november 3, 2016 eicher motors (eicmot) - icici...

November 3, 2016

ICICI Securities Ltd | Retail Equity Research

Result Update

RE growing from strength to strength... • Eicher Motors reported its Q2FY17 numbers in which standalone

numbers (Royal Enfield business) were almost in line with our estimates. Post adoption of Ind-AS, VECV, considered a subsidiary under Indian GAAP, is now a joint controlled entity. Hence, it was consolidated under the equity method

• Standalone revenue of Royal Enfield (RE) in Q2FY17 was at | 1763 crore (up 35% YoY, 13% QoQ), marginally below our estimate of | 1784 crore. Slight miss on revenue was due to lower than estimated price hike. ASP was flat QoQ (our estimate: 1%) to | 1,18,739. VECV revenues were at | 1972 crore, higher than our estimate of | 1936 crore, with the beat due to higher than estimated ASP

• Standalone EBITDA came in at | 552 crore in line with our estimate of | 552 crore. Standalone EBITDA margins were at 31.3% (up 415 bps YoY, 50 bps QoQ) marginally above our estimate of 31%. The VECV business EBITDA was flat YoY at | 143 crore (our estimate: | 176 crore) with EBITDA margins of 7.2%, lower than our estimate of 8.8%, due to an unfavourable product mix

• Consequently, standalone PAT grew 73% YoY/17.5% QoQ to | 396 crore vs. our estimate of | 391 crore. Consolidated PAT grew 45% YoY, 10% QoQ to | 413 crore vs. our estimate of | 435 crore

RE business - demand remains strong RE demand remains strong, with volumes in top 20 cities growing 15% plus and waiting period for its most successful model Classic 350 cc model at three months. EML has said its current production rate of ~60,000/month will continue till Q2FY18. Post the commencement of its third plant at Vallam Vadagal, its total capacity will go up to 900,000 units in FY19. With the dealership in smaller towns turning viable, the company continues to increase its dealer network. EML is looking to capture the under-penetrated 250-750 cc market globally and has already opened exclusive stores in Colombia, two in UK, one each in UAE, France, Spain and Indonesia. VECV gaining market share In FY14-16, growth in the domestic MHCV industry has been driven by the heavy duty multi-axle vehicle (MAV) and tractor trailer segment. VECV has underperformed industry growth mainly due to concentration of VECV’s product portfolio towards intermediate commercial vehicle (ICV-7.5-12 tonne), which are mainly used as distribution vehicles. ICV forms ~39% of VECV’s product portfolio. Going ahead, we expect the next phase of growth in MHCV to come from medium duty vehicles due to the trickle-down effect, which will benefit VECV most as it is a market leader in the ICV segment. VECV domestic volumes have grown ~22% outpacing industry growth of 6% in H1FY17. Strong earnings growth visibility demands rich valuations EML has justifiably commanded a premium over other auto OEs as RE’s business is in full throttle and VECV reaps the benefits of an economic revival. We maintain peer valuation parameters (relative valuation vis-à-vis HOG’s high growth phase) and ascribe a multiple of 33xFY18E EPS for RE, VECV at 11x FY17E EV/EBITDA, respectively, to arrive at an SOTP target price of | 28000. We have a BUY recommendation on the stock with an upside potential of ~13%.

Rating matrix Rating : BuyTarget : | 28000Target Period : 12 monthsPotential Upside : 13%

What’s Changed?

Target Changed from | 25000 to | 28000EPS FY17E Changed from | 661 to |653EPS FY18E Changed from | 813 to |854Rating Unchanged

Quarterly Performance (standalone)

Q2FY17 Q3FY16 YoY (%) Q1FY17 QoQ (%)Revenue 1,762.5 1,299.7 35.6 1,557.5 13.2EBITDA 552.4 353.5 56.3 479.8 15.1EBITDA (%) 31.3 27.2 415 bps 30.8 54 bpsPAT 396 256.9 54.2 337.1 17.5

Change in accounting year, FY16E is a 15 month period Key Financials | Crore CY14 FY16 FY17E FY18ENet Sales 8,599 15,429 16,682 20,490 EBITDA 1,115 2,447 3,076 4,005 Net Profit 615 1,278 1,764 2,307 EPS (|) 227.1 471.5 653.0 854.2

