01 Apr, 2011 Eicher Motors Ltd - asitmehta.commotors+ltd.pdf · Eicher Motors Ltd ACMIIL 1 CO MP...

Eicher Motors Ltd ACMIIL 1

C O M P A N Y R E P O R TAn ISO 9001:2008 Certified Company

INVESTMENT INTERRMEDIATES LTD.

1

We initiate coverage on Eicher Motors Ltd (EML) with “Hold” recommendation and price target of ` 1,253 (based on P/E of 11x its CY12 E core EPS of ` 71.9 per share and cash per share of ̀ 462). EML is one of the leading manufacturers of medium and heavy duty commercial vehicles, having market share of ~17% in the medium duty commercial vehicle market. EML in partnership with Volvo is well poised to enhance its presence in the commercial vehicle market given Volvo’s expertise in the heavy duty vehicles. Further there are opportunities in terms of sourcing of components by Volvo for its global operations (such as engines). Also, EML can leverage Volvo’s overseas network to bolster its exports. Further robust demand in two wheeler segment coupled with capacity expansion is expected to boost revenues.

Investment Rationale

● Demand for commercial vehicles to remain strong

Indian economy is growing rapidly with growth expectation of 8.5-9% in next two years, resulting into increased freight movement. Also, the share of road transport in the overall freight movement is expected to increase, thereby incresing demand for commercial vehicles.

● JV with Volvo to enhance presence

VECV (Volvo Eicher Commercial Vehicles, the JV company) would benefit as Volvo’s expertise is offered in VECV products, technology and marketing. VECV is also planning to use Volvo overseas distribution network for enhancing exports. Further, sourcing of components by Volvo for its global requirements (such as engines) would benefit VECV.

● Capacity expansion in two wheeler business to drive growth

“Royal Enfield” (part of EML) has good brand in the market and is currently facing capacity constraint. EML is expanding capacity from current 60,000 to 1,50,000 by setting up new plant. It will also increase exports once the fresh capacity comes in.

Outlook and Valuation

We have estimated core business EPS of ` 71.9 in CY12E. We assign multiple of 11x (discount of 21% to Ashok Leyland P/E of 14x) to arrive at value of ` 791 for the core business. Adding cash per share of ` 462, we arrive at value of ` 1,253. We, therefore give “Hold” rating on the stock.

AnalystBharat [email protected]: (022) 2858 3404

01 Apr, 2011

H O L D

Eicher Motors LtdKey Data (`)

CMP 1,324

Target Price 1,253

Key Data

Bloomberg Code EIM IN

Reuters Code EICH.BO

BSE Code 505200

NSE Code EICHERMOT

Face Value (`) 10

Market Cap. (` bn) 37.6

52 Week High (`) 1,450

52 Week Low (`) 636

Avg. Daily Volume (6m) 39,236

Shareholding Pattern (%)

Promoters 55.3

Mutual Fund / UTI / Bank 12.6

FII 9.7

Bodies Corporate 2.4

Individual 11.5

Other 8.5

Total 100.0

(` mn) CY10 CY11E CY12E

Net Sales 43,970.8 52,896.9 62,521.0

Operating Profit 3,808.1 4,727.9 5,797.3

OPM (%) 8.6 8.9 9.2

PAT 1,889.2 2,252.9 2,537.1

PAT Margin (%) 6.9 6.5 6.3

EPS (`) 70.1 83.6 94.2




1

Company Background

Eicher Motors Ltd (EML) was incorporated in 1982. EML primarily manufactures commercial vehicles. Apart from commercial vehicles, EML also manufactures two wheeler (through Royal Enfield), automotive gears and components as well as provide engineering solutions. In July 2008, EML entered into joint venture with AB Volvo, Sweden wherein it transferred its commercial vehicle business to the JV company Volvo Eicher Commercial Vehicles (VECV).

Business Structure

Company Analysis

Commercial vehicles

EML manufactures range of commercial vehicles (truck and bus) with Gross vehicle weight (GVW) ranging from 5-50 tonnes. In July 2008, EML entered into agreement with Volvo for commercial vehicles.

Terms of the agreement with Volvo

● EML transferred its commercial vehicle business along with components and engineering design service business to new company VECV for 54.4% stake.

