Eicher Motors SYNOPSIS. C.M.P: Rs Target Price: Rs Date: Aug 18 th 2011 BUY

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1 Eicher Motors Ltd Result Update: Q2 CY 11 C.M.P: Rs Target Price: Rs Date: Aug 18 th 2011 BUY Stock Data: Sector: Automobile Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) 2450 BSE Code Market Cap (Rs.In mn) Share Holding Pattern 1 Year Comparative Graph SYNOPSIS Eicher Motors Limited designs, develops, manufactures, and markets trucks and buses, motorcycles, automotive gears, and components in India and internationally. The Eicher Group has diversified business interests in design & development, manufacturing and local/ international marketing of Trucks & Buses, Motorcycles, Automotive Gears and components. Eicher is present in over 40 countries across the world. During the quarter ended, the robust growth of revenue is increased by 25.03% Rs million. Eicher Motors BSE SENSEX Net Sales and PAT of the company are expected to grow at a CAGR of 29% and 58% over 2009 to 2012E respectively. Years Net sales EBITDA Net Profit EPS P/E CY CY 11E CY 12E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Eicher Ashok Leyland Tata Motors VST Trillers Investment Highlights Q2 CY11 Results Update Eicher Motors has reported a rise of 25.03% net sales for the quarter ended June During the quarter, the company disclosed a profit of Rs million as against of Rs million for the quarter ended June 30, Net sales are increased by 25.03% to Rs million from Rs million in the same quarter previous year. In the same period, total income of the company was at Rs million, a rise of 24.28% over the prior year period. Company EPS is stood at Rs for the quarter ended June Quarterly Results - Consolidated (Rs in mn) As At Jun-11 Jun-10 %change Net sales Net Profit Basic EPS

3 Break up of Expenditure Company Profile Eicher Motors Limited, incorporated in 1982, is the flagship company of the Eicher Group in India and a significant player in the Indian automobile industry. Its joint venture with the Volvo group, namely, VE Commercial Vehicles, is involved in business activities ranging from design, manufacturing and marketing of reliable, fuelefficient commercial vehicles of high quality and modern technology to manufacturing engineering components and providing engineering design solutions. Eicher Motors two-wheeler division manufactures and markets Royal Enfield motorcycles. Eicher has around 2500 employees located in 4 manufacturing facilities and 49 marketing & area offices all around India. The Group has around 308 vendors supplying components and sub-assemblies, which testifies to the strength of the vendor base. The Group s products are brought to the customers through its strong network of around 142 dealers distributed across the length and breadth of the country. Eicher is present in over 40 countries across the world. 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 3

4 Trucks & Buses, Automotive transmission, Electronic instrumentation, Material science, Metrology as well as prototype manufacturing and testing. Subsidiary companies Eicher Trucks and Buses (ETB) Volvo Trucks India (VTI) Eicher Engineering Components (EEC) Eicher Engineering Solutions (EES) Company Products Motors It manufactures several kinds of commercial vehicles with gross vehicle weight ranging between 5 to 11 tons. It has technical and financial collaboration with Mitsubishi Motors Corporation of Japan which led to manufacturing of CANTER range of vehicles. It manufactures around vehicles per annum. 4

5 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. 5

6 Financial Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) CY09 CY10 CY11E CY12E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Deprecation Profit Before Tax Tax Profit After Tax Minority Interest Net profit Equity capital Reserves Face value EPS

7 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) 31-Dec Mar Jun Sep-11E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Minority interest Net profit Equity capital Face value EPS

8 Key Ratios Particulars CY09 CY10 CY11E CY12E No. of Shares(In Million) EBITDA Margin (%) 8.46% 10.96% 12.17% 11.90% PBT Margin (%) 6.34% 9.45% 10.86% 10.66% PAT Margin (%) 4.38% 6.94% 8.08% 7.94% P/E Ratio (x) ROE (%) 12.11% 24.90% 26.60% 23.27% ROCE (%) 25.41% 40.80% 41.54% 36.41% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV

