Recommend BUY

CMP 4350.00

Target Price 4700.00

ISIN: INE066A01013 NOVEMBER 27th

, 2013

EICHER MOTORS LTD Result Update: Q3 CY13

STOCK DETAILS

Sector Automobile

BSE Code 505200

Face Value 10.00

52wk. High / Low (Rs.) 4500.00/2512.00

Volume (2wk. Avg ) 1680

Market Cap ( Rs in mn ) 117493.50

Annual Estimated Results (A*: Actual / E*: Estimated)

Years CY12A CY13E CY14E

Net Sales 10492.60 16565.09 19878.10

EBITDA 1912.10 3836.48 4431.10

Net Profit 1447.60 2746.76 3159.74

EPS 53.61 101.69 116.98

P/E 81.13 42.78 37.18

Shareholding Pattern (%)

1 Year Comparative Graph

EICHER MOTORS LTD S&P BSE SENSEX

SYNOPSIS

Eicher Motors Ltd designs, develops, manufactures,

and markets trucks & buses, motorcycles,

automotive gears & components in India and

internationally.

In Q3 2013, Eicher Motors has reported the best

ever standalone quarterly total income from

operations at Rs 4589.70 million, an increase of

66.23%.

The company net profit jumps to Rs.617.90 million

against Rs.329.70 million in Q2 2012, an increase of

87.41%.

The operating profit recorded an increase of 116.9%

at Rs. 805 million in Q3 2013 over Rs. 371 million in

Q3 2012.

Royal Enfield has registered y-o-y unit sales growth

of 60.6% with record sales of 48,242 units as

compared to 30,046 units in Q3 2012.

VECV’s Eicher Trucks and Buses division (ETB) is

preparing to launch its full new range of trucks and

buses across light, medium and heavy duty.

During the quarter, the Company has reported a

consolidated total income from operations at Rs.

17361 million and EBIT increased by 95.8% in Q3

2013.

During Q3 2013, the Company Heavy Duty market

share increased to 4.5% from 3.7% in Q3 2012.

Net Sales and PAT of the company are expected to

grow at a CAGR of 44% and 36% over 2011 to

2014E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%)

Eicher Motors Ltd 4350.00 117493.50 53.61 81.13 18.67 200.00

Hero MotoCorp Ltd 2047.00 410457.70 104.77 19.62 8.20 3000.00

Tata Motors Ltd 398.95 1283120.90 31.01 12.42 6.70 100.00

Bajaj Auto Ltd 1952.90 564887.80 109.18 17.88 7.15 450.00

Recommendation & Analysis - ‘BUY’

In Q3 2013, Eicher Motors Limited reported its best ever standalone results- relating entirely to Royal Enfield

motorcycle operations, with a quarterly total income from operations at Rs. 4589.70 million, an increase of

66.23% over Rs. 2761.10 million in Q3 2012. The quarterly operating profit (EBIT) recorded an increase of

116.9% at Rs. 805 million in Q3 2013 over Rs. 371 million in Q3, 2012. Royal Enfield has maintained its

phenomenal growth trajectory even in Q3 2013 registering the best ever quarter results. Royal Enfield has

registered year-on-year unit sales growth of 60.6% with record sales of 48,242 units as compared to 30,046 units

in Q3 2012. It is continuing to extract operating leverage from the business, thus improving the EBIT margin to

17.5% in Q3 2013 as compared to 13.4% in Q3 2012.

The Company continued to improve their overall market share in commercial vehicles through 50:50 joint

venture with the Volvo Group – VE Commercial Vehicles (VECV). For the nine month period ending September

30, 2013, the industry declined by 33.6%, but the Company Heavy Duty market share increased to 4.5% from

3.7% in the corresponding period last year. The products in the bus segment continue to do well. For the third

quarter ending September 30, 2013, the Company has reported a consolidated total income from operations at

Rs. 17361 million. Earnings before interest and tax (EBIT) are increased by 95.8% in Q3 2013.

