CV Industry

April 19, 2012
INSTITUTIONAL EQUITIES
INDIA RESEARCH
COMMERCIAL VEHICLE INDUSTRY

Fully Loaded For Growth
Murali Krishnan
Head - Institutional Equities
+91-22-61844301
muralikrishnan@karvy.com
Yogesh Nagaonkar
Divyah Ahooja
+91-22-61844312
yogesh.nagaonkar@karvy.com
+91-22-61844322
divyah.ahooja@karvy.com
InstitutionalEquities
IndiaResearch
April19,2012
CommercialVehicleIndustry
THEMEREPORT
Domestic CV Industry
Counting on Growth
LikelytoGrowby25%inFY14E
StrongHistoricalGrowthinDomesticCVIndustry:Overthelastfiveyears,
theIndianCVindustryhasmanagedtogrowby9.7%CAGRwithabumper
growthof39%and27%inFY10andFY11,respectively.Notwithstandingthe
macro negatives, strong growth in road traffic, port expansion, hinterland
movementofagriculturalproducedrivethesectoralgrowth.
AshokLeyland
BUY
CMP(Rs)
30
TargetPrice(Rs)
35
Upside(%)
16
52WeekHigh/Low(Rs)
33/20
3mAvg.DailyVolume(000)
Rs233/US$4.5
CV Industry Likely to grow by 25% in FY14E despite Macro Negatives:

However, shortterm pain exists for the domestic CV industry especially in
heavytonnage segment due to higher interest rates, declining IIP, and
contraction in gross capital formation. Despite these shortcomings, we are
bullishontheCVindustryonaccountoflowerpenetrationlevels(4CVsper
1,000 people) that presents huge headroom for growth for domestic CV
segment given the aforementioned micro positives. Hence, we expect CV
industrytogrowby15%and25%byFY13EandFY14E,respectively.
EicherMotors
KeyRisks:
AnalystsContact
Duopoly at Threat Pressure on Market Share: In case the duopolistic

structure of the CV industry with Tata Motors (58% market share) & Ashok
Leyland(13%marketshare),whichactsasahugeentrybarrierintoCVspacegets
dislodged, there will be significant risks for the incumbent players. Local
playerslikeEicherandMNALarepotentialmarketsharegainers.
YogeshNagaonkar
02261844312
DivyahAhooja
02261844322
SignificantChangeinCVIndustryLandscape:Anysignificantchangeinthe
CV industry landscape in terms of market share, new product launches,
emission/safety norms, and preference for qualitative/advanced engines
wouldantagonizeourassumptionsandestimates.
HOLD
CMP(Rs)
2,276
TargetPrice(Rs)
2,131
Downside(%)
52WeekHigh/Low(Rs)
2,291/1,114
Avg.DailyVolume(000)
Rs51/US$1.0
Source;Bloomberg,KarvyInstitutionalResearch
StiffCompetition&IncreasedPricing:Weexpectthatensuingtechnological
upgradationandmodificationswillresultinpriceescalationsandputpressure
onthemarginsofthedomesticCVplayerslikeTataMotorsandALL,asthey
along with their foreign JV partners are continuously striving for providing
highclassqualityatIndianprice.
WeInitiateCoverageonTwoCVPlayers
WeinitiatecoverageonAshokLeyland(CMP:Rs.30;Target:Rs.35)&Eicher
Motors (CMP: Rs.2,276; Target: Rs.2,131) with BUY and HOLD
recommendation respectively on the back of numerous fundamental triggers
intheirfavour,despitemacronegatives.
ValuationSummary
Company
Rating
AshokLeyland
BUY
CMP
(Rs)
TP
(Rs)
MCap
(Rsbn)
FY11
RoE(%)
FY12E
FY13E
FY11
30
35
80
15.9
19.9
21.8
1.9
P/BV(x)
FY12E FY13E
8.7
6.9
13.3
HOLD
1.5
12.0
P/E(x)
FY12E FY13E
2,276
2,131
61
20.7
20.9
23.4
4.1
3.6
3.1
19.9
17.2
Source:KarvyInstitutionalResearch,*Representsconsolidatedfinancials#FY11,FY12E,FY13EreferstotheirCY10,CY11E,CY12Efinancials
EicherMotors*#
1.7
FY11
April19,2012
Tableofcontents
ExecutiveSummary3
MarketReckonsModerationinDomesticCVVolumes3
...StillWehaveReasonstobeBullishonCVGrowthStory3
ValuationSummary4
Outlook&RelativeValuationSummary4
SummaryonCVPlayersCoveredinthisReport5
AshokLeyland5
EicherMotors5
MacroFactorsdontworryusasmuchsinceMicroSaviorsKeepthe
DemandStoryResilient6
KeyFundamentalTriggers7
1.RobustvolumegrowthbothDomesticallyandExports7
2.DomesticCVPenetrationhasHeadroomtoGrow8
3.HinterlandGoodTransportABigLeapforRoadTransport9
4.PortTrafficContainerCargoatMajorPortstoseePhenomenalGrowth11
5.RoadInfrastructureHugeCatalystforCVgrowth,especiallyforM&HCVs12
6.FreightAvailability&RatesSettoGrowFurther13
7.TransportersProfitabilityOEMstoSustainEBITDAMargins14
OtherDynamicsInfluencingIndianCVIndustry16
1.PastTrendsforReplacementDemandforCVs16
2.SurfaceTransportHub&SpokeModelPredictsMarketShareDeclineforthe
Railways17
3.PolarizationtowardsHeavyTonnageVehicles&LCVs18
KeyRiskstoOurCall18
1.PressureonMarketSharedespiteDuopolisticStructureasEntryBarrier:18
2.SignificantChangeinCVIndustryLandscape:18
3.StiffCompetition&IncreasedPricingduetoTechnologicalDevelopment:18
AppendixI:MarketShare19
COMPANY
AshokLeyland20
EicherMotors33
April19,2012
ExecutiveSummary
MarketReckonsModerationinDomesticCVVolumes
The CV demand has been susceptible to interest rates which impacts the replacement
demandaswell.
TheCVindustryiscyclicalinnatureandcorrelatesbetterwiththeIIP.Othermacrofactors
influencingthedemandarecontractioninliquidityandtheleveloffreightrates.Allthese
suggestasluggishviewahead.
Fuelpriceshaveseenspikesonthebackofspiralingglobalcrudeprices.
PricingpowerhadgivenleewaytotheCVplayerstohikethepricesonthebackofrobust
demandinFY11.
Therecentbanonmininghasledtofurthersofteningofdemand.
...StillWehaveReasonstobeBullishonCVGrowthStory
Strong Operator Profitability: Channel checks indicate that truck owners make positive
cash flows post operating and capital costs. Historically, positive cash flow has usually
beenassociatedwithstrongdemand.TransportersprofitabilityatEBIDTAlevelisstill
at9%thatisatthehighestbandofthelastdecadeaverage.Plus,afairlyhighutilization
oftruckshintsstrongsupplydemandscenario.
Healthy Truck Finance Portfolio: The health of truck finance portfolio has been pretty
strong. Large banks indicate that the delinquencies in truck portfolios are among the
lowest it ever has been. This indicates that the underlying drivers for the industry are
intact, reflecting in strong profitability for truck owners, which, in turn, suggests strong
growthindemandinthemonthsahead.
Increased Logistic Spending: Logistic spending is expected to rise on sustained

infrastructureinvestmentswhichbodewellfortheroadtransportsector.Thishasreflected
in increased share of heavy trucks (<16T) and higher increase in the market shares of
>16<25T.
Hikes in Railway Freight Rate: The recently announced sharp hikes of around 2530%
acrossmostcommoditiesinrailfreightratesisunlikelytoresultinimmediateimpact,but
willgivesomeleewaytoroadfreightoperatorstohikerates.Wereckonthiswouldhelp
theCVcyclestaystrongerthanexpected.
OtherDemandInsulators:
TheCVfreightrateshaveremainedstable.
Resale value of trucks remains buoyant. This is also suggestive of upbeat

underlyingeconomiesfortruckownership.
Besides, during FY0811, tonnage growth was ~42% vs volume growth of 36%,
depictingstrongdemandofheavytonnagevehiclesingeneral.
An assiduous effort to enter the lucrative LCV market has reduced the volume
cyclicality.
HinterlandgoodstransportisabigleguptoroadtransportandtheCVIndustry
ingeneral,giventhegrowingEXIMTradeandPorttraffic.
Besides, there are segments of the CV industry (tippers) which actually have a
waitingperiod,despiteaweakminingandconstructionsector.
Our View: These underlying factors will continue to support the CV sector in the
mediumterm,byinsulatingthedemandstorydespiteamodestsofteningofinterest
rates and borrowing costs in coming months. These factors clearly indicate that
macro factors have indeed played a crucial role in driving the CV demand. YTD CV
volumeshavegrownby20%andweforecastFY1213Egrowthof17%.
April19,2012
ValuationSummary
OnYTDabsolutebasis,theBSEAutoIndexhasoutperformedtheSensexby6.9%.The
bestperformerhasbeenTatamotorsgivenitsstellarJLRperformance.OnYTDbasis,
allotherdomesticCVplayershaveunderperformedtheAutoIndexandSensex.
Exhibit1: PricePerformanceAbsoluteandRelativetotheSensex
AutopeerIndia
Company
AshokLeyland
EicherMotors
CMP
AbsoluteReturn(%)
RelativetoSensexReturn(%)
RelativetoAutoIndexReturn(%)
(Rs)
1m
3m
6m
12m YTD
1m
3m
6m
12m YTD
1m
3m
6m
12m
YTD
30
9.6
21.7
26.6
13.0
32.7
8.4
16.7
24.2
21.5
19.5
3.9
(0.4)
7.7
(1.4)
1.3
2,276
19.7
43.6
38.1
83.4
53.0
18.5
38.5
35.8
91.9
39.8
13.9
21.4
19.3
69.0
21.6
TataMotors
309
7.9
44.7
70.7
28.3
73.1
6.7
39.6
68.3
36.8
60.0
2.2
22.5
51.8
13.9
41.7
Mahindra&Mahindra
692
2.1
1.2
(14.3)
(4.0)
1.5
0.8
(3.9) (16.7)
4.5 (11.7)
(3.7)
(21.0)
(33.2)
10,698
5.7
22.2
18.9
14.4
31.4
4.5
17.1
17,392
1.2
5.1
2.4
(8.5)
13.2
BSEAutoIndex
Sensex
16.5
22.9
(18.4) (29.9)
18.2
Source:Bloomberg,KarvyInstitutionalResearch
Outlook&RelativeValuationSummary
Ashok Leyland: We initiate coverage on Ashok Leyland with a BUY
recommendationwithatargetpriceofRs.35pershare,representing16%upsidefrom
theCMP,valuingALLat8xFY14EEPSofRs.4.3.
Eicher Motors: We initiate coverage on Eicher Motors with a HOLD
recommendationwithatargetpriceofRs.2,131pershare,representing6%downside
fromtheCMP,valuingEicheronSOTPbasis.
Exhibit2: Relative&ComparativeValuation
AshokLeyland#
EPS
FY11
FY12E
FY13E
P/E
FY11
FY12E
FY13E
P/BV
FY11
FY12E
FY13E
EV/EBITDA
FY11
FY12E
FY13E
ROE
FY11
FY12E
FY13E
RevenueGrowth
FY11
FY12E
FY13E
EicherMotors*
TataMotors
SMLISUZU
2.4
2.5
3.5
70.1
114.4
132.7
29.1
32.6
35.9
23.9
32.3
37.5
12.6
12.0
8.7
32.5
19.9
17.2
9.9
8.9
8.1
16.7
11.9
10.3
2.0
1.9
1.7
5.0
4.1
3.6
4.8
3.3
2.5
2.7
2.4
2.1
5.2
7.9
6.3
14.0
9.1
7.4
2.4
6.5
5.9
7.4
8.0
6.6
15.9
15.9
19.9
15.3
20.7
20.9
48.4
37.3
30.5
18.2
20.0
21.6
53.5
13.2
8.3
49.6
29.1
16.3
33.1
17.4
10.0
25.5
5.6
28.1
Source:KarvyInstitutionalResearch,Company;Note:#Representsstandalonefinancials,*FY11,FY12E,FY13E
referstotheirCY10,CY11E,CY12Efinancials
April19,2012
SummaryonCVPlayersCoveredinthisReport
AshokLeylandCMP:Rs.30;TargetPrice:Rs.35pershare
Valuingthestockat8xFY14EEPSofRs.4.34,weinitiatecoverageonALLwithBUY
recommendationwithatargetpriceofRs.35pershare,representing16%upsidefrom
CMP.EBIDTAmarginsareexpectedtoexpand110bpsinFY13EfromFY12Eandby
10bpsfromFY13EfromFY14E.WeexpectthestocktotradeataPEof8xFY14EEPS
ofRs.4.34
Key Beneficiary of Likely Structural Uptick: With any uptick in M&HCV volume
due to interest rate cut, boost in IIP, ALL is likely to be the direct beneficiary, as
witnessedin20092011cycle.
LCVForaytoReduceCyclicality:TheincreasingfocusintoLCVsegmentwillreduce
thecyclicalityinsalesandcushiontheCVbusiness.
InvestmentstoYieldBenefits:WithinvestmentstothetuneofRs.10.91bnarealmost
completeinassociateandJVs,weexpectALLtoreapthebenefits,asthecommercial
productionisexpectedinthenearfuturethatwillboostthetoplineby10%.
CapacityRampupatPantnagar:ThecapacityrampupatPantnagarto30%oftotal
M&HCVs output in FY12 and 36% in FY13E would generate about Rs. 2.52 bn
incentivesinFY13E.WeexpectatotalincentiveofRs.1.82bn,Rs.2.52bnandRs.3.16
bninFY12E,FY13EandFY14E,respectivelyfromPantnagarunit.
Eicher Motors CMP: Rs. 2,276; Target Price: Rs. 2,131 per
share
ValuingthestockonSOTPbasis,weinitiatecoverageonEicherMotorswithHOLD
recommendation with a target price of Rs. 2,131 a piece, representing 6% downside
from the CMP. We expect the stock to trade at an EV/EBIDTA of 8x CY13E, at a
discounttoitspast10yearaverage.
VolvoEicher JV Poised to take off: VolvoEicher JV is the fastest growing CV
CompanyinIndiaandclosetoinflexionpoint.
Commissioning of Global Engines Platform: Commissioning of global engine
platform in PhaseI will raise superiority of EML, as it would be costeffective and
profitable. However, being conservative we havent included its contribution in our
forecasts.
Rampingup2wheelersoutput:AsEicherMotorsisincreasingits2wheeleroutput
toclearbacklogweseestrongvisibilitywithcommissioningofnewunitinQ1CY13E.
April19,2012
Macro Factors dont worry us as much since Micro

