16 February 2015

4QCY14 Results Update | Sector: Automobiles

Eicher Motors

Jinesh Gandhi (Jinesh@MotilalOswal.com); +91 22 3982 5416

BSE SENSEX S&P CNX CMP: INR16,109 TP: INR17,674 (+10%) Buy 29,136 8,809

Bloomberg EIM IN

Equity Shares (m) 27.1

M.Cap. (INR b) / (USD b) 435.0/7.0

52-Week Range (INR) 16,895/4,810

1, 6, 12 Rel. Per (%) 1/49/189

Avg Val (INR M)/Vol

506/47

Free float (%) 45.0

Financials & Valuation (INR Billion)

Y/E Dec 2015E 2016E 2017E

Net Sales 130.0 183.6 218.4 EBITDA 19.8 32.0 37.6 Adj PAT 11.1 17.8 21.5 EPS (INR) 411 659.6 796.5

Gr. (%) 74.6 60.5 20.8

BV/Sh.(INR) 1,226 1,825 2,553

RoE (%) 39.2 43.2 36.4 RoCE (%) 42.6 51.1 43.9 P/E (x) 39.2 24.4 20.2 P/BV (X) 13.1 8.8 6.3

Estimate change 5%

TP change

Rating change

Above estimate driven by VECV; RE on track for 0.45m in CY15 Consolidated operating performance was above estimate driven by a beat in EBITDA margin to 13.2% (v/s est. 12.6%). EBITDA was at INR3.03b (v/s est. INR2.8b) driven by strong VECV performance but diluted by weaker RE performance. Tax rate was higher at 29.4% (v/s est. 25.8%), resulting in PAT of INR1.54b (v/s est. INR1.6b), growth of 60% YoY (-7% QoQ). Royal Enfield performance below estimate: While volumes and realization both grew 49% and ~5% YoY respectively, EBITDA margin was lower at 23.6% (v/s est. ~24.8%) on account of higher other expenses (up 120bp QoQ). Higher tax rate at 33% further restricted PAT to INR1.24b. VECV’s strong realizations and EBITDA margin: VECV’s realizations improved ~4.5% QoQ (17% YoY) to ~INR1.55m (v/s est. ~INR1.5m). EBITDA margin of 7.3% (+40bp QoQ, +140bp YoY) was above our expectation of 6.4%. Earnings call highlights: 1) EIM expects producible capacity of ~450,000 in CY15 (largely from old plant + phase 1 of Oragadam plant), although ramp-up would not be linear. Oragadam phase 2 capacity to start operations from 3QCY15 and on full ramp-up, will increase production to ~60,000/month by mid-CY16, 2) currently, RE enjoys around five-month waiting period, 3) investing in two technology centers -- main center at Chennai (to be ready by 2QCY16) and satellite center at UK (by end-CY15), 3) price increase of 2% in January 2015, along with ~4% excise duty increase and 4) capex (CY15): Royal Enfield - INR5b (including R&D and front-end stores etc) and VECV ~INR5b. Valuation and view: We raise CY15E/16E/17E EPS by 5.2%/5.6%/2.4% respectively. EIM trades at 39.2x/24.4x CY15E/16E EPS of INR411/660 respectively. Maintain Buy with a target price of INR17,674 (CY16E SOTP-based).

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

16 February 2015 2

Eicher Motors

Consolidated performance: Operationally above estimate driven by VECV Eicher Motors consolidated revenues grew 36.6% YoY (0.8% QoQ) to INR22.95b

(above est). EBITDA margins improved by 330bp YoY (-20bp QoQ) to 13.2% (est 12.6%)

driven by better than expected operational performance at VECV partly offset by below estimate performance of RE.

EBITDA grew 82% YoY (-0.7% QoQ) to ~INR3.03b. Higher tax rate restrict PAT (after minority) growth to ~60% YoY (-6.8% QoQ) to

INR1.54b. Royal Enfield: Operating Performance below estimate Royal Enfield continued with its strong volume growth of 49% YoY (flat QoQ) to

~82k units. Realization improved by 5% YoY(+0.6% QoQ) to INR 100.7k (v/s est ~INR100.3k). As a result, revenues grew 57% YoY (+1% QoQ) to INR8.3b (v/s est INR8.25b). EBITDA margins came in lower at 23.6% (v/s est ~24.8%) on account of higher

other expenses (up 120 bp QoQ). Higher tax at 33% (v/s est ~25%) further restricted PAT to INR1.24b (v/s est