● Volvo acquired 45.6% in VECV. Volvo brought in cash worth $ 275 million. Apart from cash, Volvo India truck sales and service network was transferred to the JV. Also, the service network of Volvo India buses was transferred to the JV.

● Volvo India sells its trucks to VECV, which in turn gets only distribution margins

● Volvo group truck future projects in India would be routed through the JV.

● Eicher and Volvo will manage VECV jointly with equal representation in the board.

● VECV would focus on 5-50 tonne truck segment, whilst Volvo would focus on heavy duty trucks (above 50 tonne)

Eicher Motors Ltd

Royal Enfield Motorcycle(100%)

VE Commercial vehicles(54.4%)

CommercialVehicles

EngineeringComponents

Engineeringdesign

Source: Company, ACMIIL Research




1

VECV has market share of about 6% each in the goods as well as the passenger carrier segment.

VECV commercial vehicle sales composition has moved towards the MHCV goods segment. This is because it is not present in sub 3.5 tonne category of LCV goods, which has been the fastest growing segment in that category.

VECV Passenger vehicle sales

FY05 FY06 FY07 FY08 FY09 FY100

1000

2000

3000

4000

5000

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

9M FY11

Passenger carrier (no of units) LHS Market Share (%) RHS

Source: Siam, ACMIIL Research

Goods carrier (no of units) LHS Market Share (%) RHS

FY05 FY06 FY07 FY08 FY09 FY100

5000

10000

15000

20000

25000

30000

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9M FY11

VECV Goods vehicle sales


LCV Passenger LCV Goods MHCV Passenger MHCV Goods

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY05 FY06 FY07 FY08 FY09 FY10 9M FY117.1 6.0 6.3

22.5 23.8 21.8

3.1 4.0 6.2

67.3 66.2 65.8

6.7 7.6 6.5 6.7

11.9 13.2 13.8 13.3

6.5 7.3 6.9 7.0

74.8 71.9 72.7 73.1

VECV Commercial Vehicle sales composition





1

VECV has traditionally been strong player in the Intermediate Commercial Vehicles segment (vehicles having GVW of 7.5-12 tonnes). Nearly 80% of its sales in 9M FY11 have been from the ICV segment. Due to the hub and spoke model in logistic industry, this segment has been witnessing preference over the MCV segment (vehicles having GVW of 12-16.2 tonnes), which suits well for the company. Going forward VECV is planning to enhance presence in the Heavy commercial vehicle segment (GVW>16.2 tonnes).

Two Wheelers

EML has presence in two wheelers through Royal Enfield (it took over Royal Enfield in 1994) which manufacturers renowned “Bullet” range of motorcycles. Its product range includes “Bullet”, “Classic”, “Thunderbird” and ”Electra” brand of motorcycles, all of which are above 250 cc bikes and have created a niche for themselves. It has manufacturing presence in Chennai and also exports to many countries including USA, Japan, UK and other European countries.

Due to increasing demand, the company is expanding capacity from 60,000 units currently to 1,50,000 units by end of CY11. This will help to ease the order backlog (it currently has waiting period of 6 months). Further, the company has also planned to increase exports once the fresh capacity comes in.

VECV MHCV goods sales composition

ICV MCV MAV Tractor Trailer

0%

20%

40%

60%

80%

100%

FY05 FY06 FY07 FY08 FY09 FY10 9M FY11

72.580.8 78.7 78.7 80.7 84.7 79.5

14.311.7 12.9 11.6 7.4 6.1 11.0

13.2 7.6 8.4 9.1 11.1 8.8 8.60.0 0.0 0.0 0.5 0.8 0.4 0.9



Sales Break up

Royal Enfield Domestic Royal Enfield Exports

0.0

20.0

40.0

60.0

80.0

100.0

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10

94.7 92.4 93.2 93.5 95.2 95.5

5.3 7.6 6.8 6.5 4.8 4.5

Sales (no of units)

