11 December 2012
Initiating Coverage | Sector: Automobile
Eicher Motors
At inflection point
Chirag Jain
(Chirag.Jain@MotilalOswal.com) + 91 22 3982 5418
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416

Eicher Motors
Eicher Motors: At inflection point
Page No.
Summary
..............................................................................................................
3
Story in charts
.................................................................................................
4-5
Motorcycles: Royal Enfield well-positioned
...............................................
6-10
CVs: VECV better placed to challenge incumbents
...................................
11-22
MDEP: A linear business opportunity
.......................................................
23-26
Initiating coverage with a Buy rating
........................................................
27-29
Key risks and challenges
...................................................................................
30
Company background
.......................................................................................
31
Operating and financial snapshot
...................................................................
32
Financials and valuation
.............................................................................
33-34
Investors are advised to refer through disclosures made at the end of the Research Report.
11 December 2012
2

Initiating Coverage | 11 December 2012
Sector: Automobiles
Eicher Motors
BSE SENSEX
S&P CNX
19,410
5,909
CMP: INR2,660
TP: INR3,850
Buy
At inflection point
Multiple growth drivers in place
Bloomberg
EIM IN
Equity Shares (m)
26.99
52-Week Range
3,240/1,376
1,6,12 Rel. Perf. (%)
2/7/51
M.Cap. (INR b)
71.8
M.Cap. (USD b)
1.3
With several of its projects to commence in CY13-14, driving 28% sales CAGR and 34%
EBITDA CAGR over CY12-15, Eicher Motors (EIM) is at an inflection point.
Its motorcycle business will benefit from capacity expansion (new plant to start in
1QCY13), new launches (Thunderbird 500 and Café Racer), and network expansion.
CV subsidiary, Volvo Eicher Commercial Vehicles (VECV), will benefit from the
commencement of the Medium Duty Engine Project (MDEP) and ramp-up in HCVs.
Buy with a target price of INR3,850, 45% upside over two years. EIM's strong balance
sheet (net cash increasing to INR16.9b by CY15E) limits downside risk, in our view.
Financial summary (INR b)
Y/E December 2012E 2013E 2014E
Net Income
63.5 81.1 106.4
EBITDA
5.7
6.7 10.2
Net Profit
3.1
3.3
4.7
Adj. EPS (INR) 116.5 120.8 175.5
EPS Gr. (%)
1.9
3.7 45.2
BV/Sh. (INR) 645.4 728.8 852.3
P/E (x)
22.8 22.0 15.2
P/BV (x)
4.1
3.7
3.1
EV/EBITDA (x) 16.4 13.5
8.8
Div. Payout (%) 18.0 18.3 18.6
Divi. Yield (%) 0.7
0.7
1.1
RoCE (%)
23.0 20.8 26.7
RoE (%)
19.4 17.6 22.2
Price as on 10 December 2012
Motorcycles: Royal Enfield well-positioned
Given its leadership position, cult brand equity and minimal competition, Royal
Enfield is well positioned to benefit from increasing trend of lifestyle biking.
Currently, demand for Royal Enfield motorcycles far exceeds supply with average
waiting period at 6-8 months. Capacity expansion (new plant to start in 1QCY13),
new launches (Thunderbird 500 and Café Racer), and network expansion to drive
25%/29% volume/EBTIDA CAGR over CY12-15E.
CVs: VECV better placed to challenge incumbents
The Indian CV industry is likely to evolve giving new players opportunity to
challenge the incumbents. VECV is better placed among new entrants, given the
marriage of Volvo's technological strength with Eicher's local market expertise.
It is taking initiatives to gain 15% share in HCVs and initial signs of success are
visible. Volvo intends to use Eicher as a mass market brand and VECV as its low
cost manufacturing hub over the long term; this presents a sizable export
opportunity. We estimate VECV to register a CAGR of 16%/28%/37% in volumes/
revenues/EBITDA over CY12-15.
Shareholding pattern (%)
As on
Sep-12
Promoter
55.2
Dom. Inst 15.3
Foreign
17.5
Others
12.0
Jun-12 Sep-11
55.2
55.2
16.3
17.4
16.3
14.4
12.3
13.0
MDEP: A linear business opportunity
MDEP holds immense strategic importance for both the Volvo Group and VECV.
While the Volvo Group would become entirely dependent on VECV for Euro 5
and Euro 6 base engines, MDEP will improve VECV's positioning in HCVs with
headstart on futuristic technology. Moreover, MDEP provides a stable business
opportunity to VECV. We estimate MDEP (excluding captive consumption of engine
by VECV) to contribute 26%/20%/17% to VECV's revenues/EBITDA/PAT in CY15.
Stock performance (1 year)
Initiating coverage with a Buy rating
EIM provides strong growth visibility, driven by both Royal Enfield and VECV
operations, notwithstanding near-term weakness in CV business. We estimate
28% sales CAGR, 34% EBITDA CAGR and 28% PAT CAGR over CY12-15. The stock has
re-rated post the JV with Volvo. We expect appreciation from current levels to
be largely driven by earnings growth. Initiate coverage with a
Buy
rating and
target price of INR3,850, 45% upside over two years.
11 December 2012
3

Eicher Motors
Story in charts Royal Enfield capacity expansion to drive growth...
Capacity expansion coupled with new launches to drive
25% Royal Enfield volume CAGR over CY12-15E
Royal Enfield margins to improve with higher volumes
and efficiencies of new plant
Standalone cash generation from operations to be far
higher than capex needs of Royal Enfield
Royal Enfield to contribute ~44% of CY13E consolidated
adjusted EBITDA
Driven by introduction of new HCV range powered by
Volvo engines from CY13-end and start of new bus body
plant to drive VECV's volume CAGR of 15.5% over CY12-
15E
lower marketing incentives and increase in after-
market revenues
VECV's EBITDA margin to improve with higher volumes,
Capacity expansion to drive 25% volume CAGR over CY12-15E
Higher volumes and new plant to improve margins
(‘000 units)
Low growth due to
transition to UCE engine
Launch of Classic brand
an inflection point
Cash generation from operations higher than capex needs
RE to contribute ~44% of CY13E consolidated adjusted EBITDA
VECV to witness volume growth of 15.5% over CY12-15E
VECV EBITDA margin to improve
Source: Company, MOSL
11 December 2012
4

Eicher Motors
Story in charts ...coupled with ramp-up in VECV to drive strong performance
Despite capex of INR18.5b over CY12-15E, VECV's FCF to
remain positive
MDEP provides stable business opportunity to VECV,
company aims full utilization by CY15
We estimate MDEP (excluding captive consumption of
engine by VECV) to contribute 26%/20%/17% to VECV's
revenues/EBITDA/PAT in CY15E.
Consolidated revenues, EBITDA & PAT to register a CAGR
of 28%/34%/28% respectively over CY12-15E driven
both by Royal Enfield and VECV
Initiate coverage with a Buy rating and a target price of
INR3,850. EIM's strong balance sheet, with net cash
increasing to INR16.9b by CY15E limits downside risk.
& 16% of the SOTP respectively.
Royal Enfield, VECV & surplus cash constitutes 40%,44%
MDEP ramp-up, aims to achieve full capacity by CY15
Despite high capex, VECV's FCF to remain positive
MDEP to contribute 20% of VECV's CY15E EBITDA
Robust consolidated financial performance over CY12-15E
SOTP Valuation
CY12E
Royal Enfield
Core PAT (ex div & fin income) 1,064
Core Equity Value @ 18x PE
19,145
Net Debt
-5,280
Equity Value
24,425
VECV (@ 54.4% Economic interest)
EBITDA
2,227
EV@ 8x EV/EBITDA
17,819
Net Debt
-4,442
Equity Value
22,261
Total Equity Value
46,686
Target Price
1,730
CY13E
CY14E
CY15E
SOTP Contribution (%)
1,296 1,828 2,280
23,336 32,910 41,043
-7,014 -8,502 -11,376
30,349 41,412 52,419
2,569 4,075 5,711
20,555 32,599 45,942
-3,244 -3,416 -5,547
23,799 36,015 51,489
54,148 77,427 103,908
2,006 2,869 3,850
Source: Company, MOSL
11 December 2012
5