INR1.5b), a growth of 85% YoY (-12% QoQ). Exhibit 1: RE Net realization at all time high of INR 100.7k/unit

Source: Company, MOSL

Exhibit 2: Strong volume growth driven by production ramp-up

Source: Company, MOSL

Exhibit 3: Margins decline on QoQ basis

Source: Company, MOSL

89,0

91

90,3

23

90,2

73

90,1

47

92,6

23

92,6

96

91,8

96

92,8

12

96,0

94

95,3

60

95,1

43

95,8

02

98,9

05

100,

657

100,

168

100,

730

1QCY

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4QCY

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Royal Enfield Realizations (INR)

16,9

68

18,5

81

20,0

68 19

,009

23,8

99

27,5

19

30,0

46

31,9

68

34,7

37

40,0

40

48,2

40

55,1

01

64,2

77

74,1

32

81,9

77

82,2

15

36.2

48.6 56.6

28.4

40.8 48.1 49.7

68.2

45.3 45.5 60.6

72.4 85.0 85.1

69.9

49.2

1QCY

11

2QCY

11

3QCY

11

4QCY

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1QCY

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2QCY

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3QCY

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2QCY

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4QCY

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Royal Enfield volumes (units) Growth YoY %

13.0

13.3

12.8 9.2

13.9

15.3

15.1 11.5

17.7

17.8

19.3

18.6 23.1

24.9 25.0 23.6

1QCY

11

2QCY

11

3QCY

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4QCY

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1QCY

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2QCY

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3QCY

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4QCY

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Royal Enfield EBITDA margins %

16 February 2015 3

Eicher Motors

Exhibit 4: Standalone Quarterly Performance (Royal Enfield)

CY13 CY14 CY13 CY14E Y/E December 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE Var (%) Royal Enfield (units) 34,737 40,040 48,240 55,101 64,277 74,132 81,977 82,215 178,118 302,591

82,215 0.0

Growth (%) 45.3 45.5 60.6 72.4 85.0 85.1 69.9 49.2 57.0 69.9

49.2 Net Realizations (INR/unit) 96,094 95,360 95,143 95,802 98,905 100,657 100,168 100,730 96,211 100,175 100,285

0.4

Change - QoQ (%) 3.5 -0.8 -0.2 0.7 3.2 1.8 -0.5 0.6 4.0 0.0

Net Op Income 3,338 3,818 4,590 5,279 6,357 7,462 8,212 8,282 17,137 30,312

8,245 0.4 Growth (%) 50.8 49.7 66.2 77.9 90.5 95.4 78.9 56.9 63.3 76.9

56.2

RM Cost (%) 63.3 64.1 61.4 61.0 61.3 59.4 59.1 59.1 61.8 59.6 59.0 10bp Staff Cost (%) 7.0 7.1 6.1 6.1 5.5 5.4 5.1 5.3 6.5 5.3

5.3 0bp

Other Exp (%) 12.0 10.9 13.2 14.3 10.1 10.2 10.8 12.0 12.7 10.9 10.9 110bp

EBITDA 591 681 885 981 1,468 1,861 2,052 1,955 3,250 7,336

2,048 -4.6 EBITDA Margins (%) 17.7 17.8 19.3 18.6 23.1 24.9 25.0 23.6 19.0 24.2

24.8

Depreciation 60 75 80 89 109 115 128 149 304 502

144 3.2 Other income 682 77 21 21 849 135 128 51 801 1,163

96 -46.7

Interest cost 1 0 1 1 11 1 1 5 3 17

3 54.8

PBT before EO item 1,212 682 826 911 2,197 1,881 2,051 1,852 3,744 7,980 1,996 -7.2 Effective tax rate (%) 19.8 22.9 25.2 26.5 26.9 29.1 31.3 33.0 22.6 30.0 24.8 820bp

Recurring PAT 972 526 618 670 1,606 1,332 1,410 1,241 2,898 5,589

1,502 -17.4 Growth (%) 114.4 62.9 87.4 96.2 65.2 153.2 128.2 85.2 100.2 92.8

124.1

Source: Company, MOSL

VECV (CV business): Operating performance continues to improve Volumes grew 8.7% YoY (-3.6% QoQ) driven primarily by strong growth of ~38%

YoY HD (Goods) and exports showing growth of ~33.5% YoY. While underlying market showing early signs of improvement.

