Automobiles: Thematic | December 2013
Two-wheelers
Jinesh Gandhi
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
Chirag Jain
(Chirag.Jain@MotilalOswal.com) + 91 22 3982 5418

Automobiles
2013: Scooters re-Activa-ted...
Page No.
Executive summary........................................................................................................ 3-4
Story in charts................................................................................................................ 5-7
Value migrating to scooters, led by changing customer priorities.......................... 8-12
Japanese players had triggered shift towards motorcycles
....................................
13-17
Resurgence of scooters led by automatic segment
.................................................
18-22
Can share of scooters revert to historical level of ~45%?
.......................................
24-28
Estimate share of scooters at 37% by 2020.............................................................. 29-31
HMCL, TVSL well seated for scooter ride.................................................................. 32-33
Companies
..................................................................................................................
34-73
Hero MotoCorp (HMCL): Riding on sharply focused, differentiated brands
.....
35-42
Bajaj Auto (BJAUT): Would exports make up for absence in scooters?
.............
43-49
TVS Motor (TVSL): A dark horse
...........................................................................
50-73
Prices as on 13 December 2013
Value migrates from outmoded business designs to new ones that are better able to sa tisfy customers' most important
priorities. Developing a strategic understanding of how current and prospective customers change through time could
serve as a compass that would point to the best direction for any company seeking to create value growth. Changing
customer priorities trigger the value migration process, creating opportunities for new business designs. Incumbents
frequently ignore or overlook such opportunities, presenting significant openings for newcomers.
In this report, we present the process of value migration in India's two-wheeler industry over the last two decades and
the changing trend for the coming decade.
December 2013
2

Automobiles: Thematic | 16 December 2013
Two-wheelers
Re-Activa-ted: Value migrating to scooters
HMCL, TVSL well seated; BJAUT chooses to stay out
Changing customer preferences are driving value migration from motorcycles to scooters
in India. In 1HFY14, the share of scooters was 23.5%, up from 12% in FY07. In the
economically developed states, the share of scooters is higher at ~34%, and is growing.
Around 51% of the dealers we surveyed expect the scooters share to be over 40% by
2020. We estimate the scooters share at 37% by 2020, implying 20% CAGR in scooter
volumes.
HMCL and TVSL are prepared for the transition, while BJAUT has strategically decided
to stay out to focus on the global motorcycle industry.
Value migrating to scooters, led by changing customer priorities
Industries evolve, driven by changing customer priorities, challenging
incumbents and opening opportunities for proactive business design, in turn
resulting in a new industry order.
Lack of proactive business design from Bajaj Auto (BJAUT; incumbent leader in
geared scooters) had allowed Hero Honda (now Hero MotoCorp; HMCL) to
capture a large part of the value outflow from scooters to motorcycles. Geared
scooters became extinct in India by the mid-2000s.
We are witnessing early signs of value outflow from motorcycles in the urban
markets to automatic scooters, with scooters growing at ~23% CAGR (twice the
growth rate for motorcycles) over the last five years.
Resurgence of scooters led by automatic segment
Traditional geared scooters dominated till the mid-1990s due to lack of credible
competition. The entry of Japanese players brought reliability, durability and
fuel efficiency to motorcycles, resulting in shift towards motorcycles in the
late-1990s and geared scooters becoming extinct by mid-2000s.
The resurgence of scooters is led by the automatic scooters, offering
convenience, universal appeal and narrowing of gap in mileage vis-à-vis
motorcycles.
With the launch of
Honda Activa
in the 2000s, acceptance of automatic scooters
amongst men began growing. The share of scooters recovered from ~12% in
FY07 to ~23.5% in 1HFY14 (v/s average of ~45% till the early 2000s).
Can share of scooters revert to historical level of ~45%?
Globally, scooters constitute ~55% of the two-wheeler market (ex China and
Africa). Excluding India, the share of scooters is at ~79% (including geared step-
throughs).
In India, scooter penetration in economically developed states has been higher
at ~34% . Six states contribute ~60% of scooter volumes. Penetration of scooters
is increasing in urban centres, while smaller towns are seeing increased
acceptance.
Investors are advised to refer
through disclosures made at
the end of the Research
Report.
December 2013
3

