commercial vehicle industry initiation report[1]

JM Financial Institutional Securities Private Limited

Heavier the merrier

Expect MHCV to witness volumes CAGR of 18% till FY13: MHCV volume growth has a long-term correlation with 1.5x the industrial production (IIP) growth (see exhibit 1); however, in the initial years of an up-cycle the growth is much higher than the long-term correlation. We expect the MHCV segment to see volumes CAGR of 18% till FY13 compared to a 19% CAGR over the last cycle between FY01-FY08.

Tonnage/volume growth at 1.3x: In the last cycle, the tonnage/volume growth used to be around 1x; it is currently c.1.3x (see exhibit 1) driven by strong demand for heavy tonnage vehicles. Improving highway network, revival of the industrial capex cycle, government thrust on infrastructure and better operating economics are driving demand for higher tonnage trucks.

Hub and Spoke model driving tonnage polarisation: While higher tonnage trucks are becoming prevalent on highways the smaller trucks (sub 1 tn) are rapidly replacing intermediate tonnage trucks for providing last mile connectivity. This polarisation is squeezing the intermediate segment (see exhibit 2). Entry regulations in many cities are putting the intermediate trucks at further disadvantage.

Several entry barriers favour incumbents: The MHCV industry has several entry barriers, like reach in terms of sales and service with the latter being very critical. Mapping truck routes across the country and ensuring service and spare availability on these routes is critical for success. This is a big advantage for incumbents as creating reach is very time and resource intensive. We expect serious competition from new players like Mahindra-Navistar and Daimler, but that is still 2-3 years away, giving enough window of opportunity for incumbents to scale up their R&D.

Pricing strong in MHCV and weak in LCV: The MHCV industry has seen price increase (excluding excise) of c.8% since Oct’09 despite moderate increase in commodity prices. Ashok Leyland (AL) and Eicher Motors (EIM) have been the biggest beneficiaries of the benign pricing environment. In FY10, AL’s operating profit was 94% of FY08 levels despite volumes being 77% of FY08 levels. Increasing competition in the small truck market (where reach is not as critical as in the MHCV space) is leading to lower margins for incumbents. TTMT has refrained from increasing prices of Ace despite increase in excise duty and commodity pressure resulting in lower profits.

AL and EIM to outperform industry growth: We are initiating coverage on AL and EIM, which derive complete/bulk of their earnings from CVs. AL and EIM will outperform the industry growth with a volume CAGR of 25% and 30%.

We initiate with BUY on AL and EIM with TP of `91.2 and `1,677: We believe heavier is merrier in the medium-term due to limited competition and strong cyclical demand. We are initiating coverage on AL and EIM, which derive complete/bulk of their earnings from CVs, with BUY rating and target price of `91.2 (upside of 31%) and `1,677 (upside of 53%) respectively. We have delved deeper into EIM as it not widely tracked, and according to us, is a stock for keeps.

Pramod Kumar [email protected]

Tel: (91 22) 6630 3019

Mitakshi Ashar [email protected]

Tel: (91 22) 6630 3079

Recommendations

Company Ashok

Leyland Eicher Motors

Rating BUY BUY

B'berg Ticker AL IB EIM IB

TP (`) 91 1,677

CMP (`) 70 1,093

Upside/Downside (%) 31.0 53.4

Source: Bloomberg, JM Financial

Relative Performance

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

1-Apr-09

1-Jun-09

1-Aug-09

1-Oct-09

1-Dec -09

1-Feb-10

1-Apr-10

1-Jun-10

1-Aug-10

AL EIM SENSEX


Commercial Vehicle Industry

30 August 2010

India | Automobiles | Initiating Coverage

JM Fiancial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters.

Please see important disclosure at the end of the report

Commercial Vehicle Industry 30 August 2010


Exhibit 1. Growth in IIP and MHCV volumes, tonnage/volume trend

-60

-40

-20

0

20

40

60

80

100

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

1Q

FY11

%

0

2

4

6

8

10

12

14

%

MHCV IIP

1.0x1.1x

0.6x

1.3x

1.0x

1.2x

1.1x 1.2x

-50

-25

0

25

50

75

100

125

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

1Q

FY11

1Q

FY11 Q

oQ

%

Volume growth

Tonnage growth X Tonnage/Volume

1.1

Source: SIAM, JM Financial

Exhibit 2. Hub and Spoke driving tonnage polarisation

0%

20%

40%

60%

80%

100%

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

1QFY

11

< 3.5 3.5-5 5-7.5 7.5-12 12-16.2 16.2-25 > 25

0%

20%

40%

60%

80%

100%

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

1QFY

11

7.5-12 12-16.2 16.2-25 > 25

Source: SIAM, JM Financial

Exhibit 3. Freight Index on a steady rise

170

171

172

173

174

May

-09

Jun

-09

Jul-

09

Sep-0

9

Oct

-09

No

v-0

9

Jan

-10

Feb

-10

Apr-

10

May

-10

Jun

-10

Au

g-1

0

Source: TCI, JM Financial


Pantnagar a game changer

Pantnagar to bring in significant cost advantage: This is the only MHCV plant in a tax haven zone giving AL a significant cost advantage (100% excise exemption for 10 years, 100% income tax exemption for the first 5 years and 30% over the following 5 years). We estimate this plant to bring in additional benefits of `595mn and atleast `1.2bn for FY11 and FY12. Pantnagar will also act as a beach-head to increase its reach in the North India market.

Huge operating leverage: We expect AL’s capacity utilisation to be c.58% in FY11 and c.67% in FY12, bringing in huge operating leverage. The improvement in utilisation will be driven by ramp-up at the Pantnagar plant, which with 50,000 units will account for 33% of overall capacity. AL’s existing capacity of 150,000 units will hold good till FY14-FY15 driving up RoEs.

Financing arm to increase market acceptance: The recently launched captive financing arm will be able to finance over 4,000 trucks in FY11 and a much higher number in the future, improving AL’s acceptance amongst customers.

Entry into LCV and CE business to reduce cyclic trend further: AL’s portfolio will be less cyclical FY12 onwards as the JVs start commercial launches. By mid-2011, LCVs from Nissan JV and CEs from the John Deere JV will be launched.

Expect FY10-FY12E revenue and earnings CAGR of 30% and 40%: Volume and realisation CAGR of 25% and 3.3% will drive strong revenue growth. Earnings growth will be driven by 37% CAGR in operating profits. Bulk of the tax haven benefits will be back-ended in FY11. Expect EPS of `4.8 and `6.2.

Pantnagar and financing arm to boost marketshare: We expect AL’s MHCV marketshare to increase by at-least 280 bps by FY12 driven by Pantnagar and the financing arm.