* Change in accounting year, FY16E is a 15 month period Valuation summary

CY14 FY16 FY17E FY18EP/E (x) 109.2 52.6 38.0 29.0 Adj. EV/E (x) 205.1 141.3 79.9 35.4 Tgt.Adj.EV/E(x) 181.4 125.0 70.7 31.4 P/BV (x) 26.7 19.4 14.1 10.3 RoNW (%) 24.5 36.9 37.1 35.4 RoCE (%) 24.5 42.4 42.0 41.5

* Change in accounting year, FY16E is a 15 month period Stock data Particular AmountMarket Capitalization | 66984.8 CroreTotal Debt (FY16) | 85.9 CroreCash and Investments (FY16) | 582.7 CroreEV (FY16) | 66487.9 Crore52 week H/L (|) 26641 / 14800Equity capital (| crore) | 27 CroreFace value (|) | 10

Price performance (%)

1M 3M 6M 12MEicher Motors Ltd -0.2 13.4 24.8 37.9Tata Motors Ltd -4.0 4.1 25.9 32.3M&M Ltd -2.6 -6.1 2.5 13.3

Eicher Motors (EICMOT) | 24800

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]


Variance analysis (standalone) Q2FY17 Q2FY17E Q3FY16 YoY (%) Q1FY17 QoQ (%) Comments

Total Operating Income 1,762 1,784 1,300 35.6 1,557 13.2 Marginal miss on estimates due to lower than estimated ASP (ASPs came in flat against 1% expected hike)

Raw Material Expenses 891 930 721 23.5 810 10.0Purchase of traded goods 26 18 14 88.0 21 20.8Employee Expenses 96 89 71 34.6 87 10.6Other expenses 198 195 141 41.1 161 23.6

EBITDA 552 552 353 56.3 480 15.1EBITDA Margin (%) 31.3 31.0 27.2 415 bps 30.8 54 bps Margins almost in line with estimates

Other Income 66 46 42 58.2 47 41.9Depreciation 36 40 26 36.2 39 -9.1Interest 1 0 0 114.3 1 15.4Total Tax 186 167 112 66.3 150 24.5PAT 396 391 257 54.2 337 17.5 PAT came in marginally above estimates due to higher other incomeKey MetricsRoyal Enfield ASP(|) 118,739 119,923 114,688 3.5 118,736 0.0 ASPs came in flat against 1% expected hikeVECV ASP (| lakhs) 14.3 14.0 15.3 -6.1 13.3 7.6 Higher than estimates due to better product mix

Source: Company, ICICIdirect.com Research Change in estimates (consolidated)

(| Crore) Old New % Change Old New % Change CommentsRevenue 16,796 16,682 -0.7 20229 20,490 1.3 Topline estimates revised marginally to reflect lower VECV volumesEBITDA 3,121 3,076 -1.4 3820 4,005 4.8EBITDA Margin (%) 18.6 18.4 -16 bps 18.9 19.5 64 bps Upward revision of margins in FY18E as we have revised our RE margins upwards

PAT 1,787 1,764 -1.3 2196 2,307 5.1 Estimates revised as we have increased our margin estimatesEPS (|) 661 653 -1.2 813 854 5.1

FY17E FY18E

Source: Company, ICICIdirect.com Research * Change in accounting year, FY16E is a 15 month period Assumptions

Current Earlier CommentsCY14 FY16E* FY17E FY18E FY17E FY18E

Royal Enfield volumes 302601 600175 675258 795063 665620 769027 Volume estimates of RE revised upwardsRoyal Enfield ASP/unit (|) 109,177 115,923 120,015 125,931 120,939 125,892VECV volumes 40,978 63,104 64,806 74,769 66,240 75,643 We expect strong growth in ICV segment, where VECV is a market leaderVECV ASP/unit (| lakh) 13.5 14.5 14.5 15.3 14.4 15.2

Source: Company, ICICIdirect.com Research * Change in accounting year, FY16E is a 15 month period


Key conference call takeaways • Eicher Motor’s (EML) ‘Royal Enfield’ (RE) volumes for Q2FY17 grew

31% YoY to 166,941 units. VECV volumes (ex-Volvo) grew 16% YoY to 13149 units

• EML has said that its current production rate of ~60,000/month will

continue till Q2FY18, when the first phase of the third plant at Vallam Vadagal will commence. For FY19, the company has maintained its production guidance of 900,000 units