Eicher Motors
Motorcycles: Royal Enfield well-positioned
To benefit from trend towards lifestyle biking
Rising income and aspiration levels together with favorable demographics have triggered
a trend towards lifestyle biking in India.
Given its leadership position, cult brand equity and minimal competition, Royal Enfield is
well positioned to benefit from this trend.
Currently, incremental demand for Royal Enfield motorcycles far exceeds supply. On an
average, the waiting period for its various products is 6-8 months.
Capacity expansion (new plant to start in 1QCY13), new launches (Thunderbird
500
and
Café Racer),
and network expansion to drive 25%/29% volume/EBTIDA CAGR over CY12-
15E.
Well positioned to capitalize on trend towards lifestyle biking
Lifestyle biking is gaining momentum, with rising income and aspiration levels.
Several global luxury/lifestyle bike manufactures have entered the Indian market,
considering the long-term potential the Indian market offers. This should further
boost the lifestyle biking culture in India. With its leadership position and cult brand
equity, Royal Enfield is well positioned to benefit from the rising trend of lifestyle/
leisure biking. Considering the huge price differential (price of Harley’s entry-level
motorcycle is INR0.6m), we do not perceive the global luxury/lifestyle bike
manufactures as a major threat.
Rich history; cult brand
Royal Enfield is amongst
the world’s oldest
motorcycle brands still in
business
Royal Enfield is amongst the world’s oldest motorcycle brands still in production. Use
of the brand name, Royal Enfield, was licensed by the British Crown in 1890. Eicher
Motors (EIM) acquired the brand in 1994-95, after it took over Chennai-based Enfield
India, then the sole producer of Royal Enfield motorcycles. The Redditch-based British
manufacturer that originally produced these motorcycles had stopped production in
1970 and was dissolved in 1971.
Royal Enfield has three sub-brands –
Thunderbird, Classic
and
Bullet,
but it is
Bullet
that stands out. The
Bullet 350
has been the longest running motorcycle model in
continuous production. First built in Britain, the
Bullet 350
has been made in India
since 1955.
Classic
was launched in late 2009 and
Thunderbird
in 2000 (upgraded version
launched recently in October 2012).
Royal Enfield’s current product portfolio
Thunderbird
(INR130K onwards)
Thunderbird 500
Thunderbird 350
Classic (INR114K onwards)
Classic Desert Storm 500
Classic Battle Green
Classic Chrome
Classic 500
Classic 350
Bullet (INR96k onwards)
Bullet Electra Twinspark
Bullet 350 Twinspark
Bullet Electra EFI
Bullet Electra Deluxe
Bullet 500
Source: Company, MOSL
11 December 2012
6

Eicher Motors
While very few people
drive Royal Enfield
motorcycles, many aspire
for them
There is a sense of aura around the Royal Enfield brand. Its motorcycles are very
heavy, tough to drive and remain exclusive to the very few ‘men’ that can wield
them. The Bullet offers a very different riding experience. The thumping sound, the
road presence, the sheer ‘ego’ boost that the brand gives its rider makes him feel
‘arrived’. While very few people drive Royal Enfield motorcycles, many aspire for
them.
Royal Enfield motorcycles have evolved over the years, with improvements in fuel
efficiency, quality and reliability, particularly with the unit construction engine (UCE)
platform. However, the vintage looks and styling, and the familiar thumping sound
remain. To promote leisure motorcycling as a lifestyle (as well as the Royal Enfield
brand), EIM organizes annual various events such as the Himalayan Odyssey, the Tour
of Rajasthan and the Southern Odyssey.
Promoting biking culture and Royal Enfield brand through ‘keep riding’ initiative
Royal Enfield organizes various Rides and Events for
Royal Enfield motorcycle owners throughout the year.
These are adventure-filled, fun and leisure activities
at exotic locales.
Royal Enfield Independence Day Rally 2012
Royal Enfield is a community-built brand. There are a
number of Royal Enfield clubs, each having 400-500
members. The only criterion to join the club is to own
a Royal Enfield motorcycle.
Royal Enfield Rally in Ajmer (Rajasthan)
Capacity addition to help meet demand
The average waiting
period for Royal Enfield
motorcycles is 6-8
months
While the current annual installed capacity is 60k units, over the last couple of years,
the company has been consistently increasing its monthly output. Current production
is ~10k units/month, way above its installed capacity. Despite production increasing
by 50% YoY in recent months, the average waiting period for Royal Enfield motorcycles
is 6-8 months.
To meet the increasing demand and further improve product quality and profitability,
EIM is setting up a new plant with capacity of 150k units/year in Chennai at a capex of
INR1.5b. The new plant is spread over 50 acres and is slated to commence production
in 1QCY13. Capacity at the new plant can be further expanded by 100k units up to 250k
units/year at a reasonably short notice.
Capacity expansion will enable it to improve availability and expand its reach - both
domestic and global. In India, it currently has 240 dealers, catering largely to tier 1 &
2 cities. It is yet to tap the potential of semi-urban/rural markets, where affordability
for its product is improving.
11 December 2012
7
Setting up new plant with
capacity of 150k units/
year to meet increasing
demand

Eicher Motors
Capacity expansion to support strong growth
Source: Company, MOSL
New launches to aid growth momentum
EIM has recently launched the
Thunderbird
with a 500cc engine option in addition to
the 350cc version available earlier. The company is also likely to launch the
Café Racer
powered by a 500cc UCE engine in 1HCY13. This would be the lightest Royal Enfield
motorcycle.
New Thunderbird 500 launched in October 2012
Café Racer to be launched in 1HCY13
Source: Company, MOSL
Exports to gain momentum once capacity constraints ease
Currently, less than 5% of
Royal Enfield sales come
from exports
Currently, less than 5% of Royal Enfield sales come from exports, primarily to the US,
UK, Germany, Italy, Japan and Australia. However, as part of its long-term strategy,
EIM intends to make Royal Enfield a global motorcycle brand, with a much higher
share of sales coming from exports. The product planning and development are being
done keeping in mind the export potential. For instance, the recently launched
Thunderbird 500
/ upgraded
Thunderbird 350
have been developed to tap overseas
opportunities as well. Export markets generally offer higher realizations and margins,
due to premium pricing and better product mix (primarily 500cc products).
Considering the huge order backlog (with average waiting period of 6-8 months), EIM
has been focusing on supplying vehicles in the domestic market. However, as capacity
concerns ease, we believe the focus on high margin export business would increase
significantly.
8
As capacity concerns
ease, focus on high
margin export business
would increase
significantly
11 December 2012

Eicher Motors
With capacity expansion, exports to grow at a higher rate
Export realizations are higher than domestic
Source: Company, MOSL
Accessories launched to promote and extend brand to wider audience
Has launched a range of
accessories under Royal
Enfield to extend the
brand to a wider
audience
To promote and extend the brand to a wider audience, EIM recently launched a range
of accessories under the Royal Enfield brand. The accessories would be sold through
Royal Enfield Brand Stores as well as dealers. Some of the products launched are
riding shoes, rain gear, branded jackets, gloves, helmets, visors, T-shirts and mugs.
Global peer, Harley Davidson derives ~6% of its revenue from general merchandise.
Royal Enfield accessories showcased at the Auto Expo 2012
Capacity expansion to drive 25% volume CAGR over CY12-15E...
(‘000 units)
Low growth due to
transition to UCE engine
Launch of Classic brand
an inflection point
….and 27% revenue CAGR
Source: Company, MOSL
11 December 2012
9