Investment in JVs valued at `5.4 per share (1x FY12E BV)

Initiate with BUY and TP of `91.2, 31% upside: AL currently owns 17.2mn IndusInd Bank shares which are worth `2 per share (after 30% discount). In addition, investment in the key JVs are worth `5.4 per share (1x FY12E BV). We value the standalone business at `83.8 (13.5x FY12 EPS or 8.6x EV/EBITDA), taking the target price to `91.2 (18% above consensus).t

JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters. Please see important disclosure at the end of the report


Tel: (91 22) 6630 3019


Tel: (91 22) 6630 3079

Key Data

Market cap (bn) ` 92.7 / US$ 2.0

Shares in issue (mn) 1,330

Diluted share (mn) 1,330

3-mon avg daily val (mn) ` 359.7 / US$ 7.7

52-week range 74.2 / 34.3

Sensex/Nifty (20-08-2010) 18,402/5,531

`/US$ 46.7

Daily Performance

Ashok Leyland

01020304050607080

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov-

09

Jan-

10

Mar

-10

May

-10

Jul-1

0

-20%0%20%40%60%80%100%120%140%160%180%

Ashok Leyland Relative to Sensex (RHS)

% 1M 3M 12M

Absolute -1.8 14.5 98.3

Relative* -4.7 3.2 75.7

* To the BSE Sensex

Shareholding Pattern (%) 1QFY11 1QFY10

Promoters 38.6 38.6

FII 13.6 10.2

DII 19.4 19.7

Public / others 28.3 31.5

Ashok Leyland | AL IN

30 August 2010

India | Automobiles | Initiating Coverage Price: `70

BUY

Target: `91.2 (Mar’11)

Exhibit 4. Financial Summary (` mn)Y/E March FY08 FY09 FY10 FY11E FY12E

Net sales 77,426 59,811 72,447 101,493 121,304

Sales growth (%) 0 -22.8 21.1 40.1 19.5

EBITDA 8,077 4,560 7,596 11,242 14,258

EBITDA (%) 10.4 7.6 10.5 11.1 11.8

Adjusted net profit 4,694 1,900 4,237 6,345 8,254

EPS (`) 3.5 1.4 3.2 4.8 6.2

EPS growth (%) 0 -59.5 123.0 49.8 30.1

ROCE (%) 19.7 7.5 9.1 13.7 17.3

ROE (%) 22.1 6.8 11.8 16.3 19.2

PE (x) 19.8 48.8 21.9 14.6 11.2

Price/Book value (x) 4.4 2.7 2.5 2.3 2.0

EV/EBITDA (x) 11.3 23.9 14.0 8.8 6.5

Source: Company data, JM Financial. Note: Valuations as of 20/08/2010

Ashok Leyland 30 August 2010


Pantnagar plant a game changer: This is the only MHCV plant in a tax haven zone giving AL a significant cost advantage (100% excise exemption for 10 years, 100% income tax exemption for the first 5 years and 30% over the following 5 years). The company is expected to save `35,000 on each of the 17,000 odd trucks to be rolled out in FY11 from this plant. In FY12, we expect volumes of 30,000 units from this plant and the benefits to be over `40,000 per truck. This would mean `595mn and atleast `1.2bn in terms of additional benefit in FY11 and FY12. Pantnagar will also act as a beach-head to increase its reach in the North India market.

Huge scope for marketshare gains in non-South markets: While AL enjoys a strong 45-46% share of the South HCV market its presence in other geographies has been much below its potential. Its share in the key North and West markets is c.26% and c.18%, and in the smaller east market its a meager 10%. Geographical distance is one of the reason for lower share in these markets. However, with commissioning of the Pantnagar plant, AL is very close to the North and East markets, leading to shorter time-to-market and lower logistical costs. This coupled with the captive financing arm will ensure that AL increases its marketshare considerably in the North and West markets, helping it outpace industry growth over the next few years.

Exhibit 5. Region-wise marketshare and tonnage wise marketshare trend

> 16 tn

26%

46%

10%

18%

0%

10%

20%

30%

40%

50%

North South East West

4

21

33

29

5

21

26

33

3

25 2426

6

28 29 29

0

5

10

15

20

25

30

35

7.5-12 tn 12-16.2 tn 16.2-25 tn >25 tn

%

FY08 FY09 FY10 YTDFY11

Source: Company, JM Financial

Huge operating leverage: With the commissioning of the Pantnagar plant, AL has a capacity of around 150,000 units, of which it will be utilising only c.58% in FY11. This gives the company a huge operating leverage going forward. This, along with the tax benefits, should help it protect margins despite commodity pressure.

Exhibit 6. Installed capacity and capacity utilisation

-

50

100

150

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

Thousa

nds

units

0

25

50

75

100

%

Installed Capacity Capacity Utilisation




Financing arm to increase acceptance amongst customers: AL has been at a disadvantage, a significant one in a downturn, vis-a-vis Tata Motors due to lack of a captive financing arm. Since virtually all CVs sold are financed, presence of a captive financing arm considerably improves customer acceptance. The recently launched captive financing arm will be able to finance over 4,000 trucks in FY11 and a much higher number in the future as the book size increases, improving AL’s acceptance amongst customers.

Exhibit 7. Trend in dependence of Tata Motors on Tata Motors Finance

85

90

95

100

105

110

FY07 FY08 FY09 FY10

Uni

ts '0

00s

20

25

30

35

40

45

%

CVs f inanced % of domestic CVs


Entry into LCV and CE business to reduce cyclic trend further: AL being a pure MHCV player is weighed down by the cyclical nature of the MHCV segment. Comparatively, the LCV segment is much more stable and has gradually grown bigger than the MHCV segment in terms of volumes (see exhibit 8). AL's JV with Nissan will roll out its LCVs by mid-2011. By early 2011, its entry in the construction equipment (CE) business with John Deere will also open up a non-cyclical stream of revenue with limited capex. In addition, JVs with Albonair and Alteams will also start contributing significantly.

Exhibit 8. MHCV and LCV growth trends

0

75

150

225

300

375

FY03 FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E

Thou

sand

s

(40)

-

40

80

120

%

LCV MHCV LCV Grow th % MHCV Grow th %




Entry into sub 3.5tn market; better late than never: The sub 3.5tn cargo segment has seen a CAGR of 38% since FY03 with bulk of that growth coming after launch of Tata Ace in May 2005. AL, due to its limited presence in the LCV segment (less than 2% of its volumes), missed this opportunity. However, the JV with Nissan will enable the company to participate in this fast growing segment. The JV will be launching products between the 2.5tn-5tn segment, with the first product targeted for launch in mid-2011. Nissan’s LCV expertise coupled with AL’s wide reach will enable the JV to quickly ramp-up volumes.

Exhibit 9. Volume and growth trend in LCV (sub 1 tonne cargo)

0

75

150

225

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 1QFY11

Thou

sand

s

-10

20

50

80

%

Volume Grow th %


Key JVs valued at `5.4 per share: Key JVs contribute around `5.4 per share based on a 1x FY12 price/book multiple to the estimated investments.