0

10000

20000

30000

40000

50000

60000

FY 05 FY 06 FY 07 FY 08 FY 09 FY 10




1

SWOT Analysis

Strengths

● One of the leading manufacturers having established

brand and extensive dealer network

● Tie up with Volvo would enhance presence in CV market

● Sufficient Cash on balance sheet for funding capex

Weakness

● Minimal presence in the fast growing LCV

goods segment

● Having manufacturing presence in only

one location

● Lack of captive financing

Opportunities

● Use of Volvo overseas network to boost exports

● Increased sourcing by Volvo from VECV (e.g. engines)

● Increasing share of road in freight movement

Threats

● Intense competition from existing players

● Global players entering the market would

further aggravate competition

Investment Rationale

Commercial vehicle demand to remain strong

Indian economy is growing in high single digits and is expected to grow at 8.5-9% in next two years. This will lead to increase in freight movement. Further with increased share of road transport in freight movement, the demand for commercial vehicles is expected to increase. We expect demand for commercial vehicles to record CAGR growth of 15.7% during FY10-FY15. (Refer annexure for methodology)

GDP (% Growth)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1 FY06

Q3 FY06

Q1 FY07

Q3 FY07

Q1 FY08

Q3 FY08

Q1 FY09

Q3 FY09

Q1 FY10

Q3 FY10

Q1 FY11

Q3 FY11

Source: RBI, ACMIIL Research

IIP (% Growth)

Apr-06

Jul-06

Oct-06

Jan-07Apr-0

7Jul-0

7Oct-0

7Jan-08

Apr-08

Jul-08

Oct-08

Jan-09Apr-0

9Jul-0

9Oct-0

9Jan-10

Apr-10

Jul-10

Oct-10

Jan-11-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Source: Bloomberg, ACMIIL Research




1

Firm Freight Rates

Freight rates have remained firm in last six months, leading to increase in transporters profitability. Strong freight rates coupled with buoyant economic growth will provide impetus to demand for commercial vehicles.

Further, the share of road transport is expected to increase in the overall freight transport, especially since it is favored mode of transport for non bulk commodities. Also, as per Crisil estimates, cost of last mile connectivity and loading/unloading will increase by1.5 times than rise in freight rates. Thus, preference of railways as mode of transport would become less attractive. Further, the development of highways would ensure increasing share of road transport (measured in billion tonne kilometers) in freight movement, which will boost demand for commercial vehicles.

National Highway Development Programme (NHDP) status as on 31st January 2011

Component Total Length Completed 4

lane

Under

implementation

Balance Length

for award

GQ Phase I 5,846 5,817 29 0

Port Connectivity Phase I 380 300 80 0

Other NHs Phase I 1,383 929 434 20

NS-EW Phase II 7,142 5,494 1,227 421

NHDP Phase-III 12,109 2,048 5,362 4,699

NHDP Phase- IV 14,799 0 765 14,034

NHDP Phase-V 6,500 467 1,833 4,200

NHDP Phase-VI 1,000 0 0 1,000

NHDP Phase-VII 700 0 41 659

Total 49,859 15,055 9,771 25,033

Source : NHAI, ACMIIL Research

JV with Volvo to enhance presence

The agreement with Volvo will help EML in long way to enhance its presence in increasingly competitive CV market. VECV (Volvo Eicher Commercial Vehicles) would gain in terms of process improvement and efficiency improvement with incorporation of best manufacturing practices from Volvo,. Given Volvo’s leadership in the world heavy commercial vehicles, its support in VECV products, technology and marketing will enable VECV to bolster presence in the heavy commercial vehicle market (above 16.2 tonnes).

Average freight rates Average diesel prices

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Nov-08

Jan-09Mar-0

9May-0

9Jul-0

9May-1

0Jul-1

0Sep-10

Nov-10

Jan-11Mar-1

0Jan-10

Sep-09Nov-0

9

Trend in Freight rates and diesel price

Source: Crisil, ACMIIL Research




1

Further, VECV has gained from the agreement, as Volvo has announced procurement of engines from VECV for its global requirements. Volvo will source medium duty engines complying with Euro 3 to Euro 6 norms (engine capacity of 5-8 litres). For this purpose VECV will invest ~` 3000 million with production commencing in CY13. Further, VECV is also exploring possibilities of using Volvo’s overseas distribution networks to bolster its exports.