VECV’s Eicher Trucks and Buses division is preparing to launch its full new range of trucks and buses. These are

absolutely world-class products that will completely renew ETB’s product portfolio. Royal Enfield has created

and been leading the premium category of motorcycles in India for all these years with evocative products such

as the Classic and the Thunderbird. In September 2013, Royal Enfield had its first successful global launch with

the all new Continental GT- a motorcycle that perfects the essential elements of the most influential idea in

motorcycling history – café racing.

Over FY2011-14E, we expect the company to post a CAGR of 44% and 36% in its top-line and bottom-line

respectively. Hence, we recommend ‘BUY’ with a target price of Rs. 4700.00 for Medium to Long term

investment.

FINANCIAL HIGHLIGHTS STANDALONE

Results updates- Q3 CY13,

The Eicher Group has diversified business interests

in design & development, manufacturing and local/

international marketing of Trucks & Buses,

Motorcycles, Automotive Gears and components,

reported its financial results for the quarter ended

30th Sep, 2013.

Months Sep-13 Sep-12 % Change

Net Sales 4589.70 2761.10 66.23

PAT 617.90 329.70 87.41

EPS 22.88 12.21 87.34

EBITDA 906.20 454.60 99.34

The company net profit jumps to Rs.617.90 million against Rs.329.70 million in the corresponding quarter

ending of previous year, an increase of 87.41%. Revenue for the quarter rose by 66.23% to Rs.4589.70 million

from Rs.2761.10 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.22.88 a share during the quarter, registering 87.34% increase over previous year period.

Profit before interest, depreciation and tax is Rs. 906.20 millions as against Rs.454.60 millions in the

corresponding period of the previous year.

Expenditure:

During the quarter total expenditure raised by 58

per cent mainly an increase in Material Consumed

Cost along with consideration of depreciation in the

rupee impact. Total expenditure in Q3 CY13 was at

Rs. 3784.70 millions as against Rs. 2390.00 millions

in Q3 CY12. Consumption of Raw Materials cost

stood at Rs. 2877.10 millions against Rs. 1800.40

millions in the corresponding period of the previous

year. Employee Benefit Expenses was at Rs. 280.50

millions and other expenditure at Rs. 606.00

millions in Q3 CY13 are the primarily attributable to

growth of expenditure.

Latest Updates

• Royal Enfield has registered year-on-year unit sales growth of 60.6% with record sales of 48,242 units as

compared to 30,046 units in Q3 2012.

• The Company has sold 1858 buses in Q3 2013 compared to 2326 buses over same period last year,

registered a degrew of 20.12%

• Eicher Motors has recently started production at VECV’s Medium Duty Engine Plant at Pithampur, Madhya

Pradesh. The plant has been set up with an initial capacity of 25,000 units per annum in Phase I, at an

investment of Rs 375 crores. The capacity will be increased in a phased manner to 100,000 units per annum

as per the market requirements with an additional investment of around Rs 125 crores.

• Starting end 2013 till 2015, VECV’s Eicher Trucks and Buses division (ETB) will be renewing its entire

product portfolio by launching its new range of trucks and buses across light, medium and heavy duty. The

Company continues to invest in all their strategic projects in VECV. By end of CY 2014, it would have invested

Rs. 2500 crores since the creation of the joint venture in mid 2008.

• During the quarter ended June, 2013, VE Commercial Vehicles has set up a wholly owned subsidiary V E C V

Lanka (Private) Ltd in Sri Lanka for the purpose of expanding its commercial vehicles operations in Sri Lanka

with an investment of Rs. 54.3 million.

Company Profile

Eicher Motors Limited (EML) is the flagship company of the Eicher Group, which was a catalyst in the green

revolution in India with the production of India’s first agricultural tractor in 1959. EML is now a leading player in

the Indian automotive space. Its 50-50 joint venture with the Volvo group, VE Commercial Vehicles Limited,

designs, manufactures and markets reliable, fuel-efficient trucks and buses; and is leading the path in driving

modernization in commercial transportation in India and other developing markets. Eicher Motors also owns the

iconic Royal Enfield motorcycle business, which leads the premium motorcycle segment in India. The oldest

motorcycle company in continuous production world-wide, Royal Enfield has witnessed a huge surge in demand

in the recent past, and is charting its course to be the leading player in the mid-size motorcycle segment globally.