Exhibit 10. Details of Key JVs

Company Description Total Investment FY10/FY12E (` mn) Status

Nissan Motors JV to develop, manufacture and distribute LCVs under both brands; JV has three separate companies - A vehicle manufacturing company, AL: Nissan- 51:49 - Powertrain manufacturing company, AL:Nissan- 49:51 - A technology development company, 50:50 JV

748 / 5,888 Rollout in Feb 2011

John Deere (JD) A 50:50 JV to manufacture and market Construction Equipment under both brands. Initially rollout Backhoes and four-wheel drive loaders

292 / 792 Rollout by Feb 2011

Automotive Infotronics

A 50:50 JV to design, develop infotronics products and services for automotive customers

50 / 50 200-230 cr in FY11

Ashley Alteams India Pvt Ltd

A 50:50 JV to produce high Pressure Die Casting aluminum components for telecom & automotive sectors

250 / 500 Went on stream in January 2010

Per share book value (`) 1 / 5.4

Source: Company, JM Research



Key assumptions

Exhibit 11. Volumes and realisation assumption (Units) FY10 FY11E YoY (%) FY12E YoY (%)

Volumes 63,933 87,623 37.1 100,235 14.4

MDV Passenger 18,452 21,322 15.6 23,257 9.1

MDV Goods 44,384 64,851 46.1 75,181 15.9

LCV 1,097 1,450 32.2 1,797 23.9

Domestic 57,959 80,301 38.5 91,553 14.0

MDV Passenger 16,405 18,866 15.0 20,186 7.0

MDV Goods 40,742 60,298 48.0 69,946 16.0

LCV 812 1,137 40.0 1,421 25.0

Export 5,974 7,322 22.6 8,682 18.6

MDV Passenger 2,047 2,456 20.0 3,071 25.0

MDV Goods 3,642 4,553 25.0 5,235 15.0

LCV 285 314 10.0 376 20.0

Realisations (`) 1,133,172 1,158,290 2.2 1,210,190 4.5

Source: JM Financial

Valuations

AL currently owns 17.2mn shares in IndusInd Bank which are worth `2 per share (after 30% discount). In addition, investments in key JVs are valued at `5.4 per share (1x FY12E BV). AL deserves a higher multiple than its historic average due to the tax haven plant and new forays like LCV, CE which will make the business less cyclical. We value the standalone business at `83.8 (13.5x FY12 EPS or 8.6x EV/EBITDA), taking the target price to `91.2. At the current price the stock is trading at 11.2x FY12E EPS. We initiate coverage with a BUY rating. Please see exhibit 27 on page 22 for Global CVs comparable table.

Key risks

Key downside risks are: a) Lower than estimated volumes from Pantnagar plant, b) Drastic slowdown in industrial growth, c) Sharp increase in diesel prices, and d) sharp increase in interest rates.

Higher than estimated ramp-up at Pantnagar is the key upside risk

Exhibit 12. AL 1 yr fwd P/E

0

40

80

120

Ap

r-0

3

Dec

-03

Au

g-0

4

Ap

r-0

5

Dec

-05

Au

g-0

6

Ap

r-0

7

Dec

-07

Au

g-0

8

Ap

r-0

9

Dec

-09

Au

g-1

0

5x

11x8x

20x

14x

17x




Financial Tables

Profit & Loss (` mn) Y/E March FY08A FY09A FY10A FY11E FY12E

Net sales (Net of excise) 77,426 59,811 72,447 101,493 121,304

Growth (%) -22.8 21.1 40.1 19.5

Other operational income 0 0 0 0 0

Raw material (or COGS) 57,647 44,442 52,041 75,402 90,426

Personnel cost 6,289 5,797 6,749 8,119 9,098

Other expenses (or SG&A) 5,412 5,011 6,062 6,729 7,522

EBITDA 8,077 4,560 7,596 11,242 14,258

EBITDA (%) 10.4 7.6 10.5 11.1 11.8

Growth (%) -43.6 66.6 48.0 26.8

Other non-op. income 576 496 704 321 408

Depreciation and amort. 1,774 1,784 2,041 2,426 2,677

EBIT 6,880 3,271 6,259 9,137 11,990

Add: Net interest income -497 -1,187 -811 -1,400 -1,800

Pre tax profit 6,382 2,084 5,448 7,737 10,190

Taxes 1,688 185 1,211 1,393 1,936

Add: Extraordinary items 0 0 0 0 0

Less: Minority interest 0 0 0 0 0

Reported net profit 4,694 1,900 4,237 6,345 8,254

Adjusted net profit 4,694 1,900 4,237 6,345 8,254

Margin (%) 6.1 3.2 5.8 6.3 6.8

Diluted share cap. (mn) 1,330 1,330 1,330 1,330 1,330

Diluted EPS (`.) 3.5 1.4 3.2 4.8 6.2

Growth (%) NA -59.5 123.0 49.8 30.1

Total Dividend + Tax 2,337 1,556 2,327 2,724 3,502


Balance Sheet (` mn) Y/E March FY08A FY09A FY10A FY11E FY12E

Share capital 1,330 1,330 1,330 1,330 1,330

Other capital 0 0 0 0 0

Reserves and surplus 19,937 33,349 35,946 39,432 44,054

Networth 21,267 34,680 37,277 40,763 45,385

Total loans 8,875 19,581 22,039 20,977 19,591

Minority interest 0 0 0 0 0

Sources of funds 30,142 54,261 59,316 61,740 64,976

Intangible assets 0 0 0 0 0

Fixed assets 29,424 49,389 60,186 64,396 68,707

Less: Depn. and amort. 14,169 15,398 17,691 20,249 23,059

Net block 15,256 33,991 42,496 44,147 45,648

Capital WIP 5,292 9,983 5,615 5,600 5,600

Investments 6,099 2,635 3,262 8,151 11,080

Def tax assets/- liability -2,538 -2,634 -3,845 -4,845 -5,845

Current assets 28,753 31,656 41,397 47,898 54,834

Inventories 12,239 13,300 16,382 23,635 26,587

Sundry debtors 3,758 9,580 10,221 6,952 8,308

Cash & bank balances 4,514 881 5,189 6,641 8,024

Other current assets 0 0 0 0 0

Loans & advances 8,241 7,895 9,605 10,670 11,914

Current liabilities & prov. 22,719 21,369 29,608 39,211 46,342

Current liabilities 19,267 18,689 25,921 35,137 41,488

Provisions and others 3,452 2,681 3,687 4,074 4,854

Net current assets 6,033 10,287 11,789 8,687 8,492

Others (net) 0 0 0 0 0

Application of funds 30,142 54,262 59,316 61,740 64,975


Cash flow statement (` mn) Y/E March FY08A FY09A FY10A FY11E FY12E

Reported net profit 4,694 1,900 4,237 6,345 8,254

Depreciation and amort. 1,037 1,229 2,292 2,558 2,810

-Inc/dec in working cap. 2,949 -6,521 1,881 5,233 2,042

Others 0 0 0 0 0

Cash from operations (a) 8,680 -3,392 8,410 14,136 13,105

-Inc/dec in investments -3,888 3,464 -627 -4,889 -2,929

Capex -6,140 -24,656 -6,429 -4,195 -4,311

Others 601 -1,366 925 -679 -463

Cash flow from inv. (b) -9,427 -22,558 -6,130 -9,763 -7,703

Inc/-dec in capital 209 13,069 687 -135 -130

Dividend+Tax thereon -2,337 -1,556 -2,327 -2,724 -3,502

Inc/-dec in loans 2,471 10,706 2,457 -1,062 -1,386

Others 569 96 1,211 1,000 1,000

Financial cash flow ( c ) 911 22,316 2,029 -2,921 -4,018

Inc/-dec in cash (a+b+c) 164 -3,633 4,308 1,452 1,384

Opening cash balance 4,349 4,514 881 5,189 6,641

Closing cash balance 4,514 880 5,189 6,641 8,025


Key Ratios Y/E March FY08A FY09A FY10A FY11E FY12E

BV/Share (`) 16.0 26.1 28.0 30.6 34.1

ROCE (%) 19.7 7.5 9.1 13.7 17.3

ROE (%) 22.1 6.8 11.8 16.3 19.2

Net Debt/equity ratio (x) -0.1 0.5 0.4 0.2 0.0

Valuation ratios (x)

