EICHER MOTORS LTD Result Update: Q3 CY13

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1 EICHER MOTORS LTD Result Update: Q3 CY13 ISIN: INE066A01013 NOVEMBER 27 th, 2013 STOCK DETAILS Sector Automobile BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg ) 1680 Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years CY12A CY13E CY14E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph EICHER MOTORS LTD S&P BSE SENSEX Recommend BUY CMP Target Price SYNOPSIS Eicher Motors Ltd designs, develops, manufactures, and markets trucks & buses, motorcycles, automotive gears & components in India and internationally. In Q3 2013, Eicher Motors has reported the best ever standalone quarterly total income from operations at Rs million, an increase of 66.23%. The company net profit jumps to Rs million against Rs million in Q2 2012, an increase of 87.41%. The operating profit recorded an increase of 116.9% at Rs. 805 million in Q over Rs. 371 million in Q Royal Enfield has registered y-o-y unit sales growth of 60.6% with record sales of 48,242 units as compared to 30,046 units in Q VECV s Eicher Trucks and Buses division (ETB) is preparing to launch its full new range of trucks and buses across light, medium and heavy duty. During the quarter, the Company has reported a consolidated total income from operations at Rs million and EBIT increased by 95.8% in Q During Q3 2013, the Company Heavy Duty market share increased to 4.5% from 3.7% in Q Net Sales and PAT of the company are expected to grow at a CAGR of 44% and 36% over 2011 to 2014E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) Eicher Motors Ltd Hero MotoCorp Ltd Tata Motors Ltd Bajaj Auto Ltd

2 Recommendation & Analysis - BUY In Q3 2013, Eicher Motors Limited reported its best ever standalone results- relating entirely to Royal Enfield motorcycle operations, with a quarterly total income from operations at Rs million, an increase of 66.23% over Rs million in Q The quarterly operating profit (EBIT) recorded an increase of 116.9% at Rs. 805 million in Q over Rs. 371 million in Q3, Royal Enfield has maintained its phenomenal growth trajectory even in Q registering the best ever quarter results. Royal Enfield has registered year-on-year unit sales growth of 60.6% with record sales of 48,242 units as compared to 30,046 units in Q It is continuing to extract operating leverage from the business, thus improving the EBIT margin to 17.5% in Q as compared to 13.4% in Q The Company continued to improve their overall market share in commercial vehicles through 50:50 joint venture with the Volvo Group VE Commercial Vehicles (VECV). For the nine month period ending September 30, 2013, the industry declined by 33.6%, but the Company Heavy Duty market share increased to 4.5% from 3.7% in the corresponding period last year. The products in the bus segment continue to do well. For the third quarter ending September 30, 2013, the Company has reported a consolidated total income from operations at Rs million. Earnings before interest and tax (EBIT) are increased by 95.8% in Q VECV s Eicher Trucks and Buses division is preparing to launch its full new range of trucks and buses. These are absolutely world-class products that will completely renew ETB s product portfolio. Royal Enfield has created and been leading the premium category of motorcycles in India for all these years with evocative products such as the Classic and the Thunderbird. In September 2013, Royal Enfield had its first successful global launch with the all new Continental GT- a motorcycle that perfects the essential elements of the most influential idea in motorcycling history café racing. Over FY E, we expect the company to post a CAGR of 44% and 36% in its top-line and bottom-line respectively. Hence, we recommend BUY with a target price of Rs for Medium to Long term investment.

3 FINANCIAL HIGHLIGHTS STANDALONE Results updates- Q3 CY13, The Eicher Group has diversified business interests in design & development, manufacturing and local/ international marketing of Trucks & Buses, Motorcycles, Automotive Gears and components, reported its financial results for the quarter ended 30 th Sep, Months Sep-13 Sep-12 % Change Net Sales PAT EPS EBITDA The company net profit jumps to Rs million against Rs million in the corresponding quarter ending of previous year, an increase of 87.41%. Revenue for the quarter rose by 66.23% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter, registering 87.34% increase over previous year period. Profit before interest, depreciation and tax is Rs millions as against Rs millions in the corresponding period of the previous year. Expenditure: During the quarter total expenditure raised by 58 per cent mainly an increase in Material Consumed Cost along with consideration of depreciation in the rupee impact. Total expenditure in Q3 CY13 was at Rs millions as against Rs millions in Q3 CY12. Consumption of Raw Materials cost stood at Rs millions against Rs millions in the corresponding period of the previous year. Employee Benefit Expenses was at Rs millions and other expenditure at Rs millions in Q3 CY13 are the primarily attributable to growth of expenditure.