EML’s 50:50 strategic joint venture with US based Polaris Industries Inc., Eicher Polaris Private Ltd. is in start-up

phase, and is currently designing and developing, and will soon manufacture and sell a full new range of personal

vehicles. In 2012, Eicher Motors recorded its highest ever sales of INR 7,000 crores (USD 1.3 billion).

Royal Enfield has also substantially expanded and upgraded its network across the country. In 2012 it added 63

new dealerships taking the total dealership network to 249.

Over 85 executives work exclusively in the area of R&D. Product development and product-engineering facilities

are available at each of Eicher’s major manufacturing locations. Expertise has been developed in the areas of

design and development of Trucks & Buses, Automotive transmission, Electronic instrumentation, Material

science, Metrology as well as prototype manufacturing and testing.

Products:

� Motors

It manufactures several kinds of commercial vehicles with gross vehicle. It has technical and financial

collaboration with Mitsubishi Motors Corporation of Japan which led to manufacturing of CANTER range of

vehicles.

� Motorcycles

It manufactures bullet motorcycles Royal Enfield. It manufactures six different models ranging from 300cc to

600cc. The manufacturing plant has installed capacity of 39,000 motorcycles per annum.

� Engineering Components

The company manufactures complete range of automotive gears. The range of gears includes Spiral bevels

(Crown wheel and pinions), Straight bevels and Transmission gears.

Financial Highlight STANDALONE

Balance sheet as at December 31st, 2011-2014E

(A*- Actual, E* -Estimations & Rs. In Millions)

EICHER MOTORS LTD. CY11A CY12A CY13E CY14E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 269.90 270.00 270.10 270.10

Reserves and Surplus 5130.50 6020.50 8767.26 11927.00

1. Sub Total - Net worth 5400.40 6290.50 9037.36 12197.10

Non Current Liabilities

Long Term Borrowing 5.80 0.00 0.00 0.00

Deferred Tax Liability (net) 39.20 62.60 105.20 82.06

Other Long term Liabilities 27.30 32.30 38.11 42.69

Long Term Provisions 80.90 92.60 103.71 112.01

2. Sub Total - Non Current Liabilities 153.20 187.50 247.03 236.75

Current Liabilities

Short term borrowings 136.70 200.10 322.16 373.71

Trade Payables 1058.70 1775.00 2396.25 2731.73

Other Current Liabilities 595.10 1168.10 1366.68 1503.34

Short Term Provisions 479.70 621.20 93.18 102.50

3. Sub Total - Current Liabilities 2270.20 3764.40 4178.27 4711.27

Total Liabilities (1+2+3) 7823.80 10242.40 13462.65 17145.13

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 1097.50 1338.30 1900.39 2394.49

