We factor in volume growth of 4%/-3% in domestic 2Ws and 6%/2% in overall volumes for Bajaj Auto over FY20-21F. We expect continuation of aggressive market share gain strategy in FY20F. New models like Platina 110cc, Pulsar Neon (150 & 180) and Avenger 160 offer higher value to the customer, and we expect a similar strategy for upcoming products in the 125cc segment. Thus, margins are likely to remain under pressure. There should be some benefit though from lower commodity prices and lower volumes of CT100, which had negative margins. We factor in 16.3%/16% margins over FY20/21F compared to 16.5% for the company in FY19 (down 60/30bps).

We expect partial absorption of costs, similar to ABS in Pulsar Neon variants, which would put pressure on competitor margins as well. We see a risk the industry is unable to pass on all regulatory costs over FY20-21, so margins may drop further. Hence, we maintain Reduce on TVS (TVSL IN) where our FY20-21 earnings estimates are 10-20% below consensus.