Realizations improved 17.1% YoY (+4.5% Qoq) to INR1.54m/unit. Revenues showed a robust growth of ~27% YoY (0.8% QoQ) to INR14.66b (v/s

est INR14.25b). EBITDA margins improved 40bp QoQ (140bp YoY) to 7.3% (v/s est of 6.4%)

driven by lower than estimated RM and Staff cost. Lower tax rate of 19.8% (v/s est 23.2%) further boosted PAT to INR569m (v/s est

INR431m) growth of 5% YoY (26.3% QoQ).

Exhibit 5: Volume recovery continues

Source: Company, MOSL

Exhibit 6: Margins improved to 7.3% QoQ well above estimate of 6.4%

Source: Company, MOSL

12,6

99

11,0

20

12,5

60

12,7

63

14,3

46

12,0

16

10,7

91

11,6

78

12,5

29

11,0

27

9,42

8

8,71

0

9,96

0

11,4

95

9,81

5

9,46

6

28.5 21.6

25.7 23.5 13.0 9.0

-14.1 -8.5

-12.7 -8.2 -12.6

-25.4 -20.5

4.2 4.1 8.7

1QCY

11

2QCY

11

3QCY

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4QCY

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VECV volumes (units) Growth YoY % 11.5

9.2

10.1 9.7

10.1 7.6

5.8

6.2 8.0

7.6

5.6

5.9

5.8

6.6 6.9 7.3

1QCY

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VECV EBITDA margins %

16 February 2015 4

Eicher Motors

Exhibit 7: VECV: Quarterly Performance (derived)

CY13 CY14 CY13 CY14E

Y/E December 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE

4QE Var (%)

Total CV Volumes 12,529 11,027 9,428 8,710 9,960 11,495 9,815 9,466 41,694 40,736

9,466 0.0 Growth (%) -12.7 -8.2 -12.6 -19.8 -20.5 4.2 4.1 8.7 -13.2 -2.3

8.7

Net Realizations (INR '000/unit) 1,110 1,168 1,299 1,322 1,294 1,304 1,481 1,548 1,260 1,421

1,483 4.4

Change - YoY (%) 8.0 5.5 16.1 5.8 16.6 11.7 14.1 17.1 22.6 28.4

13.4 Net Op Income 13,905 12,881 12,244 11,516 12,885 14,992 14,538 14,656 52,522 57,899

14,253 2.8

Growth (%) -5.6 -3.1 1.4 -15.1 -7.3 16.4 18.7 27.3 -1.7 10.2

23.8 RM Cost (%) 71.0 71.6 71.7 68.8 69.2 70.3 69.4 68.5 68.6 130.6

69.0 -50bp

Staff Cost (%) 7.5 8.0 8.7 9.5 9.3 8.6 8.8 8.4 8.0 16.5

9.2 -80bp Other Exp (%) 13.5 12.8 14.1 15.8 15.7 14.6 14.9 15.7 13.5 28.7

15.3 40bp

EBITDA 1,114 981 687 685 752 984 1,000 1,076 5,226 4,640

914 17.7 EBITDA Margins (%) 8.0 7.6 5.6 5.9 5.8 6.6 6.9 7.3 10.0 15.3

6.4 90bp

Depreciation 215 221 256 305 368 442 435 451 996 1,697

453 -0.5 Other income 170 134 131 125 113 43 64 100 589 -89

130 -23.5

Interest cost 6 12 22 36 48 10 8 15 76 81

30 -50.7 PBT after EO item 1,064 882 1,068 468 448 575 621 710 4,742 2,774

561 26.6

Effective tax rate (%) 28.2 17.1 21.5 -15.7 19.0 21.2 27.4 19.8 12.7 18.7

23.2 -340bp Recurring PAT 764 732 425 542 363 453 451 569 4,138 2,256

431 32.1

Growth (%) -35.3 -8.7 -30.1 -23.7 -52.4 -38.1 6.2 5.0 25.4 -45.5

-20.5

Source: Company, MOSL

Key Takeaways from Con-Call Royal Enfield Investing in two technology centre viz a) main centre at Chennai (to be ready by

2QCY16) and b) satellite centre at UK (by end of CY15). Efforts has been in creating team, talent pool and building organizational

capacity (including manpower capacity). Price increase of 2% in Jan-15, along with ~4% excise duty increase. Exports markets: While developed markets (US, UK, Europe etc) offers ready

markets with known brand, however developing market offers large opportunity due to very large existing commuting motorcycle population, giving Royal Enfield existing pool of bikers to tap into.

It expects producible capacity to ~ 450,000 in CY15 (largely from old plant + phase-1 of Oragadam plant), although ramp-up wouldn’t be linear. Oragadam Phase-2 capacity to start operations from 3QCY15 and on full ramp-up will increase production to ~60,000/month by mid-CY16.