• The waiting period for Classic model (~60% of domestic RE volumes)

of the RE is about three months while other models have an average waiting period of ~one to one and a half months

• The company is expanding its dealership network with the current

dealer count at 605 dealers pan-India • Volumes in top 20 cities (~30% of total dealership) grew 15% YoY • The last price hike in RE (1%) was taken in August 2016. The

company does not expect a major rise in its raw material prices • Currently, VECV has 280-285 touch points • Demand for heavy duty trucks was subdued due to sluggish coal

mining activity, which impacted the tipper segment • At present, EML has a network of ~60 dealers with a presence across

eight states for its product Multix • Discounts continue to remain high in the heavy duty segment


Company Analysis Our demographic analysis reveals that in the coming decade (2021) we could witness the share of the 15-40 years age population declining to 60% from 64% of total driveable population (>15<70 years). We observe that the first generation Splendor (Launched 1994) driving population (15>) would have been born <1980s. The same generation in 2014 would be aged ~ 34+ highlighting that as we move into 2021 the same class of buyers would be >42+. We assume that a bulk of 2-W drivers would be young (15-40 years). Thus, we interpret the fact that as we move into the next decade, bulk of the young population i.e. (>15<30 years- Gen Z) would have been born in the nineties and beyond, thereby having vastly different purchase habits and priorities (e.g. mileage/affordability vs. brand perception/comfort to their fathers (born <1980’s- Gen Y). Royal Enfield (RE), the world’s oldest active motorcycle brand, with its uniquely classical and powerful bikes, always enjoyed cult status among bike lovers. However, in the recent past, the new Indian emerging higher middle class have taken to it with few comparables. Exhibit 1: Young India to be big buyer class in next decade

30 24 20

2728

27

1415

15

18 2122

5 5 6

5 7 9

0%

20%

40%

60%

80%

100%

2011 2016 20210 year> 15 year> 30 year> 40 year> 60 year> 70 year>

Source: Company, CIA World Fact book, ICICIdirect.com Research Assumed 1.25% CAGR population growth

Exhibit 2: Shift in popular products preferences from Gen Y to Gen Z

Source: Company, ICICIdirect.com Research


Strong performance from “cult” RE, as volumes grow exponentially…

Acquired by the Eicher group in 1993, the company has made investments to build state-of-the-art manufacturing and product development facilities and a wide marketing network while developing a riding culture centred around leisure and adventure, thereby becoming the market leader in the premium motorcycle segment in India. RE’s volume CAGR in CY09-FY16 has been an astonishing 48%, albeit on a small base. However, large unfulfilled demand for RE products, especially in the 350 cc segment, makes us positive on the sustenance of growth as capacity expands. With newer product launches and export markets likely to be tapped, demand is likely to outstrip supply even with expanded capacity (~9 lakh units in CY18E). With a strong brand presence and long waiting periods, RE’s pricing power coupled with economies of scale have ensured that margins have remained on an uptrend. Going ahead, we expect margins to stabilise upwards of ~30% in FY17E, FY18E.

VECV contribution to profit to remain meaningful Eicher and Volvo entered into a 50:50 JV in 2008 to which Eicher moved its truck & bus business. Also, Volvo invested | 1082 crore in the JV and added its HD trucks distribution business for a 45.6% stake. In the ensuing five years, the JV, VECV trucks outpaced industry growth, increasing market share to ~13% from 9% in FY08. In the bus segment (>5 T), VECV has doubled its market share to ~12%. On the financial front, VECV’s performance has been best in the industry with margins declining to ~5% when margins of its peers dropped to the negative territory (down ~5% for Ashok Leyland and Tata Motors). VECV now has a strong distribution network comparable with incumbents – Tata Motors, Ashok Leyland. The VECV brand name has established itself among fleet owners while the launch of the new state-of the art Pro-series trucks would catalyse market share gains in coming years. Going ahead, we build in improvement in margins from current levels to ~8.3%, 9.7% in FY17E, FY18E, respectively, on the back of a better product mix and higher utilisation levels.