SaviorsKeeptheDemandStoryResilient
Exhibit3:PLRvs.Volumes
16
300
14
200
12
100
10
SBIPLR(%)
Sep11
Dec10
Jun09
Mar10
Sep08
Dec07
Mar07
Jun06
100
Sep05
I.PolicyRatesEasingtobeLimitedbutnottoagonize
MHCV%YoY)
Source:CEIC,SIAM
Ex3depictsthat in middle of 2008, the M&HCV volumes nosedived, as the interest

ratesreachedtheirpeak.However,postfinancialcrisis,thecorrelationofborrowing
ratesandM&HCVvolumegrowthseemstohaveweakened.Theyear2011sawthe
interest cycle peaking, while the downtick in M&HCV growth was not visible
commensurately.Itappearsthatthereareindeedotherfactorsmainlyholdingupof
transportersprofitabilitythatreflectsastablescenarioinM&HCVvolumeofftake.
Exhibit4:Policyratesv/svolumes
12
10
8
6
4
2
0
50,000
(%)
40,000
30,000
20,000
Jun11
Oct10
Feb10
Jun09
Oct08
Feb08
Jun07
Oct06
Jun05
Feb06
10,000
RepoRate(%)
SBI1yrdepositrate(%)
MHCVmonthwise(RHS)
Source:CEIC,SIAM
Past cycles suggest that the CV industry (especially 12 tonne and above) correlates
wellwiththefallininterestratesandfinanceavailabilitywithroughlyaquarterlag.
Credittotransportoperatorsisgiventypicallyathigherinterestrates,becauseofthe
increased risk profile. For example, nearly 67% of the SCBs credit to transport
operatorsattheendofMar05wasatannualinterestratesexceeding13%.Thegrowth
inCVsalesduringthelastfewyearshasbeenledbyreducedinterestrates.However,
inspiteofahardeningofinterestratessincemid2004,theCVsaleshaveincreased
at a healthy rate due to increased replacement demand and increased demand for
roadtransportation.
Oureconomicsteamisnottoobullishontheeasingoftheinterestratecycleinthe
comingmonths.Theoverallpaceofpolicyratecutwouldbecontingentontheextent
of actual fiscal consolidation, evolution of the core and headline inflation once base
effectwearsoff,crudeandglobalcommoditypricesimpactingimportedinflationand
currency.Fornow,ourhouseispencilinginnotmorethan5075bpseasingin2012.
Butthatdoesnotseemtoworryusasmuchnow.
II.GCFOutlookHazybutStruturalRescuersarethere
Exhibit5:Creditofftakevs.Volumes
300
60
200
40
100
20
0
20
Jan12
May11
Sep10
Jan10
May09
Jan08
Sep08
May07
Sep06
100
MHCV%YoY)
CreditofftakeofMHCV(%YoY)
Source:CEIC,SIAM
The structural drag from the continued absence of policy reforms is likely to
exacerbate the current macroeconomic uncertainty, pushing out the capex cycle
further. With things unlikely to change substantially anytime soon, we expect the
capital goods production to stay depressed, albeit volatile, in the near future. The
M&HCVs growth is directly proportional with the industrial growth, typically with
GrossCapitalFormation(GCF).Thestructuraldriversoverthepastyearshavekept
thedemandresilient.Moreimportantly,thefleetoperatorsprofitabilityhasheldup
well. Besides, there are segments of the CV industry (tippers) which actuallyhave a
waitingperiod,despiteaweakminingandconstructionsector.
III.WideneingofFinancingAvenuestoUndoMutedLoanGrowth
Separately,while90%ofCVsarefinanced,thefinancingavenueshavewidenedother
thanthetraditionalSCBborrowings.Exhibit5depictsthatSCBscreditisnotthesole
driver of growth in M&HCV volume. Even when we take a lagged growth of
M&HCV vs. SCB credit offtake, the correlation is weak. There are indeed other
sourcesoffinancelikethecompaniesownfinancingarms,externalfinancingetc.
April19,2012
KeyFundamentalTriggers
Thefollowingfundamentaltriggerssupportourinvestmentthesis:
1.RobustvolumegrowthbothDomesticallyandExports
2.DomesticCVPenetrationhasHeadroomtoGrow
3.HinterlandGoodTransportABigLeapforRoadTransport
4.PortTrafficContainerCargoatMajorPortstoseePhenomenalGrowth
5.RoadInfrastructureHugeCatalystforCVgrowth,especiallyforM&HCVs
6.FreightAvailability&RatesSettoGrowFurther
7.TransportersProfitabilityOEMstoSustainEBITDAMargins
1.RobustVolumeGrowthbothDomestically&Exports
TheIndianCVindustryhasbeenthetopperformeroverallautomotivesegments(2
W,PV,3W)intermsofgrowthbothindomesticandexportsmarkets.Althoughthe
cyclicalityinCVvolumeoverthepastyearshasbeenwitnessed,anassiduouseffort
by the CV players to enter into the highly lucrative LCV market has lead to a huge
reductioninthevolumecyclicality.
Exhibit6:Automobiles:DomesticVolumeGrowthSegment
wise
35
Exhibit7:Automobiles:ExportVolumeGrowthSegmentwise
60
(%)
30
(%)
50
25
40
20
30
15
10
20
10
0
FY0305
FY0608
FY0911
PassengerVehicles
2Wheelers
FY1213E
CommercialVehicles
ThreeWheelers
Source:SIAM,KarvyInstitutionalResearch
FY0305
FY0608
FY0911
FY1213E
PassengerVehicles
CommercialVehicles
2Wheelers
ThreeWheelers
Source::SIAM,KarvyInstitutionalResearch
OurView:ThetrendofCVplayersenteringintotheLCVmarketislikelytocontinue,
andahugereductionincyclicalityinCVvolumeislikely,goingforward.
April19,2012
2.DomesticCVPenetrationhasHeadroomtoGrow
Low penetration and distribution reach acts as a huge trigger for the CV industry.
Hence,asIndiasbusandtruckpenetrationvs.GDPpercapitaisfarlowerthanthe
developed and emerging markets, there exists huge headroom for growth with the
pickupineconomicactivities.
Exhibit8:BusPenetrationvs.GDPPerCapita
50,000
USA
40000
Germany
FranceJapan
SouthKorea
Czech
UK
Spain
Republic
30000
20000
Poland
SouthAfrica
Mexico
Brazil
China
India
10000
0
0
Argentina
5
10
15
GDPperCapita(US$1000/head)
20
TruckPenetrationMHCV/mpopulation
BusPenetration/mpopulation
50000
Exhibit9:TruckPenetrationvs.GDPPerCapita
USA
40,000
UK
France
Spain
30,000
Germany
Potugal
Hungary
SouthAfrica
Mexico
RomaniaBrazil
Argentina
China
Indonesia
India
20,000
10,000
5
10
GDPperCapita($)*
15
20
Source:CIA,KarvyInstitutionalResearch
Source:CIA,KarvyInstitutionalResearch
Exhibit10:MarginSegmentwise
Exhibit11:CommercialVehicleGrossMargin/RawMaterialCost
(%)
250,000
16
(%)
(Rsmn)
200,000
14
150,000
12
100,000
10
50,000
PassengerVehicles
2Wheelers
CommercialVehicles
Tractor
Rawmaterialcost
45
40
35
30
25
20
15
10
5
0
Q1FY12
Q4FY11
Q3FY11
FY13E
Q2FY11
FY12E
Q1FY11
FY11
Q4FY10
FY10
Q3FY10
FY09
Q2FY10
FY08
Q1FY10
FY07
Q4FY09
Q3FY09
Q2FY09
18
GrossMargin(%)
Our View: Given the fading cyclicality we expect margin to remain stable with an
upwardbiasgoingforward.
April19,2012
3. Hinterland Good Transport A Big Leap for Road

Transport
Exhibit 12: Strong EXIM growth has

increased Indias share in
global trade by ~100bps
duringthelasteightyears
2.0%
Indias EXIM Trade to Double Road Transport to get Boost: During FY0311
period, (nonoil) EXIM trade has grown at ~25x GDP growth. Over the last eight
years,Indiasglobaltradehasgrownby~1.7timesinvalueterm,whichhasresulted
in 100 bps expansion in Indias share in global trade thereby boosting the countrys
significanceontheglobaltrademap.
1.8%
1.5%
1.0% 0.8%
0.5%
2010
2009
2008
2007
2006
2005
2004
2003
2002
0.0%
Our View: Assuming EXIM trade growth of 2 times of GDP growth, Indias EXIM
trade would grow at more than 16% CAGR during the next five years thereby
doublingEXIMtrade.
Source:CEIC,KarvyInstitutionalResearch
Exhibit13:BothimportsandexportsgrowthinIndiapickedup
afteratemporarydipinFY10
Exhibit14:IndiasnonoilEXIMtradehasgrownat>2xGDP
growthduringthelastnineyears
60
Exim/GDPMultiple
40
39
32
20
11
2.7
3.8
2.5
2.0
4.5
3.0
4.8
3.4
0
FY11
FY09
FY08
FY07
FY06
FY05
FY04
FY10
FY11
FY10
FY09
ImportsYoY(%)
(0.4)
2
FY03
ExportsYoY(%)
FY08
FY07
FY06
FY05
FY04
FY03
2002
2001
2000
20
Source:CEIC,KarvyInstitutionalResearch;(NonOilExportImporttrends)
Exhibit15:At2xGDPgrowth,IndiasEXIM(nonOil)trade
shoulddoubletoUS$1trillionbyCY16E
1,200
Exhibit16:EXIMvolumeshandledatmajorportsinIndiahas
grownby7%CAGRduringFY0010
1,000
600
15%
400
10%
200
5%
0%
TotalEXIM(BnMT)atmajorports
FY10
FY09
FY08
2016E
2015E
2014E
2013E
2012E
2011E
2010
2009
2008
2007
2006
FY07
FY00
200
FY06
197
FY05
400
FY04
600
FY03
476
FY02
800
FY01
1,000
YoYGrowth(%)RHS
Containerized EXIM Trade to grow at 12% CAGR during FY0826E: Indian Port
Association(IPA)forecaststhatIndiasEXIMvolumesatmajorIndianportstogrow
at6.5%CAGRduringFY0826Eatasimilarrateof7%volumegrowthduringFY2000
10 period. Containerized cargo to be the major beneficiary of the rising trade and is
expected to grow at 12% CAGR during the same period. At this rate, EXIM
throughputatmajorportswilldoubleto228bnMTinFY1117Eperiod.
Our View:At 8%base case scenario, EXIM throughput shouldgrow by1.6 times to
182 bn MT by FY17E depicting strong demand potential for logistics services across
allthethreeverticalsi.e.transportation,warehousingandvalueaddedservices.
April19,2012
Exhibit 17: EXIM traffic handled at major ports Exhibit 18: Containerized cargo is likely to see Exhibit19:EXIMcontainerthroughput(mnMT)at
inIndiaisexpectedtogrowby6.5%
highest ~12% growth in FY0826E
major ports should double in next six
CAGRduringFY0826E
years
400
mnMT
mnMT
800
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
600
300
200
400
100
200
FY08
12.3%
5.0% 5.6%
5.3%
4.2%
225,095
250,000
200,000
6.5%
150,000
114,040
2.1%
100,000
50,000
FY26E
POL
Coal
OtherCargo
IronOre
Fertilisers
Containers(RHS)
FY11
Source:IPA,KarvyinstitutionalResearch
FY17E
Rising Logistic Spend: The 11th & 12th Five Year Plans have seen the governments
investmentintheinfrastructuresegmentdoubleduringeachofthetwoplanperiods.
WhileitdoubledtoRs.5.7trillioninthe11thFYP,the12thFYPhasfurtherdoubledit
toRs.11.3trillion,implyingsustainedattemptbythegovernmenttoimprovelogistics
needsofthecountry.
Exhibit22:Transportationspend (%ofGDP)has
Exhibit20:ContainerInfrastructureinvestment Exhibit21:Infrastructureinvestmentshareof
alsogrownby~100bpsto~6%inlast
outlayhasdoubledduringeachof
GDPofrisensharplyduringFYP10
20years
10th,11th&12thFYPs
12(FY0217)
Source:PlanningCommissionofIndia,Karvy
InstitutionalResearch
Source:PlanningCommissionofIndia,Karvy
InstitutionalResearch
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
FYP12
4.5
1990
FiveYearPlans
FYP11
FYP9
FYP10
ExpenditureXIPlanAllocation
Expenditure XIIPlanAlloacation(Rsbn)
5.0
FYP8
15,000
FYP7
10,000
FYP6
5,000
FYP1
5.5
FYP5
Ports
Roads
6.0
FYP4
Storage
6.5
FYP3
Gas
7.0
14
12
10
8
6
4
2
FYP2
%ofGDP
Telecom
10
April19,2012
4. Port Traffic Container Cargo at Major Ports to See

PhenomenalGrowth
Exhibit 23: Indian Roadways Highways

formameager6%of totalroad
network
The total tonnage handled by the CV industry has increased phenomenally

considering in line with economic expansion. Better roads infrastructure and
increasingexports,totalfreightatmajorportsintonnagetermsgrewataCAGRof7%
andincreasedfrom281MTin2001to570MTin2011.Containercargoatmajorports
also increased at a CAGR of 13% from 37 MT in 2002 to 102 MT in 2011. Similarly,
total freight at non major ports in tonnage terms grew at a CAGR of 19% and
increasedfromjust11MTin1991to186MTin2007.
Exhibit1: TotalCargo(intonnage
Expressw
000units)
National
ays
Highways
2.1%
0.01%
600,000
CAGR7%
400,000
Ruraland
2011
2007
2005
2003
2001
Roads
79.8%
2009
State
Highways
4.0%
200,000
Other
Major
District
Roads
Totalcargo(intonnage000units)
14.1%
Our View: The trend would continue, while the total freight from ports is likely to
risegoingforward,asthecountrysexportsandimportswouldcontinuetogrow.
Source:
IndianPartsAssociations
Source:NHAI,KarvyInstitutionalResearch
ContainerPortsMajorPortsareOperatingatPeakCapacity: JNPT,whichhandles
60% of Indian container traffic (major ports), is operating at saturated levels with
minimalgrowthof~3%.Chennaiporthandles18%ofIndiascontainertrafficandis
growingat~6%andwillsoonoperateatsameutilizationlevelsasthatofJNPT.
OurView:Theabovescenariocallsforurgentneedofnewcapacityadditionsacross
IndiatohandlegrowingEXIMcontainertraffic.
Exhibit24:ContainerCargo(inTonnage000
units)
Exhibit25:Containertrafficthroughputat major Exhibit 26: Containerized cargo market share