Currently, RE enjoys ~5 months waiting. Dealership: It ended CY14 with ~390 dealership (added ~100 dealers in CY14)

mad plans to add over 100 dealers in CY15. While it plans to expand distribution network to tier2 cities and beyond, it also plans to increase catchment areas in tier-1 cities. The new retail format was rolled out to over 100 stores in CY14. By end of CY15, all stores (over 500 dealership) would be on new retail format.

Other takeaways MDEP: In 4QCY14, it shipped ~2600 engines/long blocks, and ~12000 units in

CY14. Capex (CY15): Royal Enfield - INR5b (incl R&D and frontend stores etc), and

VECV ~INR5b.

16 February 2015 5

Eicher Motors

Operating metrics

Snapshot of Revenue Model 000 units CY11 CY12 CY13 CY14 CY15E CY16E

ROYAL ENFIELD (S/A)

Total 2W (units) 75 113 178 303 449 628

Growth (%) 41.9 52.0 57.0 69.9 48.5 39.8

Net realn (INR'000/unit) 89 92 95 100 101 103

Growth (%) 7.1 3.0 2.7 5.4 1.3 2.6

RE Revenues (INR b) 50 53 51 57 85 119 Growth (%) 26.8 5.9 -4.1 11.3 48.2 40.1

VECV

Dom - LMD 37 36 31 28 35 45

Growth (%) 19.9 -3.9 -13.3 -11.3 27.4 27.5

% of CV Vols 77.1 75.3 76.1 69.1 62.1 58.5

Dom - HCV 8 9 7 6 12 17

Growth (%) 81.9 14.8 -27.4 -2.4 78.8 47.8

% of CV Vols 16.5 19.2 16.3 16.3 20.5 22.4

Total Dom. 45 45 38 34 47 62

Growth (%) 27.5 -0.6 -16.1 -9.7 37.2 32.6

% of CV Vols 93.6 94.5 92.3 85.4 82.6 80.9

Exports 3 3 3 6 10 15

Growth (%) 14.4 -16.3 20.1 86.5 68.5 48.8

% of CV Vols 6.4 5.5 7.7 14.6 17.4 19.1

Total CV vols 48 48 41 40 57 76

Growth (%) 26.6 -1.6 -14.1 -2.3 41.8 35.4

MDEP Vols (Ex captive) 3 12 18 25

Net realn (INR'000/unit) 1,029 1,111 1,236 1,401 1,463 1,511

Growth (%) 2 8 11 13 4 3

VECV Revenues (INR b) 50 53 51 57 85 119 Growth (%) 26.8 5.9 -4.1 11.3 48.2 40.1

Net Consol sales (INR b) 57 64 68 87 130 184

Growth (%) 29.5 11.6 6.6 28.3 48.8 41.2

16 February 2015 6

Eicher Motors

Valuation and view RE volume momentum to further strengthen as focus shifts from production to

products: Given its leadership position, cult brand equity and minimal competition, RE is well positioned to benefit from improvement in consumer sentiment and economic recovery. With confidence in managing capacities, management’s focus has shifted to products and marketing process. It is now focussing on expanding addressable market through new products and expanding dealership (in sync with capacity expansion), at the same time retaining aspirational value and brand ethos of RE. New models launch from CY16/CY17 onwards. RE Exports scale-up to take 2-3 year, as it has just starting work on its focus on Latin America and Asia. Added 100 dealers, would continue to add 6-8 dealers/month. Every new dealership in new retail identity, and working with existing dealer to shift to new format by CY15 (total of ~500 stores by end of CY15). Acquired ~50 acres of land for new plant, which is being planned for next round of capacity planning beyond CY16 (no plans to start work in near future). This plant might have similar capacity as at Oragadam plant (similar sized land). It would take 12 months from Day-Zero to start the plant. We estimate 35%/50%/56% volumes/EBITDA/PAT CAGR over CY14-17E.

VECV well prepared for CV cycle recovery: VECV recently launched its next generation CVs developed with inputs from Volvo (including Volvo engine). VECV expected to be key player to benefit from pick-up in Indian CV industry. Globally, India is among the few markets where Volvo has low share. While Pro series launch of LMD and HD range (big upgrade of existing platform) is largely done. Pro series will help to ramp-up exports over next 2 years, with focus on Africa and Asia. MDEP ramp-up continues with 12,000 units in CY14.We estimate VECV’s sales/PAT to post 34%/98% CAGR (CY14-17E).