Eicher Motors
Higher volumes and efficiencies of new plant to drive
margin improvement
Cash generation from operations higher than capex needs…
….which would further augment surplus cash
RE to contribute ~44% of CY13E consolidated adjusted EBITDA
Snapshot of Harley Davidson’s (global leader in leisure biking) financials
Global sales volumes ('000 units)
Revenues (USD m)
Harley Davidson enjoys high margins, led by cult brand following across the globe
Source: Company, Bloomberg Estimates
11 December 2012
10

Eicher Motors
CVs: VECV better placed to challenge incumbents
Leveraging Volvo’s technological strength and Eicher’s local market expertise
The Indian CV industry is likely to evolve in the footsteps of developed markets, giving
new players opportunity to challenge the incumbents.
VECV is relatively better placed among the new players, given the marriage of Volvo’s
technological strength with Eicher’s local market expertise.
The company is taking initiatives with target to gain 15% share in HCVs from current ~4%
and initial signs of success are visible; the growth opportunity is tremendous.
Volvo intends to use Eicher as a mass market brand and VECV as its low cost manufacturing
hub over the long term; this presents a sizable export opportunity.
Indian CV industry to evolve in the footsteps of developed markets…
We expect the Indian commercial vehicle (CV) industry to evolve gradually on the
lines of the developed markets. Improving road infrastructure, rapid urbanization,
regulator policies (including emission norms), shortage of drivers, consolidation of
fleet operators, heightened focus on total cost of ownership (as against the current
focus on initial acquisition price) are some of the factors at play that would drive the
evolution of the Indian CV Industry. We highlight below the key drivers of evolution
and their implications on the Indian CV industry:
Drivers
Better road infrastructure
Stringent enforcement of
overloading regulations
Shortage of drivers
Implications
Higher speeds, faster turnaround time and better mileage would
drive demand for faster/powerful trucks.
Market demand to converge towards right-load vehicles;
potential to change value-proposition for global players.
Drivers to be more influential in purchase decision; hence, more
focus on driving comfort, safety etc. Also, driver shortage would
drive demand for higher tonnage trucks.
Would lead to increasing complexity in vehicles due to the
involvement of advanced technology with more electronics. With
higher vehicle complexity, the ability of road side mechanics to
service vehicles would reduce, making legacy investments of
incumbents relatively less meaningful.
Focus on total cost of ownership approach to buying vehicles as
against focus on initial cost of ownership.
Improved dependability of supplies required leading to better
demand for reliable products together with strong after market
support.
Implementation of GST would drive re-mapping of supply chain
structure, with focus on optimizing logistics cost rather than
reducing tax incidence.
Source: Company
Continued tightening of
emission & safety norms
Professionalization/
consolidation of fleet
operators
End use demands on
logistics/supply chain
GST implementation
11 December 2012
11

Eicher Motors
The Global CV markets have developed in 4 distinct stages: Example Goods Carrier
arkets
Acceler
at
of con
ed pace
vergenc
e
bal m
with glo
Market
Poor infrastructure
(roads)
Rampant Overloading
Customers
Fragmented &
Uninformed
Purchase decision by
price
Products
Dominance by MCVs
Tonnage range - few
models
Rugged, low tech,
standardized
vehicles
Emission norms:
Euro I
& II
Manufacturers
Few strong local
manufacturers
Stage 1
Market
Road infrastructure
development
Reduced Overloading
Customers
Increased awareness
Purchase decision
more by life cycle
cost
Products
MCVs to HCVs shift
Explosive increase in
LCVs
Emergence of special
applications vehicles
Introduction of
Premium CVs
Emission norms:
Euro
II & III
Manufacturers
Entry of foreign OEMs
Stage 2: Currently at this
stage
Time
Market
Customised vehicles
requirement
Growth in product
plus offerings
Customers
Increased
sophistication
Emergence of
consolidation
Products
HCVs dominates
Technology
convergence of low
end & premium
products
Largest share of
haulage by HCVs,
mainly Trailers
Proliferation in LCVs
Emission norms:
Euro
III & IV
Manufacturers
Meaningful presence
of foreign OEMs
Stage 3
Market
High level of
regulation
Domination by 3PL
provider
Customers
Highly sophisticated
Purchase decision
purely by life cycle
cost & profit
High level of
consolidation
Products
Sophisticated
technology
Shrinking product life
cycle
High utilisation
Car derived LCVs
Emission norms:
Euro
IV
Manufacturers
Consolidation of
players
Stage 4
Source: Company, MOSL
…giving new players opportunity to challenge incumbents
Several global players
have entered the Indian
CV industry
With the Indian CV industry attaining meaningful size and showing potential for
healthy long-term growth, several global players (Volvo, Daimler, Navistar, MAN,
Isuzu, etc) have entered, some in association with Indian partners. Evolution of the
industry would give these new players opportunity to gain a foothold. These global
players would be better placed than before in this evolutionary phase of the industry.
While it would not be easy for these new players, the challenges faced by them
would be less intense. We enlist the key challenges to be addressed by both
incumbent as well as new players.
11 December 2012
12

Eicher Motors
Ability to adapt to evolving industry dynamics would determine eventual pecking order
Challenges for new entrants
Building distribution and service network,
and maintaining dealer viability
Customizing products to local needs
Wide product portfolio to meet customer
needs and mitigate cyclical risks
Challenges for incumbents
Delivering lowest total cost of ownership rather
than just initial cost of ownership
Building R&D competency
Improving skill sets of service network and local
mechanics as technology content per vehicle
increases
Improving service infrastructure at dealers' end
Competitive pricing, low operating cost
and lower downtime
Building and investing in supply
Develop high technology products at low cost
chain partners
Availability of finance at competitive rates Designing products to address gaps
Building and managing appropriate brand Meeting evolving stringent emission norms
image and perception
Localizing to remain cost competitive
Source: Company
VECV best placed among new entrants to compete against incumbents
Evolution of the Indian CV industry would give new entrants opportunity to challenge
incumbents. Demand for relatively advanced products, with better after-market
services (thus, lower downtime), higher driver comfort (driven by driver shortage),
etc is expected to increase.
Among new entrants, we believe that Volvo Eicher Commercial Vehicles (VECV), the
Volvo-Eicher JV, is best placed, and would be the key beneficiary of the opportunity
arising from the evolution of the Indian CV industry. The JV leverages the strengths of
both partners: (1) Volvo brings strong product, technology and design capabilities,
while (2) Eicher has in-depth understanding of the local market, established back-
end and front-end relationships, and low cost base. This association would enable
introduction of products, which are not only high on technology at competitive cost,
but are also apt for Indian roads and driving conditions.
VECV: Marriage of equals with complementary strengths
VECV
Better products with high
on performance, quality &
reliability parameters
Competitive iniital
acquisition cost
Wide after market network
to improve uptime and
lower maintenance cost
Resale value to improve
with high productivity and
lower TCO
Volvo
Advanced technology &
processes
Global expertise in HCV
segment
Strong brand
Eicher Motors
Frugal engineering
approach
Cost competitive
operations with extensive
suppplier base
Local market
understanding
Wide distribution & sales
network
Source: Company
11 December 2012
13

Eicher Motors
Eicher - established brand with strong franchise in LMD (5-14T) segment
Unlike other new
entrants, Eicher is already
a well established brand
in the Indian CV industry
Unlike other new entrants, Eicher is already a well established brand in the Indian CV
industry. It enjoys strong franchise in the LMD segment and is known for its superior
mileage, faster turnaround and driving comfort. Eicher commands ~30% market share
in LMD category and over 40% share in the 7-14T category. The LMD segment has
registered a CAGR of 25% over the last three years, led by rise in consumption spend
and proliferation of the hub-and-spoke model.
5-14T segment has registered a CAGR of 25% over
the last three years
Market size for 5-14T segment (‘000 units)
Eicher enjoys over 30% share in LMD category…
…which represents 28% of above 5T CV volumes
Source: Company, MOSL
LMD segment benefiting from relatively stable secondary movement:
Compared to
the HCV segment, the LMD segment has been relatively resilient for the following
reasons: (a) with lower freight availability and consequent impact on capacity
utilization, transporters have been down-trading to LMDs from HCVs (particularly
from 16T), and (b) LMDs typically move goods within a state or nearby 2-3 states - this
activity is not impacted as much as the movement of primary goods. While competitive
intensity is expected to increase with Ashok Leyland's renewed focus (with products
from its subsidiary Avia's portfolio) and entry of Daimler (Bharat Benz), we believe
EIM's strong brand equity would help it to sustain market share in LMD segment.
11 December 2012
14