Two wheeler business to register growth

EML brand “Enfield” has good brand name in the market and it operates in the niche segment (250 cc and above). It is currently facing capacity constraint. Its bikes have waiting period of 6 months. EML is expanding capacity from current 60,000 to 1,50,000 by setting up new plant. It will also increase exports once the fresh capacity comes in. Increasing sales would enhance revenues and profitability going forward.

Enhancing Export revenues

VECV is planning to use Volvo overseas distribution network for sale of its trucks. VECV is planning to use Volvo network in Africa, Indonesia, Middle-East and Malaysia to boost exports. We believe there is opportunity to boost exports given that both VECV and Volvo operate in different segments.

Investment Concerns

Cyclicality of Business

Commercial vehicle business is cyclical in nature. Any slowdown in the economy has direct bearing on commercial vehicle sales. As EML derives significant revenues from the CV business (~90%), it is subject to the cycliality.

Raw Material costs

Raw material costs (steel, rubber, aluminium) are on increase. Any increase in the material cost to the extent not passed on to the consumer is likely to affect profitability.

Intense Competition

VECV is facing competition from existing players (Tata Motors, Swaraj Mazda and Ashok Leyland) in the ICV segment. Players like Asia Motor Works; Daimler and Mahindra have entered into the heavy-duty segment. Further Mercedes, Kammaz have planned entry into the heavy-duty goods segment. With VECV planning to increase presence in the heavy goods segment, it is likely to face intense competition.


500

1000

1500

2000

2500

3000

VECV Exports (no of units)





1

Peer Comparison

Peer comparison Tata Motors Ashok Leyland VECV

Net Sales (` Mn) 454,301.4 102,282.2 39,586.1

PBDIT (` Mn) 48,536.4 10,992.0 3,845.0

PBDITM % 10.7 10.7 9.7

Net Profit (` Mn) 18,355.2 5,557.3 2,314.1

NPM % 4.0 5.4 5.8

ROCE% 16.2 14.3 21.0

RONW% 15 11.5 15.3

Source : Capitaline, ACMIIL Research

(Net sales are for trailing twelve months period ending Dec 2010. Numbers for Tata Motors are on standalone

basis.)

● Tata Motors is market leader in the commercial vehicle industry with presence across the segments. It commands overall market share of about 60%. It also has the support of the captive financing arm Tata Motors Finance, which acts as an added advantage for the company.

● Ashok Leyland commands market share of ~12% of the overall industry. Ashok Leyland is primarily present in the medium and the heavy duty commercial vehicle market (above 12 tonnes).

● VECV is present primarily in the medium commercial market and commands market share of roughly 6%. In partnership with Volvo,the company is planning to increase presence in the heavy duty goods segment.

● Although Ashok Leyland and VECV have been in the industry for long time, their market share is limited due to minimal presence in the fast growing LCV goods segment.

Market Share (%)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0


Tata Motors Ashok Leyland VECV





1

Industry Analysis

Freight Movement

The share of road in transportation of goods has gone up over the years. Roadways now account for 59.8% of goods transported as against 54.8% in FY01. There is preference for road transportation mainly on basis of its easy accessibility, flexible operations, door-to-door service and reliability. We believe road transport will continue to hold high share of freight traffic in the country.

Passenger Movement

The share of road transport in passenger movement has remained at higher levels (85%) in last five years. We believe road transport will continue to maintain higher share in passenger movement in the country.

The Commercial vehicle industry can be classified into passenger carriers and goods carriers. Passenger carrier can be classified as LCV passenger carriers (Gross vehicle weight upto 7.5 tonnes) and MHCV passenger carriers (Gross vehicle weight above 7.5 tonnes). Similarly goods vehicles can be classified as LCV goods carriers (Gross vehicle weight upto 7.5 tonnes) and MHCV goods carriers (Gross vehicle weight above 7.5 tonnes).