MDEP: An opportunity to be part of Volvo’s global supply chain: MDEP holds strategic importance for both the Volvo Group (low cost source of Euro 5/6 medium-duty engines) and VECV (improve VECV's positioning in HCVs with headstart on futuristic technology). It provides an opportunity to be part of Volvo’s global supply chain & tap other such opportunities.

Upgrading EPS: We upgrade our CY15E/16E/17E EPS by 5.2%/5.6%/2.4% respectively to factor in for a) growth in volumes for Royal Enfield (CAGR of 35% over CY14-17E ) and b) Improved demand for VECV with recovery in economy .

Structural story gets stronger: With several projects coming on stream in CY15-17 driving 35% sales and 50% EBITDA CAGR over CY14-17E, EIM is at an inflection point. Buy with a target price of INR17,674 (CY16E SOTP-based).

16 February 2015 7

Eicher Motors

Exhibit 8: Revised forecast (INR M) CY15E CY16E CY17E

Rev Old Chg (%) Rev Old Chg (%) Rev Old Chg (%)

Standalone (RE)

Volumes (units) 449,441 444,995 1.0 628,284 622,060 1.0 755,154 747,686 1.0

Net Sales 45,624 45,137 1.1 65,368 64,355 1.6 81,177 79,645 1.9

EBITDA 11,879 11,636 2.1 17,546 17,128 2.4 21,371 20,971 1.9

EBITDA (%) 26.0 25.8 30bp 26.8 26.6 20bp 26.3 26.3 0bp

Core Profit 7,834 7,709 1.6 11,611 11,431 1.6 14,028 13,967 0.4

Net Profit 9,038 8,898 1.6 13,233 13,180 0.4 16,387 16,524 (0.8)

EPS (INR) 334.3 329.1 1.6 489.4 487.4 0.4 606.0 611.1 (0.8)

VECV

Volumes (units) 57,818 56,404 2.5 78,471 75,920 3.4 91,839 88,751 3.5

Net Sales 84,592 79,658 6.2 118,549 106,539 11.3 137,605 127,813 7.7

EBITDA 8,180 7,152 14.4 14,750 12,545 17.6 16,556 14,959 10.7

EBITDA (%) 9.7 9.0 70bp 12.4 11.8 70bp 12.0 11.7 30bp

Core Profit 4,307 3,512 22.7 8,867 7,167 23.7 9,672 8,605 12.4

EPS (INR) 99.5 84.2 18.2 198.2 164.7 20.3 223.6 199.3 12.2

Consolidated

Net Sales 130,007 124,593 4.3 183,623 170,619 7.6 218,430 207,123 5.5

EBITDA (%) 15.3 14.9 30bp 17.4 17.2 20bp 17.2 17.2 0bp

Net Profit 11,113 10,566 5.2 17,835 16,896 5.6 21,536 21,034 2.4

EPS (INR) 411.0 390.8 5.2 659.6 624.9 5.6 796.5 777.9 2.4

Source: Company, MOSL

Exhibit 9: SOTP Valuations INR M

CY15E CY16E CY17E

Royal Enfield

Core PAT (ex div & fin income) 7,834 11,611 14,028 Core Equity Value @ 30x PE 235,018 359,942 420,854 Net Debt

-18,680 -30,124 -44,146

Equity Value

253,699 390,066 465,000 VECV (@ 54.4% Economic interest)

EBITDA

4,450 8,024 9,007

EV @ 10x EV/EBITDA 44,497 80,239 90,066 Net Debt

-4,062 -7,599 -12,128

Equity Value

48,559 87,838 102,194 Total Equity Value

302,258 477,904 567,194

Target Price (INR/Sh)

11,178 17,674 20,976

Upside (%)

-31 10 30

Source: Company, MOSL

16 February 2015 8

Eicher Motors

Exhibit 10: Valuations trading above historical average, reflecting improving fundamentals

Source: MOSL

Source: MOSL

Exhibit 11: Comparative Valuation CMP * Rating TP P/E (x)

EV/EBITDA (x)

RoE (%)

RoCE (%)

Auto OEM's (INR)