PER 19.8 48.8 21.9 14.6 11.2

PBV 4.4 2.7 2.5 2.3 2.0

EV/EBITDA 11.3 23.9 14.0 8.8 6.5

EV/Sales 1.2 1.8 1.5 1.0 0.8

Turnover ratios (no.)

Debtor days 18 58 51 25 25

Inventory days 58 81 83 85 80

Creditor days 110 145 164 157 157



This one is for keeps

JV with AB Volvo a game changer: The JV with AB Volvo (VECV, which accounts for 85% of consolidated earnings) will increase their presence (currently 3%) in the `250bn domestic HCV market and also grow as a major sourcing hub for Volvo.

Huge upsides from engine deal; will lead to other sourcing opportunities: AB Volvo recently chose VECV as its manufacturing hub for 85,000 Euro 3,4,5 and 6 engines. Apart from the additional source of revenues (JMFe `12bn in CY13 assuming first year exports of 40,000 units) this will give VECV a huge technology lead over domestic peers. This deal, according to us, is a precursor to outsourcing of other parts to the JV.

Success of JV crucial for AB Volvo: Unlike the developed world, emerging markets have come out stronger from the slowdown, growing beyond the pre-crisis highs. Success in emerging markets is crucial and a lot of that depends on the way VECV grows. AB Volvo expects Asia to be its largest market by 2015 with 60% of the demand coming from India and China.

Royal Enfield in a sweet spot: RE is seeing an unprecedented demand for its new launches and is enjoying a waiting period of several months. Cult brand equity and lack of competition gives RE tremendous pricing power. Expect volumes of c.57,000 units in CY10 and c.72,000 units in CY11, resulting in operating profit of `663mn (up 70%) for CY10 and `1bn (up 51%) for CY11.

VECV operating profit to witness 98% CAGR in CY09-CY11: We expect VECV’s operating profit, including the discounted value of the engine deal, to be at `5,1bn in CY11.

Net cash of `518/share in CY11

Initiate with BUY and TP of Rs1,677, 53% upside: Our CY11E based per share value of the standalone and VECV operating business works out to `332 (15x CY11E EPS) and `829 (13x CY11 EPS). These along with the cash of `515 take the SOTP to `1,677. Alternatively, the stock is available 8.7x our CY11E consolidated EPS of Rs125 (including the engine deal) and at our TP of Rs1,677 it would trade at Rs13.4x. BUY for an upside of 53%.

JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters.

Please see important disclosure at the end of the report


Tel: (91 22) 6630 3019


Tel: (91 22) 6630 3079

Key Data

Market cap (bn) ` 29.3 / US$ 0.6

Shares in issue (mn) 26.8

Diluted share (mn) 26.8

3-mon avg daily val (mn) `123.2 / US$ 2.6

52-week range 1150 / 420

Sensex/Nifty (20-08-2010) 18,402/5,531

`/US$ 46.7

Daily Performance

Eicher Motors

0

200

400

600

800

1000

1200

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov-

09

Jan-

10

Mar

-10

May

-10

Jul-1

0

-50%

0%

50%

100%

150%

200%

Eicher Motors Relative to Sensex (RHS)

% 1M 3M 12M

Absolute 13.2 32.4 153.8

Relative* 10.2 21.0 131.2

* To the BSE Sensex

Shareholding Pattern (%) 1QCY10 1QCY09

Promoters 55.7 55.9

FII 11.0 11.1

DII 10.5 6.7

Public / others 22.9 26.3

Eicher Motors | EIM IN

30 August 2010

India | Automobiles | Initiating Coverage Price: `1,093

BUY

Target: `1,677 (Mar’11)

Exhibit 13. Financial Summary (Consolidated) (` mn) Y/E March CY09 CY10E CY11E

Net sales 29,386 42,794 52,542

Sales growth (%) 71.1 45.6 22.8

EBITDA 1,593 4,027 5,545

EBITDA (%) 5.4 9.4 10.6

Adjusted net profit 981 2,319 3,053

EPS (`) 36.7 86.9 114.4

EPS growth (%) 355.3 136.6 31.7

ROCE (%) 11.6 25.3 29.0

ROE (%) 6.0 13.1 14.6

PE (x) 29.8 12.6 9.6

Price/Book value (x) 1.8 1.5 1.3

EV/EBITDA (x) 17.6 6.8 4.8

Source: Company data, JM Financial. Note: Valuations as of 20/08/2010

Eicher Motors 30 August 2010


About EIM

EIM is promoted by the Delhi-based Vikram Lal group. Automobile segment

remains the core focus of the group, with business interest in other areas like management consultancy, engineering solutions and exports of food products. Mr S Sandilya (Chairman), Mr Siddhartha Lal (MD & CEO), Mr Vinod Aggarwal (CEO of VECV) and Mr R L Ravichandran (CEO of Royal Enfield) hold the key positions of the company. The core management team has vast experience in various functional areas within and outside the Eicher Group. Currently, the Indian promoter holds 55.9% and Volvo owns 8.5% stake.

EIM structure

Exhibit 14. EIM Structure


Manufacturing facility

Exhibit 15. EIM product profile

Product profile Location Annual Capacity (units)

Motorcycles (Royal Enfield) Thiruvottiyur, Chennai (TN) 60,000 (being expanded)

CV (Trucks, Buses and Chassis) , Automotive gears (for Exports)

Pithampur (MP) 48,000

Automotive gears (for Domestic tractors and CV sector)

Thane, Mumbai -

Automotive gears (transmission gears and safts)

Dewas (MP) -

Source: Company

Eicher Motors Ltd

Motorcyc le (Royal Enfield) 100% standalone business

VE Commercial Vehic les LTD (VECV) 54.4% subsidiary

Eicher Engineering Solutions (EES) (USA, 100% subsidiary)

Hoff Automotive Design (China, 100% subsidiary of EES)

Hoff Technology Service (China, 100% subsidiary of EES)



About AB Volvo’s India operations

Sweden-based AB Volvo is the world’s second largest producer of heavy trucks. Volvo entered India in 1997 to meet the rising demand for luxury buses. As the company sells only fully built buses it entered into a JV with local coach builder, JAICO Automobiles, for manufacturing buses. The manufacturing facility is located at Hoskote, near Bangalore with monthly production capacity of 200 plus vehicles. After establishing itself as a synonym for luxury buses the company started selling high tonnage trucks for mining application. Volvo is offering FM and FH range of heavy duty trucks (49tn-150tn) in the Indian market, catering to construction, mining, petroleum and other similar heavy load areas.