% of Freight distribution by Road and Railways

Road Railways

0

10

20

30

40

50

60

70

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10


% of passenger movement by Road and Railways

FY06 FY07 FY08 FY09 FY10

Roads Rail

0

10

20

30

40

50

60

70

80

90

100





1

Segment wise sales FY05 FY06 FY07 FY08 FY09 FY10 CAGR Growth

(FY05-FY10) %

LCV Goods 99,942 120,806 168,467 188,140 173,747 251,916 20.3

MHCV Goods 172,868 179,320 246,863 232,339 148,603 201,977 3.2

LCV Passenger 19,982 22,431 23,742 27,683 26,952 34,421 11.5

MHCV Passenger 25,638 28,126 28,693 38,655 34,892 43,081 10.9

Total Commercial

vehicles

318,430 350,683 467,765 486,817 384,194 531,395 10.8

Source : Siam, ACMIIL Research

In domestic commercial vehicle industry, LCV Goods segment is the largest category comprising 47% of the overall volumes, followed by MHCV Goods segment which comprises 39.7% of the overall industry volumes. MHCV Passenger vehicles and LCV passenger vehicles constitute 7.4% and 5.8% of the overall industry volumes respectively in 9MFY11.

There has been significant shift in the commercial vehicle composition over the years. The share of LCV goods segment has increased significantly over last few years. LCV goods segment share in overall volumes has increased from 31.4% in FY05 to 47.4% in FY10. Similarly, we have seen a decline in MHCV goods segment (from 54.3% in FY05 to 38% in FY10). The share of passenger vehicle segment has been stable at 14% of the overall industry volumes.

Apart from the usual freight demand, rural consumption growth and expansion of urban expenditure basket is leading to increased use of smaller vehicles for freight distribution. Also, increasing penetration of organized retail is driving growth of LCV goods segment. We expect LCV goods segment to register higher growth than the overall commercial vehicle industry.

Domestic CV Industry sales Composition


0.0

20.0

40.0

60.0

80.0

100.0


6.3 6.4 5.1 5.7 7.0 6.5 5.8

31.4 34.4 36.0 38.645.2 47.4 47.0

8.1 8.0 6.17.9

9.1 8.1 7.4

54.3 51.1 52.8 47.738.7 38.0 39.7





1

LCV Goods segment

In the LCV goods segment, growth has been spurred by vehicles of sub one tonne category (especially after introduction of Tata Ace); consequently the share of upto 3.5 tonne category vehicles has increased from 54.9% in FY05 to 86.2% in 9M FY11. Volumes in this category have received further boost with the launch of Mahindra Gio.

LCV goods segment is duopoly with Tata Motors and Mahindra controlling above 90% of the overall market.

LCV Goods segment sales composition

Upto 3.5 Tonnes 3.5-5 Tonnes 5-7.5 Tonnes

0.0

20.0

40.0

60.0

80.0

100.0


54.966.9

78.4 83.6 84.9 84.3 86.2

1.0

1.01.2 1.6 3.0 3.5

44.032.3

20.6 15.1 13.5 12.7 10.3

0.8


LCV Goods segment market share (%)

Tata Motors Mahindra Eicher Motors Others

0.0

20.0

40.0

60.0

80.0

100.0


51.662.3 67.6 64.2 61.1 58.9 57.4

36.228.4

25.6 26.5 29.2 32.1 34.8

4.9 4.3 3.4 1.7 1.4 1.5 1.6

7.3 4.9 3.4 7.5 8.3 7.5 6.1


MHCV Goods segment compositionsales

ICV MCV MAV Tractor Trailer

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


15.0 18.0 14.7 17.6 18.7 21.6 20.1

40.1 34.626.0 26.0 28.7 24.1 22.1

37.9 41.349.2 46.3

45.9 45.6 47.1

7.0 6.2 10.2 10.1 6.8 8.7 10.7





1

MHCV Goods vehicles are classified as Intermediate commercial vehicles (GVW 7.5-12 tonnes), Medium commercial vehicles (12-16.2 tonnes), and Heavy commercial vehicles(Multi axle vehicles and tractor trailers, GVW above 16.2 tonnes)) There has been shift in the composition of the MHCV goods segment over the years. Due to the hub and spoke model, the share of the MCV segment (12-16.2 tonnes) has been declining, whilst the share of the ICV segment (7.5-12 tonnes) and the Heavy commercial vehicles(>16.2 tonnes) has been increasing. MCV segment share has declined from 40.1% in FY05 to 22.1% in 9MFY11.