(INR) FY16E FY17E

FY16E FY17E

FY16E FY17E

FY16E FY17E Bajaj Auto 2,262 Buy 2,832 14.9 12.8

9.4 7.6

36.4 35.4

50.4 48.8

Hero MotoCorp 2,806 Buy 3,222 16.4 13.9

11.3 9.2

47.0 44.9

67.5 64.6 TVS Motor 302 Buy 326 22.8 16.2

14.2 10.1

33.0 34.9

39.2 43.5

M&M 1,208 Neutral 1,293 15.8 12.5

13.8 11.6

16.2 16.5

17.5 18.4 Maruti Suzuki 3,574 Buy 4,616 20.7 15.5

11.0 8.6

18.5 20.6

23.2 26.1

Tata Motors 574 Buy 746 8.1 7.0

3.3 2.6

24.1 22.4

26.5 26.0 Ashok Leyland 66 Buy 87 18.7 11.1

9.3 5.9

18.0 26.0

17.9 26.9

Eicher Motors# 16,109 Buy 17,674 39.2 24.4

23.1 14.8

39.2 43.2

42.6 51.1 Auto Ancillaries

Bharat Forge 1,176 Buy 1,233 27.9 21.4

14.7 11.5

26.9 27.7

27.7 31.1

Exide Industries 180 Buy 241 19.4 16.2

12.0 9.8

16.8 17.5

23.6 24.5 Amara Raja Batteries 882 Buy 1,093 27.5 20.2

15.6 11.7

28.8 31.0

40.7 44.1

# Nos. are on CY basis Source: Company, MOSL

37.1

11.3

17.6

14.6

0

7

14

21

28

35

42

Feb-

00

Apr

-01

Jun-

02

Aug

-03

Oct

-04

Nov

-05

Jan-

07

Mar

-08

May

-09

Jul-1

0

Aug

-11

Oct

-12

Dec

-13

Feb-

15

P/E (x) 15 Yrs Avg(x) 5 Yrs Avg(x) 10 Yrs Avg(x)

12.0

2.3

4.2

2.8

0.0

4.0

8.0

12.0

16.0

Feb-

00

Apr

-01

Jun-

02

Aug

-03

Oct

-04

Nov

-05

Jan-

07

Mar

-08

May

-09

Jul-1

0

Aug

-11

Oct

-12

Dec

-13

Feb-

15

P/B (x) 15 Yrs Avg(x) 5 Yrs Avg(x) 10 Yrs Avg(x)

16 February 2015 9

Eicher Motors

Eicher Motors| Story in Charts: Multiple growth drivers

Exhibit 12: Capacity addition and healthy demand to drive RE volumes…

Source: Company, MOSL

Exhibit 13: …together with efficiencies of new plant to drive RE margins

Source: Company, MOSL

Exhibit 14: VECV recovery expected in CY15 onwards

Source: Company, MOSL

Exhibit 15: Improved demand, lower discounts to drive VECV margins

Source: Company, MOSL

Exhibit 16: Royal Enfield contributed ~73% of CY15 EBITDA

Source: Company, MOSL

Exhibit 17: Robust growth to drive ROE and RoCE

Source: Company, MOSL

178,

118

302,

591

449,

441

628,

284

755,

154

57.0

69.9

48.5 39.8

20.2

CY13 CY14 CY15E CY16E CY17E

Volumes (units) Growth (%)

3,25

0

7,33

6

11,8

79

17,5

46

21,3

71

19.0

24.2 26.0 26.8 26.3

CY13 CY14 CY15E CY16E CY17E

(IN

R m

)

EBITDA EBITDA Margins (%)

40,8

17

39,8

60

56,5

03

76,4

99

89,5

71

(14.1)

(2.3)

41.8

35.4

17.1

CY13 CY14 CY15E CY16E CY17E

VECV (units) Growth YoY %

3,9

71

3,8

12

8,1

80

14,

750

16,

556

7.7 6.7

9.7

12.4 12.0

CY13 CY14 CY15E CY16E CY17E

EBITDA (INR m) EBITDA (%)

60 78 73 69 70

44 22 26 30 30

(4)

0 1 1

(0)

CY13 CY14 CY15E CY16E CY17E

Royal Enfield VECV (ex-MDEP) MDEP

20.7

28.8

39.2 43.2

36.4

21.8 28.1

42.6 51.1

43.9

2013 2014E 2015E 2016E 2017E

RoE RoCE

16 February 2015 10

Eicher Motors

Financials and valuations

Income Statement (Consolidated)

(INR Million) Y/E December 2011 2012 2013 2014E 2015E 2016E 2017E

Net Sales 56,775 63,299 66,858 85,987 127,621 179,771 214,065 Change (%) 29.1 11.5 5.6 28.6 48.4 40.9 19.1 EBITDA 6,037 5,490 7,137 11,148 19,849 32,001 37,576