Rationale behind the JV

Despite being present in the country for ten years Volvo was not able to make much impact in the truck segment due to lack of India specific products which are low on power, tonnage and price. Incidentally, the company faced the same problem in other emerging markets where the requirement is for cheaper trucks. With growth stagnating in developed markets and lack of emerging market specific products the company decided to partner EIM. The bus business of Volvo was kept out of VECV as it already had a JV with JAICO. However, the after sales business for buses was merged into VECV.

Volvo – Eicher Alliance

In Jul’08, EIM formed a joint venture company, VECV, with Volvo. VECV

comprises EIM’s CV, component and engineering solution businesses and the Volvo Group’s Indian truck sales and services (buses and trucks) operations.

Key highlights of the joint venture

• EIM and Volvo hold 54.4% and 45.6% respectively in the JV company (VECV).

VECV is jointly managed by EIM and Volvo with shared management and

equal representation rights on the board. VECV is a subsidiary of EIM.

• The CV business of EIM along with related components and design services

business was transferred to VECV at an enterprise value of US$506mn.

• Volvo invested a total of US$350mn in VECV (with US$275mn cash and its

Indian truck dealer and service network worth US$75mn).

• Volvo acquired 8.1% stake in EIM from EML promoters.

• Post acquisition of stake in EIM, Volvo’s economic ownership in VECV is 50%.



Exhibit 16. Valuation of the deal US$ mn Enterprise value of CV business along with components and engineering and design business of Eicher motors 506 Amount paid by Volvo for 45.6% stake 350 Divided as Cash 275 Value for dealership and after sales network of Volvo India (20 in numbers) 75 Value of JV taking value of Volvo's stake 768 Value of Eicher Motors stake of 54.4% (A) 418 Value of Eicher motors business for JV (B) 506 Cash received by Eicher Motors from JV (B-A) 89

Source: Company

JV with AB Volvo a game changer: The JV with AB Volvo (VECV, which accounts for 85% of consolidated earnings) will increase their presence (currently 3%) in the `250bn domestic HCV market and also grow as a major sourcing hub for AB Volvo. EIM on its own had limited technology and financial resource to take on the quasi duopoly of Tata Motors and Ashok Leyland in the HCV market. AB Volvo also wanted to participate more meaningfully in the fast growing Indian market. JV with EIM gave AB Volvo a complementary product portfolio, a strong manufacturing base and a management which was ready to take them on-board as equal partners rather than as a minority partner providing technology.

Huge upsides from engine deal: AB Volvo recently announced VECV as a global manufacturing hub for 85,000 Euro 3,4,5 and 6 medium duty engines, thanks to the compatibility of the partners and VECV’s efficient operations. With this deal AB Volvo will be bringing in its latest technology to India. Of these 85,000 engines, VECV will do the final assembly of 55,000 Euro 3 and 4 engines and export bulk of them to AB Volvo. Another 30,000 engines for Euro 5 and 6 will be exported to AB Volvo in the base form. This deal not only throws up an additional source of revenue (c. `12bn in CY13 and increasing in subsequent years) but also gives VECV a huge lead over domestic competition in terms of engine technology. With the Euro 6 engine, VECV will be ready to meet the Indian emission norms beyond 2020.

Engine deal a precursor to more sourcing: Sourcing of the most critical part from the JV is, according to us, a precursor to bigger sourcing opportunities which will also result in deployment of huge surplus cash. We expect large outsourcing announcements over the next two years.

Success of JV very crucial for AB Volvo: Since Jul’08, when the JV was formalised, AB Volvo’s global business has taken a big hit due to the meltdown in the developed world. Revenue fell from US$46.7bn in 2008 to US$28.7bn in 2009 as demand collapsed in Europe and America. However, India and other emerging markets have come out stronger from the slowdown, growing beyond the pre-crisis highs. Increasing its presence in these markets is very crucial for AB Volvo and a lot of it will depend on the success of VECV. AB Volvo expects Asia to be its largest market by 2015 with 60% of the demand coming from India and China.



Exhibit 17. Geographical break-up of sales of AB Volvo

Source: Company

Volvo’s technology and Eicher’s reach, a great combination: Amongst all the recent JVs in the truck market VECV is best placed to quickly ramp up its marketshare. While AB Volvo brings in its expertise in R&D, production, sales and after sales, EIM brings a wide product portfolio, a strong reach and understanding of the market. The JV has already launched the new line of HCVs under the VE Series (Value Enhanced) which has resulted in monthly HCV volumes improving from 100 units to 300 units.

Exhibit 18. Segment wise presence of all the players Key players \ tonnage < 3.5 3.5-5 5-7.5 7.5-12 12-16.2 16.2-25 >25 TT 26.4-35 TT > 35

AMW - - - - - - Y - Y Ashok Leyland - - Y Y Y Y Y Y Y Force Motors Y Y Y - - - - - - Hino Motors - - - - - Y - Y - M&M / Navistar Y Y Y - - - Y - - MAN Force - - - - Y Y - - Y Mercedes-Benz - - - - - - Y - - Piaggio Vehicles Y - - - - - - - - Swaraj Mazda - Y Y - - - - - Tata Motors Y Y Y Y Y Y Y Y Y VECV - - Y Y Y Y Y - Y

Source: Company

Bridging the gap between Indian and European trucks: We expect VECV to launch a new platform of trucks priced between the existing Indian HCVs and the European trucks. The current 49tn Indian CV costs around `2mn while a European truck costs around `6mn. Launching a truck in the mid-segment will result in greater volumes, and according to us, VECV is best placed to outperform its peers here. There is a bigger scope for such development in the bus segment where AB Volvo is a synonym for luxury buses. Government’s focus on improving the quality of public transportation and network bodes very well for the luxury bus segment, especially, if prices could be made more affordable.

AB Volvo bringing in the best talent and practises: AB Volvo has tapped its global network to bring in the best of the talent into VECV. The plant head deputed to VECV was handling the Nissan Diesel plant in Japan, one of the best in the world. Similarly AB Volvo executives have been deputed in areas like marketing, services, spares and quality.

8 9 9 514 18 19 21

0%

20%

40%

60%

80%

100%

CY03 CY04 CY05 CY06 CY07 CY08 CY09 1HCY10

Europe North America South America Asia Other markets



Vision 2015: 15% of HCV market share against current 3%: The management has set itself a target to achieve atleast 15% of the HCV market share in India compared with under 3% currently. In the process, the company wants to reach the 100,000 units sales milestone compared with 25,164 units in CY09, implying a target CAGR of 26%.