Ports grew at ~11% CAGR during
hasbeenonariseoverthelast six
FY01FY12
years
150,000
10.0
MnTEUs
22%
CAGR 13%
100,000
20.0%
20%
17.8% 17.6% 18.0%
18%
5.0
15.8%
16%
50,000
14%
FY11
FY09
FY07
FY05
FY03
FY01
FY99
2010
2009
2008
2007
2006
2005
2004
2003
2002
FY97
FY95
0.0
14.6%
12%
2006
2007
2008
2009
2010
2011
Source:IndianPortsAssociation
Source:CRISIL,KarvyInstitutionalResearch
Source:IPA,KarvyInstitutionalResearch
GrowthofMinorPorts&PrivatePortsbrightensupSectoralOutlook:Gujarathas
been aggressively adding port capacities led by rise in nonmajor ports capacity as
wellasbycommissioningofprivateports.Gujarataccountsfor73%ofthetotalnon
majorportcapacityof392MT.IthasalsocommissionedtwoprivateportsGujarat
PipavavPort&MundraPortwhichhavegainedtractioninbothcontainerandbulk
cargomovements.
Exhibit27:Whilemajorportsstillhandlelarge Exhibit28:PVTportshavebeengainingmarket Exhibit29:Totalcargononmajorports
shares
over
last
6
years
chunk,theminorportsvolumeshare
isexpanding
150%
25.5%
28.6%
28.1%
27.7%
30%
32.2%
32.2%
28.6%
28.1%
27.7%
200
CAGR19%
100
25.5%
25%
MajorPorts
NonMajorPorts
Source:IPA,CRISIL,KarvyInstitutionalResearch
FY06
FY07
FY08
FY09
FY10
2007
15%
2005
FY10
2003
FY09
2001
FY08
1999
FY07
1997
FY06
1995
20%
0%
1993
50%
1991
100%
35%
Totalinmntonnes
Source:IndianPortsAssociation
11
April19,2012
5. Road Infrastructure Huge Catalyst for CV growth,

especiallyforM&HCVs
While traffic grew by >200x since 1951, road length has grown by just 8x thereby
impacting transportation efficiency of the country. Almost 30% of the existing
National Highways were constructed prior to independence. As road infrastructure
gets a boost, completion of Golden Quadrilateral and subsequent NSEW and other
phasesoftheNHDPschemewillleadtomoresalesoftheheavytonnagevehicles.
OurView:Astheroadtransportsystemofthedevelopedcountriesisdominatedby
heavy tonnage trucks (49 tonne and above), the increase in road infrastructure will
leadtogrowthinheavytonnagevehiclesinIndiaaswell.
Exhibit30:NHDP&OtherProjectsason30thNov2011
GQ
NSEW
PhI&
II
TotalLength(kms)
5,846
7,300
12,109
6,500
1,000
700
388
14,799
48,254
380
1,390
50,024
Already4Laned
5,830
5,886
2,865
684
15,270
337
946
16,553
(Km.)
(99.7%)
UnderImplementation(Km.)
NHDP NHDP
Phase Phase
III
V
NHDP NHDP
NHDP
Port
SARDP
NHDP
Totalby
Phase Phase
Phase
Connec Others
NE
Total
NHAI
VI
VII
IV
tivity
17
836
6,507
2,793
36
112
2,422
11,343
43
424
11,818
ContractsUnderImplementation(No.)
77
88
22
17
214
224
Balancelengthforaward(km)
420
2,737
3,023
1,000
659
276
12,377
20,216
20
20,236
Source:NationalHighwayAuthorityofIndia
12
April19,2012
Exhibit31:Freightratesinchinghigher
confirmstheunderlyingstrength
165 167 172 171
190
107 110 114
140
123 127
Freight Availability at Stable Rates: Growth in freight rates depicts the underlying
strengthoftheCVsegment.Asdepictedintheexhibit31thefreightrateshavebeen
on the steady rise from 2000 onwards, though from 2007 onwards the rates have
flattened but the important thing is that despite the 200809 down cycle, the freight
ratesinchedhigher.
140
200010
200009
200008
200007
200006
200005
200004
200003
200002
200001
90
GraphicalRepresentationofIRFITrendfo
last10years(200001to200910)
Source:TransportCorporationofIndia
6.FreightAvailability&RatesSettoGrowFurther
Our View: The freight rates will continue to grow as the demand and economic
growthpicksup.Freightrateonthekeyroutesareholdingup.
Exhibit32:TruckratesfromKolkatatomajorcitiespertonne
Exhibit33:TruckratesfromChennaitomajorcitiespertonne
4.0
(Rs 000)
3.5
(Rs 000)
3.0
3.0
Chennai
Delhi
Mumbai
Banglore
Calcutta
Delhi
Mumbai
Feb12
Nov11
Sep11
Aug11
May11
Feb11
Nov10
Nov08
Feb12
Nov11
Sep11
Aug11
May11
Feb11
Nov10
1.5
Nov09
1.0
Nov08
2.0
Nov09
2.0
2.5
Banglore
Source:KarvyInstitutionalResearch,Company
Exhibit34:TruckratesfromDelhitomajorcitiespertonne
Exhibit35:TruckratesfromMumbaitomajorcitiespertonne
5.0
(Rs 000)
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
(Rs 000)
Chennai
Mumbai
Banglore
Calcutta
Chennai
Delhi
Feb12
Nov11
Sep11
Aug11
May11
Feb11
Nov10
Feb12
Nov11
Sep11
Aug11
May11
Feb11
Nov10
Nov09
Nov08
Calcutta
Nov08
Nov09
5.0
Banglore
13
April19,2012
7. Transporters Profitability OEMs to Sustain EBITDA

Margins
Transportersprofitabilityisthekeymetrics,whichdecidesthefateofthedomesticCV
industry.WehavecomparedtheoperatingmetricsforAshokLeylandandMahindra
Navistar25and31tonnetrucks.
Exhibit36:Freightratesinchinghigher
confirmstheunderlyingstrength
165 167 172 171
190
140
123 127
107 110 114
140
Our findings have confirmed that the entire CV manufacturers are focused towards
thefollowingthreefactors:
200010
200009
200008
200007
200006
200005
200004
200003
200002
200001
90
GraphicalRepresentationofIRFITrendfor
last10years(200001to200910)
Source:TransportCorporationofIndia
Decreasethemaintenancecost,
Increaseinfuelefficiency,and
Providingdrivertrainingfacility.
Operating Metrics of Transporters: We have collated the data from the fleet
operatorsandtransporterstoassesstheiroperatingmetrics.
KeyFindings:
Variablecost(fuelandmaintenance)constitutes~58%oftotalcost,whiletherest
is fixed cost (EMI, insurance, tax, salary and overheads). Total cost is
approximatelyRs.2.38lakh.
TotalrevenueperroundtripisRs.64,000andnumberofroundtripspermonth
are4;totalrevenuepermonthisRs.2.56lakh.
TotalprofitabilitypervehicleisRs.18,000permonth(7%oftotalrevenue).
MonthlyEMIcostconstitutes21%ofthetotalcostataflatinterestrateof9%,1%
riseininterestrateswillincreasetheEMIbyRs.1,517.
IRRsmaintainedforOEMSandfleetoperatorsdespiteodds.
Despite rise in diesel prices and other expenses at a CAGR of 8% and 17%,
respectivelytheOEMsarestillabletomaintainEBITDAmarginsof9%.Although
the contribution margin of OEMS have plummeted from 31% to 26%, due to
immensepricingpowerandtheabilityofthefleetoperatortopassonanyprice
increase to its end customers on account of robust demand the OEMS have
maintaineditsEBITDAmargin.
Exhibit37:OperatingefficiencyoftheOperatorsRemainsIntactDespiteRisingFuelCost
Freightrate
Index
DieselCost
Index
WholesalePrice
Index
Total
Cost
Contribution
2005
103
121
104
75
29
2006
114
135
110
82
32
2007
134
131
115
82
52
2008
136
143
125
89
47
2009
140
138
128
87
52
2010
139
161
141
100
39
2011
142
170
154
107
35
YTD2012
142
176
159
110
32
Source:Company,KarvyInstitutionalResearch
14
April19,2012
Exhibit38:OperatingMetricsfor25&31tonnetrucksofALL&MahindraNavistar(MNAL)
OperatingEconomics
A.Vehiclecosttocustomer
AL3116
BSIICBC
MN31
CBC
ASHOKLEYLAND
BSIICWC
MN25CBC
(i)Totalcostofvehiclereadytouse
Rs
2,124,000
210,000
1,825,000
210,000
(ii)VehcostwithCo.builtcabin+LocalLoadbody
Rs
200,000
2,180,000
140,000
1,858,000
(iii)CompanybuiltcabandloadbodyCBB
1,600,000
1,600,000
TOTAL
Rs
2,124,000
2,180,000
1,825,000
1,858,000
Modifications(Suspensionetc)
Rs
30,000
Tarpolinropeaccessories
Rs
Registration(onetimecost)
Rs
17,000
17,000
17,000
17,000
TOTALCOSTOFVEHICLEREADYTOUSE(Acquisitioncost)
Rs
2,141,000
2,197,000
1,872,000
1,875,000
85
85
96
96
B.Financing
Flatrateofinterest
Financing%(onAcquisitioncost)
Amountfinanced
Financeperiod
EMIPrincipal
EMIinterest
1,819,850
1,867,450
1,797,120
1,798,125
years
37,914
38,905
37,440
37,461
13,649
14,006
13,478
13,486
EMITotal
Rs/mth
51,562
52,911
50,918
50,947
Totaltax+Insurance/mth
Rs/mth
8,583
8,583
8,583
8,583
TotalSalaryandallowance
Rs/mth
32,000
32,000
32,000
32,000
E.Risk,Overheads,Miscellaneous
Rs/mth
5,000
5,000
5,000
5,000
F.Overheads(office,staffetc/veh)
Rs/mth
2,500
2,500
2,500
2,500
AA.FIXEDCOST/MTH
Rs/mth
99,646
100,994
99,002
99,030
256,000
256,000
225,000
270,000
kmpl
Fuelcost/mth
Rs/mth
110,968
107,423
84,149
114,748
Tyrecost/month
Rs/mth
24,267
24,267
25,667
36,960
Maintenancerate
Rs/km
Maintenancecost/month
Rs/mth
6,000
6,000
7,500
9,000
CC.TOTALVARIABLECOST/MONTH
Rs/mth
141,234
137,689
117,315
160,708
G.FREIGHT
BB.TOTALFREIGHT/MONTH
Rs/mth
VARIABLECOST
Fuelaverage
Source:Company,FleetOperator,KarvyInstitutionalResearch
OurView:ThefleetoperatorsIRRsarerobust,whichsupportsourbullishstanceon
thedomesticCVsector.
15
April19,2012
OtherDynamicsInfluencingIndianCVIndustry
1.PastTrendsforReplacementDemandforCVs
Theeconomicrecessionprevailingduringtheearly1990sledtodecliningsalesofCVs
in FY9293. When the economic scenario improved from FY93 and infrastructure
development got a major boost, the industry posted a CAGR of 18% between FY94
andFY97.Theindustrialslowdownthataffectedthefreightdemandaswellasled
topressureonfreightratesduringFY9801coupledwithincreaseindieselprices
thataccountforover50%ofthetransportersoperatingcosthadhittheprofitability
ofoperatorsandledtopostponementofCVpurchases.Again,theneedtoreplacethe
agedfleetagainstabackdropoflowinterestrateregimeledtoastrongreplacement
demandinFY02&FY03.
Meanwhile, out of the total 102 mn onroad vehicles, 23%are over 15 years old and
38%aremorethan10yearsold,whichwillrequirereplacementoverandabovethe
normal demand. 3,582 mn CV produced in 2001 will now come for replacement,
whichwillspurtthedemandfornewvehicles.
Exhibit39:TotalParcSizeofVehiclesofIndia
Year
AllVehicles
2001
54,991
YoY%
2W
YoY% Cars,Jeeps&Taxis
38,556
7,058
YoY%
CVs
YoY%
2002
58,924
7.2
41,581
7.8
7,613
7.9
3,609
0.8
6,121
5.6
2003
67,007
13.7
47,519
14.3
8,599
13.0
4,213
16.7
6,676
9.1
2004
72,718
8.5
51,922
9.3
9,451
9.9
4,517
7.2
6,828
2.3
2005
81,501
12.1
58,799
13.2
10,320
9.2
4,923
9.0
7,457
9.2
2006
89,618
10.0
64,743
10.1
11,526
11.7
5,428
10.3
7,921
6.2
2007
99,742
11.3
72,615
12.2
12,906
12.0
5,896
8.6
8,325
5.1
2008
109,396
9.7
79,864
9.9
14,456
12.0
6,386
8.3
8,690
4.4
2009
119,120
8.9
87,301
9.3
16,009
10.7
6,770
6.0
9,040
4.0
2010
131,414
10.3
96,671
10.7
17,960
12.2
7,303
7.9
9,480
4.9
2011
146,926
11.8
108,461
12.2
20,480
14.0
7,979
9.3
10,006
5.6
2011*
101,162
3,582
Others
75,923
14,336
5,585
5,318
75
14
%ofTotal
YoY%
5,795
Source:ACMA,SIAM,MinistryofRoadTransportandHighways,KarvyInstitutionalResearch
*Aftertakinga30%DisposalRate
Our View: Cost and availability of finance, government policies on emission,

overloading and scrapping of vehicles also influence replacement demand. CV sales
volume in the domestic market was further facilitated by factors like increased
momentuminhighwayconstructionandbetterroadconditions,andbetteroperating
economicsofnewtrucks.
16
April19,2012
2. Surface Transport Hub & Spoke Model Predicts