Intangible assets 25.50 38.70 50.31 62.38

Capital Work in Progress 42.10 603.30 868.75 1042.50

a) Sub Total - Fixed Assets 1165.10 1980.30 2819.45 3499.37

b) Non-current investments 54.40 109.40 114.87 119.46

c) Long Term loans and advances 348.10 613.00 472.01 528.65

d) Other non-current assets 57.60 61.80 77.87 89.55

1. Sub Total – Non Current Assets 1625.20 2764.50 3484.20 4237.04

Current Assets

Current Investments 5125.70 6384.50 8133.86 10483.55

Inventories 452.7 754.10 942.63 1150.00

Trade receivables 41.00 62.00 150.50 204.68

Cash and Bank Balances 29.80 35.00 96.00 126.72

Short-terms loans & advances 138.70 239.40 652.40 939.46

Other current assets 410.70 2.90 3.07 3.69

2. Sub Total - Current Assets 6198.60 7477.90 9978.46 12908.09

Total Assets (1+2) 7823.80 10242.40 13462.65 17145.13

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) CY11A CY12A CY13E CY14E

Description 12m 12m 12m 12m

Net Sales 6709.50 10492.60 16565.09 19878.10

Other Income 758.90 457.80 812.42 853.05

Total Income 7468.40 10950.40 17377.51 20731.15

Expenditure -5899.70 -9038.30 -13541.03 -16300.04

Operating Profit 1568.70 1912.10 3836.48 4431.10

Interest -20.20 -2.60 -1.90 -2.28

Gross profit 1548.50 1909.50 3834.58 4428.82

Depreciation -130.20 -171.50 -299.90 -377.87

Profit Before Tax 1418.30 1738.00 3534.68 4050.95

Tax -172.80 -290.40 -787.92 -891.21

Net Profit 1245.50 1447.60 2746.76 3159.74

Equity capital 269.90 270.00 270.10 270.10

Reserves 5130.50 6020.50 8767.26 11927.00

Face value 10.00 10.00 10.00 10.00

EPS 46.15 53.61 101.69 116.98

Quarterly Profit & Loss Statement for the period of 31st Mar, 2013 to 31st Dec, 2013E

Value(Rs.in.mn) 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 3338.00 3818.20 4589.70 4819.19

Other income 681.90 77.10 21.20 32.22

Total Income 4019.90 3895.30 4610.90 4851.41

Expenditure -2747.20 -3137.40 -3704.70 -3951.73

Operating profit 1272.70 757.90 906.20 899.68

Interest -0.50 -0.30 -0.50 -0.60

Gross profit 1272.20 757.60 905.70 899.08

Depreciation -59.80 -75.30 -80.00 -84.80

Profit Before Tax 1212.40 682.30 825.70 814.28

Tax -240.40 -156.10 -207.80 -183.62

Net Profit 972.00 526.20 617.90 630.66

Equity capital 270.00 270.10 270.10 270.10

Face value 10.00 10.00 10.00 10.00

EPS 36.00 19.48 22.88 23.35

Ratio Analysis

Particulars CY11A CY12A CY13E CY14E

EPS (Rs.) 46.15 53.61 101.69 116.98

EBITDA Margin (%) 23.38% 18.22% 23.16% 22.29%

PBT Margin (%) 21.14% 16.56% 21.34% 20.38%

PAT Margin (%) 18.56% 13.80% 16.58% 15.90%

P/E Ratio (x) 94.26 81.13 42.78 37.18

ROE (%) 23.06% 23.01% 30.39% 25.91%

ROCE (%) 30.65% 32.10% 44.19% 38.26%

Debt Equity Ratio 0.03 0.03 0.04 0.03

EV/EBITDA (x) 74.92 61.51 30.68 26.57

Book Value (Rs.) 200.09 232.98 334.59 451.58

P/BV 21.74 18.67 13.00 9.63

Charts

Outlook and Conclusion

� At the current market price of Rs.4350.00, the stock P/E ratio is at 42.78 x CY13E and 37.18 x CY14E

respectively.

� Earning per share (EPS) of the company for the earnings for CY13E and CY14E is seen at Rs.101.69 and

Rs.116.98 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 44% and 36% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 30.68 x for CY13E and 26.57 x for CY14E.

� Price to Book Value of the stock is expected to be at 13.00 x and 9.63 x respectively for CY13E and CY14E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.4700.00 for Medium to Long term

investment.

Industry Overview

With the increasing growth in demand on back of rising income, expanding middle class and young population

base, in addition to a large pool of skilled manpower and growing technology, will propel India to be among the

world's top five auto-producers by 2015. India is also one of the key markets for hybrid and electric medium-

heavy-duty trucks and buses.

Key Statistics

The Indian automobile industry produced a total 1.69 million vehicles including passenger vehicles, commercial

vehicles, three wheelers and two wheelers in August 2013 as against 1.56 million in August 2012, registering a

growth of 8.18 percent over the same month last year.

The cumulative foreign direct investment (FDI) inflow into the Indian automobile industry during April 2000 to

July 2013 was recorded at US$ 8,932 million, amounting to 4.5 per cent of the total FDI inflows (in terms of US$),

according to Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce.