4 Latest Updates Royal Enfield has registered year-on-year unit sales growth of 60.6% with record sales of 48,242 units as compared to 30,046 units in Q The Company has sold 1858 buses in Q compared to 2326 buses over same period last year, registered a degrew of 20.12% Eicher Motors has recently started production at VECV s Medium Duty Engine Plant at Pithampur, Madhya Pradesh. The plant has been set up with an initial capacity of 25,000 units per annum in Phase I, at an investment of Rs 375 crores. The capacity will be increased in a phased manner to 100,000 units per annum as per the market requirements with an additional investment of around Rs 125 crores. Starting end 2013 till 2015, VECV s Eicher Trucks and Buses division (ETB) will be renewing its entire product portfolio by launching its new range of trucks and buses across light, medium and heavy duty. The Company continues to invest in all their strategic projects in VECV. By end of CY 2014, it would have invested Rs crores since the creation of the joint venture in mid During the quarter ended June, 2013, VE Commercial Vehicles has set up a wholly owned subsidiary V E C V Lanka (Private) Ltd in Sri Lanka for the purpose of expanding its commercial vehicles operations in Sri Lanka with an investment of Rs million. Company Profile Eicher Motors Limited (EML) is the flagship company of the Eicher Group, which was a catalyst in the green revolution in India with the production of India s first agricultural tractor in EML is now a leading player in the Indian automotive space. Its joint venture with the Volvo group, VE Commercial Vehicles Limited, designs, manufactures and markets reliable, fuel-efficient trucks and buses; and is leading the path in driving modernization in commercial transportation in India and other developing markets. Eicher Motors also owns the iconic Royal Enfield motorcycle business, which leads the premium motorcycle segment in India. The oldest motorcycle company in continuous production world-wide, Royal Enfield has witnessed a huge surge in demand in the recent past, and is charting its course to be the leading player in the mid-size motorcycle segment globally. EML s 50:50 strategic joint venture with US based Polaris Industries Inc., Eicher Polaris Private Ltd. is in start-up phase, and is currently designing and developing, and will soon manufacture and sell a full new range of personal vehicles. In 2012, Eicher Motors recorded its highest ever sales of INR 7,000 crores (USD 1.3 billion). Royal Enfield has also substantially expanded and upgraded its network across the country. In 2012 it added 63 new dealerships taking the total dealership network to 249.

5 Over 85 executives work exclusively in the area of R&D. Product development and product-engineering facilities are available at each of Eicher s major manufacturing locations. Expertise has been developed in the areas of design and development of Trucks & Buses, Automotive transmission, Electronic instrumentation, Material science, Metrology as well as prototype manufacturing and testing. Products: Motors It manufactures several kinds of commercial vehicles with gross vehicle. It has technical and financial collaboration with Mitsubishi Motors Corporation of Japan which led to manufacturing of CANTER range of vehicles. Motorcycles It manufactures bullet motorcycles Royal Enfield. It manufactures six different models ranging from 300cc to 600cc. The manufacturing plant has installed capacity of 39,000 motorcycles per annum. Engineering Components The company manufactures complete range of automotive gears. The range of gears includes Spiral bevels (Crown wheel and pinions), Straight bevels and Transmission gears.

6 Financial Highlight STANDALONE Balance sheet as at December 31 st, E (A*- Actual, E* -Estimations & Rs. In Millions) EICHER MOTORS LTD. CY11A CY12A CY13E CY14E SOURCES OF FUNDS (Rs.in.mn) Shareholder's Funds Share Capital Reserves and Surplus Sub Total - Net worth Non Current Liabilities Long Term Borrowing Deferred Tax Liability (net) Other Long term Liabilities Long Term Provisions Sub Total - Non Current Liabilities Current Liabilities Short term borrowings Trade Payables Other Current Liabilities Short Term Provisions Sub Total - Current Liabilities Total Liabilities (1+2+3) APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets Intangible assets Capital Work in Progress a) Sub Total - Fixed Assets b) Non-current investments c) Long Term loans and advances d) Other non-current assets Sub Total Non Current Assets Current Assets Current Investments Inventories Trade receivables Cash and Bank Balances Short-terms loans & advances Other current assets Sub Total - Current Assets Total Assets (1+2)

7 Annual Profit & Loss Statement for the period of 2011 to 2014E Value(Rs.in.mn) CY11A CY12A CY13E CY14E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 st Mar, 2013 to 31 st Dec, 2013E Value(Rs.in.mn) 31-Mar Jun Sep Dec-13E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

8 Ratio Analysis Particulars CY11A CY12A CY13E CY14E EPS (Rs.) EBITDA Margin (%) 23.38% 18.22% 23.16% 22.29% PBT Margin (%) 21.14% 16.56% 21.34% 20.38% PAT Margin (%) 18.56% 13.80% 16.58% 15.90% P/E Ratio (x) ROE (%) 23.06% 23.01% 30.39% 25.91% ROCE (%) 30.65% 32.10% 44.19% 38.26% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

