13 February 2013
4QCY12 Results Update |
Sector: Automobiles
Eicher Motors
BSE Sensex
S&P CNX
19,561
5,923
Bloomberg
EIM IN
Equity Shares (m)
27.0
M.Cap. (INR b)/(USD b)
72.0/1.3
52-Week Range
3,240/1,620
1,6,12 Rel. Perf. (%)
-4/17/40
CMP: INR2,669
TP: INR3,820
Buy
Financials & Valuation (INR b)
Y/E Dec
Net Income
EBITDA
Net Profit
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
2013E 2014E 2015E
81.3
6.6
3.2
(0.1)
17.9
20.7
0.7
22.2
3.8
14.1
0.7
106.6
10.1
4.7
45.7
22.7
26.8
1.0
15.3
3.2
9.0
1.0
132.4
13.7
6.4
35.1
25.8
31.0
1.4
11.3
2.7
6.2
1.4
Adj. EPS (INR) 120.0 174.8 236.2
711.5 831.2 997.4
Eicher Motors' (EIM) cons. revenue grew 3% YoY (+9.7% QoQ) to INR16.3b
(v/s est INR16.8b). EBITDA margin stood at 7.3% (v/s est 8.7%) as standalone
margin declined 340bp QoQ on higher other expenditure and staff cost. PAT
(after minority) declined 14.8% YoY (+10.3% QoQ) to INR723m (est INR666m).
Higher other income and lower tax rate led to higher-than-estimated PAT.
Royal Enfield's margins at 11.5% (v/s est 15.4%) were impacted due to higher
staff and other cost. While staff cost increased due to higher hiring for new
plant, other expenditure rose due to Thunderbird model launch (one-time)
and higher power & fuel cost.
Despite demand slowdown, margins for CV business improved by 50bp QoQ
(-340bp YoY) to 6.3% (est 6.6%) aided by better cost management.
EIM indicated that given the expansion mode, on a quarterly basis there
might be few aberrations at margin levels. Royal Enfield's demand remains
strong, with 6-8 months waiting, despite sharp increase in production.
Valuation and view
With several projects commencing in CY13-14 and driving 27% sales CAGR
and 34% EBITDA CAGR over CY12-15E, EIM is at an inflection point. Motorcycle
business will benefit from capacity expansion, new launches and network
expansion. CV subsidiary will benefit from commencement of MDEP and
ramp-up in HCVs.
We marginally lower by 0.7%/0.4%/0.2% CY13E/CY14E/CY15E EPS factoring
margin pressure on Royal Enfield's business due to higher power & fuel cost,
partially offset by an upgrade in volumes.
The stock trades at 22.2x/15.3x/11.3x CY13E/CY14E/CY15E EPS of INR120/174.8/
236.2 respectively. Maintain
Buy
with a two-year target price of INR3,820
(CY15E SOTP).
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
Chirag Jain
(Chirag.Jain@MotilalOswal.com) + 91 22 3982 5418
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Eicher Motors
Standalone performance (Royal Enfield): Strong revenue growth but sharp
rise in other expenditure impacts operational performance
-
Royal Enfield's (S/A) revenues grew 73% YoY (+7.5% QoQ) to INR2.97b led by volume
growth of 68% YoY (+6.4% QoQ) and realization increase of 2.8% YoY (+1% QoQ).
For CY12, Royal Enfield volumes increased by 52%, helped through de-
bottlenecking in existing plant. Despite a sharp increase in production, Royal
Enfield continues to enjoy an average waiting period of 6-8 months.
While RM cost was largely stable QoQ, staff cost increased by 80bp (-70bp YoY) to
8%, due to increased hiring for the new plant.
However, other expenditure increased sharply by 300bp QoQ (160bp YoY) to 16.4%.
This impacted Royal Enfield margins at 11.5% (v/s est 15.4%). Other expenditure
increased due to Thunderbird model launch (non-recurring) and higher power &
fuel cost, driven by power shortage and increase in diesel prices. Management
indicated that with the new plant becoming operational, power & fuel cost is
likely to come down from 4Q levels.
Other income stood much lower than our estimate at INR106m (v/s est INR510m)
as the company would recognize dividend income from CV subsidiary on receipt
basis (as per revised Schedule VI). In line with the earlier practice, other income
would have been higher by INR408m; however, this being an inter-company
transaction, gets offset at the consolidated level.
The board recommended a dividend of INR20/share (200%).
With the new plant becoming operational, management expects to sell over
150,000 units in CY13.
The new plant has ability to upgrade to higher capacity at much cheaper cost and
quickly as it already has land and necessary infrastructure (including paint shop)
in place.
New launches and dealership expansion together with higher production capacity
would drive strong volume growth for next few years.
Given its leadership position, cult brand equity and minimal competition, Royal
Enfield is well-positioned to benefit from increasing trend of lifestyle biking.
Capacity expansion (new plant to start in 1QCY13), new launches (Thunderbird
500 and Café Racer) and network expansion to drive 25%/29% volume/EBITDA
CAGR over CY12-15E.
However, higher other expenditure impacts margins
Royal Enfield volume momentum remains strong
Source: Company, MOSL
13 February 2013
2