MarketShareDeclinefortheRailways
Rail Transport: The total freight trafficcarried by railways and the average rate per
tonne per km has been increasing gradually since 1950. Despite this the percentage
share of freight transport by railways as compared to roadways has been steadily
decreasingfrom49%in1992ithasreducedto30%in2010.
Our View: This trend is likely to continue and roadways would gain more market
share given the increasing expansion of roadways (GQ & NSEW Corridor) and the
successofHub&Spokemodel.
Exhibit40:TotalTariff&Averagerate
1000
Exhibit41:ShareofRoad/Railway
1800
100
(mntonnes)
1600
800
80
600
60
1200
400
40
1000
200
20
1400
800
600
200809
400
200910
200708
200506
200607
200405
200304
200102
200203
200001
198081
199091
197071
195051
0
196061
TotalFreight Bn TonKM
%ShareoffreightTransportbyRoad
200
0
1951
TotalFreightTraffic(mntonnes)
1985
1992
RoadFreight(BTKM)
Averageratepertonnekm(inpaise)(RHS)
1999
2006
2010
RailFreight(BTKM)
Source:RailwayMinistry
Source:Company
Road Transport: Predominance of road transport in India has added to higher

logistics costs for India. India spends ~13% of its GDP on logistics vs. 78% in the
developedcountries,asalargechunkofcargotrafficmovesthroughroadways.Onan
average,railtransportcostsonethirdofthecostincurredfortransportationbyroad.
However, the roads have the advantage of the last mile connectivity and hence the
logisticscostscanbereducedbyjudiciousmixofbothrailandroadtransport.
Exhibit 42: Even though India freight traffic comprises majorly bulk materials movement
overlongerdistances,57%offreighttraffic(~2.5bnMTin2008)movethrough
roadwaysleadingtologisticsinefficiency
100%
22
37
80%
57
60%
47
40%
20%
0%
48
36
6
14
India
US
Airways
Waterways
30
China
Railways
Roadways
Source:McKinsey,KarvyInstitutionalResearch
Our View: Rail Road mix should complement each other lower railway rolling
stockbenefitsroadwaysdespitethehighercostoftransport.
17
April19,2012
3.PolarizationtowardsHeavyTonnageVehicles&LCVs
WiththeHub&Spokemodeldeepeningitsrootsmorepolarizationoftonnagein
theCVsegmenttowardsheavyandlowertonnagesisveryevident.
Exhibit43:DistributionofIndianCVinDomesticMarket
7.512
1216.2
16.225
7.512
1216.2
16.225
>25
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY02
FY10
>25
April11Jan
12
3.57.5
April11Jan
12
<3.5
FY09
0%
FY08
0%
FY07
50%
FY06
50%
FY05
100%
FY04
100%
FY03
150%
FY03
Exhibit44:DistributionofIndianCVinDomesticMarket
150%
Our View: With the improvement of roads and the establishment of Golden
Quadrilateral & NSEW corridor, we expect the higher tonnage vehicle to grow
significantlyandacceptanceofLCVsbelow3.5tonnetoincrease.Hence,subsequent
launches of new models in sub3.5 tonne category and capacity expansion by the
incumbentswillresultinincreasedpolarization.
KeyRiskstoOurCall
1. Pressure on Market Share despite Duopolistic Structure
asEntryBarrier:
The Indian CV industry is dominated by Tata Motors, who has 58% market share
followedbyALLpossessing13%marketsharewithrest29%sharedbetweenEicher
Motors,AMW,SwarajMazda,andM&M.AlthoughthisduopolisticstructureofCV
industryactsasahugeentrybarrierintoCVspace,anypressurefromnewplayersin
termsofmarketshareoftheincumbentplayersposeasignificantrisk.Forexample,
Eicher Motors JV with Volvo & M&Ms JV with Navistar are seen as the potential
market share gainer in the next five years. These two JVs are expected to snatch
marketsharesfromTataMotorsandALLresultinginduopolytobreak.
2.SignificantChangeinCVIndustryLandscape:
Any significant change in the CV industry landscape in terms of market share, new
product launches, emission/safety norms, and preference for qualitative/advanced
engineswouldantagonizeourassumptionsandestimates.
3. Stiff Competition & Increased Pricing due to

TechnologicalDevelopment:
In order to curb foreign competition, the domestic companies have developed HCV
with worldclass standards. We expect that the technological upgradation and
modificationswouldincreasegoingforward,whichwillresultinpriceescalationsand
mightputpressureonthemarginsofdomesticplayerslikeEicherMotorsandM&M,
as they along with their foreign JV partners are continuously striving for providing
highclassqualityatIndianprice.
18
April19,2012
AppendixI:MarketShare
Exhibit45:LCV(Goods)MarketShare
%
ALL
TataMotors
M&M
PiaggioVehicles
ForceMotors
EicherMotors
Others
2003
0
46.6
34.8
0
3.2
6.7
8.8
2004
0
52.2
33.3
0
3.8
5.2
5.4
2005
0
51.6
36.2
0
2.6
4.9
4.7
2006
0
62.6
28.2
0
2.4
4.3
2.5
2007
0
67.6
25.6
0
2.1
3.4
1.3
2008
0
64.2
26.5
2.6
3.5
1.7
1.4
2009
0
61.1
29.2
5.2
2.2
1.4
0.9
2010 YTD2011
0
1.0
58.9
59.4
32.1
33.4
4.4
2.5
2.3
1.6
1.5
1.7
0.8
0.4
2006
64.8
23.8
8.1
2.9
0
0.4
2007
64.6
26.4
7
1.7
0
0.3
2008
63.3
24.6
8.8
1.6
1.4
0.4
2009
66.3
20.8
8.2
1.6
2.4
0.8
2010 YTD2011
65.8
62.6
20.2
20.6
9.5
11.0
1.9
1.6
2
3.2
0.6
1.0
2006
49.1
19.4
12
9
5.9
3.3
1.3
2007
50
15.6
15.2
10.5
6.9
1.2
0.6
2008
47.8
15.6
19.7
8
6.7
2.2
0
2009
51.7
14.9
19
7.2
5.2
1.9
0
2010 YTD2011
55.7
46.2
16.8
31.1
14.6
8.6
5.3
5.8
5.2
6.1
2.4
2.2
0
0.0
2010 YTD2011
51.3
42.6
38.1
43.3
4.5
7.3
4.3
5.6
1.4
1.2
Exhibit46:MHCV(Goods)MarketShare
%
TataMotors
ALL
EicherMotors
SwarajMazda
AsiaMotorWork
Others
2003
66.7
24.7
6.5
1.9
0
0.1
2004
66.4
24.4
6.4
2.6
0
0.3
2005
67.1
21.5
8.5
2.7
0
0.3
Exhibit47:LCVPassengerMarketShare
%
TataMotors
ForceMotors
M&M
SwarajMazda
EicherMotors
ALL
Others
2003
36.4
20.3
20.5
7.7
7.3
1
6.8
2004
38.4
26.2
15.2
9.8
6.5
1.6
2.3
2005
45.6
17.7
16.7
9.3
7.7
1.5
1.5
Exhibit48:M&HCVPassengerMarketShare
%
TataMotors
ALL
EicherMotors
SwarajMazda
VolvoIndia
Others
2003
51.3
48.7
0
0
0
2004
50.8
44.9
1.9
1.7
0.8
2005
51.8
40.9
2.6
3.3
1.4
2006
42.6
48.8
3.2
4.2
1.1
2007
47.8
40.8
5.6
4.9
0.8
2008
43.8
45.5
4.7
5.4
0.6
2009
44.3
45.9
3.8
4.6
1.4
0.1
0.1
0.4
0.0
19
Automobiles
April19,2012
AshokLeyland
IndiaResearch
Bloomberg:ALIN
Reuters:ASOK.BO
BUY
U platform launch & LCV foray to aid
VolumeGrowthReratingontheCards
Ashok Leyland (ALL) enjoys 2nd largest market share in Indias
CommercialVehicle(CV)marketwithleadershipinsouthernmarketwith
over 65% market share. We expect a significant rerating of ALL; I. On its
volume expected to recover from FY13 onwards with the launch of U
truck Platform II. Foray into lowertonnage vehicles with the launch of
DOST will reduce the cyclicality of volume III. On the completion of
expansion in JVs, we expect contribution from these investments and IV.
higher fiscal benefits from the new plant, to increase profitability (36%
volumecontributioninFY13E).
Volume Expected to Recover from FY13 onwards with the launch of U
truck Platform: We strongly believe that the Indian consumption story
remainsintact.FurthercapacityconstraintsofIndianRailways,wouldaugur
well for M&HCV business. We believe that the capacity expansion in
M&HCV&LCVspacethroughtheJVswouldfuelvolumegrowthof25%.
LCV Foray Expect Reduced Cyclicality: As the launch of LCV has seen
encouraging response, it would provide cushion to ALLs CV business.
Going forward this could provide better margins and sustainability to the
toplineandvaluations.ALLplanstoaddmultiplevariantsinLCVsegment
innearfuture
JV Investments to Yield Dividend: By the end of FY11, ALL has invested
closed to Rs 7,505 mn and Rs 3,419 in Associates and JVs. With investment
almostcomplete,weexpectitstimetoreapbenefitsasthevariousventures
willcommenceproductionbyQ4FY12whichinturnwillsignificantlyboost
thetoplineby10%.
FiscalBenefitsfromNewPlanttoincreaseProfitability:Pantnagarrampup
to 30% of total MHCVs in FY12 and 36%in FY13E of the total MHCVs will
generateincentivestothetuneofRs3,156mninFY14E.
KeyFinancials
Revenue
FY10
72,447
FY11
111,177
FY12E
125,903
FY13E
136,370
EBITDA
7,629
12,176
13,113
15,635
18,618
NetProfit
4,237
6,313
6,630
9,191
11,555
1.6
2.4
2.5
3.5
4.34
FY14E
159,881
18.8
12.6
12.0
8.7
6.9
P/BV
2.2
2.0
1.9
1.7
1.5
EV/EBITDA
7.4
5.2
7.9
6.3
4.8
PER(x)
Rs30
TargetPrice:
Rs35
Upside(%)
16%
StockInformation
MarketCap.(Rsbn/US$mn)
80/1,558
52weekHigh/Low(Rs)
33/20
3mADV
Rs233/US$4.5
Beta
0.9
Sensex/Nifty
17,392/5,300
Shareoutstanding(mn)
2,661
StockPerformance(%)
Absolute
Rel.toSensex
1M
9.6
3M
21.7
12M YTD
18.1 32.7
10.1
15.1
24.0
17.9
Performance
21,500
35
19,500
30
17,500
25
15,500
20
Sensex(LHS)
AshokLeyland(RHS)
1YearForwardEV/EBITDA
10
8
6
4
Apr07
Aug07
Dec07
Apr08
Aug08
Dec08
Apr09
Aug09
Dec09
Apr10
Aug10
Dec10
Apr11
Aug11
Dec11
Currently,thestocktradesat8.7xFY13Eand6.9xFY14EEPS.Takingcurrent
attractive valuations, likely rerating of stock with volume uptick and LCV
launch into consideration, we initiate coverage on ALL with BUY
recommendation with a target price of Rs. 35 per share representing a
potentialupsideof16%fromtheCMPfactoringamultipleof8xFY14EEPS.
EPS(Rs.)
CMP:
Outlook&Valuations
Y/EMar(Rs.mn)
Recommendation
Apr11
May11
Jul11
Aug11
Sep11
Nov11
Dec11
Jan12
Mar12
Apr12
INITIATIONREPORT
AnalystsContact
YogeshNagaonkar
02261844312
DivyahAhooja
02261844322
April19,2012
AshokLeyland
CompanyFinancialSnapshot
Profit&Loss
CompanyBackground
Rs.mn
FY12E
FY13E
FY14E
Revenue
125,903
136,370
159,881
EBITDA
13,113
15,635
18,618
OtherIncome
200
200
200
Depreciation
2,877
2,977
3,077
ProfitbeforeTax
8,186
11,208
14,091
Tax
1,555
2,017
2,536
Netprofit
6,630
9,191
11,555
10.4
11.5
11.6
5.3
6.7
7.2
7.9
6.3
4.8
12.0
8.7
6.9
ProfitandLossRatios
EBITDAMargins(%)
PATMargins(%)
EV/EBITDA(x)
PER(x)
BalanceSheet
Founded in 1948, Ashok Leyland is one of Indias leading

manufacturers of CVs such as trucks and buses, as well as
emergency and military vehicles. It is the second largest CV
CompanyinIndiainM&HCVsegmentwithamarketshareof
26%(2011).
Withpassengertransportationoptionsrangingfrom19seaters
to 80seaters, Ashok Leyland is a market leader in the bus
segment.
With six operating plants, Ashok Leyland also makes spare
partsandenginesforindustrialandmarineapplication.Inthe
truckssegmenttheCompanyprimarilyconcentratesonthe16
tonneto25tonnerangeoftrucks.However,theCompanyhas
presence in entire truck range starting from 7.5 tonne to 49
tonne. The JV announced with Nissan Motors of Japan would
improve its presence in Light Commercial Vehicle (LCV)
segment(<7.5tonne).
CashFlow
Rs.mn
FY12E
FY13E
FY14E
Rs.mn
FY12E
FY13E
FY14E
Networth
41,592
46,114
53,000
PBT
8,186
11,208
14,091
Totalloans
30,000
30,000
30,000
Depreciation
2,877
2,977
3,077
DeferredTaxLiability
12,209
14,799
20,589
OtherAdjustments
2,050
1,450
1,450
942
933
940
ChangeinWC
3,928
1,290
2,899
TotalLiabilitiesandEquity
84,743
91,846
104,529
(1,555)
(2,017)
(2,536)
NetBlock
48,461
47,984
47,408
1,000
2,000
3,000
Investments
18,033
18,093
NetCurrentAssets
17,248
23,768
84,743
91,846
104,529
Other
Capitalworkinprogress
MiscExp
TotalAssets
NetCashfromOperations
15,485
14,908
18,980
CapitalExpenditure()
(2,420)
(3,500)
(3,500)
18,153
(Inc)/DecinInvestments
(5,733)
(60)
(60)
35,969
InterestandDividendReceived
200
200
200
(7,953)
(3,360)
(3,360)
BalanceSheetRatios
ROCE(x)
ROE(x)
DirectTaxes
NetCashFromInvestments
(Inc)/DecinBorrowings
4,317
Interest/DividendandOthers
(6,918)
(6,318)
(6,318)
9.8
11.3
12.2
CashfromFinancingActivities
(2,601)
(6,318)
(6,318)
15.9
19.9
21.8
NetInc/(Dec)inCash
4,931
5,229
9,302
0.6
0.6
0.5
ClosingCash
6,726
11,956
21,257
P/S(x)
ShareholdingPattern
RevenueBreakup
Others
30%
Engines,3%
Exports,10%
DefenceKits
andSpares,
9%
Promoter
39%
Bus,17%
DII
16%
FII
15%
Goods,61%
Source:Company
Source:BSE
21
April19,2012
AshokLeyland
Valuation
WeinitiatecoverageofAshokLeyland(ALL)withaBuyratingandPTofRs35per
share, representing 16% upside from the current price valuing ALL at 8x FY14E
EPS of Rs. 4.34. We believe FY13E will mark the reversal of several factors that
have,sofar,ledtoALLsunderperformanceinanotherwiseresilientCVmarket.
WelikeALLconsideringI.Revivalinvolumegrowthasdemandinthesouthern
marketimprovesIIFasterrampupinUttaranchalplantproductionIII.Operating
leverage should aid margins IV. The peak in capex/investments behind us, we
expectthestrainonthebalancesheettoease,leadingtoameaningfulreductionin
leverageandimprovementinreturns.
Weexpectavolumegrowthof25%inFY14EandaRevenuegrowthof17%led
bystrongpricingandmiximprovement.WiththeintroductionofDOSTandslew
ofnewproductslinedupforlaunchinLCVsegment,weexpectthecyclicalityin
ALLsvolumetoreduceconsiderablyandweexpecttheFY13EEBITDAmarginsto
improveby110bpsoverFY13Eto11.5%.
Historically, the stock has traded at average P/E multiple of 8 (ALL was mainly
presentinhighlycyclicalM&HCVsegmentwithnopresenceinlesscyclicalLCV
segment(012tonne),
22
April19,2012
AshokLeyland
Exhibit2:OneyearForwardEV/EBITDABand
Exhibit1: OneyearForwardP/EBand
80
(Rs)
140,000
Mean8.0
60
40
20
8x
16x
100,000
12x
8x
80,000
4x
40,000
6x
60,000
4x
2x
0
Apr11
Apr10
Apr09
Apr08
Apr07
Dec
Aug
Apr
Dec
Apr
Aug
Dec
Aug
Dec
Apr
Aug
Apr
Dec
Aug
20,000
Apr
Exhibit3: AbsolutePerformancesinceSept11
Exhibit4:RelativePerformancesinceSept11
SensexIndex
AshokLeyland
BSEAutoIndex
SensexIndex
AshokLeyland
BSEAutoIndex
Exhibit6:RelativePerformancesinceSept11
180
190
160
170
140
150
120
130
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
Feb11
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
Mar11
Feb11
80
May11
100
Apr11
120
Mar11
130
125
120
115
110
105
100
95
140
110
100
90
80
EicherMotors
TataMotors
M&M
SensexIndex
EicherMotors
M&M
Jan12
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
Feb11
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Mar11
Feb11
Apr11
AshokLeyland
Mar11
70
60
Dec11
(Rsmn)
120,000
AshokLeyland
TataMotors
23
April19,2012
AshokLeyland
KeyInvestmentArguments
Ourinvestmentthesisisbasedonfollowingpremises:
1.
2.
3.
4.
KeyBeneficiaryofLikelyStructuralUptickinM&HCVSpace
PantnagarRampuptoGenerateRs.2.52bnIncentivesinFY13E
LCVForaytoReduceCyclicalityExpectHigherValuation
InvestmentsinJVstoPayBack
1. Key Beneficiary of Likely Structural Uptick in

