarters for auto companies.

Bajaj Auto:

Bajaj recorded a growth of 12% in motorcycles on the back of strong

demand for the Discover and Pulsar models. With increasingly stronger sales of

the Bajaj Discover and Bajaj Pulsar DTS-i products, only 45% of Bajaj motorcycle

sales now come from the commoditized 100 cc segment. The company is all set to

introduce an all-new motorcycle platform in Q2FY08 with the dual objective of

improving its market share and get higher margins.

Towards this end, Bajaj has now finalized product design and specification, and

has scheduled pre-mass production trials in Q1FY08. Three-wheeler sales continue

to be buoyant with a growth of 45% YoY. On the export front, Bajaj Auto clocked

119% rise in volumes (lower base) with sales of 39,812 units. The capacity is also

being expanded to 300,000 units per month from April 2007 as the management

expects growth of 25% in the next financial year. The Bajaj Kristal DTS-i, the first

product from an all-new hi-tech scooter platform, is likely to be launched in the

current month.

Hero Honda

: Hero Honda has reported sales of 297,554 units during January 2007.

We believe sales have been boosted by the launch of new variants in the third

quarter. The management expects the double-digit volume growth to sustain in the

quarter given the new launches and promotions. However, higher variants of bikes

in the entry variant will only add to the company's margin woes. Besides, the

company is also an official partner in the ICC world cup that should lead to higher

marketing expenses.

Volume trends - Two Wheelers

Jan '07 Jan '06 yoy (%) Apr-Jan'07 Apr-Jan'06 yoy(%)

Bajaj Auto

Motorcycles 195,560 173,835 12 2,039,214 1,553,041 31

Total 2 Wheelers 197,553 181,758 9 2,056,194 1,660,280 24

3 Wheelers 32,030 22,019 45 269,228 201,387 34

Total 229,583 203,777 13 2,325,422 1,861,667 25

Exports (out of above) 39,812 18,168 119 365,540 194,933 88

Hero Honda

Total 297,554 249,450 19 2,778,326 2,477,744 12

TVS Motors

Motorcycles 69,634 69,279 1 781,729 656,368 19

Total 2 Wheelers 121,147 112,910 7 1,279,786 1,104,424 16

Source: Company

Monthly sales growth yoy (%) - 2006

Source: Bloomberg

-20

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HHML Bajaj

February 5, 2007

Kotak Securities - Private Client Research

Daily Morning Brief

Please see the disclaimer on the last page For Private Circulation 3

TVS Motors:

Motorcycle sales for TVS Motors increased only 1% for the month

clocking volumes of 69,634 units as compared with 69,279 units in January 2006.

TVS Scooty recorded 20,534 units in January 2007 compared to 17,957 units in

the same period last year recording a growth of 14%. On the export front, TVS

Motor Co continued its good performance having exported 7,049 units in January

2007 (growth of 11%).

Valuation FY08

CMP Sales Net profit EPS P/E Target Reco

(Rs) (Rs bn) (Rs bn) (Rs) (x) (Rs)

Bajaj Auto 2778 117 14.6 145 19 3234 BUY

Hero Honda 716 112 10 50.5 14 706 HOLD

TVS Motors 75 44 1.4 6.2 12 81 HOLD

Source: Company & Kotak Securities - Private Client Research