Exhibit 3: Royal Enfield growth trajectory

636

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Total Operating Income Volume ('100s) EBITDA Margin (%)

* Change in accounting year, FY16E is a 15 month period Source: Company press release, ICICIdirect.com Research


Strong overall financial performance

With an increase in competitive intensity amid cyclical weakness in the ICV segment of M&HCV, VECV’s performance has dropped off in the past two years. However, RE’s strong performance has offset the weakness in the truck & bus segment. In our view, VECV’s performance is likely to improve with the recovery in the domestic M&HCV industry. We expect the topline to grow at ~15% CAGR in FY16-18E (FY16E is a 15 month fiscal) while PAT is likely to grow at ~34% CAGR in FY16-FY18E as margins improve from 15.9% in FY16 to 19.5% in FY18E. Exhibit 5: Overall financial summary

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CY12 CY13 CY14 FY16 FY17E FY18E

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Total Operating Income PAT EBITDA Margin

* Change in accounting year, FY16E is a 15 month period Source: Company, ICICIdirect.com Research

Exhibit 4: VECV volumes, contribution to overall EBITDA

49

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75

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26.0 28.7

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CY12E CY13 CY14 FY16E FY17E FY18E(0

00's)

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VECV volumes(000's) Contribution to overall EBITDA



Return ratios remain on uptrend margins, profitability improve

With Royal Enfield’s strong franchisee driving profitability, the overall business has been able to maintain decent return ratios despite the weakness in the VECV side of the business, which had seen a sharp drop in capacity utilisation levels. Going ahead, as RE volumes ramp up in the new facility, coupled with a better performance from VECV on a revival in industrial activity levels, return ratios are likely to remain on the uptrend.

Exhibit 6: Operating margin; raw material cost trends

12.856.0

5

7

9

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Q3CY

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FY17

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FY18

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(%)

45

47

49

51

53

55

57

59

61

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OPM (LHS) RM/Net Sales Contribution


Exhibit 7: Return ratio profile

17.0

18.5

18.3

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42.4 42.0 41.5

19.2

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36.9 37.135.4

12

17

22

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CY12 CY13 CY14 FY16 FY17E FY18E

(%)

RoCE RoE



Key annual report highlight • Eicher Motors (EML) is a leading player in the Indian automotive

space with three business verticals – 1) motorcycles (with Royal Enfield brand), 2) commercial vehicles (through VECV) and 3) personal utility vehicles (with the brand Multix)

• RE believes the potential of the mid-size motorcycle market globally is

much larger than its current size. With low penetration levels these markets are similar to India with enormous potential to upgrade to the mid-sized motorcycles. Thus, the demand for mid-segment motorcycles will continue to grow & benefit RE going forward

• RE has emerged as a dominant player in the global mid-size (250 cc to

750 cc) motorcycle market. RE’s market share in the overall Indian motorcycle industry has grown from 1.9% in FY14 to 4.7% in FY16. However, its share in engine displacement of 150 cc & above motorcycles has grown 12% in FY14 to 22.2% in FY16 while its share in engine displacement of 250 cc and above motorcycle has risen from 93% in FY14 to 96.1% in FY16 in India. Further, in the last few years, it has been focusing on growing its presence in international markets. The global strategy combines its learning from the success in India and is calibrated for specific international geographies

• Royal Enfield has substantially expanded & upgraded its pan-India

distribution network. In 2015, Royal Enfield added >100 new dealerships to strengthen its retail presence in India. RE operates through 17 company operated stores and >500 dealers in all major cities and towns in India, and exports to over 50 countries across the world. Over the last two years, the brand has set up 12 exclusive RE stores in key international cities, including five in Colombia, two in London and one each in Jakarta, Bangkok, Paris, Madrid and Dubai

• RE’s growth has been driven by design and development of products.

In May 2015, RE acquired the brand, technical know-how, intellectual property and the business of UK-based Harris Performance Products, one of the leading experts in designing, manufacturing and marketing motorcycle chassis and components

• In FY16, the company commenced construction of technical centres

in Chennai, India and in UK, which will strengthen its product development capability. It is also investing | 600 crore towards setting up two technical centres, product development, enhancing its manufacturing capacity & market development activities across geographies

• The company launched the Himalayan, a motorcycle purpose-built for

adventure and touring in the Himalayas in March, 2016 • Its trucks and buses business did very well in all segments during

FY16 thereby increasing its market share in light medium duty trucks (5-15 ton) to 33.9%, 4.0% in heavy duty trucks, and 15.8% in buses

• Post the remarkable performance of the Pro series range of trucks &

buses, VECV successfully launched new variants in the Pro 6000 and the Pro 8000 series across the country

