LAYMAN BROTHERS

Kunal Chhatwani
Aditya Bhuttani
-NMIMS, Mumbai

EICHER MOTORS

AGENDA
Recommendation
Industry Overview
Company Overview
Financials
Valuation
Investment Rationale
Risks

RECOMMENDATION

BUY

TARGET
PRICE
Rs.
18,734.0
2
CURRENT
PRICE
Rs.
16,083.8
5*

* As of December 16, 2015

Potenti
al
Upside
16.48%

INDUSTRY OVERVIEW
India - second largest two wheeler manufacturer,
third largest automobile industry by 2016E

Automotive Clusters
(India)

Market Share (By

Source: IBEF Volume)

35 Market Players, Market size of USD 145 billion

14%

Up to 100% FDI permitted under automatic route

79%

Commercial vehicles expected to register CAGR of

30.9% during FY15-20

Passenger Vehicle
Commercial Vehicle
Three Wheelers
Two Wheelers

Porters Five Forces Model

Bargaining Power of
Suppliers
LOW
Competitive
Rivalry
HIGH
Substitute Products
LOW

3%
4%

Growth Drivers
Cost
Advantage

Growth of Sales (Annual)

27%

28%

Source: IBEF

13%

Rising Income levels

5%

8%

1%

Increased R&D Investments

FY10

FY11

FY12

FY13

FY14

FY15

Bargaining Power of
Customers
HIGH

Threat of New
Entrants
LOW

INDUSTRY OVERVIEW
Growth of Sales (million units)
15.7

15.4

13.4

18.5

16.9

Share of Commercial Vehicles

(Vol.)

10.5

2.4
0.6
0.6

FY10

0.8
0.8

3.1
0.9
0.9

3.2
0.8
0.8

3.1
0.8
0.7

3.3
0.9
0.7

FY11

FY12

FY13

FY14

FY15

Commerical Vehicles
Two Wheelers

74%

50

Export Share by Volume

Source: IBEF

13915

-82

-11

0
-3
-13

139
0

FY11
FY12
FY13
Passenger
FY15 Vehicles Commerical Vehicles
Three Wheelers

Two Wheelers

Source: IBEF

11%
17%

Scooters

Source: IBEF

3333

25

Motorbikes
Mopeds

LHCV

Source: IBEF

Growth of Auto Segment (in percentage)

FY10
FY14

22%

68%

MHCV

Source: IBEF

2025

4%

32%

Passenger Vehicles
Three Wheelers

33

Share of Two Wheelers (Vol.)

3%
69%

Two Wheelers
Passenger Vehicles
Commercial Vehicles
Three Wheelers

FDI (USD Billion)

14
12
10
8
6
4
2
0

Source: IBEF

12.4

9.8
8.3
5.9

6.7

FY11 FY12 FY13 FY14 FY15

COMPANY OVERVIEW
Past performance

00

00
0

Vision and Mission

Shareholding Pattern

900

To be recognized as the industry

leader driving modernization in
702
6527 6905
commercial transportation in India
5827
525
497
475
4525
and the developing world.
400
307
Continuously improve
transportation efficiency in India
and developing markets, thereby
-100 reducing logistics costs for goods
2010 2011 2012 2013 2014
and people - leading to higher
enablement of specialization in
Net Income
PAT
manufacturing, agriculture and
Source: Annual Report
services, thereby increasing the
nation's economic activity and
Group Structure
productivity
8846

Royal Enfield (RE)

Eicher Group

VE Commercial
Vehicles (VECV)

Eicher Polaris (EPPL)

2000
1800
1600
1400
1200
1000
800
600
400
200
0

14%
4%
27%

Promoters

Source: BSE

Sensex

DII

5 year stock analysis

Nov15
Eicher Motors

FII

As of September 2015

Nov10

55%

The increase in FIIs

share from 20% to 27%
as against last year
signifies confidence in
company
Mutual funds also hold
increased their share
again an indicator for
Others strong positioning

The stock has been on a long term uptrend

with minor jerks in between.
Hit an all time high of 21,618 on 21st July
2015 (at point 1).
The stock slipped after Credit Suisse
downgraded the stock to Neutral from
Outperform as it felt that the growth
potential had been priced into the stock and
the up move will be seen when firm gets
traction in some export markets.
The stock is currently again in an uptrend.

