: price: EPS: How does our one year outlook change? We retain our positive view on EIM on the back of expected improvement in volume and margin at Royal Enfield (RE) and expected revival in VECV on the back of the CV cycle turning positive. We retain our Buy rating with a TP of based on SOTP valuation (slide 2) Volume growth at RE is expected to be ~46% from CY14 CY16 primarily on the back of 1) steep ramp-up in production at the Oragadam plant 2) significant expansion in dealer network (expected to reach 500 by CY16), majority of which would cover tier II and tier III cities. Expect Oragadam and old plant to deliver monthly production of 60,000 units by Q4CY16; expect decision on new plant by mid CY15 (50 acre purchased) EBITDA margin at RE for Q1 came in sequentially higher by 200bps at ~26% primarily on the back of expansion in gross margin (due to softening commodity costs and price increase of 2%). Although, product and business development costs is expected to increase, we expect shift of engine production to Oragadam plant in CY16 to bring in higher efficiencies and operating leverage to aid in margin improvement; expect margin of ~28% for CY16 (from 24.2% in CY14) Growth in Q1 for VECV has been driven by improvement in 16T+ truck segment. Captive supply of engines to Volvo also grew by 50% in the quarter. Going forward, expect volumes to be aided by rollout of PRO trucks, which would be scaled up in 6 to 18 months. Expect revenue CAGR of 30% from CY14-CY16; EBITDA to increase from 6.7% to 8.9% How does our 3 year Outlook change? For RE, we are extremely optimistic on a longer term horizon as the company has planned for a strong new product pipeline post CY15. We expect domestic waiting periods to ease in the next two years, however we believe this would aid in significant growth opportunity in export markets, given the strong value proposition offered by the RE brand. Expect a volume CAGR of ~30% from CY13-CY20 VECV is expected to continue to boast of the best operating performance among CV manufacturers. With the launch of the Pro series, we expect significant improvement in the domestic realization and expect strong growth in exports driven by Volvo s extensive network. Financial summary (consolidated) Year 1QCY15 Update Promoters 55.0 % Institutions 28.1 % Public 16.9 % Key estimate revision Revenues 1m 3m 12m EIM -5% 1% 143% Sensex -6% -6% 21% BSE Auto -7% -4% 38% EBITDA CY15E Adj.PAT Adj EPS (Rs.) CY16E Old New Change Old New Change Revenue 1,22,985 1,20,126-2.3% 1,70,848 1,72,779 1.1% EBITDA 18,737 17,838-4.8% 29,764 29,576-0.6% Margin (%) 15.2% 14.8% -39 bps 17.4% 17.1% -30 bps PAT 10,506 9,898-5.8% 17,249 17,204-0.3% PAT Margin 8.5% 8.2% -30 bps 10.1% 10.0% -14 bps EPS 386.2 363.9-5.8% 634.1 632.4-0.3% All figures in Rs. mn, except EPS, which is in Rs. Bloomberg Shares o/s Market Cap 9 May, 2015 EIM IN 27mn Rs. 428bn 52-wk High-Low Rs. 17,200-6,151 3m Avg. Daily Vol Index Rs. 1,411mn BSEMDCAP P/E(x) EV/EBITDA (x) CY13 68,098 7,132 3,940 145.0 108.0 58.7 CY14 87,383 11,148 6,154 226.2 69.3 37.6 CY15E 1,20,126 17,838 9,898 363.9 43.1 23.2 CY16E 1,72,779 29,576 17,204 632.4 24.8 14.4 MUKESH SARAF mukesh@sparkcapital.in +91 44 4344 0041 ROHIT KRISHNA rohitkrishna@sparkcapital.in +91 44 4344 0020 Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 1