• VECV plans to invest | 400 crore towards product development &

capacity expansion


Outlook and valuation Eicher’s business performance has been strong with Royal Enfield seeming unfazed by the slowdown in the Indian economy. With Indians lapping up cruiser bikes from Royal Enfield and witnessing huge waiting periods, RE has now enhanced its capacity and looks set to make hay as the proverbial sun continues to shine. We believe RE is set to trace a similar path to Harley-Davidson’s (HOG) high growth phase (1998-2003). During this period where topline, bottomline grew ~2.5x, ~3.5x with EBITDA margins expanding from ~19% to ~27% and RoEs improved from 23% to 29%, respectively, HOG’s average valuations were >30x on one-year forward basis/PEG for two-year forward averaged ~0.6x (1998-2003). Prior to this high growth phase, HOG was able to grow its topline only by 2x in the preceding 10 years and exploded in the next five years. All these valuations need to be digested with the mature market multiples the US market would typically enjoy. In case of RE, in the last five years, revenue growth was ~14x. However, till FY18E, we expect profitability at 29% CAGR. We believe with similar financials panning out for RE, its valuations are likely to replicate HOG’s journey. Exhibit 8: Brief on Harley Davidson’s financials during growth phase (mn USD) CY 95 CY 96 CY 97 CY 98 CY 99 CY 0 CY 01 CY 02 CY 03 CY 04Revenue 1350 1531 1763 2064 2453 3083 3588 4302 4904 5320Growth(%) 13 15 17 19 26 16 20 14 8EBITDA margins (%) 16.3 18.0 18.6 19.4 20.5 21.0 22.7 24.6 27.5 29.6Net Income 112 166 174 214 267 348 438 580 761 890Growth(%) 48 5 23 25 30 26 33 31 17ROE (%) 24 29 23 23 24 27 28 29 29 29PE-1year forward (x) 17 17 19 27 28 31 28 19 20 18PEG-2year forward (x) 0.4 1.0 0.6 0.6 0.6 0.6 0.7 0.6 0.9 0.7


EML has justifiably commanded a premium over other auto OEs as RE’s business is in full throttle, VECV reaps the benefits of the economic revival. We maintain peer valuation parameters (relative valuation vis-à-vis HOG’s high growth phase) and ascribe a multiple of 33xFY17E EPS for RE, VECV at 11x FY17E EV/EBITDA, respectively. Considering Royal Enfield caters to the second largest two-wheeler market in the world with dominant market share positioning and superior financials vis-à-vis HOG (during 1998-2003), we believe RE could trade at a premium to HOG’s multiple considering the mature market nature of developed economies. Furthermore, on the VECV front, we value it at domestic CV manufacturers’ average multiple at 11x FY17E EV/EBITDA. Thus, we arrive at an SOTP target price of | 28,000. We have a BUY recommendation on the stock.


Exhibit 9: SOTP valuation FY17E Remarks

Two-wheeler business-Royal EnfieldEPS (|) 759 Target PE multiple(x) 33 Comparable to up-cycle multiples for Harley Davidson during the 1995-2004 phase.

Per share value (|) 25,308

Target market cap (| crore) 68,356

CV business-VECV`EBITDA 1,151 Target EV/EBITDA multiple(x) 11.0 In-line with current average industry multiple*Target EV 12,662 Net Debt VECV * (| crore) (716) Target market cap (| crore) 13,378 Contribution towards EML 0.54 EML has 54.4% stake in VECVTarget market cap towards EML (| crore) 7,277 Per share value-VECV Eicher (|) 2,694 Total target market cap (| crore) 75,634 Per share value (| ) 28,000

Source: Company, Bloomberg,ICICIdirect.com Research

Exhibit 10: Valuation

Net Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (| cr) (%) (|) (%) (x) (x) (%) (%)

CY14 8598.7 5.6 227.1 21.4 109.2 59.7 24.5 24.5FY16 15428.8 79.4 471.5 107.7 52.6 27.2 36.9 42.4FY17E 16682.3 8.1 653.0 38.5 38.0 21.4 37.1 42.0FY18E 20489.9 22.8 854.2 30.8 29.0 16.3 35.4 41.5