Automobiles
Around 51% of the dealers we surveyed expect the share of scooters to be over
40% by 2020.
Historically, the share of scooters in India was ~45% for over 30 years till 2000.
The experience of global peers and select developed states, and dealer feedback
suggests that the share of scooters might once again increase to 40-45%.
Estimate share of scooters at 37% by 2020
Based on our multi-model analysis, we expect scooter industry volumes to grow
at ~20% CAGR over FY14-20, twice the growth rate for motorcycles. Overall two-
wheeler industry volumes are likely to grow at 12% CAGR during this period.
The share of scooters would increase to 37% by 2020, with annual sales of 10.7m
units (equal to the current market size of the domestic motorcycle industry).
While the share of scooters is likely to increase, we expect the dominance of
motorcycles to continue, driven by increasing penetration in rural markets.
Motorcycles fare better in rural areas, where road infrastructure is relatively
poor, are more suitable for longer distance travel, and offer higher mileage (an
important factor for cost conscious customers).
HMCL, TVSL well-seated
Despite its late entry into the segment,
HMCL
is the second largest scooter
player, helped by its differentiated positioning aimed at the youth. It plans two
new launches in FY15, coupled with 25% capacity expansion to 900,000 units per
year.
Buy
with a target price of INR2,680 (14x FY16E EPS).
TVSL
is getting its act together, with multiple launches in both the scooter and
motorcycle space. Post the recent launch of
Jupiter,
TVSL has a complete portfolio
of scooter offerings. The upcoming launch of
Scooty
upgrade would further
strengthen its position. Initiating coverage with
Buy
and target price of INR85
(9x FY16E standalone EPS)
For now,
BJAUT
would lose out due to this migration, as it has taken the strategic
position of being 'a global motorcycle specialist'.
Buy
with a target price of
INR2,255 (14x FY16E EPS).
Financials and Valuations
EPS (INR)
EPS Gr. (%)
P/E (x)
EV/EBITDA(x)
RoE (%)
Div. yield (%)
FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E
Bajaj Auto
Hero Moto
TVS Motor
121.4 141.6 161.1
116.8 161.7 191.5
5.2
7.5
9.4
15.4
10.1
35.9
16.6
38.4
44.4
13.8
18.5
25.9
16.1
17.5
10.4
13.8
12.7
7.2
12.1
10.7
5.7
10.5
9.9
6.0
8.6
8.3
4.5
7.0
6.9
3.4
39.9
43.1
18.7
38.1
48.8
23.2
36.1
45.2
24.6
2.6
3.2
2.8
3.1
3.4
3.3
3.7
3.7
4.7
Source: MOSL
December 2013
4

Automobiles
Story in charts
Globally, two-wheeler markets (ex China and Africa) are
skewed towards scooters, especially in Asia
Motorcycles gained share till early 2000s; automatic
scooters driving resurgence of scooters now
Scooter penetration is directly correlated with the level
of development and urbanization
Prior to motorcycle invasion the share of scooters was
~45% till the early 2000s
Automatic scooters have been growing and have outpaced motorcycle growth over the last 10 years
Break-up of global two-wheeler market (m units) *
Urbanization and scooter penetration
Ge ared scoote rs/ste p-thrus (% of to tal 2W )
Automati cs (% o f total 2W)
Urb ani zati on (%)
51
60
31
39
Vi etna m
46
Thai l an d
51
34
S coo ters
17.0
55%
Mo torcycl e
13.9
45%
31
30
59
21
Ind i a
Indo nes i a
* Excluding China and Africa
Source: Piag gio, Indus try, MOSL
Break-up of Indian two-wheeler market over the last two decades
Motorcycl es
100%
75%
50%
25%
0%
Ge ared Scoote rs
Au toma ti c Scooters
Mo peds
Hero Sp l endo r l aun ch
Hond a Acti va l a unch
B ajaj exi ts geare d
s cooters
B ajaj exi ts scoote rs
Sour ce: Industr y, MOSL
Share of scooters over the last four decades
Scoo ter (% of to tal 2Ws)
60
Automatic scooters now growing faster than motorcycles
Motorcycl e s Gr. (%)
19.1
17.4
Au toma ti c Scoote rs Gr. (%)
22.3
18.6
17.3
10.7
11.8
16.4
45
30
15
0
20-ye ar CAGR 15-year CAGR 10-year CAGR 5-yea r CAGR
Source: Indus tr y, MOSL
December 2013
5