Quarterly Financial Results Consolidated quarterly result summary Rs. mn\period Mar-15 Mar-14 yoy % Dec-14 qoq % Revenue 25,680 19,242 33.5% 22,938 12.0% Raw Material 16,528 12,812 29.0% 14,932 10.7% Employee cost 1,853 1,544 20.0% 1,671 10.9% Other cost 3,640 2,667 36.5% 3,304 10.2% Total Expenditure 22,021 17,023 29.4% 19,907 10.6% EBITDA 3,660 2,220 64.9% 3,031 20.7% Margin % 14.3% 11.5% 272 bps 13.2% 104 bps D&A 767 477 60.7% 600 27.9% EBIT 2,892 1,742 66.0% 2,431 19.0% Other income 337 553-39.1% 151 123.4% Net Interest exp (inc) 12 59-79.0% 20-36.9% PBT 3,217 2,237 43.8% 2,562 25.6% Tax provision 1,054 676 56.0% 752 40.2% Tax rate % 33% 30% 257 bps 29% 341 bps Minority Interest 210 170 23.2% 272-22.9% PAT (Reported) 1,953 1,391 40.4% 1,538 27.0% Shares Outstanding 27.1 27.1 27.1 EPS (Reported) 71.8 51.2 40.2% 56.5 27.0% SOTP Valuation Basis CY16 PAT/ EBITDA PE EV/ABITDA (x) Holding (%) Eq Value SOTP (Rs. per share) RE P/E 14,753 30.0 100% 442,583 16,270 VECV EV/EBITDA 8,711 12.0 54.4% 61,073 2,245 18,515 RE Abridged P&L Rs. mn CY12 CY13 CY14 CY15E CY16E Volume 113,432 178,121 3,02,602 4,51,991 6,46,200 Revenue 10,493 17,025 30,312 47,528 74,605 EBITDA 1,454 3,137 7,336 12,353 20,866 EBITDA margin % 13.9% 18.4% 24.2% 26.0% 28.0% PBT 1,738 3,632 7,980 12,445 21,075 PAT 1,448 2,786 5,589 8,960 14,753 EPS (Rs.) 53.3 102.6 205.5 329.4 542.3 Source: Spark Capital Research VECV Abridged P&L Rs. mn CY12 CY13 CY14 CY15E CY16E Volume 48,802 41,251 40,649 47,417 58,635 Revenue 53,674 51,073 57,071 72,598 98,174 EBITDA 4,036 3,995 3,812 5,485 8,711 EBITDA margin % 7.5% 7.8% 6.7% 7.6% 8.9% PBT 4,259 3,074 1,946 2,997 6,258 PAT 3,301 2,468 1,428 2,087 4,506 PAT (post minority interest) 1,795 1,153 564 938 2,451 EPS 66.1 42.5 20.7 34.5 90.1 Source: Spark Capital Research Page 2
Financial Summary Abridged Financial Statements Key metrics Rs. mn CY13 CY14E CY15E CY16E CY13 CY14E CY15E CY16E Profit & Loss Growth ratios Revenues 68,098 87,383 1,20,126 1,72,779 Revenues 6.1% 28.3% 37.5% 43.8% Manufacturing & Other Expenses 60,966 76,235 1,02,288 1,43,203 EBITDA 29.9% 56.3% 60.0% 65.8% EBITDA 7,132 11,148 17,838 29,576 PAT 21.5% 56.2% 60.8% 73.8% Depreciation 1,300 2,198 3,153 3,386 Margins EBIT 5,832 8,950 14,685 26,190 EBITDA 10.5% 12.8% 14.8% 17.1% Net Interest Exp / (inc) 79 98 86 83 EBIT 8.6% 10.2% 12.2% 15.2% Profit Before Tax 6,706 9,926 15,441 27,334 PAT 5.8% 7.0% 8.2% 10.0% Tax 1,452 2,909 4,395 8,075 Leverage & WC ratios Minority