EBITDA Margin (%) 10.5 8.6 10.5 12.8 15.3 17.4 17.2 Depreciation 640 822 1,300 2,198 2,963 3,738 4,755 Interest cost 77 38 79 98 100 100 100 Other Income 1,281 1,366 953 1,074 1,746 2,595 3,960 PBT 6,602 5,997 6,711 9,926 18,533 30,758 36,680 Tax 1,628 1,249 1,452 2,909 5,164 8,430 10,077 Effective Rate (%) 24.7 20.8 21.6 29.3 27.9 27.4 27.5 PAT 4,974 4,749 5,259 7,017 13,369 22,328 26,604 Change (%) 62.1 -4.5 10.8 33.4 90.5 67.0 19.2 Less: Minority Interest 1,886.3 1,505.9 1,314.4 863.8 2,256.0 4,492.6 5,067.1 Adj. PAT 3,088 3,243 3,945 6,366 11,113 17,835 21,536

Change (%) 63.4 5.0 21.7 61.4 74.6 60.5 20.8

Balance Sheet (Consolidated)

(INR Million) Y/E December 2011 2012 2013 2014E 2015E 2016E 2017E

Share Capital 270 270 270 270 270 270 270 Net Worth 14,931 17,549 20,554 23,581 33,169 49,348 69,039 Minority Interest 8,377 9,485 10,397 11,261 13,517 18,010 23,077 Deferred Tax 645 1,232 1,805 1,943 2,266 2,844 3,516 Loans 504 384 839 842 842 842 842 Capital Employed 24,456 28,649 33,595 37,627 49,794 71,043 96,474 Application of Funds

Gross Fixed Assets 9,887 15,260 22,993 29,319 40,819 50,819 61,069 Less: Depreciation 4,843 5,342 6,431 8,630 11,592 15,331 20,086 Net Fixed Assets 5,044 9,918 16,561 20,690 29,227 35,489 40,983 Capital WIP 4,128 5,044 4,636 2,750 1,250 1,250 1,250 - of which Goodwill 223 223 223 223 223 223 223 Investments 5,126 6,385 8,255 8,254 8,254 8,254 8,254 Curr.Assets, L & Adv. 23,501 23,368 23,914 27,326 42,430 69,905 98,312 Inventory 4,280 4,888 5,268 6,376 9,498 13,409 15,928 Sundry Debtors 3,434 4,459 5,125 4,038 5,991 8,405 9,793 Cash & Bank Balances 11,973 8,035 6,826 11,322 18,736 36,681 59,028 Loans & Advances 3,391 5,503 6,163 4,954 7,260 10,078 11,988 Others 424 483 532 635 945 1,333 1,576 Current Liab. & Prov. 13,343 16,066 19,771 21,393 31,366 43,854 52,325 Sundry Creditors 11,238 14,356 17,612 15,727 23,439 33,111 39,406 Other Liabilities 608 6 0 2,970 4,463 6,380 7,871 Provisions 1,497 1,704 2,159 2,695 3,464 4,363 5,049 Net Current Assets 10,157 7,302 4,143 5,933 11,063 26,051 45,986 Application of Funds 24,456 28,649 33,595 37,627 49,794 71,043 96,474 E: MOSL Estimates

16 February 2015 11

Eicher Motors

Ratios (Consolidated)

Y/E December 2011 2012 2013 2014E 2015E 2016E 2017E Basic (INR)

EPS 114.4 120.1 145.9 235.4 411.0 659.6 796.5 EPS Growth (%) 63.1 5.0 21.5 61.4 74.6 60.5 20.8 Cash EPS 138.1 150.5 194.0 316.7 520.5 797.8 972.3 Book Value per Share 553.2 650.0 760.1 872.1 1,226.7 1,825.0 2,553.2 DPS 16.0 20.0 30.0 35.0 40.0 45.0 50.0 Payout (Incl. Div. Tax) % 16.3 19.5 24.1 17.9 11.7 8.2 7.6 Valuation (x)

P/E 140.8 134.1 110.4 68.4 39.2 24.4 20.2 Cash P/E 116.7 107.0 83.0 50.9 30.9 20.2 16.6 EV/EBITDA 118.1 117.0 78.4 44.6 25.3 15.6 12.5 EV/Sales 12.4 10.7 9.4 6.8 4.5 3.1 2.4 Price to Book Value 29.1 24.8 21.2 18.5 13.1 8.8 6.3 Dividend Yield (%) 0.1 0.1 0.2 0.2 0.2 0.3 0.3 Profitability Ratios (%)

RoE 22.7 20.0 20.7 28.8 39.2 43.2 36.4 RoCE 29.8 22.7 21.8 28.1 42.6 51.1 43.9 RoIC