9 Outlook and Conclusion At the current market price of Rs , the stock P/E ratio is at x CY13E and x CY14E respectively. Earning per share (EPS) of the company for the earnings for CY13E and CY14E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 44% and 36% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at x for CY13E and x for CY14E. Price to Book Value of the stock is expected to be at x and 9.63 x respectively for CY13E and CY14E. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview With the increasing growth in demand on back of rising income, expanding middle class and young population base, in addition to a large pool of skilled manpower and growing technology, will propel India to be among the world's top five auto-producers by India is also one of the key markets for hybrid and electric mediumheavy-duty trucks and buses. Key Statistics The Indian automobile industry produced a total 1.69 million vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in August 2013 as against 1.56 million in August 2012, registering a growth of 8.18 percent over the same month last year. The cumulative foreign direct investment (FDI) inflow into the Indian automobile industry during April 2000 to July 2013 was recorded at US$ 8,932 million, amounting to 4.5 per cent of the total FDI inflows (in terms of US$), according to Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce. The overall automobile exports grew by 2.03 per cent during April-August Furthermore, the production of passenger vehicles in India was recorded at 3.23 million in and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during

10 Major Developments & Investments Hero MotoCorp plans to establish 20 manufacturing and assembly facilities to expand its presence across 50 countries by 2020 Nissan Motor India has entered into an agreement with Ennore Port Ltd (EPL), to export at least 60,000 cars a year through the port for the next 10 years TVS Motor Co plans to launch two new motorcycle models in the Kenyan market. These motorcycles will be specific to the Kenyan markets in terms of usability, reliability and durability. Moreover, the firm also plans to set up a two-wheeler assembly line in Uganda and will also launch two motorcycle models in the African nation HMIL has invested US$ 2 billion in two state-of-the-art passenger car manufacturing facilities in India. Moreso, India contributes 25 per cent of the firm s global sales Mahindra & Mahindra (M&M) plans capital expenditure and investments worth Rs 10,000 crore (US$ 1.63 billion) over the next two years Maruti Suzuki India is setting up an operational integrated research & development (R&D) centre in Rohtak, Haryana. The test tracks at the new facility would be longer and considerably enhanced in technical capabilities than the ones at the Suzuki Motor Corp (SMC) facility in Japan Tech Mahindra has signed an agreement with Volvo Car Corporation. The IT company will provide Volvo with a service to maintain and develop a range of applications that can increase efficiency and reduce costs Isuzu Motors India plans to start contract manufacturing of its sports utility vehicles (SUV) and pick-up trucks at Hindustan Motors' (HM) Chennai plant from December 2013 Daimler India Commercial Vehicles (DICV) has expanded its network across the country. The company plans to establish dealership facilities in over 100 identified locations across India by 2014 Government Initiatives The Government of India plans to introduce fuel-efficiency ratings for automobiles to encourage sale of cars that consume less petrol or diesel, as per Mr Veerappa Moily, Union Minister for Petroleum and Natural Gas, Government of India. The Union Budget added some incentives to the industry. The period of concession available for specified part of electric and hybrid vehicles till April 2013 has been extended upto March 31, 2015 The basic customs duty (BCD) on imported luxury goods such as high-end motor vehicles, motor cycles, yachts and similar vessels was increased. The duty was raised from 75 per cent to 100 per cent on cars/

11 motor vehicles (irrespective of engine capacity) with CIF value more than US$ 40,000; from 60 per cent to 75 per cent on motorcycles with engine capacity of 800 cc or more and on yachts and similar vessels from 10 per cent to 25 per cent In addition, an increase in excise duty from 27 to 30 per cent has been allowed for SUVs with engine capacity exceeding 1,500 cc, while excise duty was decreased from 80 to 72 per cent, in case of SUVs registered solely to be used for taxi purposes An exemption from BCD on lithium ion automotive battery for manufacture of lithium ion battery packs for supply to manufacturers of hybrid and electric vehicles The excise duty on chassis of diesel motor vehicles for transport of goods reduced from 14 per cent to 13 per cent The Government of India allows 100 per cent FDI in the automotive industry through automatic route. The Government also plans to accelerate the supply of electric vehicles over the next eight years. It is expected that there will be a demand for 5-7 million electricity-operated vehicles by With special focus on exports of small cars, MUVs, two & three wheelers and auto components; the automotive sector s contribution to the gross domestic product (GDP) is expected to double reaching a turnover worth US$ 145 billion in 2016, according to the Automotive Mission Plan (AMP) Road Ahead India is probably the most competitive country in the world for the automotive industry. It does not cover 100 per cent of technology or components required to make a car but it is giving a good 97 per cent. The vision of AMP sees India, to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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