Eicher Motors
LMD segment relatively less cyclical than HCV segment
Healthy consumption spend to drive demand for LMD segment
Source: Company, MOSL
Stronger balance sheet than peers gives headroom to compete
EIM follows an asset light model, with relatively higher level of outsourcing and
better working capital management than peers. This is reflected in higher asset
turnover and in turn in capital efficiency. This is an additional strength of VECV, as it
would help to withstand sharp competitive pressure and/or greater than expected
weakness in the CV industry.
High fixed asset turnover is reflective of VECV's
higher outsourcing than peers....
...resulting in better capital efficiency - RoCE (%)
Unlike peers, VECV is expected to remain net cash positive, despite ongoing capex in all business
Source: Company, MOSL
11 December 2012
15

Eicher Motors
Taking initiatives to gain 15% share in HCVs
With its superior and relevant product offerings (through Volvo’s technological inputs
and EIM’s local market understanding) together with marked improvement in after
market service (with Volvo’s global expertise in after market segment), VECV aims to
garner 15% share in the HCV market.
Aims to garner 15% market share in HCVs….
…leading to significant rise in HCVs contribution
Volume
share %
Source: Company, MOSL
Post the JV with Volvo, various initiatives have been undertaken as discussed below
on the HCV segment to improve its acceptance amongst transporters:
Critical Success factors
Factors
Products high on
performance, reliability,
fuel efficiency, capable of
overloading together with
competitive upfront cost
VECV (Eicher) trucks pre-JV positioning
Eicher HCVs had niggling product quality
issues.
Eicher’s trucks are known for
high fuel efficiency.
Initiatives taken post JV with Volvo
By securing Japanese production practices
and quality standards (through the support
of Nissan Diesel – Volvo Group Company),
VECV has been able to sort out niggling
product quality related issues, leading to better
product acceptability among transporters.
VECV is also working on a new range of HCVs
(with contemporary designs, value-added
features, new range of engines, etc) expected
to be introduced gradually from CY13-end,
offering better value to transporters.
Instead of launching its improved product range
nationally, VECV has mapped and identified the
key transport routes/markets for HCV movement
and is expanding its sales gradually along with
the expansion in after-market network in those
routes/markets.
is ensuring that an authorized service
center is available at every 50-60km (earlier only
a t dealerships), is providing training to local
mechanics (to familiarize them with the
technology), and is ensuring availability of
higher/ dedicated manpower at the dealerships
for service centers.
Wide service network
and spare parts availability
Apart from niggling product quality related
issues, Eicher HCVs earlier suffered from
lack of adequate service & spare parts
network. Local mechanics could not service
Eicher HCVs due to non-familiar technology.
These led to high down-time for transporters,
which impacted their overall cost economics.
VECV
11 December 2012
16

Eicher Motors
Factors
Resale value
VECV (Eicher) trucks pre-JV positioning
Due to relatively inferior products and poor
after-market service, the difference in resale
value between Eicher and competitors
was as high as ~80%.
Though upfront cost was lower than
incumbents, inadequate service network
and lower resale value led to higher
cost of ownership for Eicher HCVs.
Initiatives taken post JV with Volvo
Improved product performance with high
uptime will improve transporters’ profitability
and thus, their acceptability of VECV’s
vehicles. This in turn would improve resale
value and narrow the gap with competitors.
With competitive upfront cost, better product
reliability & fuel efficiency supported with
improved after-market service & resale value,
total cost of ownership is expected to reduce.
Source: Company
Low total cost of
ownership (TCO)
Aggressive work on complete product renewal underway; to be introduced
from CY13-end
VECV has been working
on revamping its entire
HCV product range
To compete not only with the incumbents but also with recent global entrants like
Bharat Benz (Daimler), VECV has been working on revamping its entire HCV product
range, leveraging the Volvo Group’s technological support and EIM’s frugal engineering
and local expertise. VECV’s new range of HCVs (with contemporary designs, value-
added features, new range of engines, cabins, engine management systems, etc) will
be introduced CY13-end and is likely to be priced at a premium to the current range.
...new product range from CY13-end onwards
Current product range to be gradually replaced with….
Its engine platform would combine Japanese quality, European technology and Indian production cost
Source: Company, MOSL
Volvo engine based new products to further drive acceptance of VECV’s
HCV range
Its engine platform
would combine Japanese
quality, European
technology and
Indian cost
AB Volvo chose VECV as its global manufacturing hub for 100k units of medium duty
(Euro 3 to Euro 6) engines to meet its global requirements as well as to power VECV’s
own future product range. The engine platform would combine Japanese quality,
European state-of-the-art technology and Indian production cost. These engines would
be future proof, with high sophistication levels in terms of designing, manufacturing
controls, fuel efficiency, etc.
The very high quality and durability requirements of the Volvo Group, such as a million
kilometer duty cycle for such an engine, will allow VECV to give high level of reliability
and asset life.
11 December 2012
17

Eicher Motors
This deal would make VECV India’s largest and technologically most advanced engine
manufacturer. Moreover, VECV will become a force to reckon with in the Volvo Group,
as VECV is taking a much bigger step and helping to produce high-quality long block
engines for Volvo’s global requirement.
Currently, Volvo is sourcing its requirement for medium-duty engines from German
firm, Deutz AG. While Volvo is exploring possibilities to further strengthen the
cooperation with Deutz, it will bolster the numbers in Europe as well as strengthen
its presence in Asia by sourcing engines from India.
Aggressive investment plans to achieve 2015 goals
Despite the near term weakness in the CV industry, VECV is going ahead with various
expansion plans, indicating its confidence in the long term growth potential. It plans
to invest INR15b over CY12-14 towards its various capex programs, including medium
duty engine plant (MDEP), bus body building facility, upgradation/augmentation of
existing facilities and new HCV product platforms to be introduced from CY13-end.
Capex plans
Particulars
Assembly capacity
Details
To be increased from the current 5.5k/month to 6.5k/month
by the end of CY13.
MDEP project
Investment of INR4.8b-5b for state-of-the-art new facility in
Pithampur, with initial capacity of 25k units in CY13 and ramping up
to 100k units by CY15.
Paint shop facility
CCED paint shop commissioned, with capacity of 90k units/annum.
Bus body facility
- Creating in-house capability for building bus coaches, with capex
of INR1.25b, to be commissioned in 2QCY13 (in 1st phase, annual
capacity of 5k units). The capacity can be expanded to 10k units,
with additional capex of INR550m.
- The multi-model bus manufacturing plant would produce bodies
for light, medium and heavy buses, including the rear engine
semi low floor buses for school, city and inter-city bus segments.
The plant would be highly mechanized, with robotic processes
for bus painting.
- This facility would also be utilized to cater to export markets.
New HCV product platform VECV has been working on a new range of HCVs, which will be
introduced from CY13-end onwards based on Volvo engines
and would be priced at a premium to the current range.
Source: Company
Improving after-market network using Volvo’s global expertise
To increase transporters’ uptime, improve profitability and accelerate HCV product
acceptance, VECV has been working aggressively to raise its after-market service to
best-in-class standards. For this, it has initiated several measures to get closer to the
customer in terms of improving customer value proposition and supporting vehicle
uptime.
11 December 2012
18