Turnover Ratios

Debtors (Days) 22 25 27 17 17 17 16 Inventory (Days) 27 28 28 27 27 27 27 Creditors (Days) 72 82 94 66 66 66 66 Working Capital (Days) -22 -29 -39 -22 -22 -22 -23 Asset Turnover (x) 2.3 2.2 2.0 2.3 2.6 2.5 2.2 Fixed Asset Turnover

Leverage Ratio

Debt/Equity (x) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow Statement (Consolidated)

(INR Million) Y/E December 2011 2012 2013 2014E 2015E 2016E 2017E

Profit before Tax 6,602 5,997 6,706 9,926 18,533 30,758 36,680 Depreciation & Amort. 640 822 1,300 2,198 2,963 3,738 4,755 Direct Taxes Paid -1,668 -1,077 -1,504 -2,771 -4,841 -7,852 -9,405 (Inc)/Dec in Working Capital -234 391 1,491 -1,906 2,637 3,346 2,390 Interest/Div. Received 1,316 1,351 1,023 1,074 1,746 2,595 3,960 Other Items -1,305 -1,308 -819 3,636 -2,000 -2,883 -3,838 CF from Oper. Activity 5,351 6,177 8,197 12,158 19,038 29,702 34,543 (Inc)/Dec in FA+CWIP -4,173 -7,820 -7,054 -4,441 -10,000 -10,000 -10,250 Free Cash Flow 1,178 -1,644 1,143 7,717 9,038 19,702 24,293 (Pur)/Sale of Invest. -540 -1,263 -1,879 1 0 0 0 CF from Inv. Activity -4,713 -9,083 -8,933 -4,440 -10,000 -10,000 -10,250 Issue of Shares 24 4 17 -1,987 -221 -190 -216 Inc/(Dec) in Debt -453 -43 610 3 0 0 0 Interest Paid -84 -40 -80 -98 -100 -100 -100 Dividends Paid -609 -895 -1,020 -1,140 -1,303 -1,466 -1,629 CF from Fin. Activity -1,122 -974 -474 -3,222 -1,624 -1,757 -1,945 Inc/(Dec) in Cash -484 -3,880 -1,209 4,496 7,414 17,945 22,347 Add: Beginning Balance 12,457 11,915 8,035 6,826 11,322 18,735 36,680 Closing Balance 11,973 8,035 6,826 11,322 18,735 36,680 59,028 E: MOSL Estimates 0 0 0 0 0 0 0

16 February 2015 12

Eicher Motors

Corporate profile: Eicher Motors

Exhibit 19: Shareholding pattern (%) Dec-14 Sep-14 Dec-13

Promoter 55.0 55.0 55.1

DII 4.7 4.4 5.1

FII 19.5 20.1 20.0

Others 20.9 20.5 19.8

Note: FII Includes depository receipts

Exhibit 20: Top holders Holder Name % Holding

Aktiebolaget Volvo 8.4

Cartica Capital Ltd 2.8 Tiaa- Cref Institutional Mutual Funds International

2.0

Amansa Capital Pte Ltd A/c Amansa Holdings Pvt Ltd 1.3

Tree Line Asia Master Fund (Singapore) PTE Ltd 1.1

Exhibit 21: Top management Name Designation

S Sandilya Chairman

Siddhartha Lal Managing Director & CEO

Lalit Malik CFO, EML

B Govindarajan COO, Royal Enfield

Vinod Aggarwal CEO, VECV

Exhibit 22: Directors Name Name

S Sandilya Prateek Jalan

Siddhartha Lal R L Ravichandran

Priya Brat

M J Subbaiah

*Independent

Exhibit 23: Auditors

Name Type

Deloitte Haskins & Sells LLP Statutory V Kalyanaraman Cost Auditor

Exhibit 24: MOSL forecast v/s consensus EPS

(INR) MOSL

forecast Consensus

forecast Variation

(%)

FY15 411.0 403.3 1.9 FY16 659.6 581.0 13.5 FY17 796.5 645.5 23.4

Company description Promoted by the Delhi-based Vikram Lal Group, Eicher Motors (EIM) is a diversified engineering company. It is engaged in the business of high end motorcycles (350cc & above) under the brand 'Royal Enfield', and commercial vehicles (CVs), automotive gears and components, and engineering solutions through its subsidiary, Volvo Eicher Commercial Vehicles (VECV).

Exhibit 18: Sensex rebased

16 February 2015 13

Eicher Motors

N O T E S

16 February 2015 14

Eicher Motors

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