MHCV goods segment is concentrated with top three players controlling over 95% of the market. Tata Motors is the market leader in MHCV goods segment with market share of 63.2%, followed by Ashok Leyland having market share of 21.9%. EML commands market share of 10.5%.

LCV passenger segment is relatively less concentrated. Tata Motors is the market leader having market share of 47.8%, followed by Force Motors having market share of 21.9%.

MHCV Goods segment market share (%)

0%

20%

40%

60%

80%

100%


Tata Motors Ashok Leyland Eicher Motors Others

67.1 64.9 64.7 64.2 66.1 65.9 63.2

21.5 23.7 26.4 24.9 20.9 20.2 21.9

8.5 8.1 6.9 8.9 8.8 10.0 10.5

3.0 3.2 2.0 2.0 4.2 4.0 4.3


LCV Passenger Market Share (%)

Tata Motors Mahindra Force Motors Eicher Swaraj Mazda Others

0.0

20.0

40.0

60.0

80.0

100.0


45.9 49.4 50.1 48.1 51.7 55.747.8

16.2 11.9 14.9 19.119.0 14.6

13.9

17.8 19.3 15.6 15.6 14.9 16.821.9

7.7 5.9 6.9 6.7 5.2 5.2 6.59.3 8.9 10.5 8.1 7.2 5.3 8.0

3.1 4.6 2.1 2.4 2.0 2.4 1.8





1

MHCV Passenger market is duopoly with Tata Motors and Ashok Leyland controlling more than 85% of the market.

Owing to the global economic slowdown, exports had fallen drastically in FY09. Export volumes declined by 27.8% in FY09. The hit was the largest in the goods segment which declined by 30.3% in FY09. Exports have shown strong recovery in 9MFY11, with the global recovery.

MHCV Passenger Market Share (%)

Tata Motors Ashok Leyland Eicher Motors Others

FY05 FY06 FY07 FY08 FY09 FY10 9M FY110.0

20.0

40.0

60.0

80.0

100.0

51.943.9 47.9 43.8 44.3

51.344.5

40.847.7 40.7 45.5 45.9 38.1

42.2

2.6 3.1 5.6 4.7 3.8 4.5 6.7

4.7 5.3 5.8 6.0 6.0 6.1 5.4


Commercial Vehicle Exports (no of units)


10000

20000

30000

40000

50000

60000

70000

0.0

2.0

4.0

6.0

8.0

10.0

12.0

as% of total salesTotal Exports


Export Composition


FY05 FY06 FY07 FY08 FY09 FY10 9M FY110.0

20.0

40.0

60.0

80.0

100.0

5.0 5.8 10.4 10.7 12.7 6.0 4.7

50.059.5 52.1 51.9 47.8

48.6 55.2

15.4

13.5 18.6 17.0 17.513.5

14.8

29.621.2 19.0 20.5 22.0

31.9 25.3





1

Tata Motors is the leader in the exports commanding market share of 65.5% in 9MFY11. Mahindra has increased its share in the exports following its increased presence in the LCV Goods segment post launch of Gio.

Porter’s Five Forces Model

Valuation and Recommendation

We have estimated core business EPS of ` 71.9 in CY12E. We assign multiple of 11x (discount of 21% to Ashok Leyland P/E of 14x) to arrive at value of ` 791 for the core business. Adding cash per share of ` 462, we arrive at value of ` 1,253. We, therefore give “Hold” rating on the stock.

Threat from Substitutes : Medium

Railways are preferable mode of transport, particularly forcarriage of bulk commodities and due to relatively lessercost of transport. However roadways provide end-to-endconnectivity and also provide piece meal freighttransportation, which is favorable for non bulk commodities

Supplier Bargaining Power: Low

OEM’s procure raw materials from numberof suppliers, who are small players. Furtherordering is done in bulk. Thus supplier’s bargaining power is low.