Exhibit 19. Management vision for 2015

4

20

610

30

4330

1510

-

5

10

15

20

25

30

35

40

45

50

Bus MCV HCV

Thou

sand

s

0

5

10

15

20

25

30

35

%

2008 2015E 2015E minimum marketshare (RHS)

Source: Company

Negative working capital; sales to core capital employed and net fixed assets over 7.5x: The total capital employed at the consolidated level stood at `17.8bn for CY09, of which c. `14bn was surplus cash and cash equivalent, implying capital employed (net of surplus cash) to be a mere `3.8bn. Similarly, net fixed assets stood at `3.8bn, implying a sales/net fixed assets turnover of 7.8x. VECV is not only much better placed than its peers, Tata Motors and Ashok Leyland, but is also comparable to the two wheeler players.

Exhibit 20. Trend in consolidated working capital

1,526

826 906

89

-924

-1,347-1,600

-800

0

800

1,600

2,400

Dec

-08

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Rs

mn

Source: Company



Royal Enfield can be a big opportunity: We believe, Royal Enfield is operating much below its potential and can surprise hugely on the upside going forward. Cult brand equity, lack of competition and successful new launches are resulting in an unprecedented demand for its bikes. Its latest offering Classic 350 and 500 have a waiting period of over 5 months. The company is in the process of ramping up production to meet demand and aims to sell 100,000 units/year by 2013 with the existing portfolio, implying a CAGR of 18% for CY09-CY13E. We expect the recent launches in the superbike segment (Kawasaki Ninja, the cheapest bike costing around `300,000) and the proposed launch of Harley Davidson (Harley) will lead to significant growth in lifestyle biking. Harley will create huge aspirational demand for lifestyle bikes but will be out of reach for many customers due to the steep prices (ranges from `0.7mn to `3.5mn). This bodes well for Royal Enfield due to its low pricing (Classic 500, the most expensive bike in the portfolio, costs around `150,000) and near Harley experience.

Exhibit 21. Classic 500


Expect volume CAGR of 30.5% for VECV and 17.6% for standalone: We

expect VECV and standalone volumes to grow by 30% and 18% between CY09-CY11E.



Exhibit 22. EIM growth and volumes trend

21

33

5257

72

40

-

15

30

45

60

75

90

CY09 CY10E CY11E

Uni

ts '0

00s

0

10

20

30

40

50

60

70

%

VECV Standalone VECV YoY Standalone YoY

Source: Company, JMFinancial

Revenue CAGR much higher at 35% and 31% driven by mix: We estimate

VECV’s realisations to see CAGR improvement of 3.4% over CY09-CY11E driven by ramp-up in HCV business. The standalone motorcycle business is expected to grow realisations by a whopping 11.1% during the same time with the launch of Classic range.

Operating profits to post CAGR of 80.8% and 60.3%: Strong volume growth, mix improvement and benefits of operating leverage will result in operating margins at VECV to improve from 5.2% in CY09 to 9.3% in CY11, translating into an operating profit growth of 80.8% to `4.3bn. On the standalone side, launch of Classic is driving stupendous mix improvement, leading to operating margins expanding from 10.3% in CY09 to 15.5% in CY11E. Here, we expect operating profit to grow by 60.3% to `1bn in CY11.

Cash accretion to continue despite huge capex: We expect the current cash/share to increase from `352 to `518 in CY11 driven by strong business growth. Even in CY12, when bulk of the `2.8bn for the engine facility will be invested in VECV, the cash levels are expected to improve due to strong operational cash flow. VECV is expected to generate over `3bn of free cash flow in CY11 itself, much more than the total investment in the engine facility.



Key assumptions

Exhibit 23. Volumes and realisation assumption (Units) CY09 CY10E YoY (%) CY11E YoY (%)

Volumes 77,270 93,086 20.5 114,863 23.4

Eicher - MHCV 18,525 26,579 43.5 32,079 20.7

Eicher - LCV 5,739 8,426 46.8 9,529 13.1

Volvo Trucks 900 1,080 20.0 1,242 15.0

Motorcycle 52,106 57,001 9.4 72,014 26.3

Domestic 72,455 87,666 21.0 107,260 22.4

Eicher - MHCV 16,903 25,355 50.0 30,425 20.0

Eicher - LCV 4,696 7,279 55.0 8,152 12.0

Volvo Trucks 900 1,080 20.0 1,242 15.0

Motorcycle 49,956 53,952 8.0 67,441 25.0

Export 4,815 5,421 12.6 7,603 40.3

Eicher - MHCV 1,622 1,225 -24.5 1,653 35.0

Eicher - LCV 1,043 1,147 10.0 1,377 20.0

Volvo Trucks - - -

Motorcycle 2,150 3,049 41.8 4,573 50.0

Realisations (`)- Motorcycle 72,429 86,890 20.0 89,524 3.0

Realisations (`) - VECV 1,006,024 1,048,659 4.2 1,075,730 2.6


Valuations

Considering the varied nature of the motorcycle and CV business and the high cash levels we think valuing the company based on sum-of-the-parts (SOTP) is more suitable rather than on a consolidated earning basis. Our target PE multiples of 15x for the standalone business are justified considering the strong demand and pricing power. Similary the 13x multiple for the VECV earnings are justified due to its superior growth, strong balance sheet and Volvo associtation. Also note that a AL or TTMT’s FY12E earnings include the business of Jan-Mar 2012 period which accounts for 33% of full year volumes. EIM’s CY11E earnings are to that extent lower. Our CY11E based per share value of the standalone and VECV (including discounted value of the engine deal) operating business works out to `332 and `829. These along with the cash of `515 takes the SOTP to `1,677 (see exhibit 24 for details). From the current levels the stock offers a upside of c.53%, we initiate coverage with a BUY rating. Please see exhibit 27 on page 22 for Global CVs comparable table.

Exhibit 24. SOTP Valuations

(`) CY11E

Standalone operating business 332

VECV operating business - 54.4% 689

Value of engine deal (54.4% of discounted CY11 value) 140

Cash on the standalone books 214

Cash on the JV books - 54.4% 301

Total per share value (`) 1,677




Summarised P&L for core operations

Exhibit 25. Summarised Profit and Loss for core operations (` mn) CY09 CY10E CY11E