Eicher Motors
CV business (VECV): Margins improve sequentially despite higher
discounting pressure in CV industry
CV volumes (VECV) declined by 8% YoY (+8.7% QoQ) in line with the weakness in
overall CV industry. Realizations improved by 1.8% YoY (+0.6% QoQ) to
INR1,115,023/unit.
Revenues declined by 5.5% YoY (+10.2% QoQ) to INR13.3b (v/s est INR13.3b).
Despite pressure on demand and consequent higher discounting in the CV industry,
margins for the CV business improved by 50bp QoQ (-340bp YoY) to 6.3% (v/s est
6.6%). Better cost management helped in sequential improvement in margins.
Despite EBITDA being lower than estimate at INR837m (v/s INR871m), higher other
income at INR166m (v/s est INR47m) and lower tax rate at 10.9% (v/s 25.4%) led to
PAT being higher than estimate at INR711m (INR546m).
Management indicated that RM cost remained stable over the last few quarters
and expects it to remain so over the near term.
Launch of new range of CVs (developed with Volvo inputs) will commence from
CY13-end across the entire range of products. While the new range would be
much better in terms of performance, fuel efficiency, reliability etc, it would not
be very expensive than the current offerings.
Medium Duty Engine Project (MDEP) will commence from CY13-end (trial runs
started). Given engines would be supplied to existing products, management
does not foresee any demand related issues despite a slowdown in Europe.
Currently, more than 50% of Eicher's 250 dealers are selling the HCV range. Over
the next 2-3 years, dealership count would increase by 25-30 annually, with HCV
penetration increasing at dealerships as well.
New paint shop at Pithampur plant is capable of 100,000 vehicles. Company
indicated that most of the large capex items pertaining to capacity expansion
have already being incurred.
3
13 February 2013

Eicher Motors
VECV incurred capex of INR7bn in CY12. This had an impact on consolidated cash
levels.
Higher R&D spend led to lower tax rate. EIM expects tax rate to remain low in CY13
as well.
CV volumes under pressure due to slowdown
Margin improves sequentially despite weak demand
Source: Company, MOSL
Consolidated performance: Operationally below estimate due to lower
standalone margins; higher other income and lower tax rate lead to beat at
PAT level
EIM consolidated revenues grew 3% YoY (+9.7% QoQ) to INR16.3b (v/s est INR16.8b).
EBITDA margins stood at 7.3% (v/s est 8.7%) as standalone margins reduced 340bp
QoQ on higher other expenditure.
PAT (after minority) declined 14.8% YoY (+10.3% QoQ) to INR723m (v/s INR666m).
Higher other income and lower tax rate led to higher-than-estimated PAT.
13 February 2013
4