Recommended history vs. Consensus

0

5,000

10,000

15,000

20,000

25,000

30,000

Oct-16Jul-16May-16Mar-16Dec-15Oct-15Jul-15May-15Feb-15Dec-14Sep-14

(|)

0.010.020.030.040.050.060.070.080.090.0100.0

(%)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date EventOct-08 Approves buyback for 14 lakh shares at ~| 692/ shareJun-09 Announces launch of two new products on the all new electric technology, to raise capacity to 60,000 unitsJun-10 Volvo-Eicher plans a joint engine plant in Pithampur, which is going to be used by Volvo in its vehicles globallyNov-10 Outlines plans for investments of ~| 800 crore for engine facility, new capacities for Royal Enfield and VECVMay-12 Reports record profit of~ | 109 crore in its history on the back of the strong margin performance of both Royal Enfield & VECVApr-13 Commences production from the Oragadam facility. Plans stage-I to raise capacity to 250,000 units with stage-II at 500,000 unitsJul-13 Engine facility gets commissioned at Pithampur. Volvo says initial capacity of 25,000 units to be raised to 100,000 unitsSep-13 Royal Enfield launches the classic "Continental GT". Product receives rave global reviews. Export potential strongNov-13 Reports above expectations results driven by life-time high EBITDA margins of 19.3% in Q3CY13. Further re-rating takes placeSep-14 VECV launches the Pro-series family of trucksMay-15 Eicher acquires UK based Harris perfrommance products, which is basically into chassis developmentMay-15 Eicher overtakes Hero MotoCorp on market capitalisationJun-15 Volvo sells its remaining 3.7% stake in Eicher Motors but it has no impact on its JV named VECVJun-15 Eicher Polaris JV, launches its first personal utility vehicle called Multix


Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m)1 Simran Siddhartha Tara Benefit Trust 30-Sep-16 0.25 6.8 0.002 Eicher Goodearth Trust 30-Sep-16 0.1003 2.7 0.003 Lal (Anita) 30-Sep-16 0.0912 2.5 0.004 Capital Research Global Investors 30-Sep-16 0.0396 1.1 0.005 Cartica Capital, Ltd. 30-Sep-16 0.0241 0.7 -0.286 Brinda Lal Trust 30-Sep-16 0.0179 0.5 0.007 TIAA Global Asset Management 30-Jun-15 0.0131 0.4 -0.018 The Vanguard Group, Inc. 30-Sep-16 0.0128 0.3 0.009 Capital World Investors 30-Sep-16 0.0128 0.3 0.3310 BlackRock Institutional Trust Company, N.A. 31-Oct-16 0.0124 0.3 0.00

(in %) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16Promoter 54.9 54.9 54.9 50.7 50.6FII 28.3 26.6 30.1 33.6 34.4DII 4.3 4.9 3.2 3.9 3.5Others 12.6 13.6 11.9 11.9 11.5

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value SharesCapital World Investors 124.1 0.3 Cartica Capital, Ltd. -105.3 -0.3Fidelity Management & Research Company 25.0 0.1 Goldman Sachs Asset Management (US) -3.9 0.0Invesco Hong Kong Limited 11.3 0.0 Grantham Mayo Van Otterloo & Co LLC -2.6 0.0William Blair & Company, L.L.C. 10.1 0.0 Morgan Stanley Investment Management Inc. (US) -3.4 0.0Candriam S.A. (France) 3.5 0.0 Handelsbanken Asset Management -2.3 0.0

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore (Year-end March) CY14 FY16 FY17E FY18E