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11 Outlook and Conclusion At the current market price of Rs , the stock is trading at x CY11E and x CY12E respectively. Earning per share (EPS) of the company for the earnings for CY11E and CY12E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 29% and 58% over 2009 to 2012E respectively. On the basis of EV/EBITDA, the stock trades at 5.42 x for CY11E and 4.78 x for CY12E. Price to Book Value of the stock is expected to be at 2.17 x and 1.67 x respectively for CY11E and CY12E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview The Indian automobile industry, the seventh largest in the world, has demonstrated a phenomenal growth. The industry has grown significantly over the last ten years, during which industry volumes have increased by 3.2 times, from a level of 4.7 million numbers to 14.9 million numbers, according to Vishnu Mathur, Director General, Society of Indian Automobile Manufacturers (SIAM). The industry, by virtue of its deep connects with several key segments of the economy, occupies a prominent place in the country s growth canvas. It exhibits a strong multiplier effect and has the ability to be the key driver of economic growth. A robust transportation system plays a key role in a country's rapid economic and industrial development, and the well-developed Indian automotive industry justifies this catalytic role by producing a wide variety of vehicles, which include passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc. 11

12 Auto Industry in India Growth Drivers The automobile sector in India has been experiencing significant growth in the last few years on the back of factors that include: Favourable demographic distribution with rising working population and middle class Urbanisation Rising affluence of the average consumer as per capita income rises - According to McKinsey, the middle class in India will grow from 50 million to 550 million by With a tremendous growth in wealth as the economy grows, there will be significant increases in spending on discretionary items and consumer durables Increasing disposable incomes in rural agri-sector Overall GDP growth, with a rise in industrial and agricultural output Introduction of ultra-low-cost cars Increasing maturity of Indian original equipment manufacturers (OEMs) Availability of a variety of vehicle models meeting diverse needs and preferences robust production Greater affordability of vehicles Easy finance schemes Favourable government policies Indian Automobile market Key statistics India's automobile industry, currently estimated to have a turnover of US$ 73 billion, accounts for 6 per cent of its GDP, and is expected to hit a turnover of US$ 145 billion by The automobile industry currently contributes 22 per cent to the manufacturing GDP and 21 per cent of the total excise collection in the country, according to Mr Praful 12

13 Patel, Minister, Heavy Industries and Public Enterprises. In , the total turnover and export of the automotive Industry in India reached a new high of US$ 73 billion and US$ 11 billion respectively. The cumulative announced investments reached US$ 30 billion during this period. He also said that the forecasted size of the Indian Passenger Vehicle Segment is nearly 9 million units and that of 2 wheelers, close to 30 million units by India achieved the position of the top growing passenger car market in the world during the January-June period in 2011, overtaking the US, which grew at per cent, according to SIAM. In passenger vehicles, India was the fastest growing market at per cent during the six month period. India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year ending March 2012, according to Pawan Goenka, President, SIAM. The industry body said that Indian automakers sold 143,370 cars in June The four-wheel passenger vehicle market has grown impressively at the hands of the new middle class, and there is huge opportunity, as market penetration remains low. Domestic market share for India s automobile industry is growing fast, but two wheelers remain a dominant category. More than 78 percent of motor vehicles on the road are two-wheelers, their popularity driven by low price, high fuel mileage, and an ability to drive efficiently through dense traffic. The share of different types of vehicles during was passenger vehicles (16.25), commercial vehicles (4.36), three wheelers (3.39), and two wheelers (76.00). Recent Investments/ Trends The auto industry has made huge investments in the country. As per , the total investment of auto industry in India was Rs 60,952 crore (US$ billion). Another Rs 78,000 crore (US$ billion) of new investments have been announced by the auto industry out of which some have already been made and the rest will come up over the next 2-3 years. The industry, therefore, is keeping pace with the growing demand for vehicles in all segments. 13