Interest 1,314 864 1,149 2,055 Debt to equity (x) 0.1 0.0 0.0 0.0 Adj. Net Profit 3,940 6,154 9,898 17,204 Current ratio (x) 0.9 0.8 0.8 0.8 Balance Sheet Debtor days (Sales) 31 26 24 28 Shareholders Equity 20,554 25,159 32,608 45,569 Inventory days (COGS) 41 41 40 40 Minority Interest 10,397 10,851 11,999 14,054 Creditor Days (COGS) 125 124 123 118 Loan funds 2,973 1,167 600 600 Working Capital days -53-57 -59-50 SOURCES OF FUNDS 33,595 38,986 47,601 62,616 Performance & turnover ratios Net block 16,561 23,093 28,844 34,023 RoIC 14.7% 17.4% 24.3% 33.5% Investments 8,255 10,777 11,777 12,777 RoE 20.7% 26.9% 34.3% 44.0% Capital WIP 4,636 4,188 4,188 4,188 Total asset turnover (x) 1.8 2.0 2.3 2.5 Current assets, loans & advances 17,088 21,212 24,962 42,755 Fixed asset turnover (x) 3.6 3.2 3.4 3.9 Current liabilities & provisions 19,771 25,089 33,250 56,797 Total asset turnover (x) 1.8 2.0 2.3 2.5 Net Current Assets -2,683-3,878-8,288-14,042 Valuation metrics APPLICATION OF FUNDS 33,595 38,986 47,601 62,616 Current price (Rs.) 15,670 Cash Flows Shares outstanding (mn) 27 27 27 27 Cash flows from operations 7,174 10,475 17,787 26,605 Market capitalisation 4,24,500 4,23,874 4,24,500 4,24,500 Capex -7,123-9,720-8,903-8,566 Enterprise value 4,18,514 4,19,651 4,14,020 4,24,500 Cash flows from investments -7,910-10,872-9,903-9,566 EV/EBIDTA (x) 58.7 37.6 23.2 14.4 Cash flows from financing -474-1,622-1,610-2,448 Adj. Per-share earnings (Rs.) 145.0 226.2 363.9 632.4 Free cashflow 51 755 8,884 18,039 Price-earnings multiple (x) 108.0 69.3 43.1 24.8 Cash & cash equivalents 6,826 4,806 11,080 25,671 Dividend yield (%) 0.2% 0.3% 0.5% 0.8% Page 3
Recommendation History 20000 Eicher Motors Ltd 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1-Apr-12 1-Oct-12 1-Apr-13 1-Oct-13 1-Apr-14 1-Oct-14 1-Apr-15 Historical Report Date (Rs.) TP (Rs.) Recommendation 05/Mar/15 16,041 18,275 Buy 18/Feb/15 16,109 18,170 Buy 14/v/14 13,190 13,525 Add 12/Aug/14 9,290 10,970 Buy 12/May/14 6,460 6,320 Reduce 14/Mar/14 5,500 5,920 Add 14/Feb/14 4,809 5,600 Buy 03/Jan/14 4,980 5,590 Add 11/v/13 4,126 3,983 Reduce 12/Aug/13 3,319 3,489 Add 15/May/13 3,250 2,965 Reduce 08/Apr/13 2,657 2,658 Reduce Report Date (Rs.) TP (Rs.) Recommendation 13/Feb/13 2,625 2,636 Reduce 12/v/12 2,527 2,048 Sell 10/Aug/12 2,070 1,829 Sell 14/Jun/12 2,086 1,779 Sell 15/May/12 2,017 1,795 Sell 30/Mar/12 1,910 1,592 Sell 02/Mar/12 1,694 1,583 Reduce 14/Feb/12 1,730 1,583 Reduce Page 4
Disclaimer Absolute Interpretation Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE ADD Stock expected to provide positive returns of >5% <15% over a 1-year horizon SELL Stock expected to provide returns of <5% -10% over a 1-year horizon Stock expected to fall >10% over a 1-year horizon Spark Disclaimer Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. 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