Eicher Motors
Some of these measures include:
State-of-the-art parts distribution center to distribute spare parts to any part of
the country at short notice
Expanding network of authorized service centers (currently over 200 centers)
Providing training to private mechanics (over 10,000 private mechanics trained so
far by VECV)
Each of the dealerships is equipped with mobile service vans
24x7 helpline numbers to ensure quick response and speedy service
VECV has mapped and identified all key transport routes in the country to create a
dense service network. It plans to take the number of touch points to 300 by the year-
end. While after-market service is essential to provide support to transporters, it is
also a high margin business. With greater focus on this segment, VECV's overall
profitability should improve, as well.
Initial signs of success visible; growth opportunity tremendous
VECV has been able to
improve its market share
across segments
VECV has been able to improve its market share across segments, particularly in the
bus and HCV segments post cooperation with Volvo. In specific product categories
within the HCV segment, VECV has attained higher market share, for instance 9.7% in
4x2 tipper truck segment in CY11 compared to 2.8% in CY09.
Share in certain HCV segments increased significantly (%)
Market share improvement across segments (%)
Share of HCVs in overall volumes has increased post launch of VE Series of HCVs in 2010
Source: Company, MOSL
With the help of Volvo's inputs, VECV has been able to achieve strong growth in the
high margin spare parts segment with 29% CAGR over CY09-11. Over CY12-15E, we
expect growth in spare parts to remain robust with 20% CAGR, however revenue
contribution will remain at ~13% levels due to healthy growth in vehicle sales as well.
11 December 2012
19

Eicher Motors
With Volvo's inputs, VECV's spare parts business grew at a
healthy rate over CY09-11, expect CY12-15E CAGR of 20%
Volvo (globally) derived ~23% of its CY11 revenues from spare
parts (non-vehicle) business
Source: Company, MOSL
Volvo Trucks to benefit from higher mining and infrastructure activity
As part of the JV deal, the distribution and after sales service of Volvo Trucks and after
sales service of Volvo Buses were transferred to VECV. In India, Volvo trucks are the
most preferred in the mining and construction industries. Volvo offers a range of
premium trucks (400HP and above) that are high on performance and reliability in
extreme working conditions.
Volvo Trucks India enjoys ~70% market share in the European truck segment (400HP
and above) in India. The European truck segment registered a CAGR of 15-20% up to
CY10. However, CY11 and CY12-YTD have been impacted due to lower mining
operations. We have factored in volume de-growth of 25% for CY12. Over CY12-15E,
we expect a CAGR of 17%, driven by recovery in mining and infrastructure activities.
Volvo Trucks growth to resume with recovery in mining and infrastructure activities and low base
Source: Company, MOSL
To leverage Volvo’s global reach to tap huge export opportunity
Given the divergence in various markets, global OEMs have been addressing various
markets with regional brands and product positioning. To boost its presence in
emerging/growth markets such as Latin America, ASEAN, Africa and the Middle East,
Volvo intends to use Eicher as a mass market brand and VECV as its low cost
manufacturing hub over the long term.
11 December 2012
20

Eicher Motors
Eicher: A brand that complements Volvo’s global offerings
Volvo
Mack Trucks
Renault Trucks
UD Trucks
(erstwhile Nissan Diesel)
Eicher
One of the strongest
heavy duty truck in
North America
Strong presence in
Western Europe. Also
present in West Africa
and South Africa
Strong presence in
Asia, with Japan being
the largest market.
Present in light,
medium and heavy
duty truck range
Strong global presence
in premium category
To be used as an
emerging market
brand to focus on
value and mass
market segment
Source: Company, MOSL
VECV has set an
ambitious export target –
11% of total business
from exports by CY15
VECV has set an ambitious export target – 11% of total business from exports by CY15.
With the introduction of its new product range from CY13-end and riding on Volvo’s
distribution and sales network, we expect VECV’s export business to witness strong
growth. Volvo’s widespread distribution network will facilitate the export of these
products to identified countries and will help VECV bolster its presence in more than
26 countries to where it currently exports. Apart from driving overall growth, higher
exports would lend diversification benefit to VECV.
11 December 2012
21

Eicher Motors
New HCV range powered by Volvo engines and new bus body
plant to drive 15.5% volume CAGR over CY12-15E
Product mix to shift in favour of HCVs (%)
Healthy volume growth and product mix improvement
to drive strong revenue growth
VECV's EBITDA margin to improve with higher volumes, lower
incentives and increase in after-market revenues
High capex to restrict FCF generation in CY12-13...
...but still remain net cash company
Source: Company, MOSL
11 December 2012
22

Eicher Motors
MDEP: A linear business opportunity
Might open up larger outsourcing opportunity from Volvo Group
MDEP holds immense strategic importance for both the Volvo Group and VECV. While the
Volvo Group would become entirely dependent on VECV for supply of Euro 5 and Euro 6
base engines, VECV's positioning in HCVs would improve on futuristic technology.
Apart from a huge technological leap, MDEP also provides a stable business opportunity
to VECV. The success of this deal could throw up further outsourcing opportunity from
Volvo Group.
We estimate MDEP (excluding captive consumption of engines by VECV) to contribute
26%/20%/17% to VECV's revenues/EBITDA/PAT in CY15E.
MDEP holds strategic importance for both Volvo Group and VECV
The Medium Duty Engine Project (MDEP) is VECV’s first major outsourcing project
from the Volvo Group and marks VECV’s entry into Volvo’s global supply chain. While
MDEP will help meet Volvo Group’s global medium duty engine requirement, it will
also power VECV’s new range of HCVs. It holds immense strategic importance for
both the Volvo Group and VECV.
Volvo Group to entirely depend on VECV for Euro 5 and Euro 6 base engines
Volvo would be entirely dependent on VECV for Euro 5 and Euro 6 compliant base
engines, with VECV replacing the current supplier, Deutz. The Volvo group would
now have an engine platform that combines Japanese quality, European state-of-
the-art technology and Indian production cost. VECV already produces ~40k engines
per annum.
MDEP to improve positioning in HCVs with headstart on futuristic technology
This deal would make VECV India's largest and technologically most advanced engine
manufacturer. VECV's positioning in the HCV segment would improve with headstart on
futuristic technology.
Apart from technological leap, MDEP also provides a stable business
opportunity to VECV
VECV aims to reach full capacity by CY15, with exports to the Volvo Group forming a
larger part of sales. Apart from providing a huge technological leap for VECV's domestic
CV business, particularly for HCVs, the deal also provides a stable business opportunity
to VECV. We estimate that MDEP (excluding captive consumption of engine by VECV)
would contribute 26%/20%/17% to VECV's revenues/EBITDA/PAT in CY15E.
MDEP ramp-up, aims to achieve full capacity by CY15
MDEP to contribute 20% of VECV's CY15E EBITDA
11 December 2012
23

Eicher Motors
Medium Duty Engine Project (MDEP) – a snapshot
Futuristic global engine platform developed by Volvo Powertrain, Japan.
Investment of INR4.8b-5b for state-of-the-art new facility in Pithampur.
To have an initial capacity of 25k units in CY13, which would be ramped up to
100k units by CY15.
To supply base engines to Volvo Power Train (VPT), France for Euro 5 and Euro 6
requirements, and also export engines for machining and assembly to UD Trucks
(Japan). The balance (Euro 3 and Euro 4 norms) to be used to meet Volvo Group’s
Asian market requirements, including VECV.
Volvo Group to also invest ~SEK460m in its engine production plants in Ageo,
Japan and Venissieux, France.
Trial production to start by 1QCY13, with commercial production in 3QCY13;
project is on schedule.
Engine specifications
Two main variants – 4-cylinder 5-liter and 6-cylinder 8-liter engines, with output
of 180-350HP.
Engine platform capable of meeting Euro 6 norms, Japanese PNLT and US EPA
norms.
Snapshot of MDEP's P&L (excluding captive consumption of engines by VECV)
Particulars
Capacity (units)
Sales - Volvo Global (units)
Realization (MN INR)
Revenues (MN INR)
EBITDA
EBITDA %
Depreciation
PBT
Tax (@30% rate)
PAT
CY13E
100,000
10,000
0.28
2,800
-300
(10.7)
363
-663
0
-663
CY14E
100,000
39,000
0.28
11,029
846
7.7
399
447
(65)
512
CY15E
100,000
68,000
0.28
19,230
2,091
10.9
417
1,674
502
1,172
Source: Company, MOSL
Success of MDEP deal could throw up further outsourcing opportunities
from Volvo Group
Given that the engine is the most critical component of a vehicle, we believe the
successful execution of this deal could throw up further outsourcing opportunities
for VECV from the Volvo Group. VECV is currently exploring opportunities to supply
drive line components like transmission gears, shafts and axle parts to meet Volvo’s
global requirements from India.
11 December 2012
24