Threat from New Entrants: Medium

The investment required for setting up large distributionchannels and after sales network is a critical entry barrier.Further, introducing advanced technology products calls forcontinuous innovation and investments in R&D, which actsas another major barrier. However, global players arechoosing to enter the CV market through JV(Volvo Eicher, MahindraNavistar, MANForce)

Current Competition: High

Intensified with entry of globalplayers. Technologically superiorproducts and conformity tointernational standards havebecome the benchmark

Buyer Bargaining Power: Medium

There is higher proportion of small fleetoperators in overall truck market who havelimited bargaining power. However, given thepresence of huge used CV market limitsmanufacturers passing on price increases

Export Market share

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0


Tata Motors Mahindra Ashok Leyland VECV





1

Consolidated Financials

Profit & Loss Statement (` Mn)

Particulars 9M CY08 CY09 CY10 CY11E CY12E

Net Sales 17,179.6 29,386.3 43,970.8 52,896.9 62,521.0

Add : Other operating income 95.8 158.0 239.1 338.6 429.2

Total Operating income 17,275.4 29,544.3 44,209.9 53,235.5 62,950.2

less: Expenditure 17,174.8 27,942.1 40,401.8 48,507.5 57,152.9

Operating Profit 100.6 1,602.2 3,808.1 4,727.9 5,797.3

Add : Other income 561.7 896.4 1,036.6 931.2 961.5

EBIDTA 662.3 2,498.6 4,844.7 5,659.1 6,758.8

less: Depreciation 368.9 538.8 573.0 746.6 1,029.4

Less: Interest 99.3 86.7 95.0 78.2 61.5

less: Exceptional items 393.5

PBT 587.6 1,873.1 4,176.7 4,834.4 5,667.9

less:Tax -85.3 578.2 1,108.2 1,353.6 1,700.4

Profit Before Minority Interest 672.9 1,294.9 3,068.5 3,480.8 3,967.5

less: Minority Interest 46.9 461.0 1179.3 1,227.9 1,430.4

Net Profit 626.0 833.9 1,889.2 2,252.9 2,537.1

Sales Growth (%) 71.1 49.6 20.3 18.2

Operating Profit Growth (%) 1492.6 137.7 24.2 22.6

Net Profit Growth (%) 92.4 137.0 13.4 14.0

Operating Margin (%) 0.6 5.4 8.6 8.9 9.2

NP Margin (%) 3.9 4.4 6.9 6.5 6.3


Balance Sheet (` Mn)


Share Capital 280.9 126.6 269.4 269.4 269.4

Reserves & Surplus 10,756.0 10,423.5 12,052.0 13,920.7 16,073.6

Total Shareholders Fund 11,036.9 10,690.4 12,321.4 14,190.1 16,343.0

Total Loans 1,656.1 1,263.7 956.4 756.4 606.4

Deferred tax -147.2 141.6 249.2 249.2 249.2

Minority Interest 5,305.3 5,746.7 6,774.1 8,002.0 9,432.4

Total Sources of Fund 17,851.1 17,842.4 20,301.1 23,197.7 26,631.0

Gross Block 6,783.0 7,436.9 8,112.8 10,981.6 15,261.6

less:Depreciation 3,490.8 3,801.7 4,269.0 5,015.6 6,045.0

Net Block 3,292.2 3,635.2 3,843.8 5,966.0 9,216.6

Capital work in progress 517.6 122.3 668.8 980.0 600.0

Investments 62.4 2,941.1 4,585.9 5,035.9 5,535.9

Total Current Assets 19,010.5 18,121.3 20,500.2 22,090.7 24,079.1

Total Current Liabilities 5,031.6 6,977.5 9,332.1 10,909.4 12,835.2

Net Current Assets 13,978.9 11,143.8 11,168.1 11,181.2 11,244.0

Total Application Of Fund 17,851.1 17,842.4 20,301.1 23,197.7 26,631.0





1

Cash Flow Statement (` Mn)


Profit Before Tax 194.1 1,873.1 4,176.7 4,834.4 5,667.9

Depreciation 368.9 538.8 573.0 746.6 1,029.4

Interest Paid 99.3 86.7 95.0 78.2 61.5

Net Operating Profit Before working capital change 113.2 1,718.8 3,817.1 4,727.9 5,797.3

Net Cash Flow from Operating activities -890.0 3,684.6 3,359.5 3,120.2 4,088.7

Net Cash used in Investment Activities 2,654.9 -2,764.2 -1,920.5 -2,698.8 -3,438.5