Eicher Motors
Valuation and view
With several projects commencing in CY13-14 and driving 27% sales CAGR and 34%
EBITDA CAGR over CY12-15E, EIM is at an inflection point. 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 will
benefit from commencement of MDEP and ramp-up in HCVs.
We marginally lower by 0.7%/0.4%/0.2% CY13E/CY14E/CY15E EPS to INR120/174.8/
236.2 respectively factoring the margin pressure on Royal Enfield's business due
to higher power & fuel cost, partially offset by an upgrade in volumes.
The stock trades at 22.2x/15.3x/11.3x CY13E/CY14E/CY15E EPS of INR120/174.8/236.2
respectively. Maintain
Buy
with a two-year target price of INR3,820 (CY15E SOTP).
Revised forecast (INR m)
Rev
Standalone (RE)
Volumes (units)
Net Sales
EBITDA (%)
Core Profit
EPS (INR)
VECV
Volumes (units)
Net Sales
EBITDA (%)
Core Profit
EPS (INR)
Consolidated
Net Sales
EBITDA (%)
Net Profit
EPS (INR)
150,759
14,145
13.8
1,296
77.7
55,423
67,152
6.9
2,403.9
60.7
81,260
8.1
3,239
120.0
CY13E
Old
149,427
13,998
14.2
1,297
80.8
55,192
67,109
7.0
2,478.8
61.6
81,071
8.2
3,262
120.9
Chg (%)
0.89
1.05
-30bp
(0.11)
(3.80)
0.4
0.1
-10bp
(3.0)
(1.3)
0.2
-10bp
(0.7)
(0.7)
Rev
188,222
18,039
15.0
1,836
101.8
65,432
88,598
8.3
4,126.0
94.9
106,591
9.4
4,718
174.8
CY14E
Old
186,572
17,852
15.3
1,829
104.5
65,194
88,624
8.5
4,210.0
95.9
106,431
9.6
4,738
175.6
Chg (%)
0.88
1.05
-30bp
0.36
(2.66)
0.4
(0.0)
-10bp
(2.0)
(1.0)
0.2
-10bp
(0.4)
(0.4)
Rev
222,167
21,662
15.5
2,295
124.3
75,185
110,745
9.4
6,050.6
137.1
132,353
10.3
6,374
236.2
CY15E
Old
220,256
21,443
15.7
2,282
125.9
74,969
110,905
9.5
6,150.1
138.1
Chg (%)
0.87
1.03
-20bp
0.56
(1.23)
0.3
(0.1)
-10bp
(1.6)
(0.7)
132,293
0.0
10.4
-10bp
6,389
(0.2)
236.7
(0.2)
Source: MOSL
SOTP Valuations (INR m)
Multiple
Royal Enfield
Core PAT (ex div & fin income)
Core Equity Value
@ 18x PE
Net Debt
Equity Value
VECV (@ 54.4% Economic interest)
EBITDA
EV
@ 8x EV/EBITDA
Net Debt
Equity Value
Total Equity Value
Target Price (INR)
CY13E
1,296
23,321
-6,790
30,111
2,527
20,217
-1,953
22,170
52,281
1,937
CY14E
1,836
33,049
-8,186
41,235
4,024
32,195
-3,463
35,658
76,892
2,849
CY15E
2,295
41,308
-11,000
52,308
5,647
45,173
-5,567
50,739
103,047
3,820
Source: MOSL
13 February 2013
5

Eicher Motors
Eicher Motors: an investment profile
Company description
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).
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).
Key investments risks
Sustained weakness in the CV Industry
Increasing competition in the CV industry could
impact ramp-up of HCV segment.
Recent developments
Has recently launched Thunderbird motorcycle
model. Royal Enfield continues to enjoy 6-8months
waiting period despite sharp increase in supplies.
Valuation and view
The stock trades at 22.2x/15.3x/11.3x CY13E/CY14E/
CY15E EPS of INR120/174.8/236.2 respectively.
Maintain
Buy
with a two-year target price of
INR3,820 (CY15E SOTP).
Key investment arguments
With several of its projects to commence in CY13-14,
driving 27% 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.
Sector view
Demand drivers for Royal Enfield are in place, driven
by increasing trend of lifestyle biking and minimal
competition.
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.
Comparative valuations
Eicher
Motors
22.2
22.2
5.0
-0.1
20.3
17.9
18.1
14.1
Ashok
Leyland
23.4
12.0
-53.5
94.1
6.2
11.5
10.3
7.5
Tata
Motors
27.9
16.6
-20.9
29.3
23.3
24.0
4.6
3.9
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
120.0
174.8
Consensus
Forecast
159.1
190.4
Variation
(%)
-24.6
-8.2
P/E (x)
EPS Gr (%)
RoE (%)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13
FY14
Target price and recommendation
Current
Price (INR)
2,669
Target
Price (INR)
3,820
Upside
(%)
43.1
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Dec-12
Promoter
Domestic Inst
Foreign
Others
13 February 2013
55.2
13.7
19.1
12.0
Sep-12
55.2
15.3
17.5
12.0
Dec-11
55.2
18.4
14.6
11.8
6

Eicher Motors
Financials and Valuation
13 February 2013
7

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Eicher Motors
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