Eicher Motors
JV with Polaris: Can it be another big thing?
EIM has recently entered into a strategic JV agreement with US-based Polaris
Industries to set up a greenfield project in the automotive segment in India. While
the company has not shared any product-specific details, we expect the JV to start
with a new range of sports bikes (based on Polaris’ current offerings), which will
complement EIM’s leisure motorcycle portfolio.
Broad contours of the deal
The JV will design, develop, manufacture and sell a full new range of personal
vehicles suitable for India and other emerging markets.
The JV will combine Polaris’ innovative designs and engineering acumen with
EIM’s powertrain expertise, low cost supplier base and intimate knowledge of
local consumer trends.
The JV involves total investment of ~INR2.5b over the next three years. The
manufacturing facility will be located in India.
The JV will be managed by equal representatives from EIM and Polaris.
EIM will contribute INR1.25b as its share in the JV, which is likely to be sourced
through internal accruals.
Production is targeted to commence by 2015.
Respective strengths of the JV partners
Eicher
Proven expertise in LEAN Engineering
Experience of manufacturing vehicles in India
In-depth understanding of India
and emerging markets
Experienced vehicle JV partner
Polaris
Proven product development capabilities
World class quality and reliability
LEAN manufacturing know-how
Proven distribution expertise
Source: Company, MOSL
About Polaris:
Polaris is a leading player for both snowmobiles and off-road vehicles,
and has established presence in the heavyweight cruiser and touring motorcycle
market, with
V ictory
and
Indian
motorcycle brands. The company designs,
manufactures and markets innovative, high quality off-road vehicles, including all-
terrain vehicles and the Polaris RANGER side-by-side vehicles, snowmobiles,
motorcycles and on-road electric/hybrid powered vehicles. In CY11, it reported
revenue of USD2.7b with EBITDA margin of 15.7% and net margin of 8.6%. The US and
Canada contribute ~70% and 14% of its revenues, respectively.
11 December 2012
25

Eicher Motors
Polaris Industries at a glance
Key facts
Manufacturer of high-performance motorized products
Strong distribution channel
1,500 dealers in North America
1,000 dealers Internationally
Productive non-union workforce
4,300 strong
Stakeholder focus
Product innovation for customers
Profit sharing for employees
Dividends / growth for investor
Product-wise sales (%, CY11)
Revenues (USD BN)
Region-wise sales (%, CY11)
Source: Company, MOSL
ATV (off-road)
Ranger (off-road)
Victory Motorcycle
Indian Motorcycle
Source: Company, MOSL
11 December 2012
26

Eicher Motors
Initiating coverage with a Buy rating
SOTP based target price of INR3,850, 45% upside over two years
EIM provides strong growth visibility, driven by both Royal Enfield and VECV operations,
notwithstanding near-term macro headwinds impacting the CV business.
With multiple growth drivers, we expect EIM to deliver strong consolidated financial
performance. We estimate 28% sales CAGR, 34% EBITDA CAGR and 28% PAT CAGR over
CY12-15.
We initiate coverage with a Buy rating and a SOTP based target price of 3,850, 45% upside
over two years.
Strong balance sheet, with net cash increasing to INR16.9b by CY15E limits downside risk,
in our view.
Strong growth visibility, notwithstanding near-term weakness in CV industry
We expect healthy growth in both the standalone (Royal Enfield) and VECV operations
over CY12-15. While Royal Enfield would benefit from capacity expansion and
continued strength in demand, VECV would benefit from the commencement of MDEP
and ramp-up in HCVs (particularly with the introduction of the new HCV range powered
by Volvo engines), notwithstanding the near-term weakness in the MHCV industry.
With multiple growth drivers, we expect EIM to deliver strong financial performance.
We estimate 28% sales CAGR, 34% EBITDA CAGR and 28% PAT CAGR over CY12-15.
Strong growth in key consolidated financial parameters,
driven by both Royal Enfield and VECV…
…leading to robust growth in surplus cash
Source: Company, MOSL
CY13-14 to be the years of inflection
CY13-14 would be the years of inflection for EIM, characterized by strong revenue /
EBITDA growth. Various projects, both under the standalone (Royal Enfield) and VECV
businesses are likely to commence operations in CY13-14.
New Royal Enfield plant to commence operations in 1QCY13:
The new plant will
become operational in 1QCY13, expanding capacity to 150,000 units per year,
thereby continuing to drive strong volume growth momentum. We expect strong
volume/EBTIDA CAGR of 25%/29% over CY12-15E.
VECV business:
VECV has multiple projects scheduled for commencement in CY13-
14.
MDEP to commence in 2Q/3QCY13:
MDEP is likely to begin commercial
production in 2Q/3QCY13, with significant ramp-up in CY14. Management aims
to achieve full capacity utilization by CY15.
11 December 2012
27

Eicher Motors
New bus body building facility to start in 2QCY13:
The new bus body building
plant is likely to commence operations in 2QCY13. With growing reliance on
in-house production, which would help replace sourcing of bus bodies from
external sources, profitability of the bus division and VECV's market share
should improve. We expect VECV's bus volumes to register a CAGR of 13%
over CY12-15E.
New HCV range to be introduced by end of CY13:
The new HCV range, powered
by Volvo engines, would be introduced from CY13-end. With the launch of the
new HCV range, supported by expansion in geographical coverage and after
market network, VECV's market share gains in the HCV segment would
accelerate. We expect VECV's HCV volumes to register a CAGR of 27% over
CY12-15E.
Royal Enfield volumes to register a strong CAGR of 25% over
CY12-15E driven by capacity expansion and new launches
(‘000 units)
Low growth due to
transition to UCE engine
Launch of Classic brand
an inflection point
VECV to witness volume growth of 15.5% over CY12-15E driven
by new bus body plant and introduction of new HCV range
MDEP to ramp up; aims to achieve full capacity by CY15
Robust consolidated financial performance over CY12-15E
Source: Company, MOSL
SOTP-based target price of INR3,850 implies 45% upside over two years
We initiate coverage with a
Buy
rating and SOTP-based target price of INR3,850,
implying an upside of 45% upside over two years.
We value EIM based on sum-of-the-parts (SOTP) methodology, considering the varied
nature of its earnings stream.
Royal Enfield:
We value the standalone business (Royal Enfield) based on a target
multiple of 18x. We believe this is justified considering the strong brand equity, volume
growth prospects and high EBITDA margin, together with healthy pricing power.
VECV:
We value the CV business at an EV of 8x CY13E EBITDA, ~10% premium to
11 December 2012
28