The overall automobile exports grew by 2.03 per cent during April-August 2013. Furthermore, the production of

passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound

annual growth rate (CAGR) of 13 per cent during 2012-2021.

Major Developments & Investments

• Hero MotoCorp plans to establish 20 manufacturing and assembly facilities to expand its presence across

50 countries by 2020

• Nissan Motor India has entered into an agreement with Ennore Port Ltd (EPL), to export at least 60,000

cars a year through the port for the next 10 years

• TVS Motor Co plans to launch two new motorcycle models in the Kenyan market. These motorcycles will

be specific to the Kenyan markets in terms of usability, reliability and durability. Moreover, the firm also

plans to set up a two-wheeler assembly line in Uganda and will also launch two motorcycle models in the

African nation

• HMIL has invested US$ 2 billion in two state-of-the-art passenger car manufacturing facilities in India.

Moreso, India contributes 25 per cent of the firm’s global sales

• Mahindra & Mahindra (M&M) plans capital expenditure and investments worth Rs 10,000 crore (US$

1.63 billion) over the next two years

• Maruti Suzuki India is setting up an operational integrated research & development (R&D) centre in

Rohtak, Haryana. The test tracks at the new facility would be longer and considerably enhanced in

technical capabilities than the ones at the Suzuki Motor Corp (SMC) facility in Japan

• Tech Mahindra has signed an agreement with Volvo Car Corporation. The IT company will provide Volvo

with a service to maintain and develop a range of applications that can increase efficiency and reduce

costs

• Isuzu Motors India plans to start contract manufacturing of its sports utility vehicles (SUV) and pick-up

trucks at Hindustan Motors' (HM) Chennai plant from December 2013

• Daimler India Commercial Vehicles (DICV) has expanded its network across the country. The company

plans to establish dealership facilities in over 100 identified locations across India by 2014

Government Initiatives

The Government of India plans to introduce fuel-efficiency ratings for automobiles to encourage sale of cars that

consume less petrol or diesel, as per Mr Veerappa Moily, Union Minister for Petroleum and Natural Gas,

Government of India.

The Union Budget 2013-14 added some incentives to the industry.

• The period of concession available for specified part of electric and hybrid vehicles till April 2013 has

been extended upto March 31, 2015

• The basic customs duty (BCD) on imported luxury goods such as high-end motor vehicles, motor cycles,

yachts and similar vessels was increased. The duty was raised from 75 per cent to 100 per cent on cars/

motor vehicles (irrespective of engine capacity) with CIF value more than US$ 40,000; from 60 per cent

to 75 per cent on motorcycles with engine capacity of 800 cc or more and on yachts and similar vessels

from 10 per cent to 25 per cent

• In addition, an increase in excise duty from 27 to 30 per cent has been allowed for SUVs with engine

capacity exceeding 1,500 cc, while excise duty was decreased from 80 to 72 per cent, in case of SUVs

registered solely to be used for taxi purposes

• An exemption from BCD on lithium ion automotive battery for manufacture of lithium ion battery packs

for supply to manufacturers of hybrid and electric vehicles

• The excise duty on chassis of diesel motor vehicles for transport of goods reduced from 14 per cent to 13

per cent

The Government of India allows 100 per cent FDI in the automotive industry through automatic route. The

Government also plans to accelerate the supply of electric vehicles over the next eight years. It is expected that

there will be a demand for 5-7 million electricity-operated vehicles by 2020.

With special focus on exports of small cars, MUVs, two & three wheelers and auto components; the automotive

sector’s contribution to the gross domestic product (GDP) is expected to double reaching a turnover worth US$

145 billion in 2016, according to the Automotive Mission Plan (AMP) 2006-2016.

Road Ahead

India is probably the most competitive country in the world for the automotive industry. It does not cover 100

per cent of technology or components required to make a car but it is giving a good 97 per cent.

The vision of AMP 2006-2016 sees India, “to emerge as the destination of choice in the world for design and

manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for

more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.”

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates 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 this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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