14 The Karnataka government has cleared investment proposals amounting to more than Rs 8,662 crore (US$ billion), which include the plans of Honda Motorcycle India plans for a manufacturing unit in the State. Mr Murugesh Nirani, Karnataka Industries Minister, has said that Honda Motorcycles and Scooter India would be investing Rs 1,350 crore (US$ million) in Narsapur Industrial area of Kolar district of the State. Demand for two-wheelers from six of the eight domestic mobike manufacturers rose 16 per cent in June to more than 880,000 units, compared to 761,000 units in June Australia is looking at possibilities of building better relations between its world-class firms and rapidly growing Indian automotive industries with an objective to create new export opportunities. Pune-based Force Motors has signed an agreement with Daimler AG, under which Daimler will supply technology for the development of a multi-purpose vehicle (MPV) by Force Motors Swedish automobile manufacturer Volvo Cars Corp is looking at introducing corporate editions of its luxury sedans S60 and S80 to shore up volumes in the Indian automobile market. French car maker PSA Peugeot Citroen has selected a site near Sriperumbudur, to the west of Chennai, in Tamil Nadu for setting up its car plant. The company is planning to invest Rs 4,000 crore (US$ million) in an integrated automobile project. Toyota has launched its first made-for-india small car, the EtiosLiva, in the intensely competitive hatchback segment. The car, priced between Rs 399,000 and 599,000 (US$9,094 and 13,653), will compete with Maruti Suzuki Swift, Hyundai i20, Volkswagen Polo and Ford Figo. Auto industry in India Government Initiatives With the gradual liberalisation of the automobile sector since 1991, the number of manufacturing units in India has grown progressively. 14

15 Currently, 100 per cent Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5 per cent without any duration limit and lump sum payment of US$ 2 million is also allowed under automatic route in this sector. The automobile industry is delicensed, and import of components is freely allowed. With an objective of accelerating and sustaining growth in the automotive sector and to steer, co-ordinate and synergise the efforts of all stakeholders, the Automotive Mission Plan (AMP) was prepared. The plan aims at making India global automotive hub. The AMP aims at doubling the contribution of automotive sector in GDP by taking the turnover to US$ 145 billion and providing additional employment to 25 million people by In the long term, the government has expressed plans to follow a two pronged strategy for spurring automotive Research &Development (R&D). The first is aimed at addressing the existing infrastructure gap in the field domain of automotive testing and homologation through the Department s flagship National Automotive Testing and R&D Infrastructure Project(NATRiP), which is being implemented at a cost of Rs 2,288 crores (US$ million), and is expected to be completed by the end of The second part of the strategy is aimed at leveraging the investments being made in NATRiP facilities for collaborative R&D with the industry, especially for the small and medium enterprises (SMEs) in the auto component space. Further, with the recent announcement of the launch of the National Mission for Electric Mobility and the setting up of the National Council and Board for Electric Mobility, Mr Patel emphasised on the commitment of the government for early adoption of electric vehicles, including hybrid vehicles, and the manufacturing of these vehicles and their components. The government is considering setting up two automotive manufacturing hubs spread over 10,000 acres each in central and eastern India.The new hubs, aimed at consolidating India's position as an important destination for low-cost automotive 15

16 production, will be in addition to the three existing zones Haryana, Maharashtra and Tamil Nadu. Auto Industry in India Road Ahead The automotive industry is at the core of India s manufacturing economy - India is all set to become one of the world s most attractive automotive markets for both manufacturers and consumers. The resulting benefits to society, such as economic growth, increased jobs, and stability for families employed by the automotive industry, are significant. The long-term potential for growth of the auto industry is very favourable, on account of low vehicle penetration in the country. As income levels rise and easy finance is available, the industry will continue to see a healthy growth rate. SIAM estimates that the growth of the auto industry in FY12 will be in the region of per cent. 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. 16

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