M&HCVSpace&TheLaunchofUTruckPlatform
AshokLeylandisthekeyplayerindomesticM&HCVmarketwithmarketshare
close to 26% and is the second largest player in the domestic market after Tata
Motors(60%marketshare).WefeelthatAshokLeylandwillbethekeybeneficiary
of any cyclical uptick in the domestic MHCV market. Its strong presence in the
Southhasnowbeenforyears,itcommandsawhopping65%marketshareinthe
Southandweexpectthistocontinueinthelongtermduetoitsstrongsalesand
distributionnetworkinsouthernregion.
Exhibit7: VolumeBus&Trucks
80,000
70,000
60,000
50,000
65,069
40,000
42,608
30,000
20,000
19,103
10,000
33,518
37,151
62,674
57,835
31,070
40,734
23,969
8,420
9,925
11,354
10,777
14,168
12,006
2002
2003
2004
2005
2006
2007
Buses
18,187
16,549
17,217
21,125
2008
2009
2010
2011
Trucks
OurView:WithitsnewUtruckrange(tippersandtractortrailers1649tonne)
ALLiswellequippedtotakeonthecompetitionheadon.Again,theCompanyis
introducing a new familyof more powerful BSIII and BSIV/EuroIV compliant
enginesof4and6cylinders.Theseengineswillgivemoreboosttovehiclesasthey
arequieter,bettertorqueandhighlyfuelefficientwithlowermaintenancecost.
SegmentwiseMarketshare
The exhibits below clearly depict that ALL is the key market player in high
tonnage(i.e.12tonneandabove)segmentanditsmarketsharesymmetricalvaries
withthatofTataMotors.
OurView:WeexpectAshokLeylandwithitssuperiorqualityofvehiclesandwith
the introduction of the Utruck platform looks all set to ride any structural
uptrendintheCVindustry.
24
April19,2012
AshokLeyland
GoodsCarrier
Exhibit8: 7.512tonneALLnotaDominantPlayer
Exhibit9: 1225tonneSecondLargestPlayer
80
60
50
60
40
40
30
20
20
10
AshokLeyland
SMLIsuzu
TataMotors
VECVs Eicher
Nov11
Nov11
Oct11
Oct11
Sep11
Sep11
Aug11
Aug11
Jul11
Aug11
Jul11
Jun11
Jun11
May11
Apr11
AshokLeyland
MahindraNavistarAutomotives
TataMotors
VECVs Volvo
Source:KarvyInstitutionalResearch
May11
Apr11
Nov11
Oct11
Nov11
Oct11
Sep11
Sep11
Aug11
Aug11
Aug11
Jul11
Jul11
Jun11
Jun11
May11
Apr11
May11
0
Apr11
AsiaMotorWorks
SMLIsuzu
VECVs Eicher
Exhibit10: Amajorplayerin2535.2tonnesegment
Exhibit11: >40tonneALLsolecompetitortoleader
100
80
60
100
80
60
40
20
0
Nov11
AshokLeyland
TataMotors
VECVs Volvo
Nov11
Nov11
Oct11
Oct11
Sep11
Sep11
Aug11
Aug11
Aug11
Jul11
Jul11
Jun11
Jun11
May11
May11
0
Apr11
Nov11
20
Apr11
AshokLeyland
AsiaMotorWorks
DaimlerIndiaCommercialVehicles
MahindraNavistarAutomotives
TataMotors
Oct11
Oct11
Sep11
Sep11
Aug11
Aug11
Aug11
Jul11
Jul11
Jun11
Jun11
May11
May11
Apr11
Apr11
40
AsiaMotorWorks
VECVs Eicher
2.PantnagarRampuptoGenerateIncentivestothetune
ofRs.2.52bninFY13E
OuranalysissuggeststhattheincentiveperunitsoldorproducedfromPantnagar
plant accounts to Rs. 45,000 per vehicle only due to the excise benefit. If we
considerthebenefitsarisingoutofIT&VAT,thebenefitspervehiclesumupis
far more higher at approximately Rs. 60,000 per vehicle with annualized
productionof30,000unitsinFY12E,40,000inFY13Eand50,000unitsinFY14E.
OurView:WeexpectatotalincentiveofRs2,525mnfromthePantnagarfacility
in FY13E and Rs 3,156 in FY14E. We feel that this benefit from Pantnagar will
boostmarginsofALLinasignificantwayinFY13EandFY14E.
Exhibit12: BenefitsarisingfromPantnagarFacility
TotalVolumes(units)
%manufacturedfromPantnagar
ASPpervehicle(Rslakh)
excisebenefitpervehicle(A)(Rs)
VATandtaxbenefitpervehicle(B)(Rs)
Totalbenefitpervehicle(A+B)(Rs)
Totalbenefitontotalvehiclesproduced(Rsmn)
FY12E
101,634
30%
13.08
45,000
15,000
60,000
1,829
FY13E
116,880
36%
13.08
45,000
15,000
60,000
2,525
FY14E
146,100
36%
13.08
45,000
15,000
60,000
3,156
Source:KarvyResearchEstimate,Company
25
April19,2012
AshokLeyland
3. LCV Foray to Reduce Cyclicality Expect Higher

Valuation
Exhibit14: LCVMarketShare(23.5tonne) DOSTopens
accountforALL
Exhibit13: DOSTvolumesopensupLCVspace
80
70
60
50
40
30
20
10
0
1200
1000
800
600
400
200
0
Nov11
Dec11
Jan12
ForceMotorsLtd
TataMotorsLtd
Nov11
Dec11
AshokLeylandLtd
Mahindra&MahindraLtd
Jan12
AshokLeylandLtd
The above exhibits depict that ALLs presence in LCV (05 tonne) and ICV (512
tonne)segmentshasbeennonexistentforyearsnow.
ALLearnsfollowingthreerevenuestreamsfromDOSTforay:
Contractmanufacturing,
MarketingofvehicleoutsideTN,and
DividendsfromNissanJV.
TheCompanyexpectsthevolumeofDOSTtorampupto3500040,000vehicles
inFY13Efrom4,000vehiclescurrently.
Our View:As ALLs efforts toforayinto the highlylucrative LCV segment have
beenveryencouraging,weexpectahugesurgeinvolumegoingforward.
Exhibit15: DostVolumes;PercentageinTotalVolume
150
100
50
(%)
26
31
29
30
29
23
21
10
25
12
32
74
69
71
70
71
77
79
65
56
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Goods
Passenger
Dost
ThedeliveryoflongawaitedLCVisabigpositivefortheCompany.Weexpecta
strong traction forDOSTand with successivelaunch of variants i.e. CNG, and
sub1.25 tonne, we expect a huge surge in volume and a reduction in cyclicality.
However,ALLsdependenceonhighlycyclicalM&HCVsegmentdeniedahigher
valuationfortheCompany.
FavorableProductMix:30%ofALLsvolumecomesfromlowmarginpassenger
vehicle(bus)space.AsweseeDOSTsmarginsintherangeof1215%,weexpect
thecontributionofDOSTtotheproductwillaugurwellforthemargins.
26
April19,2012
AshokLeyland
4.InvestmentsinJVstoPayBack
AshokLeylandsinvestmentintheJointVentures(JVs)iscompleteandmajorityof
thecapexisdone.TotalinvestmentbyALLinJVisaroundRs.5bn,whiletilldate
Rs.2.87bnhasalreadybeeninvested.
ALLNisanJVformanufacturingofLCVsandALLJohnDeereformanufacturing
of construction equipments are major and are highly lucrative JVs. While ALL
JohnDeereJVwilllaunchitsfirstbackHoeloaderinthenearfuture,theNissanJV
mulls launching new trucks (3 & 4 tonne segment), multi utility vehicles and
passengerversions(minibusapplications).
OurView:WithALLspanIndiadistributionnetworkweareveryoptimisticon
the success of its JVs with John Deere. We expect all the JVs revenue generation
andprofitabilitywilldrivetheCompanysperformancegoingforward.
Exhibit16: MajorInvestmentsinJVs
CurrentStatusof
Proportionof
Operationsand
Ownership
NameofJV
Financials
Interest(%)
AshokLeylandNissanVehicles
Productionyettostart
49.1
NissanAshokLeylandPowertrain
NissanAshokLeylandTechnologies
AshokLeylandJohnDeere
ConstructionEquipment
Firstvehicletobe
launchedinQ4FY12
50
AshleyAlteams
50
AutomotiveInfotronics
50
Investments
Companysshare
(Rs.mn)
FY11(Rs.mn)
H1FY12
FY11end
Income
210
1,688
20.5
48.6
544
49
255
90
Expenses
Assets
Liabilities
31.5
1,557
1,688
11.7
16.3
522.0
544
2.8
283.3
41.5
650
424
1.1
127.7
659.4
368
350
469
559.3
922.8
1,123
158
31.6
81.4
93.1
36
3,419
536.7
1,099.5
3,795.5
4,409.8
27
April19,2012
AshokLeyland
FinancialAssumptions
Exhibit17: FinancialAssumptions
Estimates
Rsmn
Growth(%)
FY12E
Comments
FY11
FY12E
FY13E
FY14E
FY13E FY14E
CommercialVehicle
94,106
101,634
116,880
146,100
8.0
15.0
25.0
Engines
17,377
15,987
14,708
13,531
(8.0)
(8.0)
(8.0)
Revenue
111,177
125,903
136,370
159,881
13.2
8.3
17.2
81,235
91,733
99,387
116,713
12.9
8.3
17.4
EmployeeCost
9,746
TotalOperatingExpenses 99,002
NetInterestExpense
1,637
AvgInterestrate(%)
6.4
6,313
PAT
11,835
112,791
12,001
120,736
14,070
141,263
21.4
13.9
1.4
7.0
17.2
17.0
2,250
7.5
6,630
1,650
5.5
9,191
1,650
5.5
11,555
37.5
17.7
5.0
(26.7)
(26.7)
38.6
25.7
5.7
5.3
6.7
7.2
(7.3)
28.0
7.2
5.0
38.6
25.7
27.3
FinancialForecasts
SalesVolume(Nos)
RawMaterialExpense
PATmargin(%)
EPS(Rs.)
CashFlowForecast
CFO
5,914
15,485
14,908
18,980
161.8
(3.7)
CFI
(9,177)
(7,953)
(3,360)
(3,360)
(13.3)
(57.8)
FCF
2,413
13,065
11,408
15,480
441.5
(12.7)
35.7
(136)
(2,601)
(6,318)
(6,318)
1,807.4
142.9
(3,394)
4,931
5,229
9,302
(245.3)
6.1
77.9
CFF
TotalChangeinCash
UptickinMHCVsandrampupinDOST
productionwillincreasevolumes
Softeningofcommoditypriceshasbeen
witnessed,expectthetrendtocontinue
IncentivesfromPantnagartoboostprofitability
Karvyvs.Consensus
We are ahead of the consensus in terms of PAT, as we see a huge expansion in
margins driven by DOST and other LCVs contribution which the Company
intendstolaunchandalsoonaccountofincreasedproductionfromthePantnagar
facility,whichwillimprovemarginsgoingforward.
Exhibit18: Karvyvs.Consensus
Karvy
Consensus
Difference(%)
FY13E
136,370
143,847
(5.2)
FY14E
159,881
159,198
0.4
FY13E
15,635
14,535
7.6
FY14E
18,618
16,408
13.5
FY13E
9,191
7,071
30.0
FY14E
11,555
8,417
37.3
Revenue(Rs.mn)
EBIDTA(Rs.mn)
PAT(Rs.mn)
28
April19,2012
AshokLeyland
FinancialAnalysis
Exhibit19: Segmentwiserevenuebreakup
200,000
150,000
100,000
50,000
FY11
CVs
FY12E
SpareParts&Others
FY13E
Enginesandgensets
FY14E
ALLsrevenuehasgrownat21%and54%inFY10andFY11respectively.Going
forwardweexpectthegrowthratetomoderateandregisteraCAGRof13%from
FY12EtoFY14E.CVconstitutes90%ofthetotalrevenueandisexpectedtogrow
ataCAGRof14%fromFY12EtoFY14E.
Exhibit21: EBITDAMargin
Exhibit20: EBITDAMarginandRawMaterialCost
140,000.0
(Rs mn)
(%)
120,000.0
12.0
12
11.5
12
100,000.0
80,000.0
11.0
60,000.0
10.5
40,000.0
(%)
11
11
10.0
20,000.0
10
9.5
FY11
FY12E
RawMaterialCost
FY11
FY13E
FY14E
EBITDAMargin
FY12E
FY13E
FY14E
EBITDAMargin
Raw material cost constitutes around 8085% of the total operating cost for ALL.
WeexpectEBITDAmargininFY12Etofalldownto10.4%giventhelowvolumes
thereby lower revenue and increase in cost witnessed in the three quarters of
FY12E. However, considering the growth in revenue, we expect the EBITDA
marginstogrowataCAGRof19%fromFY12EtoFY14E.
Exhibit22: AssetTurnoverRatio
2.2
2.1
2.0
1.9
1.8
1.7
1.6
1.5
FY11
FY12E
FY13E
FY14E
AssetTurnoverRatio
29
April19,2012
AshokLeyland
ALL has consistently demonstrated revenue growth coupled with increase in
Asset turnover. With better management of Fixed Assets and robust revenue
growth,theAssetTurnoverisexpectedtoboostgoingforward.
Exhibit23: ROIC
(%)
13
12
11
10
9
8
7
6
5
FY11
FY12E
FY13E
FY14E
ROIC
ThereturnratioforALLhasbeenimprovingandweexpectthetrendtocontinue.
However, ROIC for ALL had declined in FY12E due to lower volume thereby
resultinginlowerreturns.
Exhibit24: FreeCashFlow(Rsmn)
20,000
15,000
10,000
5,000
0
FY11
FY12E
FY13E
FY14E
FreeCashFlowGeneration
ALLhasbeenconsistentlygeneratingfreecashflowsandweexpectthetrendto
continue on the back of no incremental increase in debt considering most of the
investmentsandcapexhasalreadybeenmade.
KeyRisks&Concerns
1.
Structuralslowdown:ThedomesticMHCVindustryishighlycyclicalandany
structuralslowdowninMHCVcyclewillleadtoavolumedecreaseasALLis
themajorplayerintheMHCVsegment.
2.
SlowerthanexpectedrampupinJV:AnydelaybyJVstolaunchproducts
orbuildcapacitieswilladverselyaffectALLearnings.
30
April19,2012
AshokLeyland
Financials
Exhibit25: Profit&Loss
Rs.mn
Netrevenues
%Growth
RawMaterial
Staff
Otherexpenses
Operatingexpenses
EBIDTA
%Growth
EBIDTAmargin(%)
Otherincome
Interest
Depreciation
ProfitBeforeTax
%Growth
Tax
Effectivetaxrate(%)
ReportedNetProfit
%Growth
NetMargin(%)
ExtraOrdinary(Inc)/Exp
AdjustedNetProfit
%Growth
FY10
FY11
FY12E
FY13E
FY14E
72,447
111,177
53.5
81,235
9,746
80,210
99,002
12,176
59.6
11.0
153
1,637
2,674
8,018
47.2
1,705
21.3
6,313
49.0
5.68
0
6,313
47.8
125,903
13.2
91,733
11,835
92,227
112,791
13,113
7.7
10.4
200
2,250
2,877
8,186
2.1
1,555
19.0
6,630
5.0
5.27
0
6,630
5.0
136,370
8.3
99,387
12,001
93,483
120,736
15,635
19.2
11.5
200
1,650
2,977
11,208
36.9
2,017
18.0
9,191
38.6
6.74
0
9,191
38.6
159,881
17.2
116,713
14,070
104,805
141,263
18,618
19.1
11.6
200
1,650
3,077
14,091
25.7
2,536
18.0
11,555
25.7
7.23
0
11,555
25.7
FY11
FY12E
FY13E
FY14E
52,193
6,716
59,091
64,818
7,629
10.5
704
811
2,041
5,448
1,211
22.2
4,237
5.85
33
4,270
Exhibit26: BalanceSheet
Rs.mn
Equitycapital
FY10
1,330
1,330
2,660
2,660
2,660
Reserves&surplus
35,357
38,299
38,932
43,454
50,340
Shareholdersfunds
36,688
39,630
41,592
46,114
53,000
TotalLoans
22,039
25,683
30,000
30,000
30,000
3,845
4,439
12,209
14,799
20,589
641
899
942
933
940
63,213
70,650
84,743
91,846
104,529
Grossblock
60,186
66,919
71,919
74,419
76,919
Depreciation
17,691
20,581
23,458
26,434
29,511
Netblock
42,496
46,338
48,461
47,984
47,408
5,615
3,580
1,000
2,000
3,000
Deferredtaxliability
Others
CapitalWIP
Investments
3,262
12,300
18,033
18,093
18,153
Inventory
16,382
22,089
27,595
29,889
35,042
Debtors
10,221
11,852
17,247
18,681
21,902
5,189
1,795
6,726
11,956
21,257
Cash&BankBal
9,605
7,936
13,798
14,945
17,521
CurrentAssets
41,397
43,672
65,366
75,471
95,723
CurrentLiability
25,921
30,379
43,118
46,702
54,754
3,687
4,903
5,000
5,000
5,000
296,076
352,827
481,176
517,022
597,538
11,789
8,390
17,248
23,768
35,969
52
43
63,213
70,650
84,743
91,846
104,529
Loans&Advances
Provisions
CurrentLiability&Provisions
Netcurrentassets
MiscExp
TotalAssets
31
April19,2012
AshokLeyland
Exhibit27: CashFlowStatement
Rs.mn
FY10
FY11
FY12E
FY13E
FY14E
PBT
5,448
8,018
8,186
11,208
14,091
Depreciation
2,041
2,674
2,877
2,977
3,077
(35)
1,638
2,050
1,450
1,450
4,339
(4,914)
3,928
1,290
2,899
OtherAdjustments
ChangeinWC
DirectTaxes
(893)
(1,503)
(1,555)
(2,017)
(2,536)
10,901
5,914
15,485
14,908
18,980
(6,911)
(3,501)
(2,420)
(3,500)
(3,500)
(1,308)
(5,816)
(5,733)
(60)
(60)
387
139
200
200
200
(7,832)
(9,177)
(7,953)
(3,360)
(3,360)
4,247
3,733
4,317
(3,014)
(3,869)
(6,918)
(6,318)
(6,318)
1,233
(136)
(2,601)
(6,318)
(6,318)
NetInc/(Dec)inCash
4,308
(3,394)
4,931
5,229
9,302
ClosingCash
5,189
1,795
6,726
11,956
21,257
FY10
FY11
FY12E
FY13E
FY14E
RevenueGrowth
21.1
53.5
13.2
8.3
17.2
EBITDAMargin
Exhibit28: KeyRatios
(%)
10.5
11.0
10.4
11.5
11.6
NetProfitMargin
5.8
5.7
5.3
6.7
7.2
ROCE(%)
6.9
10.6
9.8
11.3
12.2
11.6
15.9
15.9
19.9
21.8
FY10
FY11
FY12E
FY13E
FY14E
ROE(%)
Exhibit29: ValuationParameters
EPS(Rs)
1.6
2.4
2.5
3.5
4.3
P/E(x)
18.8
12.6
12.0
8.7
6.9
B/V(Rs)
13.8
14.9
15.6
17.3
19.9
P/BV(x)
2.2
2.0
1.9
1.7
1.5
EV/EBITDA(x)
7.4
5.2
7.9
6.3
4.8
FixedAssetsTurnoverRatio(x)
1.2
1.7
1.8
1.8
2.1
Debt/Equity(x)
0.6
0.6
0.7
0.7
0.6
EV/Sales(x)
0.8
0.6
0.8
0.7
0.6
32
IndiaResearch
INITIATIONREPORT
Automobiles
April19,2012
EicherMotors
Bloomberg:EIMIN
Reuters:EICH.BO
HOLD
EuropeanQualityatIndianPriceHighHorsePower
Recommendation
EicherMotorsispoisedforanewgrowthphaseduetothecommissioningof
global engines platform, launch of heavy duty trucks fitted with the
indigenous engines and capacity rampup of niche lifestyles motorcycles