Standalone core operations

Volumes (units) 52,106 57,001 72,014

Net sales 3,774 4,953 6,447

EBITDA of Standalone 390 663 1,002

EBITDA % 10.3 13.4 15.5

Less: Depreciation 101 113 124

Less: Interest 4 30 30

PBT 284 520 847

Less: Tax 85 156 254

PAT 199 364 593

PAT (x) 17 16 15

Value of core 2W business 3,384 5,824 8,896

Net cash on the standalone books (after dividend) 4,012 4,921 5,727

Value of the Standalone business 7,396 10,745 14,623

VECV core operations

Volumes (units) 25,164 36,085 42,850

Net sales 25,316 37,841 46,095

Estimated EBITDA of VECV 1,313 3,204 4,294

EBITDA % 5.2 8.5 9.3

Less: Depreciation 377 414 511

Less: Interest 71 61 58

PBT 865 2,728 3,724

Less: Tax 259 819 1,117

PAT 605 1,910 2,607

PAT (x) 15 14 13

Value of the Subsidiary core business 9,079 26,739 33,892

EIM's share 4,939 14,546 18,437

Net cash on the books of the VECV 9,482 12,229 14,826

EIM's share in the cash 5,158 6,652 8,065

Engine Deal

Volumes (units) in CY13E 40,000

Net sales 12,000

Estimated EBITDA of VECV 1,200

EBITDA % 10.0

Less: Depreciation 280

Less: Interest 0

PBT 920

Less: Tax 276

PAT for CY13E 644

CY11 discounted value - 10% discount rate 532

PAT (x) 13

Value of the engine business 6,919

EIM's share - 54.4% 3,764

Per share value 140




Summarised Consolidated P&L

Exhibit 26. Consolidated Profit and Loss (` mn) CY09 CY10E CY11E

Net sales 29,386 42,625 52,341

growth (%) 71.1 45.1 22.8

Operating expenses -27,793 -38,767 -46,997

Operating profit 1,593 3,858 5,344

Other operating income 168 201

EBITDA 1,593 4,027 5,545

growth (%) 152.8 37.7

Depreciation -539 -527 -636

Other income 1,054 1,345 1,493

EBIT 2,109 4,845 6,402

Interest paid -87 -91 -88

Pre-tax profit (after non-recurring items) 2,022 4,753 6,314

Tax -580 -1,256 -1,733

Net profit 1,442 3,497 4,581

growth (%) 332.7 136.5 31.7

Minority interests -461 -1,179 -1,527

Net income 981 2,319 3,053

Engine Deal CY13E

PAT for CY13E 644

CY11E discounted value - 10% discount rate 532

EIM's share - 54.4% 289

Per share value 10.8

Consolidated EPS CY09 CY10E CY11E

EPS (Rs) after minority int 36.7 86.9 114.4

EPS including engine deal 36.7 86.9 125.2



Key risks

Key downside risks are: a) Failure of new launches, b) Drastic slowdown in industrial growth, c) Sharp increase in diesel prices, and d) Sharp increase in interest rates.

Key upside risks are: a) AB Volvo sourcing other parts from the JV, b) Faster ramp-up in production at Royal Enfield, c) Ramp-up in engine and DG set business.



Financial Tables (VECV)

Profit & Loss (` mn) Y/E March CY09 CY10E CY11E

Net sales (Net of excise) 25,316 37,841 46,095

Growth (%) 155.9 49.5 21.8

Other operational income 0 0 0

Raw material (or COGS) 19,635 28,723 35,233

Personnel cost 1,464 2,100 2,305

Other expenses (or SG&A) 2,904 3,814 4,264

EBITDA 1,313 3,204 4,293

EBITDA (%) 5.2 8.5 9.3

Growth (%) -5,663.1 144.0 34.0

Other non-op. income 776 861 928

Depreciation and amort. 377 414 511

EBIT 1,712 3,651 4,710

Add: Net interest income -71 -61 -58

Pre tax profit 1,641 3,590 4,652

Taxes 457 1,005 1,303

Add: Extraordinary items -157 0 0

Less: Minority interest 0 0 0

Reported net profit 1,026 2,585 3,350

Adjusted net profit 1,183 2,585 3,350

Margin (%) 4.7 6.8 7.3

Diluted share cap. (mn) 10 10 10

Diluted EPS (`) 118.3 258.5 335.0

Growth (%) 615.0 118.4 29.6

Total Dividend + Tax 293 410 527


Balance Sheet (` mn) Y/E March CY09 CY10E CY11E

Share capital 100 100 100

Other capital 0 0 0

Reserves and surplus 12,246 14,422 17,245

Networth 12,346 14,522 17,345

Total loans 1,077 1,229 1,229

Minority interest 0 0 0

Sources of funds 13,423 15,750 18,573

Intangible assets 0 0 0

Fixed assets 5,660 6,660 8,660

Less: Depn. and amort. 2,683 3,097 3,609

Net block 2,977 3,563 5,052

Capital WIP 105 499 499

Investments 0 0 0

Def tax assets/- liability -135 129 128

Current assets 16,214 20,987 24,900

Inventories 1,969 3,099 4,027

Sundry debtors 2,226 3,615 4,404

Cash & bank balances 10,558 13,029 15,226

Other current assets 299 299 299

Loans & advances 1,162 944 944

Current liabilities & prov. 5,738 9,428 12,005

Current liabilities 5,129 8,819 11,457

Provisions and others 610 608 549

Net current assets 10,476 11,559 12,895

Others (net) 0 0 0

Application of funds 13,423 15,750 18,573


Cash flow statement (` mn) Y/E March CY09 CY10E CY11E

Reported net profit 1,026 2,585 3,350


-Inc/dec in working cap. 2,061 544 603

Others 0 0 0

Cash from operations (a) 3,301 3,542 4,464

-Inc/dec in investments 66 0 0

Capex -41 -1,393 -2,000

Others -18 844 258

Cash flow from inv. (b) 6 -549 -1,742

Inc/-dec in capital -80 0 0

Dividend+Tax thereon -293 -410 -527

Inc/-dec in loans -244 152 0

Others 264 -264 1

Financial cash flow ( c ) -352 -522 -525

Inc/-dec in cash (a+b+c) 2,956 2,471 2,197

Opening cash balance 7,770 10,558 13,029

Closing cash balance 10,726 13,029 15,226


Key Ratios Y/E March CY09 CY10E CY11E

BV/Share (`) 1,234.6 1,486.1 1,807.1

ROCE (%) 30.5 NA NA

ROE (%) 9.8 21.5 22.7

Net Debt/equity ratio (x) -0.8 -0.8 -0.8


PER 9.2 3.7 2.9

PBV 0.9 0.7 0.6

EV/EBITDA 1.1 NA NA

EV/Sales 0.1 NA NA


Debtor days 32 35 35

Inventory days 28 30 32

Creditor days 87 98 104




Financial Tables (Standalone)