Net Cash from Financing activities 10,033.8 -1,640.5 -688.7 -662.4 -595.7

Net Increase/decrease in cash & cash equivalent 11,798.7 -611.5 750.3 -240.9 54.5

Cash at Beginning 519.3 12,318.0 11,706.5 12,456.8 12,215.9

Cash at End of Period 12,318.0 11,706.5 12,456.8 12,215.9 12,270.3


Valuation Ratios

Valuation Ratios 9M CY08 CY09 CY10 CY11E CY12E

Profitability Ratios

Operating Margins (%) 0.6 5.4 8.6 8.9 9.2

PAT After Minority Interest (%) 3.9 4.4 6.9 6.5 6.3

ROCE (%) 1.6 11.0 21.0 21.2 21.5

RONW (%) 5.7 7.8 15.3 15.9 15.5

Capital Structure Ratios

Debt-Equity 0.2 0.1 0.1 0.1 0.0

Turnover Ratios

Fixed Assets 2.5 4.0 5.4 4.8 4.1

Inventory 5.1 13.4 13.5 13.7 13.8

Debtors 9.5 12.6 16.9 16.0 15.8

Creditors 4.6 5.9 6.7 6.9 7.0

Solvency Ratios

Current Ratio 3.8 2.6 2.2 2.0 1.9

Interest Coverage Ratio 3.0 22.6 45.0 62.8 93.1

Valuation Ratios

EPS 22.3 65.9 70.1 83.6 94.2

BV/Share 392.9 844.4 457.4 526.7 606.6

Source: ACMIIL Research




1

Annexure : Calculation for growth in CV demand

Total Freight (BTKM) Freight carried by road (BTKM) Share of road in total freight (%)

FY99 700.2 326.3 46.6

FY00 766.3 361.2 47.1

FY01 794.3 379.0 47.7

FY02 866.1 422.0 48.7

FY03 927.4 456.0 49.2

FY04 1,016.0 508.0 50.0

FY05 1,104.7 562.0 50.9

FY06 1,206.5 621.0 51.5

FY07 1,331.7 693.0 52.0

FY08 1,455.1 765.0 52.6

FY09 1,509.0 799.0 52.9

FY10 1,609.5 853.0 53.0

FY11 1,741.1 950.6 54.6

FY12 1,890.6 1,043.6 55.2

FY13 2,052.9 1,145.5 55.8

FY14 2,229.1 1,257.2 56.4

FY15 2,420.5 1,384.5 57.2

Source: Crisil (BTKM refers to billion tonnes kilometer)

CAGR (FY00-FY05) (CAGR (FY05-FY10) CAGR (FY10-FY15)

GDP Growth (%) 5.9 8.6 8.5

Total Freight Growth (%) 7.6 7.8 8.5

Freight/GDP Multiple 1.3 0.9 1.0

Road Freight Growth (%) 9.2 8.7 10.2

CV Goods Growth (%) 15.3 13.6 16.3

Multiple 1.65 1.56 1.60

FY10 Growth Basis

Goods Vehicles 16.3% Derived above

Passenger vehicles 11.5% in line with Crisil estimates

Total Commercial Vehicles 15.7%




1

Disclaimer:

This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or

any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information

contained in the report. ACMIIL and/or Promoters of ACMIIL and/or the relatives of promoters and/or employees of ACMIIL may have interest/position, financial or

otherwise in the securities mentioned in this report. To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should

however not be treated as endorsement of the views expressed in the report

Disclosure of Interest Eicher Motors Limited

1. Analyst ownership of the stock NO

2. Broking Relationship with the company covered NO

3. Investment Banking relationship with the company covered NO

4. Discretionary Portfolio Management Services NO

This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for

circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security.

The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We

may from time to time have positions in and buy and sell securities referred to herein.

SEBI Regn No: BSE INB 010607233 (Cash); INF 010607233 (F&O), NSE INB 230607239 (Cash); INF 230607239 (F&O)

Notes:

Institutional Sales:

Ravindra Nath, Tel: +91 22 2858 3400

Kirti Bagri, Tel: +91 22 2858 3731

K.Subramanyam, Tel: +91 22 2858 3739

Email: [email protected]

Institutional Dealing:

Email: [email protected]

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