COMPANY OVERVIEW
JVs and Acquisitions

Recent and Upcoming Initiatives

Eicher Polaris
(EPPL)

50:50 JV between Eicher Motors Limited and US based

Polaris Industries Inc. signed in July 2012.
Multix, the 3-in-1 PUV is born.

VE Commercial
Vehicles
(VECV)

50:50 JV between Eicher Motors Limited and Volvo

Group, signed in July 2008.
Provides complete range of Eicher branded trucks and
buses, VE Powertrain, Eichers components etc.

Peer Comparison
Company

CAGR

Revenue (Rs. Cr)

Market Cap (Rs

Cr)

Eicher Motors

67.67

8845.76

47516.13

Tata Motors

10.32

266840.71

128028.08

Ashok Leyland

19.33

15275.85

26167.84

Force Motors

29.07

2436

4126.15

First showroom of EPPL launched in June 2015 in Jaipur with

capacity of 60,000 units per annum of Multix which can be scaled
up to 1,20,000 units.
Retail sales of Multix commenced in August 2015 with
dealerships across 7 states.
Targeted towards individual businessmen in rural India, launched
with the starting price (ex showroom Jaipur) of 2.32 lakhs.

For Royal Enfield, company plans to reach capacity

of 450,000 in 2015 and over 600,000 in 2016.
If demand grows beyond this capacity, the company
will use the third plant to be set up in Vallam
Vadagal, Tamil Nadu by FY 17-18 for which it recently
acquired 50 acre land.
2 new product platforms in development stage in
250cc-750cc range likely to rollout starting 2016.
Expanded global footprint by setting up stores in
London, Madrid, Paris, Bogota and Dubai.
Ventured into online selling for the entire range of
apparel and accessories for Royal Enfield.
Revenue Split-Up

0%
Swaraj Mazda

25.32

1153.66

1694.49

60%

40%
Data for 2015

RE
VECV
EPPL

FINANCIALS
Profit Margins

25
20
15
10
5
0

Return Ratio Profile

100
80
60
40
20
0
-20

Source: Annual Report

2011

2012

2013

Operating Profit Margin

Source: Capitaline

ROCE (%)

2014

Key Financial ratios

P/E Ratio : 75.8

Financial Statistics
( Crores)

FY 14

EV/EBIDTA :
48.12
P/BV : 33.18

Net Sales

9459.18

EBITDA

1222.22

RONW(%) : 54.4
ROCE (%) :
76.47

Net Profit

701.74

EPS()

227.22

ROE (%)

Company Beta With BSE

Net Profit Margin

Return on Equity

2.5
Dividend Payout

800
600
400
200
0

2011

2012

2013

Net Profit

2014

600
500
400
300
200
100
0

Equity Dividend (%)

1.81 1.97

2
Consistently paying out
high dividends.
High regard for public
shareholders.

1.5
1
0.5
0

0.66

0.91

1.14

VALUATION
Comparable Peer Multiple Valuation
Company
Tata Motors
Ashok
Leyland
Force Motors
Swaraj
Mazda

Sales
(CroresINR)
39,524.34

No. of
Shares

Price

Sales/S
hare

321.87

379.3

122.8

14,485.93

284.59

87.35

2,638.90

1.32

3129

1200.16

41.84

1238.7

Average

P/E

EV/EBITDA

Target Price from Multiple

Valuation

P/S

3.09

50.9

68.1

18.79

1.72

2002.81

18.42

7.34

1.56

26.09

14.93

82.94

14.47

48.04

2.18

44.85

21.83

For WACC, since the the company has zero

debt, an adjustment factor (after considering
the time value of money) is applied at 2%
(GDP price index)
For DCF, the industry growth is estimated at
10.15% (including the 7.4% gdp growth and the
expected growth after tha application of GST)
Risk free rate of return is taken as the
rate of return of long term government
bond
Market rate of return is taken as the
approximate rate of return for BSE