segment.WeexpecttheCompanytoregisterasolidearningsgrowthdriven
bothbycyclicalrecoveryintrucksandseculartrendintwowheelers.
CMP:
Rs2,276
TargetPrice:
Rs2,131
Commercial Vehicles: Poised to takeoff: Better Product Mix and Wider

Dealership:VolvoEicherJVisthefastestgrowingCVCompanyinIndiaand
closetoinflexionpoint.ItsManagementtargets100,000unitsales(21%CAGR)
by 2015 largely supported by 1640T heavy duty trucks. We believe that
multiprongedstrategytoexpandproductrangeandapplicationsalongwith
aftermarket service/spare parts business could make this position achievable.
At the same time, Light vehicles continue to grow impressively despite the
tougheconomicenvironment.
Downside(%)
StockInformation
MarketCap.(Rsbn/US$mn)
52weekHigh/Low(Rs)
61/1,190
2,291/1,114
3mADV
Rs51/US$1.0
Beta
0.6
Sensex/Nifty
17,392/5,300
Shareoutstanding(mn)
27
StockPerformance(%)
Absolute
1M
19.7
3M
43.6
12M YTD
62.5 53.0
Rel.toSensex
20.2
35.8
101.3
35.9
2,500
2,000
1,500
1,000
Apr11
May11
Jul11
Aug11
Sep11
Nov11
Dec11
Jan12
Mar12
Apr12
Engines: Significant breakthrough: Global engine platform (58 ltr) of 85K

units in phase 1 will enhance technological superiority of the JV ahead of Performance
competition. Both the scale and emissions (Euro 36) compliant improves the 21,500
domestic truck positioning. The project should be both cost effective (1015% 19,500
lower unit price) and profitable (healthy margins). We have not included 17,500
contributioninourforecasts(startCY13E).ThisonlyreinforcesVolvosfocus 15,500
andcommitmentonEicher.
Two wheelers: Strong demand: Customer wait list for the 2 wheeler is 6/10
Sensex(LHS)
EicherMotors(RHS)
months, mainly in premium models (i.e. Classic, Thunderbird). Bookings are
20%ahead of capacity,and EML is ramping production to clear backlog. We Source:Bloomberg,KarvyInstitutionalResearch
thereforeseestrongvisibilityforCY12,withthecommissioningofnewunitin
Q1 CY13E from 72k to150k. We also expect margins to trend up from 13%, 1YearForwardEV/EBITDA
6
currentlyoperatingwellbelowpeers.
Y/EDec(Rs.mn)
CY09
CY10
CY11
CY12E
CY13E
Revenue
29,386
43,971
56,775
66,004
86,178
EBITDA
1,444
3,569
5,551
6,329
8,663
NetProfit
834
1,889
3,088
3,576
4,627
EPS(Rs.)
65.8
70.1
114.4
132.5
171.4
PER(x)
34.6
32.5
19.9
17.2
13.3
2.7
5.0
4.1
3.6
3.1
12.8
14.0
9.1
7.4
5.1
EV/EBITDA
Source:KarvyResearchEstimate,Company
Jan-12
Jan-11
AnalystsContact
KeyFinancialsConsolidated
P/BV
Jan-10
WehavevaluedEicherMotorsonSOTPbasis.ItsVECVbusinessisvaluedat
Rs. 1,143 per share by applying an EV/EBITDA of 8. For Royal Enfield
business,wehaveappliedanEV/EBITDAof8,valuingitsbusinessatRs.466
per share and the Engine business is valued at Rs.150 per share by applying
DCF methodology. We initiate coverage on the Company with HOLD
recommendationwithatargetpriceofRs.2,131pershareincludingcashper
shareof372.
4
2
0
(2)
(4)
(6)
Jan-09
Outlook&Valuation
YogeshNagaonkar
02261844312
DivyahAhooja
02261844322
April19,2012
EicherMotors
CompanyFinancialSnapshot
Rs.mn
CY11
CY12E
CY13E
NetSales
56,775
66,004
86,178
EBITDA
5,551
6,329
8,663
OtherIncome
1,768
1,904
2,004
640
1,100
1,335
ProfitbeforeTax
6,602
7,013
9,212
Tax
1,628
1,737
2,300
Netprofit
3,088
3,581
4,631
9.8
9.6
10.1
8.8
8.0
8.0
Depreciation
ProfitandLossRatios
EBITDAMargins(%)
PATMargins(%)
EV/EBITDA(x)
9.1 7.4 5.1
PER(x)
19.9 17.2 13.3
BalanceSheetConsolidated
CY11
CY12E
CY13E
Networth
14,932
17,123
19,831
504
952
952
8,377
10,072
12,353
645
266
266
MinorityInterest
DeferredTaxLiability
Eicher Motors incorporated in 1982 and the flagship

companyoftheEicherGroupinIndiaisoneoftheleading
manufacturers of CVs in India. The Company also
manufactures and markets iconic Royal Enfield bikes. The
CompanyrecordedrevenueofoverUS$1bnin2010.
VE Commercial Vehicles (VECV) Eicher Motors 5050 JV
with Volvo group designs, manufactures and markets
reliable, fuelefficient CVs with modern technology,
engineering components and provides engineering design
solutions.
Eicher Motors has its manufacturing facilities at Pithampur
and Dewas in Madhya Pradesh, Chennai in Tamil Nadu,
ThaneinMaharashtraandGurgaoninHaryana.
CashFlowConsolidated
Rs.mn
Totalloans
CompanyBackground
Profit&lossConsolidated
Rs.mn
CY11
PBT
6,602 7,013 9,212
Depreciation
OtherAdjustments
(1,305) (1,784) (1,884)
ChangeinWC
(234) 296 612
24,457
NetBlock
5,044 7,983 9,647
Capitalworkinprogress
3,947 1,741 2,691
Investments
5,126 5,181 5,181
NetCurrentAssets
10,158
13,475 15,849
TotalAssets
24,457
28,414 33,402
BalanceSheetRatios
CY13E
640 1,100 1,335
28,414 33,402
CY12E
DirectTaxes
(1,668) (1,737) (2,300)
EquityRaised
4,035 4,889 6,975

(4,173) (1,976) (3,950)
(263) (54)
1,039 1,904 2,004

(3,397) (126) (1,946)
24
ROCE(x)
15.1 13.8 16.5
ROE(x)
20.7 20.9 23.4
(453) 449
(693) (1,598) (2,043)
NetInc/(Dec)inCash
(1,122) (1,150) (2,043)