Eicher Motors
Ashok Leyland’s target multiple. We believe EIM’s business model is superior due
to high exposure to the relatively less cyclical LMD segment. Besides, it enjoys
other advantages: (1) MDEP’s earnings prospects, (2) association with Volvo, (3)
outsourcing opportunity from AB Volvo, and (4) strong balance sheet.
SOTP Valuation
CY12E
Royal Enfield
Core PAT (ex div & fin income) 1,064
Core Equity Value @ 18x PE
19,145
Net Debt
-5,280
Equity Value
24,425
VECV (@ 54.4% Economic interest)
EBITDA
2,227
EV@ 8x EV/EBITDA
17,819
Net Debt
-4,442
Equity Value
22,261
Total Equity Value
46,686
Target Price
1,730
CY13E
CY14E
CY15E
SOTP Contribution (%)
1,296 1,828 2,280
23,336 32,910 41,043
-7,014 -8,502 -11,376
30,349 41,412 52,419
2,569 4,075 5,711
20,555 32,599 45,942
-3,244 -3,416 -5,547
23,799 36,015 51,489
54,148 77,427 103,908
2,006 2,869 3,850
Source: Company, MOSL
The stock has re-rated post the JV with Volvo and subsequent market share gains
across VECV’s product segments as well as Royal Enfield’s strong growth and
profitability performance.
We expect appreciation from current levels to be largely driven by earnings growth.
However, the following triggers could lead to further re-rating of the stock:
Stronger than expected volume growth and margin performance in Royal Enfield
Ramp-up in HCV operations, with market share gains and consequent rub-off
effect on profitability
Commencement of MDEP and further outsourcing deals from AB Volvo.
11 December 2012
29

Eicher Motors
Key risks and challenges
Industry specific
Sustained weakness in CV industry:
The CV industry is cyclical and often witnesses
steep volume increases/declines. Over the past few months, the performance of
the CV industry has been weak due to macro headwinds impacting road freight
availability and freight rates. If the current weakness sustains, it could impact
sales and margin performance.
Increasing competition could delay ramp-up of HCV segment:
The domestic MHCV
industry has witnessed entry/resurgence of several new players like Bharat Benz,
Mahindra Navistar, MAN Trucks, etc. In the medium term, we do not expect any
meaningful change in competitive landscape, as recent entrants work towards
entry barriers in the form of servicing network, and a relevant, cost competitive
product portfolio. However, in the long run, we expect competitive intensity to
increase, as the domestic MHCV industry evolves, driven by factors like shift
towards higher tonnage vehicles, focus on uptime/total cost of ownership,
technology change driven by regulatory requirements, etc.
Company specific
Execution risk:
Various expansion projects (such as MDEP, new range of HCV
products, Royal Enfield capacity expansion) are underway across business
segments. Successful execution of these projects would be critical.
Lack of financing arm could hurt when credit availability is tight:
As majority of the
CVs are bought on finance, having an in-house financing arm improves product
acceptance. Both the leading players – Tata Motors and Ashok Leyland have captive
financing arms. Moreover, recent entrants such as Daimler and Mahindra Navistar
also have the support of their captive financing arms. While VECV has tie-ups
with leading financial institutions for financing its CVs, having a captive financing
arm would have been an added advantage.
11 December 2012
30

Eicher Motors
Company background
Promoted by the Delhi-based Vikram Lal Group, Eicher Motors (Bloomberg: EIM) is
a diversified engineering company. It is engaged in the business of high end
motorcycles (350cc & above) under the brand 'Royal Enfield', and commercial
vehicles (CVs), automotive gears and components, and engineering solutions
through its subsidiary, Volvo Eicher Commercial Vehicles (VECV).
Formed a JV with AB Volvo to become a leading CV player:
To become a full-fledged
CV player, EIM entered into a 50:50 joint venture with AB Volvo, Sweden in July
2008 and formed Volvo Eicher Commercial Vehicles (VECV). Post the JV formation,
EIM's CV business along with related components and engineering solutions
businesses were transferred to VECV (a step-down subsidiary of EIM).
Simultaneously, Volvo acquired 45.6% stake in VECV for USD350m [USD275m as
cash and USD75m for Volvo Trucks (distribution of vehicles, spares and services)
and Volvo Buses (only services)].
EIM - Group structure
Free Float
36.7%
Promoter Group
55.2%
Volvo Group
Eicher Motors
50%
Royal Enfield
JV with Polaris
Investment in VE
commercial (VECV)
54.4%
VE commercial
(VECV) - Ltd
8.1%
Surplus net cash- INR5.3b
45.6%
Royal Enfield
Motorcycles
Chennai-Tamil Nadu
CV Business
Engineering
Components
Engineering Design
Surplus net cash - INR8.2b
(to be used for CV business)
Eicher Truck and
Buses
Volvo Trucks India
(Sales and distribution)
EES Gurgoan
Thane-
Maharashtra,
Dewas and
Pithampur-
Madhya
Pradesh
EES USA
Hoff Beijing
Hoff Shanghai
Pithampur-
Madhya Pradesh
Medium Duty
Engine Project
Bangalore-
Karnataka
11 December 2012
31

Eicher Motors
Operating and financial snapshot
Royal Enfield
Domestic (units)
Growth (%)
% of total
Exports (units)
Growth (%)
% of total
Volumes (units)
Growth (%)
Realizations (INR/unit)
Growth (%)
Net Operating Income
Growth (%)
Gross Margins (%)
EBITDA
EBITDA Margins (%)
Effective tax rate (%)
Reported PAT
Core PAT (Excl Div. & Fin. income)
Core EPS (Excl Div. & Fin. income)
Growth (%)
VECV
LMD (5-14T) (units)
Growth (%)
% of total
HCV (units)
Growth (%)
% of total
Buses (units)
Growth (%)
% of total
Exports (units)
Growth (%)
% of total
Volumes (units)
Growth (%)
Realizations (INR/unit)
Growth (%)
CV business
Growth (%)
% of total
Engine project
Growth (%)
% of total
Net Operating Income
Growth (%)
Gross Margins (%)
EBITDA
EBITDA Margins (%)
Effective tax rate (%)
Reported PAT
Core PAT (Excl Div. & Fin. income)
Growth (%)
CY11
71,426
43.0
95.7
3,200
21.7
4.3
74,626
41.9
89,977
6.9
6,715
51.7
33.7
815
12.1
12.2
1,246
529
19.6
113.6
CY11
31,381
18.8
64.0
8,057
51.6
16.4
6,496
34.8
13.2
3,108
14.4
6.3
49,042
24.9
1,029,377
1.5
50,483
26.8
CY12E
109,996
54.0
96.8
3,680
15.0
3.2
113,676
52.3
92,318
2.6
10,494
56.3
35.4
1,564
14.9
17.5
1,856
1,064
39.4
100.9
CY12E
29,027
-7.5
59.7
8,429
4.6
17.3
8,677
33.6
17.9
2,472
-20.5
5.1
48,606
-0.9
1,089,239
5.8
52,943
4.9
CY13E
144,643
31.5
96.8
4,784
30.0
3.2
149,427
31.4
93,677
1.5
13,998
33.4
35.5
1,982
14.2
19.0
2,181
1,297
48.1
21.9
CY13E
32,511
12.0
58.9
10,063
19.4
18.2
9,741
12.3
17.6
2,878
16.4
5.2
55,192
13.6
1,215,920
11.6
64,309
21.5
96
2,800
-
4
67,109
26.8
25.5
4,723
7.0
27.0
3,054
2,479
4.8
CY14E
180,353
24.7
96.7
6,219
30.0
3.3
186,572
24.9
95,685
2.1
17,852
27.5
35.5
2,730
15.3
19.5
2,821
1,829
67.8
41.1
(INR M)
CY15E
212,171
17.6
96.3
8,085
30.0
3.7
220,256
18.1
97,353
1.7
21,443
20.1
35.5
3,376
15.7
19.5
3,397
2,282
84.6
24.7
50,483
26.8
26.0
5,095
10.1
26.0
4,137
3,074
68.9
52,943
4.9
26.8
4,095
7.7
25.2
3,154
2,364
-23.1
CY14E
CY15E
37,387
41,126
15.0
10.0
57.3
54.9
13,024
16,861
29.4
29.5
20.0
22.5
11,244
12,624
15.4
12.3
17.2
16.8
3,539
4,358
23.0
23.1
5.4
5.8
65,194
74,969
18.1
15.0
1,359,387
1,479,336
11.8
8.8
77,595
91,674
20.7
18.1
88
83
11,029
19,230
293.9
74.4
12
17
88,624
110,905
32.1
25.1
25.3
25.3
7,491
10,497
8.5
9.5
27.0
27.0
4,757
6,850
4,210
6,150
69.8
46.1
Source: Company, MOSL
32
11 December 2012