Profit & Loss (` mn) Y/E March CY09 CY10E CY11E

Net sales (Net of excise) 3,774 4,953 6,447

Growth (%) -45.1 31.2 30.2

Other operational income 0 0 0

Raw material (or COGS) 2,349 3,165 4,091

Personnel cost 317 386 451

Other expenses (or SG&A) 715 738 903

EBITDA 393 663 1,002

EBITDA (%) 10.4 13.4 15.5

Growth (%) 248.7 68.7 51.1

Other non-op. income 295 484 565


EBIT 587 1,034 1,442

Add: Net interest income -4 -30 -30

Pre tax profit 583 1,004 1,412

Taxes 129 251 431

Add: Extraordinary items -78 0 0

Less: Minority interest 0 0 0

Reported net profit 375 753 981

Adjusted net profit 453 753 981

Margin (%) 12.0 15.2 15.2

Diluted share cap. (mn) 27 27 27

Diluted EPS (`) 17.0 28.1 36.7

Growth (%) 156.7 65.6 30.3

Total Dividend + Tax 196 196 196


Balance Sheet (` mn) Y/E March CY09 CY10E CY11E

Share capital 267 268 268

Other capital 0 0 0

Reserves and surplus 3,758 4,315 5,100

Networth 4,025 4,582 5,368

Total loans 124 41 41

Minority interest 0 0 0

Sources of funds 4,149 4,624 5,409

Intangible assets 0 0 0

Fixed assets 1,459 1,709 2,109

Less: Depn. and amort. 822 935 1,059

Net block 638 774 1,050

Capital WIP 17 10 10

Investments 2,996 3,082 3,082

Def tax assets/- liability -16 -15 -15

Current assets 1,815 2,460 3,337

Inventories 220 283 351

Sundry debtors 52 67 70

Cash & bank balances 1,140 1,935 2,741

Other current assets 60 1 1

Loans & advances 343 173 173

Current liabilities & prov. 1,301 1,688 2,055

Current liabilities 1,188 1,612 1,980

Provisions and others 113 75 75

Net current assets 514 772 1,281

Others (net) 0 0 0

Application of funds 4,149 4,624 5,409


Cash flow statement (` mn) Y/E March CY09 CY10E CY11E

Reported net profit 375 753 981


-Inc/dec in working cap. 85 301 296

Others 0 0 0

Cash from operations (a) 543 1,167 1,402

-Inc/dec in investments -2,879 -87 0

Capex -99 -243 -400

Others -21 237 0

Cash flow from inv. (b) -2,999 -93 -400

Inc/-dec in capital -964 1 0

Dividend+Tax thereon -196 -196 -196

Inc/-dec in loans 43 -83 0

Others -7 -1 0

Financial cash flow ( c ) -1,123 -279 -196

Inc/-dec in cash (a+b+c) -3,579 795 806

Opening cash balance 4,719 1,140 1,935

Closing cash balance 1,140 1,935 2,741


Key Ratios Y/E March CY09 CY10E CY11E

BV/Share (`) 150.8 171.2 200.5

ROCE (%) 28.7 27.2 37.4

ROE (%) 10.3 17.5 19.7

Net Debt/equity ratio (x) -1.0 -1.1 -1.1


PER 64.4 38.9 29.8

PBV 7.2 6.4 5.4

EV/EBITDA 64.0 36.6 23.4

EV/Sales 6.7 4.9 3.6


Debtor days 5 5 4

Inventory days 21 21 20

Creditor days 130 140 141




Exhibit 27. Global CVs comparable table Company Name Ticker Crncy. Price Mkt. Cap EV 09-11E CAGR PEG (x) EVG (x) P/E (x)

US$ mn US$ mn Rev EBITDA EPS 09-11E 09-11E 2008 2010E 2011E

DONGFENG MOTOR 489 HK HKD 11.2 12,456 10,919 16% 17% 15% 0.7 0.3 13.7 11.3 10.3

ISUZU MOTORS LTD 7202 JT JPY 278.0 5,526 8,144 -1% 42% NM NM NM NM 58.5 14.2

HINO MOTORS LTD 7205 JP JPY 381.0 2,564 5,411 4% 60% NM NM NM NM NM 13.8

NAVISTAR INTERNATIONAL NAV US USD 45.4 3,248 6,608 11% 30% 52% 0.3 0.3 20.2 14.9 8.8

FUJI HEAVY INDUSTRIES 7270 JP JPY 483.0 4,429 6,900 4% 41% NM NM 0.2 NM NM 10.4

MAN SE MAN GR EUR 68.1 12,532 15,576 10% 43% 79% 0.2 0.2 43.0 19.3 13.4

SCANIA AB-B SHS SCVB SS SEK 130.3 13,880 15,066 18% 76% 210% 0.1 0.1 116.9 13.5 12.1

PACCAR INC PCAR US USD 42.3 15,434 16,155 30% 72% 253% 0.1 0.2 221.7 36.7 17.8

VOLVO AB-B SHS VOLVB SS SEK 85.6 24,040 33,254 16% NM NM NM NM NM 17.5 11.4

ASHOK LEYLAND LTD AL IN INR 69.7 1,986 2,453 27% 35% 44% 0.4 0.3 26.0 15.9 12.6

EICHER MOTORS LTD EIM IN INR 1,092.7 627 879 42% 73% 126% 0.1 NM 63.5 16.2 12.4

TATA MOTORS LTD TTMT IN INR 1,015.4 12,040 14,984 77% 103% 69% 0.7 0.1 32.0 45.0 11.3

Average 21% 54% 106% 0.3 0.2 67.1 24.9 12.4

Note: Bloomberg estimate for all companies, other than for Indian companies - JM. For March ending company FY11 is assumed same as CY10 and FY12 is assumed same as CY11. NM

refers to 'not meaningful'

Exhibit 27. (Cont’d) Global CVs comparable table Company Name Ticker Crncy. Price Mkt. Cap EV EV/EBITDA (x) P/BV ROE

US$ mn US$ mn 2008 2010E 2011E 2008 2010E 2011E 2008 2010E 2011E

DONGFENG MOTOR 489 HK HKD 11.2 12,456 10,919 7.2 5.0 4.2 3.1 2.4 2.0 24.5 24.1 21.2

ISUZU MOTORS LTD 7202 JT JPY 278.0 5,526 8,144 14.1 NM 5.9 1.5 1.6 1.4 -9.4 2.7 10.9

HINO MOTORS LTD 7205 JP JPY 381.0 2,564 5,411 15.7 NM NM 1.0 1.1 1.0 -16.8 -5.2 6.9

NAVISTAR INTERNATIONAL NAV US USD 45.4 3,248 6,608 9.7 7.5 4.8 -2.6 -2.5 -4.0 -4.5 -18.8 -58.7

FUJI HEAVY INDUSTRIES 7270 JP JPY 483.0 4,429 6,900 10.2 6.8 4.7 0.8 1.0 0.9 -13.9 -3.4 9.3

MAN SE MAN GR EUR 68.1 12,532 15,576 16.0 8.8 6.9 1.9 1.8 1.6 3.4 9.7 12.3

SCANIA AB-B SHS SCVB SS SEK 130.3 13,880 15,066 22.2 7.9 7.1 5.0 3.5 3.0 4.5 33.0 33.5

PACCAR INC PCAR US USD 42.3 15,434 16,155 30.6 16.4 11.6 3.3 3.0 2.6 1.8 8.7 18.3

VOLVO AB-B SHS VOLVB SS SEK 85.6 24,040 33,254 -244.1 7.7 5.7 2.7 2.3 2.0 -16.2 14.5 18.9

ASHOK LEYLAND LTD AL IN INR 69.7 1,986 2,453 15.6 10.7 9.0 2.8 2.5 2.3 11.4 16.2 18.1

EICHER MOTORS LTD EIM IN INR 1,092.7 627 879 15.7 NM NM NM 2.4 2.1 7.7 15.4 16.9

TATA MOTORS LTD TTMT IN INR 1,015.4 12,040 14,984 22.8 12.3 6.2 3.4 6.3 4.6 12.9 11.4 46.7

Average -5.4 9.2 6.6 2.1 2.1 1.6 0.4 9.0 12.9

Note: Bloomberg estimate for all companies, other than for Indian companies - JM. For March ending company FY11 is assumed same as CY10 and FY12 is assumed same as CY11. NM

refers to 'not meaningful'




Notes




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