Total operating Income 8,738.3 15,688.7 16,911.3 20,822.5

Growth (%) 28.3 79.5 7.8 23.1

Raw Material Expenses 4,819.6 8,273.4 8,915.3 10,846.1

Employee Expenses 659.6 1,057.5 987.3 1,184.7

Other Expenses 1,197.9 2,062.7 1,995.9 2,423.2

Total Operating Expenditure 7,623.5 13,241.5 13,834.9 16,817.9

EBITDA 1,114.8 2,447.2 3,076.4 4,004.7

Growth (%) 56.3 119.5 25.7 30.2

Depreciation 219.8 451.7 436.7 496.7

Interest 9.8 9.0 11.6 15.1

Other Income 107.4 112.0 187.5 276.8

PBT 992.6 2,098.5 2,815.6 3,769.8

Others 0.0 0.0 0.0 0.0

Total Tax 290.9 646.6 787.6 1,055.5

PAT 615.4 1,277.9 1,763.7 2,307.1

Growth (%) 56.2 107.7 38.0 30.8EPS (|) 227.1 471.5 653.0 854.2


Cash flow statement | Crore(Year-end March) CY14 FY16 FY17E FY18E

Profit after Tax 615.4 1,277.9 1,763.7 2,307.1

Add: Depreciation 219.8 451.7 436.7 496.7

(Inc)/dec in Current Assets -232.2 -697.4 102.9 -1,146.8

Inc/(dec) in CL and Provisions 515.5 862.0 -166.1 607.0

CF from operating activities 1,118.6 1,894.2 2,137.2 2,263.9

(Inc)/dec in Investments -91.7 207.3 -100.0 -100.0

(Inc)/dec in Fixed Assets -828.2 -1,046.1 -650.0 -650.0

Others -220.2 -651.6 -131.3 -541.8

CF from investing activities -1,140.1 -1,490.4 -881.3 -1,291.8

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds -25.5 27.5 20.0 20.0

Dividend paid & dividend tax 0.0 0.0 0.0 0.0

Others -154.6 -329.5 -474.0 -553.0

CF from financing activities -180.1 -301.9 -454.0 -533.0

Net Cash flow -201.6 101.8 801.8 439.2

Opening Cash 682.6 480.9 582.7 1,384.6Closing Cash 480.9 582.7 1,384.6 1,823.7


Balance sheet | Crore (Year-end March) CY14 FY16 FY17E FY18E

Liabilities

Equity Capital 27.1 27.2 27.2 27.2

Reserve and Surplus 2,489.1 3,437.5 4,727.1 6,481.2

Total Shareholders funds 2,516.2 3,464.6 4,754.3 6,508.4

Total Debt 58.4 85.9 105.9 125.9

Deferred Tax Liability 324.3 387.7 437.7 487.7

Minority Interest 1085.1 1156.9 1421.2 1828.3

Total Liabilities 4,073.6 5,247.3 6,871.3 9,102.5

Assets

Gross Block 2,670.7 3,610.3 4,260.3 4,910.3

Less: Acc Depreciation 689.6 1,062.6 1,425.9 1,849.2

Net Block 1,981.1 2,547.7 2,834.4 3,061.2

Capital WIP 236.3 236.3 236.3 236.3

Total Fixed Assets 2,217.4 2,784.0 3,070.8 3,297.5

Intangibles 510.7 538.6 465.2 391.8

Investments 1,077.7 1,638.3 2,138.3 3,038.3

Inventory 645.5 1,014.3 813.9 1,431.6

Debtors 562.2 833.6 914.1 1,235.0

Loans and Advances 379.7 475.7 449.2 686.8

Cash 480.9 582.7 1,384.6 1,823.7

Total Current Assets 2,068.3 2,906.3 3,561.7 5,177.1

Creditors 1,571.5 2,080.9 2,285.2 2,806.8

Provisions 248.5 83.0 91.2 112.0

Total Current Liabilities 1,820.0 2,163.9 2,376.4 2,918.8

Net Current Assets 248.3 742.4 1,185.3 2,258.3

Misc expenses not w/o 0.0 0.0 0.0 0.0Application of Funds 4,073.6 5,247.4 6,871.3 9,102.5


Key ratios (Year-end March) CY14 FY16 FY17E FY18E

Per share data (|)

EPS 227.1 471.5 653.0 854.2

Cash EPS 308.2 638.2 814.6 1,038.0

BV 928.5 1,278.5 1,760.2 2,409.6

DPS 49.9 100.2 150.0 175.0

Cash Per Share 177.5 215.0 512.6 675.2

Operating Ratios (%)

EBITDA Margin 13.0 15.9 18.4 19.5

PBT / Net sales 11.5 13.6 16.9 18.4

PAT Margin 5.4 5.1 5.8 7.2

Inventory days 24.9 19.6 20.0 20.0

Debtor days 23.9 19.7 20.0 22.0

Creditor days 66.7 49.2 50.0 50.0

Return Ratios (%)

RoE 24.5 36.9 37.1 35.4

RoCE 24.5 42.4 42.0 41.5

RoIC 45.7 65.8 69.3 65.3

Valuation Ratios (x)