Eicher Motors
Financials and Valuation
Income Statement (Consolidated)
Y/E December
Net Sales
Change (%)
Operating Other Income
Total Operating Income
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest cost
Other Income
PBT
Tax
Effective Rate (%)
PAT
Change (%)
% of Op. Income
Less: Minority Interest
Adj. PAT
Change (%)
2010
43,971
49.6
242
44,213
3,811
8.6
573
3,238
95
1,034
4,177
1,108
26.5
3,068
137.0
6.9
1,179.3
1,889
126.5
2011
56,775
29.1
487
57,262
6,037
10.5
640
5,398
77
1,281
6,602
1,628
24.7
4,974
62.1
8.7
1,886.3
3,088
63.4
2012E
62,966
10.9
507
63,473
5,694
9.0
803
4,891
42
1,190
6,040
1,456
24.1
4,583
-7.9
7.2
1,438.3
3,145
1.9
2013E
80,511
27.9
558
81,068
6,668
8.2
1,331
5,337
37
995
6,295
1,641
26.1
4,654
1.5
5.7
1,392.5
3,262
3.7
2014E
105,479
31.0
947
106,426
10,174
9.6
1,790
8,384
37
1,002
9,349
2,443
26.1
6,906
48.4
6.5
2,169.2
4,737
45.2
(INR Million)
2015E
130,939
24.1
1,344
132,284
13,816
10.4
2,153
11,663
37
1,240
12,867
3,356
26.1
9,511
37.7
7.2
3,123.7
6,387
34.8
Balance Sheet (Consolidated)
Y/E December
Share Capital
Reserves
Net Worth
Minority Interest
Deferred Tax
Loans
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
- of which Goodwill
Investments
Curr.Assets, L & Adv.
Inventory
Sundry Debtors
Cash & Bank Balances
Loans & Advances
Others
Current Liab. & Prov.
Sundry Creditors
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2010
269
12,052
12,321
6,774
249
956
20,301
8,113
4,269
3,844
703
223
4,586
20,500
3,265
2,609
12,457
1,814
355
9,332
7,596
346
1,391
11,168
20,301
2011
270
14,661
14,931
8,377
645
504
24,456
9,887
4,843
5,044
4,128
223
5,126
23,501
4,280
3,434
11,973
3,391
424
13,343
11,238
608
1,497
10,157
24,456
2012E
270
17,150
17,420
9,815
794
504
28,532
15,703
5,646
10,058
5,350
223
5,126
21,955
4,708
3,640
8,824
4,341
442
13,956
11,498
750
1,707
7,999
28,532
2013E
270
19,401
19,671
11,207
946
504
32,328
24,803
6,977
17,827
2,250
223
5,126
24,868
6,015
4,620
8,355
5,318
561
17,743
14,712
981
2,050
7,126
32,328
(INR Million)
2014E
270
22,733
23,002
13,377
1,177
504
38,059
30,803
8,767
22,037
2,750
223
5,126
31,462
7,900
6,095
10,159
6,567
741
23,315
19,303
1,268
2,745
8,147
38,059
2015E
270
27,285
27,555
16,500
1,500
504
46,059
35,803
10,920
24,884
1,750
223
5,126
43,307
9,824
7,620
16,951
7,985
926
29,008
23,978
1,547
3,482
14,299
46,059
11 December 2012
33

Eicher Motors
Financials and Valuation
Ratios (Consolidated)
Y/E December
Basic (INR)
EPS
EPS Growth (%)
Cash EPS
Book Value per Share
DPS
Payout (Incl. Div. Tax) %
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price to Book Value
Dividend Yield (%)
Profitability Ratios
RoE (%)
RoCE (%)
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
0.1
0.0
0.0
0.0
0.0
0.0
22
27
63
2.2
22
27
72
2.3
21
27
66
2.2
21
27
66
2.5
21
27
66
2.8
21
27
66
2.8
16.4
22.4
22.7
29.8
19.4
23.0
17.6
20.8
22.2
26.7
25.3
30.7
23.3
19.3
16.9
1.8
4.8
0.6
22.8
18.2
16.4
1.6
4.1
0.7
22.0
15.6
13.5
1.2
3.7
0.7
15.2
11.0
8.8
0.9
3.1
1.1
11.2
8.4
6.0
0.7
2.6
1.4
2010
70.1
6.5
91.4
457.4
11.0
18.3
2011
114.4
63.1
138.1
553.2
16.0
16.3
2012E
116.5
1.9
146.3
645.4
18.0
18.0
2013E
120.8
3.7
170.2
728.8
19.0
18.3
2014E
175.5
45.2
241.8
852.3
28.0
18.6
2015E
236.6
34.8
316.4
1,020.9
38.0
18.7
Cash Flow Statement (Consolidated)
Y/E December
Profit before Tax
Depreciation & Amort.
Direct Taxes Paid
(Inc)/Dec in Working Capital
Interest/Div. Received
Other Items
CF from Oper. Activity
(Inc)/Dec in FA+CWIP
(Pur)/Sale of Invest.
CF from Inv. Activity
Issue of Shares
Inc/(Dec) in Debt
Interest Paid
Dividends Paid
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
11 December 2012
2010
4,177
573
-831
374
1,039
-933
4,399
-1,315
-1,645
-2,960
88
-307
-118
-351
-689
750
11,707
12,457
2011
6,602
640
-1,668
-234
1,316
-1,305
5,351
-4,173
-540
-4,713
24
-453
-84
-609
-1,122
-484
12,457
11,973
2012E
6,040
803
-1,307
-374
1,190
-1,765
4,586
-7,038
0
-7,037
-90
0
-42
-566
-698
-3,149
11,973
8,824
2013E
6,295
1,331
-1,489
927
995
-1,480
6,579
-6,000
0
-6,000
-413
0
-37
-597
-1,048
-469
8,824
8,355
(INR Million)
2014E
9,349
1,790
-2,212
1,231
1,002
-1,413
9,747
-6,500
0
-6,500
-525
0
-37
-880
-1,442
1,804
8,355
10,159
2015E
12,867
2,153
-3,032
1,226
1,240
-1,790
12,663
-4,000
0
-4,000
-640
0
-37
-1,195
-1,872
6,792
10,159
16,951
34

Eicher Motors
N O T E S
11 December 2012
35

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement
to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt
or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its
affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or
employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . MOSt or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness
for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest
Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
Eicher Motors
No
Yes
No
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This website and its respective contents does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered
as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living
abroad may also be deemed "U.S. Persons " under certain rules.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is an exempt financial advisor under the Singapore Financial Advisers Act and a subsidiary of Motilal Oswal Securities Limited in India This research is
distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, and institutional investors as defined in the Financial Advisers
Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
By virtue of distribution to these category of investors Motilal Oswal Capital Markets Singapore Pte Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter
110) (Section 36 relates to disclosure of Motilal Oswal Capital Markets Singapore Pte Limited's interest and/or its representative's interest in securities). Recipients of this research in Singapore may contact
Motilal Oswal Capital Markets Singapore Pte Limited in respect of any matter arising from or in connection with the research. Please contact Nihar Oza Motilal Oswal Capital Markets Singapore Pte Limited,
21 (Suite 31), 16 Collyer Quay, Singapore 049318 at (+65) 68189232/68189233/65249115 in respect of any matters arising from or in connection with this report.
Motilal Oswal Securities Ltd
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com