9,249.21

By Price/Sales

17,379.89

By EV/EBIDTA

9,764.91

5.33

Discounted Cash Flow

Assumptions

By Price/Earnings

Fair Value Calculation

Calculations

Market Risk Premium(%)

4.21

Risk Free Rate(%)

7.79

Beta(x)

0.66

Calculated WACC (%)

9.933

Free Cash
Flow Value
22,418.51

Market
Based value
14,230.76

Weight
0.55

Weight
0.45

12330

6403

Fair
Value
18,734
(16.48%)

INVESTMENT RATIONALE
Changing Income Dynamics

Royal Enfield Growth Trajectory

8000

Source: IBEF

Source: ICICI Direct

7000

26

50

12
2
1

2008
Deprived

6000

15

35

40

32

25

9
17

6
3

Aspirers

2020
Seekers

2030
Strivers Globals

Highlights

23.1

Lowering of interest rates by RBI, easier

financing,
demand expected to rise.
Buses demand to rise with STRUs
placing order for JNNURM 2. Eicher
already supplies to GSRTC.
Proliferation of Hub-n-Spoke logistics
model with the implementation of GST,
after drawing away 2% interstate CST,
to reduce costs.
Lower oil price imply lower freight rate.
Also beneficial for fleet operators.
Debt Free Company.

24.9

24.2

5639

18.4

5000

20

13.9

4000

12.1

3000
2000

1049

1702

CY12

CY13

13.9

643
636

741
746

1134
728
671
1049
3031

Q1CY14 Q2CY14 Q3CY14 Q4CY14

Total Operating Profilt

Volume

64
62
60
58
56
54
Rm/Net Sales
%
52
50
48

10

OPM %

5
0

OPM

RM/Net Sales

5
6946

Q1FY16 FY16E

FY17E

EBITDA Margin

Credit Rating

Source: ICICI Direct

15

920
961
5925

CY14

Falling Raw Material Cost Trend

20

15

3026

10

1776

1134

1000

30
27.7
6415 25

26.7

26.1

DomesticCRISIL

AA Stable

ICRA

AA+ Stable

CARE

AAA

InternationalS&P

BBB(-) Stable
Outlook

FITCH

BBB(-) Stable
Outlook

RISKS
Economic Risks

OR
ER
MR
CR

Low
High

Probability
Medium

Commercial Vehicle industry draws its demand from

economy, hence prone to cyclicity, and with uneven
recovery, risk remains.
Low rural demand due to two consecutive years of
subdued rainfall can impact the demand of Commercial
Vehicles.
Weakening global demand to impact the exports to
Africa, South-East Asia and Middle-East.
Fuel prices seem to have bottomed out, with rising prices
in the offing, the demand for CVs may be impacted.
Subdued infrastructure spending started weighing on
demand of CVs.
Manufacturing
contraction
to
Market Risks activity
Operating
Risks may lead
Currency
Risks
slowdown in freight availability.
Subdued earnings
Major players
Rupee is
in the Middlelooking to enter or
still not
East region due
expand their
stabilized
to low crude
presence in LCV
against
prices.
markets.
major
Europe still
Mahindra &
currencies.
recovering, hence
Export
Mahindra recently
Royal Enfield sales
launched Jeeto
markets of
might get
range of miniRoyal
impacted in that
trucks.
Enfield and
region.
Tata Motors
VECV to be
Latin-America
launched Ace
impacted in

Impact-Likelihood Matrix

Low

Medium
High

Impact

ER
Economic Risk:
Risks:
MR
Market Risk:

OR
Operating
CR
Currency

Thank You