P/E 109.2 52.6 38.0 29.0

EV / EBITDA 59.7 27.2 21.4 16.3

EV / Net Sales 7.7 4.3 3.9 3.2

Market Cap / Sales 7.8 4.3 4.0 3.3

Price to Book Value 26.7 19.4 14.1 10.3

Solvency Ratios

Debt/Equity 0.0 0.0 0.0 0.0

Current Ratio 0.9 0.9 1.2 1.4Quick Ratio 0.7 0.7 0.7 0.9



ICICIdirect.com coverage universe (Auto & Auto Ancillary) CMP M Cap(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Amara Raja (AMARAJ) 1027 900 Hold 17543 28.6 31.1 38.9 35.9 33.0 26.4 19.4 17.8 14.3 31.1 27.6 28.5 23.3 21.0 21.6Apollo Tyre (APOTYR) 199 180 Hold 10047 21.5 20.3 22.2 9.3 9.8 9.0 4.8 5.6 5.0 20.5 15.3 15.2 17.7 15.3 14.6Ashok Leyland (ASHLEY) 81 95 Buy 26004 2.5 5.4 6.4 36.3 17.1 14.5 10.8 8.7 7.2 23.0 26.5 27.9 13.1 23.1 22.7Bajaj Auto (BAAUTO) 2832 3300 Buy 81939 126.2 153.0 187.3 22.4 18.5 15.1 16.7 14.3 11.5 35.9 34.4 34.9 29.7 30.5 31.2Balkrishna Ind. (BALIND) 1047 925 Hold 10120 58.7 59.6 71.6 15.1 14.8 12.4 8.8 8.2 6.9 19.5 19.8 21.6 20.3 19.8 21.6Bharat Forge (BHAFOR) 859 840 Hold 20011 28.0 29.9 39.0 30.7 28.7 22.0 14.3 13.9 11.4 16.5 15.6 18.3 18.3 17.1 19.4Bosch (MICO) 21770 24700 Hold 68358 398.7 477.0 616.9 60.9 50.9 39.3 39.8 35.4 27.6 15.1 16.0 18.1 17.8 17.9 20.4Eicher Motors (EICMOT) 24888 28000 Buy 67222 471.5 653.0 854.2 52.8 38.1 29.1 27.2 21.4 16.3 42.4 42.0 41.5 36.9 37.1 35.4Exide Industries (EXIIND) 195 240 Buy 16533 7.3 8.5 10.3 26.5 23.0 18.9 15.8 13.6 11.0 18.7 19.7 22.3 14.0 14.7 16.1Hero Mototcorp (HERHON) 3383 3820 Buy 67553 119.5 156.9 186.6 28.3 21.6 18.1 14.3 12.2 10.6 45.9 50.4 48.2 36.5 39.4 38.3JK Tyre & Ind (JKIND) 143 110 Hold 3251 21.0 13.7 22.7 6.8 10.5 6.3 4.4 5.3 4.1 21.7 13.2 16.3 27.2 15.5 20.9M&M (MAHMAH) 1364 1575 Buy 80839 48.3 63.2 72.2 28.2 21.6 18.9 17.7 10.5 9.0 14.5 16.0 17.2 14.4 15.1 15.4Mahindra CIE (MAHAUT) 196 225 Buy 6331 6.2 10.6 13.1 31.7 18.4 14.9 12.5 9.1 7.3 7.3 11.0 12.1 8.5 12.3 14.1Maruti Suzuki (MARUTI) 5819 6765 Buy 175849 151.3 260.7 307.5 38.5 22.3 18.9 19.8 15.9 13.0 22.7 25.1 24.9 16.9 23.6 22.8Motherson (MOTSUM) 321 325 Hold 42429 9.6 12.8 16.0 33.3 25.1 20.0 13.3 10.2 8.1 19.9 26.3 30.5 30.0 30.9 30.4Tata Motors (TELCO) 515 660 Buy 174857 37.2 57.6 67.7 12.2 7.9 6.7 3.8 3.0 2.4 17.0 18.1 20.1 15.3 17.7 17.2Wabco India (WABTVS) 5550 6750 Buy 10546 107.9 144.2 182.4 51.4 38.5 30.4 36.7 27.6 22.5 19.4 20.9 21.3 22.5 24.4 23.8

Sector / CompanyRoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)



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Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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november 3, 2016 eicher motors (eicmot) - icici...

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