(484) 3,613 2,986
ClosingCash
11,973
P/S(x)
1.1 0.9 0.7
ShareholdingPattern
15,586 18,572
RevenueMix
Royal
Enfield,
9.97
Others
20%
Promoter
55%
DII
19%
FII
6%
VECV,
90.04
Source:Company
Source:Company
34
April19,2012
EicherMotors
Plant&Capacities
Exhibit1: Plant/CapacityDetails
PlantLocation
ProductName
InstalledCapacity
ThiruvottiyuChennai(TN)
Motorcycles(RoyalEnfield)
60,000
Pithampur(MP)
CommercialVehicles(VECV)
48,000
Pithampur(MP)
Engines
40,000
Dewas(Thane)
Transmissiongearsandshafts,gearsCVs
N.A
Valuation
We would like to consider the SOTP valuation methodology for valuing Eicher
Motors,aswedissectthebusinessesoftheEicherMotorsintothreemainparts
VE Commercial Vehicles (VECV), Eicher standalone (Royal Enfield) & Engines
business.
VECV:WehavevaluedVECVandRoyalEnfieldonanEV/EBITDAbasisand
have applied a DCF methodology to value the Engines business. We have
appliedanEV/EBITDAmultipleof8tovaluetheVECVbusinessatparwith
Ashok Leyland, which is trading at an EV/EBITDA multiple of 8, and
marginally higher than Swaraj Mazda, which is trading at 7, as we feel that
VECVhasfarmoresuperiorreachandproductqualitycoupledwithastrong
earnings potential as compared to Swaraj Mazda. The total value of this
business translates into 2,101 per share and given Eichers 54.4% stake, we
arriveatavaluationofRs.1,143pershareforVECV
Eicherstandalone(RoyalEnfield):ForRoyalEnfield,wewouldliketoapply
an EV/EBITDA multiple of 8 which is in line with Hero MotoCorp (pure 2
wheelerplayer)comparedtoitsnichepresenceinthecultbiking(250CCand
above)segmentandalongwaitingperiodof68monthsacrossitsmodelsand
hencevalueRoyalEnfieldsbusinessatRs.466pershare.
The key risk is the competition from International players in this premium
segment, which will likely limit the market share gain over a longer period.
Giventhelowercyclicalityinthetwowheelerbusiness,the2Wheelersegment
is not very prone to interest rate risks and with lower capital intensity, we
believethemarginsandRoEwillremainstableinthemediumterm.
Engines Business: Eicher Motors mediumduty cycle Engines business that

producesEuroIII,IV,andVcompliantenginesisvaluedatRs.150pershare
byvaluingthebusinessonDCFbasis.
Exhibit2: SOTP
Rsmn
EBITDA
EV
EV/EBITDA
Valuepershare
VECV(54.4%stakeofEicher)
3,857
30,852
1,143
Standalone
1,574
12,592
466
Engines
150
Cashpershare
372
TargetPrice
2,131
35
April19,2012
EicherMotors
Exhibit3: OneyearForwardP/EBand
(Rs)
50,000
Mean9.0
16x
2,000
12x
1,500
8x
1,000
7x
5x
30,000
20,000
3x
10,000
1x
4x
500
(Rsmn)
40,000
0
(10,000)
Jan12
(20,000)
Jan11
Jan12
Jan09
Oct11
Jul11
Apr11
Jan11
Oct10
Jul10
Apr10
Jan10
Oct09
Jul09
Apr09
Jan09
Jan10
2,500
Exhibit4:OneyearForwardEV/EBITDABand
Exhibit6: RelativePerformancesinceSept11
SensexIndex
EicherMotors
SensexIndex
BSEAutoIndex
EicherMotors
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Feb11
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
Mar11
Feb11
80
Jul11
100
Jun11
120
May11
140
Apr11
160
Mar11
185
175
165
155
145
135
125
115
105
95
180
BSEAutoIndex
Exhibit8: RelativePerformancesinceSept11
180
190
160
170
140
150
120
130
110
100
90
80
AshokLeyland
TataMotors
M&M
SensexIndex
AshokLeyland
M&M
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
Feb11
Jan12
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Mar11
Feb11
Apr11
EicherMotors
Mar11
70
60
EicherMotors
TataMotors
36
April19,2012
EicherMotors
KeyInvestmentArguments
Ourinvestmentthesisisbasedonfollowingpremises:
1.
TheCVBusiness:MHCVsegmenttogettheVolvoengineboost,willresultsin
marginexpansion
2.
MDVenginesenforcesVolvosfocusforEicherpositiveinlongterm
3.
RoyalEnfieldcapacitytodouble
4.
Solidfinancialsdrivenbyproductsandtechnology
1. Commercial Vehicles: MHCV Segment to get the

VolvoEngineBoostExpectMarginExpansion
M&HCVSegment:
King of ICV (512 Tonne), but a legacy of failure in M&HCV Segment: In 512
TonnewhichisthestrongforteofEicherMotors,theCompanyhasbeentheleader
in 610 tonne segment and have dominated the space for a long time. In 1012
Tonne segment, the Company also commands second highest marketshare after
TataMotors
Exhibit9: MarketShareGoodsCarrier512Tonne
60
40
20
AshokLeylandLtd
SMLIsuzuLtd
VECVs Eicher
Nov11
Nov11
Oct11
Oct11
Sep11
Sep11
Aug11
Aug11
Aug11
Jul11
Jul11
Jun11
Jun11
May11
May11
Apr11
Apr11
MahindraNavistarAutomotivesLtd
TataMotorsLtd
Source:KarvyInstitutionalResearch,SIAM
Exhibit10: 67.5TonneMarketleader
Exhibit11: 7.510Tonneleaderand
Exhibit12: 1012Tonnesecondlargest
commands50%marketshare
100
50
80
40
60
30
40
20
player
50
20
Nov11
Oct11
Nov11
Sep11
Sep11
Aug11
Jul11
Jul11
Jun11
May11
Apr11
Nov11
Nov11
SMLIsuzuLtd
VECVs Eicher
Oct11
Sep11
Sep11
Jul11
Aug11
Jul11
Jun11
May11
Apr11
AshokLeylandLtd
TataMotorsLtd
May11
0
May11
MahindraNavistarAutomotivesLtd
SMLIsuzuLtd
TataMotorsLtd
VECVs Eicher
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
10
AshokLeylandLtd
SMLIsuzuLtd
TataMotorsLtd
VECVs Eicher
TheCompanyseffortstoentertheM&HCV(12Tonneandabove)markethadbeen
unsuccessful (2001 & 2005) due to lowpowered Mitsubishi engines fitted on
M&HCV, which were tuned to operate at high tonnage. The current traction in
M&HCVsegmentisduetoCompanysJVwithVolvo.ForthefirsttimeinDec11,
VECV registered heavy duty platform sales of over 1,100 units and increased its
37
April19,2012
EicherMotors
marketshareto4.7%.TheCompanyiscurrentlyselling700HDVtruckspermonth
andplanningtosell1,000HDVspermonthinnexttwoquarters.
Our View: Expecting the trend to continue, we believe that the Company would
significantlyincreaseitsmarketshareinnext2yearsonthebackofVolvoengines
fitted on Eicher HCVs. We also believe that the increased mix of M&HCVs in
productportfoliowillresultinmarginexpansiongoingforward.
Exhibit13: VolumeMix()
45000
(%)
40000
57
2717
45
35000
1883
25000
1455
1232
20000
15000
10000
5000
1114
17
2345
2027
3857
2773
1392
10604
14175
12
13
18961
16258
2533
2665
2942
3282
30
10
2
19700
50
4819
2078
30000
26426
10
16893
15804
(21)
30
2003
2004
5T12TTrucks
VolvoTrucksDomesticVolume&
Growth
1200
(%)
25.8
1000
21.6
30
25
20
800
12.6
15.2
15
10
600
400
0
200
5.1
2005 2006 2007 2008 2009 2010

Volume
Growth
70
2005
2006
16T&aboveTrucks
2007
2008
Buses
2009
Exports
2010
%Growth
HightonnageTrucksSegment:InadditiontothisVolvoIndiatrucks(VTI)which
are high tonnage trucks are high margin trucks (very high level of localization)
their existence in the products mix influences overall VECV margins in a
significantway.ThoughofflatesalesofVolvotruckshasbeenlacklusterdueto
sluggishness in mining and construction activity but we are confident that they
willbethekeybeneficiaryofanyrevivalofthesesegmentsasthecompanyhasa
whopping70%marketshareinthesesegment.
5
10
Medium Goods Carrier: Annexure below depicts Eicher Motors presence in 12

16.2tonnageMediumGoodscarrier.However,beyond16tonneEicherspresence
isnegligible.The16tonneandaboveisahighmarginbusiness,andafterJVwith
VolvoEicherMotorspresenceinthesesegmentshavebeenmarginallyincreased.
Source:KarvyInstitutionalResearch,
Our View: Though the Companylacksengine expertise inMedium Goods carrier

segment,webelievethatthe30,000MDVengineswhichVECVwillfitonEicher
trucksisagamechanger,asweexpectthatEicherMotorswillmakesignificant
inroadsin16tonneandabovesegmentgoingforward.
38
April19,2012
EicherMotors
2. MDV Engines Enforces Volvos Focus for Eicher

MoreDealsinPipeline
The opportunity for MDV engines for VECV reinforces Volvo focus for Eicher
Motors.VolvoseesEicherMotorsasthe4thlargestprofitablebrand,whichformsa
major part of Volvos global CV biz. Volvo acquired Nissan trucks and Renault
trucks in 2001 and 2003 and the performance of these companies makes us
confidencethatVolvoisensuringexpansionofEicherbrandgloballybyoffering
itsglobalsalesanddistributionnetwork.Again,renderingofenginetechnologyto
Eicher Motors reinforces Volvos focus to make VECV as the future base for its
enginessuppliesandamassmarketemergingmarketbrand.
VECV plans to manufacture EuroIII & IV compliant engines and EuroV & VI
base engine, which will be of 5 & 8 litre capacity, with annualized capacity of
85,000 engines, out of which 30,000 will be fitted in VECV domestic HDVs.
Meanwhile,VolvohasguidedthatitwillmakeIndiaasitsglobalenginehuband
onecouldseearampupinenginesmanufactured.
OurView:VECVhasahugeexportopportunityasitwillexport55,000enginesto
Volvosplantsglobally.Weexpect40,000enginestobeproducedinCY13E,asit
willtaketimetorampupcapacitysincenewengineswilldemandcorresponding
changesatoverallproductlevel.WebelievethatEicherMotorsthekeypartof
partofVolvosglobalambitionwouldbecomeaCVgiantgoingforward.
Exhibit15: AudaciousGoalfor2015SET Very
Achievable
Completeproductrenewalwithspecialfocusonheavyduty
Exhibit14: Volvo:VECVKeyfocusareas
trucks
120,000
Enhancetechnicalcapacityfrom48000to66000units/yearby
2012
100,000
LeverageonstrongVolvobrand
80,000
Startup medium duty engine production in India and make

Indiaaglobalhub.
60,000
Increaseservicesanddistributionnetwork.
Salesin
Marketshare
(2015)
17,500
1
6
38,181inclusive of
2717exports
36,400
40,000
4,819
20,000
26,425
Increasedoperatingmetricsforthecustomers.
ExploreexportopportunitiestoAfrica,MiddleEastandSouth
EastAsia
100,000including
11000exports
44,000
3
5
1
4,219
2010
HD
LD/MD
2015
Our View: The Company has internally set a very optimistic goal for itself as
depicted above to achieve 1 lakh volumes by 2015 inclusive of HDV/LDV/MDV
andbussegment,whichseemstobeachievable.Itwontbeasurpriseincasethe
Companysurpassesthistargetin2015,asweseeasignificanttractioncomingin
itsCVsegmentonaccountofVolvo.
39
April19,2012
EicherMotors
3. Royal Enfield Much needed Capacity expansion to

boostvolumes
Volume:ThecapacityexpansionatRoyalEnfieldsfromcurrent72,000to1.5lakh
willboostthemonthlyproductionrateandvolumeconsideringwaitingperiodof
8monthsacrossallmotorcycles.Thoughthepenetrationof250ccbikesandabove
inthemarketislower,weexpectthistoriseduetoyoungstersincreasinglyopting
forpowerpackedbikes.
Our View: We expect 100% capacity utilization post capacity expansion and we
would be not be surprised in case its Management decides further capacity
expansion. We expect that Royal Enfields product offerings to rise, and expect
launchofproductslikeCafRacer&DesertChrometodrivesalesfurther.
Margin:RoyalEnfieldsmarginshavebeenontheriseinthepastcoupleofyears,
primarily due to higher margins in the export segment and operating leverage
achievedbytheCompany.
Our View: Going forward, a significant expansion in margins is expected; as the
Company is planning to increase its RE exports and doubling of capacity, while
correspondingriseinvolumewillresultinincreasedoperatingleverage.
Exhibit17: RoyalEnfield:Volume&StandaloneMargin
Exhibit16: RoyalEnfield:Volume&Growth
140,000
50
120,000
40
100,000
80,000
30
60,000
20
16.0%
140,000
14.0%
120,000
12.0%
100,000
10.0%
80,000
8.0%
60,000
6.0%
40,000
20,000
RoyalEnfield
Growth%
2013E
2012E
2011
2010
2009
2008
2007
2006
2005
10
4.0%
40,000
2.0%
20,000
0.0%
CY09
CY10
RoyalEnfield
CY11
CY12E
CY13E
Eicher Margin%(Standalone)
40
April19,2012
EicherMotors
FinancialAnalysis
Exhibit18: Segmentwiserevenuebreakup
80,000
60,000
40,000
20,000
CY10
CY11
CommercialVehicle
CY12E
CY13E
Twowheeler
Eichersconsolidatedrevenuehasconsistentlygrownat71%,50%and29%inCY
09, CY10 and CY11 respectively. Going forward we expect the growth rate to
moderateandregisteraCAGRof23%fromCY11toCY13E.CVconstitutes87%of
thetotalrevenueandisexpectedtogrowataCAGRof30%fromCY11toCY13E.
Exhibit20: EBITDAMargin
Exhibit19: EBITDAMarginandRMCost(Rsmn)
80,000.0
12
(%)
11.0
(%)
10
60,000.0
40,000.0
6
4
20,000.0
0
CY10
CY11
RawMaterialCost
CY12E
10.0
9.0
8.0
7.0
CY10
CY13E
CY12E
CY13E
EBITDAMargin
EBITDAMargin
CY11
WeexpectconsolidatedEBITDAforEichertogrowataCAGRof25%fromCY11
toCY13EresultinginanEBITDAmarginofaround10%duringthesameperiod.
Raw material cost of Eicher constitutes around 82% of the total operating cost
whichisinlinewithitspeers.
Exhibit21: AssetTurnoverRatio
6.0
5.5
5.0
4.5
4.0
CY10
CY11
CY12E
CY13E
AssetTurnoverRatio
Eicher has consistently demonstrated revenue growth coupled with increase in

Assetturnover.InCY12E,theassetturnoverisexpectedtodeclineconsideringthe
highinvestmentinVECV.
41
April19,2012
EicherMotors
Exhibit22: ROIC
20.0
(%)
15.0
10.0
5.0
0.0
CY10
CY11
CY12E
CY13E
ROIC
The return ratios for Eicher has been improving and considering robust revenue
growth and effective capital management we expect the trend to continue going
forward.
Exhibit23: FreeCashFlow(Rsmn)
350
300
250
200
150
100
50
0
CY10
50
CY11
CY12E
CY13E
FreeCashFlowGeneration
Eicherhasbeenconsistentlygeneratingfreecashflowsandweexpectthetrendto
continue.WithhugeinvestmentinCapex,freecashflowturnednegativeinCY11.
Exhibit24: CostSensitivityAnalysis
Expenses
Rs.mn
CY12
EBITDAmargin
CY13
CY12
CY13
PAT
CY12
EPS
CY13
CY12
Cost
RawMaterial
Employee
Otherexpenses
CY13
OurEstimate
4,791
6,221
9.6
10.1
358
463
133
172
1%
4,839
6,283
8.9
9.3
310
401
115
149
1%
4,743
6,159
10.3
10.8
406
525
150
194
OurEstimate
409
533
9.6
10.1
358
463
133
172
1%
413
539
9.5
10.0
354
457
131
169
1%
405
528
9.7
10.1
362
468
134
173
OurEstimate
767
997
9.6
10.1
358
463
133
172
1%
775
1,007
9.5
9.9
350
453
130
168
1%
759
987
9.7
10.2
366
473
136
175
42
April19,2012
EicherMotors
Karvyvs.Consensus
ForCY13EourEBITDAismarginallybelowtheconsensus,aswedonotseeany
majordriverforVECVsEBITDAmarginsandexpectthatthetractioninM&HCV
segmentandMDVenginessaleswillaloneleadtoexpansioninmargins.Asboth
theMDVenginesandtheirfitmentwillstartinCY13Eitwillbegraduallyramped
up to its maximum capacity and this will take considerable time. We are
marginally higher than the consensus in PAT estimates, as we see a good rise in
cashandconsequentincreaseincashyield.
Exhibit25: Karvyvs.Consensus
Karvy
Consensus
Difference(%)
CY12E
66,004
66,172
(0.3)
CY13E
86,178
82,248
4.8
CY12E
6,329
7,315
(13.5)
CY13E
8,663
9,322
(7.1)
CY12E
3,581
3,597
(0.5)
CY13E
4,631
4,327
7.0
Revenue(Rs.inmn)
EBIDTA(Rs.inmn)
PAT(Rs.inmn)
43
April19,2012
EicherMotors
FinancialAssumptions
Exhibit26: FinancialAssumptions
Rsinmn
Estimates
CY10
CY11
Growth(%)
CY12E
CY13E
CommercialVehicle
CY11
CY12E
CY13E
SalesVolume(Nos)
39,275
48,337
60,000
75,000
23.1
24.1
25.0
Revenue(Rs.inmn)
39,593
44,886
57,540
75,416
13.4
28.2
31.1
3,129
3,546
5,121
7,089
13.3
44.4
38.4
7.9
7.9
8.9
9.4
(0.0)
12.7
5.6
SalesVolume(Nos)
52,576
74,641
100,000
125,000
42.0
34.0
25.0
Revenue(Rs.inmn)
4,385
6,665
8,464
10,762
52.0
27.0
27.2
EBITDA
416
765
1,208
1,574
83.9
58.0
30.3
EBITDAMargin%
9.5
11.5
14.3
14.6
21.0
24.4
2.4
Revenue
43,971
56,775
66,004
86,178
29.1
16.3
30.6
RawMaterialExpense
33,147
41,818
47,912
62,211
26.2
14.6
29.8
2,631
3,461
4,091
5,332
31.6
18.2
30.4
40,402
51,225
59,675
77,515
26.8
16.5
29.9
95
77
120
120
(19.3)
56.5
EBITDA
EBITDAMargin%
TwoWheeler
ConsolidatedFinancials
EmployeeCost
TotalOperatingExpenses
NetInterestExpense
AvgInterestrate(%)
9.9
15.2
12.6
12.6
53.3
(17.2)
1,889
3,088
3,576
4,627
63.4
15.8
29.4
PATmargin(%)
4.3
5.4
5.4
5.4
26.6
(0.4)
(0.9)
EPS(Rs.)
70
1,144
1,325
1,714
1,531.4
15.8
29.4
PAT
CashFlowForecast
CFO
3,360
4,035
4,892
6,978
20.1
21.2
42.7
CFI
(1,921)
(3,397)
(138)
(1,958)
76.9
(95.9)
1,322.7
FCF
2,045
(138)
2,916
3,028
(106.8)
(2,208.7)
3.8
CFF
(689)
(1,122)
(1,147)
(2,041)
62.8
2.3
77.9
750
(484)
3,607
2980
(164.5)
(845.1)
(17.4)
TotalChangeinCash
KeyRisks&Concerns
1.SlowerthananticipatedCapacityExpansion:Slowerthananticipatedrampup
in the Companys capacity expansionboth at Royal Enfield &VECV may posea
risktothevolumegrowth.
2. Lackluster Mining Activities in India: Any continuation of lackluster mining
activitiesinthecountrymayaffecthighmarginVolvoTrucksbusiness.
44
April19,2012
EicherMotors
FinancialsConsolidated
Exhibit27: Profit&Loss
Rs.mn
Netrevenues
%Growth
RawMaterial
Staff
Operatingexpenses
EBIDTA
EBIDTAmargin(%)
Otherincome
Interest
Depreciation
ProfitBeforeTax
CY09
CY10
CY11
CY12E
CY13E
29,386
43,971
56,775
66,004
86,178
71.1
49.6
29.1
16.3
30.6
21,992
33,147
41,818
47,912
62,211
2,152
2,631
3,461
4,091
5,332
27,942
40,402
51,225
59,675
77,515
1,444
3,569
5,551
6,329
8,663
4.9
8.1
9.8
9.6
10.1
1,054
1,276
1,768
1,904
2,004
87
95
77
120
120
539
573
640
1,100
1,335
1,873
4,177
6,602
7,013
9,212
Tax
578
1,108
1,628
1,737
2,300
Effectivetaxrate(%)
30.9
26.5
24.7
24.8
25.0
1,295
3,069
4,974
5,277
6,912
8.76
7.99
8.02
PAT
NetMargin(%)
4.41
6.98
Minorityint
461
1,179
1,886
1,696
2,280
PATafterminorityinterest
834
1,889
3,088
3,581
4,631
NetMargin(%)
2.8 4.3 5.4 5.4 5.4
Exhibit28: BalanceSheet
Rs.mn
CY09
CY10
127
269
270 270 270
Reserves&surplus
10,424
12,052
14,661 16,764 19,473
Shareholdersfunds
10,690
12,321
14,932 17,123 19,831
Minorityinterest
5,747
6,774
8,377 10,072 12,353
TotalLoans
1,264
956
504 952 952
142
249
645 266 266
Equitycapital
Deferredtaxliability
CY11
CY12E
CY13E
17,842
20,301
24,457 28,414 33,402
Grossblock
7,437
8,113
9,887 14,069 17,069
Depreciation
3,802
4,269
4,843 6,086 7,421
Netblock
3,635
3,844
5,044 7,983 9,647
CapitalWIP
122
669
3,947 1,741 2,691
Investments
2,941
4,586
5,126 5,181 5,181
Inventory
2,190
3,265
4,280 4,878 6,375
Debtors
2,325
2,609
3,434 4,530 5,933
11,707
12,457
11,973 15,586 18,572
1,540
1,814
3,391 3,292 4,279
Cash&BankBal
Loans&Advances
CurrentAssets
CurrentLiability
Provisions
CurrentLiability&Provisions
360
355
423 362 362
6,016
7,942
11,845 12,566 16,379
962
1,391
1,497 2,607 3,293
6,978
9,332
13,343 15,173 19,671
Netcurrentassets
11,144
11,168
10,158 13,475 15,849
TotalAssets
17,842
20,301
24,457 28,414 33,402
45
April19,2012
EicherMotors
Exhibit29: CashFlowStatement
Rs.mn
CY09
CY10
CY11
PBT
1,873
4,177
6,602 7,013 9,212
Depreciation
CY12E
CY13E
539
573
640 1,100 1,335
OtherAdjustments
(693)
(933)
(1,305) (1,784) (1,884)
ChangeinWC
2,561
374
(234) 296 612
DirectTaxes
(595)
(831)
(1,668) (1,737) (2,300)
3,685
3,360
4,035 4,889 6,975

(4,173) (1,976) (3,950)
(701)
(1,315)
(2,879)
(1,467)
816
861
1,039 1,904 2,004

(3,397) (126) (1,946)
(2,764)
(1,921)
ChangeinEquity
(972)
88
(394)
(307)
NetInc/(Dec)inCash
(263) (54)
24
(453) 449
(274)
(469)
(693) (1,598) (2,043)
(1,641)
(689)
(1,122) (1,150) (2,043)
(720)
750
(484) 3,613 2,986
11,707
12,457
11,973 15,586 18,572
CY09
CY10
CY11
CY12E
RevenueGrowth
71.1
49.6
29.1
16.3
30.6
EBITDAMargin
4.9
8.1
9.8
9.6
10.1
ClosingCash
Exhibit30: KeyRatios
CY13E
NetProfitMargin
2.8
4.3
5.4
5.4
5.4
ROCE(%)
3.5
10.8
15.1
13.9
16.5
ROE(%)
7.8
15.3
20.7
20.9
23.4
CY09
CY10
CY11
CY12E
CY13E
EPS(Rs)
65.8
70.1
114.4
132.7
171.6
P/E(x)
34.6
32.5
19.9
17.2
13.3
B/V(Rs)
844.4
457.4
553.2
634.4
734.8
P/BV(x)
2.7
5.0
4.1
3.6
3.1
Exhibit31: ValuationParameters
EV/EBITDA(x)
12.8
14.0
9.1
7.4
5.1
FixedAssetsTurnoverRatio(x)
4.0
5.4
5.7
4.7
5.0
Debt/Equity(x)
0.1
0.1
0.0
0.1
0.0
EV/Sales(x)
0.6
1.1
0.9
0.7
0.5
46
April19,2012
EicherMotors
Annexure
CompanyStructure
Exhibit32: EicherStructure
Eicher
Motors
ConsolidatedBusiness
StandaloneBusiness
(twowheeler)
(VECV54.4%stake)
Eicher TruckBusiness
RoyalEnfield
motorcycles
VolvoTruckBusiness
JointDevelopmentof
mediumdutyengines
Engineering
components/solutions
Source:Company
MHCVVolumeTonnagewise
PassengerCarrier
Exhibit33: 7.512Tonne
500
140
120
400
100
300
80
60
200
40
100
20
VECVs Eicher
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
VECVs Eicher
Jun11
Apr11
May11
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
47
April19,2012
EicherMotors
GoodsCarriers
Exhibit36: 1012Tonne
1400
VECVs Eicher
Dec11
VECVs Eicher
Nov11
Apr11
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
Apr11
Oct11
200
Sep11
400
Aug11
600
Jul11
800
Jun11
1000
May11
1600
1400
1200
1000
800
600
400
200
0
1200
700
200
600
150
500
400
100
300
200
50
100
VECVs Eicher
Dec11
Nov11
Oct11
Sep11
Aug11
VECVs Eicher
Jul11
Jun11
May11
Apr11
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
0
Apr11
Exhibit39: Morethan25Tonne
Exhibit40: 4049Tonne
250
20
200
15
150
10
100
5
50
VECVs Eicher
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
VECVs Eicher
Jun11
May11
Apr11
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
Jun11
May11
0
Apr11
48
April19,2012
EicherMotors
VolumeLCVTonnagewise
Dec11
Nov11
VECVs Eicher
Oct11
Apr11
Oct11
VECVs Eicher
Sep11
0
Aug11
Jul11
100
Dec11
100
Nov11
200
Sep11
200
Dec11
Nov11
Oct11
Sep11
Aug11
Jul11
May11
Apr11
800
700
600
500
400
300
200
100
0
Jun11
Aug11
300
Jul11
300
Jun11
400
May11
400
Apr11
500
Jun11
Exhibit42: GoodsCarriers3.56Tonne
500
May11
Exhibit41: PassengerCarriers57.5Tonne
VECVs Eicher
49
InstitutionalEquitiesTeam
RangachariMuralikrishnan
HeadInstitutionalEquities
+912261844301
muralikrishnan@karvy.com
ShridharIyer
HeadInstitutionalSales
+912261844302
shridhar.iyer@karvy.com
K.AnantRao
HeadSalesTrading&Derivatives
+912261844303
k.anantrao@karvy.com
UdayRaval
KarvyInc.USA
(212)2674334
udayr@karvy.com
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April 19, 2012

COMMERCIAL VEHICLE INDUSTRY

CV Industry Likely to grow by 25% in FY14E despite Macro Negatives:

Duopoly at Threat Pressure on Market Share: In case the duopolistic

Increased Logistic Spending: Logistic spending is expected to rise on sustained

Resale value of trucks remains buoyant. This is also suggestive of upbeat

Macro Factors dont worry us as much since Micro

Ex3depictsthat in middle of 2008, the M&HCV volumes nosedived, as the interest

3. Hinterland Good Transport A Big Leap for Road

Exhibit 12: Strong EXIM growth has

4. Port Traffic Container Cargo at Major Ports to See

Exhibit 23: Indian Roadways Highways

The total tonnage handled by the CV industry has increased phenomenally

Exhibit25:Containertrafficthroughputat major Exhibit 26: Containerized cargo market share

17.8% 17.6% 18.0%

5. Road Infrastructure Huge Catalyst for CV growth,

7. Transporters Profitability OEMs to Sustain EBITDA

Our View: Cost and availability of finance, government policies on emission,

2. Surface Transport Hub & Spoke Model Predicts

Road Transport: Predominance of road transport in India has added to higher

3. Stiff Competition & Increased Pricing due to

U platform launch & LCV foray to aid

Founded in 1948, Ashok Leyland is one of Indias leading

1. Key Beneficiary of Likely Structural Uptick in

3. LCV Foray to Reduce Cyclicality Expect Higher

indigenous engines and capacity rampup of niche lifestyles motorcycles

Commercial Vehicles: Poised to takeoff: Better Product Mix and Wider

Engines: Significant breakthrough: Global engine platform (58 ltr) of 85K

9.1 7.4 5.1

19.9 17.2 13.3

Eicher Motors incorporated in 1982 and the flagship

6,602 7,013 9,212

(1,305) (1,784) (1,884)

(234) 296 612

5,044 7,983 9,647

3,947 1,741 2,691

5,126 5,181 5,181

640 1,100 1,335

(1,668) (1,737) (2,300)

4,035 4,889 6,975

1,039 1,904 2,004

15.1 13.8 16.5

20.7 20.9 23.4

(1,122) (1,150) (2,043)

1.1 0.9 0.7

Engines Business: Eicher Motors mediumduty cycle Engines business that

1. Commercial Vehicles: MHCV Segment to get the

2005 2006 2007 2008 2009 2010

Medium Goods Carrier: Annexure below depicts Eicher Motors presence in 12

Our View: Though the Companylacksengine expertise inMedium Goods carrier

2. MDV Engines Enforces Volvos Focus for Eicher

Startup medium duty engine production in India and make

3. Royal Enfield Much needed Capacity expansion to

Eicher has consistently demonstrated revenue growth coupled with increase in

2.8 4.3 5.4 5.4 5.4

270 270 270

14,661 16,764 19,473

14,932 17,123 19,831

8,377 10,072 12,353

504 952 952

645 266 266

24,457 28,414 33,402

9,887 14,069 17,069