Automobiles
Story in charts
Increasing share of men and young boys in scooter sales
...
Scooter contribution rising even in smaller towns
Scooter share in developed states is at ~34%, as against
pan India average of ~23.5%
…reflected in rising share of bigger scooters
Over 50% of dealers expect scooter share to be over
40% by 2020
We expect scooter volumes to grow at ~20% CAGR over
FY14-20, 2x the growth in motorcycle volumes
Break-up of scooter buyers
F em al e
2
58
70
Mal e (a ge 25+)
Yo uth
10
Break-up of scooter sales by capacity
Smal l s co oters (< 100cc)
Large scoo ters (> 100cc)
57
57
58
70
74
72
40
43
20
2013
F Y09
43
42
FY11
30
F Y12
26
FY13
28
FY14YTD
2008
F Y10
Source: Indus tr y, MOSL
Results of dealer survey on expected share of scooters
Scooter contribution rising even outside the metros (%)
FY10
40
28
32
26
19
22
22
26
9
0
21
19
10
6
by 2020
35
FY13
Other to wn s Al l (4 state s)
*
* Gujarat Maha rash tra MP & Ch atti sgarh
Metros
Ti er 1 ci ti es
<10%
10-20% 20-30% 30-40% 40-50% 50-70%
>70%
Sour ce: Industr y, MOSL
Scooter share in developed states higher than all-India average
Ratio
Kerala
Gujarat
Tami l Nadu
Delhi
Karnataka
Punjab
Maharashtra
Average of above
Pan-India
FY11
29.5
25.9
17.1
18.6
23.8
21.6
24.4
23.0
17.4
FY13
42.2
30.6
20.7
29.7
28.0
28.2
27.8
29.6
21.3
1HFY14
Urban
Popln (%)
47.7
42.6
48.5
97.5
38.6
37.5
45.2
Popln
(m)
33.4
60.4
72.1
16.8
61.1
27.7
112.4
Our two-wheeler volume estimates
m units
Scooters
% of total
Motorcycle
% of total
Mopeds
% of total
Total Industry
FY14E
3.5
24
10.4
71
0.7
5
14.6
FY20E
10.7
37
17.3
60
0.9
3
28.9
CAGR (%)
20.3
8.9
5.0
12.0
Source: MOSL
51.2
33.3
24.9
35.3
31.6
32.7
30.6
34.2
23.5
31.2 1,210.2
Source: Indus tr y, MOSL
December 2013
6

Automobiles
Two-wheelers: Changing landscape
Era
Product
1970s-mid 2000s
Bajaj Chetak
From 1990s
Hero Splendor
From 2001
Hero Passion Pro
From 2000
Honda Activa
Pricing (INR '000) ^
NA
Performance
- Engine (cc)
145
- Power (bhp)
6.25
- Mileage (Kms/ltr)
35-40
- Ground clearance (mm)
145
Positioning
Fami ly scoot er, with
conservative design
Available Options
LML NV
Lamby 150
Bajaj Priya
Bajaj Cub
Bajaj Super
48.74
50
51.25
109
8
40-45
153
Family scooter with improved
asthetics & higher mileage
than geared scooters
Hero Maestro
TVS Jupiter
TVS Wego
Yamaha Ray
Suzuki Access
Suzuki Swish
Hero Pleasure
TVS Scooty
HMSI Dio
HMSI Aviator
Starting trouble, lack of riding
comfort over long distance
^ ex-showroom Mumbai
Comments
97.2
97.2
7.8
7.8
60-65
60-65
159
165
Focus on male user, g ood ride
Fami ly scoot er, with
quality & best mileage
Bajaj Platina
Bajaj Discover
Hero HF Dawn
Hero HF Deluxe
Honda CB Twist er
Honda Dream Yug a
Honda Dream Neo
Suzuki Hayate
TVS Star Sport
TVS Star City
Yamaha Crux
Yamaha YBR
Good ride quality on bad roads,
best mileage
Convenience due to Automatic
transmission, universal appeal
December 2013
7

Automobiles
Value migrating to scooters, led by changing customer priorities
Greater convenience, multi-usage, improved mileage driving value migration
Industries evolve, driven by changing customer priorities, challenging incumbents and
opening opportunities for proactive business design, in turn resulting in a new industry
order.
Lack of proactiv e business design from Bajaj Auto (BJAUT; incumbent leader in geared
scooters) had allowed Hero Honda (now Hero MotoCorp; HMCL) to capture a large part of
the value outflow from scooters to motorcycles. Geared scooters became virtually extinct
in India by the mid-2000s.
The fact that BJAUT partly recovered by reacting to the changed world indicates that the
incumbent can retain value by having a proactive business design.
We are now witnessing early signs of value outflow from motorcycles in the urban markets
to automatic scooters.
While HMSI has captured a large part of this value migration by being the driver of this
change, HMCL and TVSL are also well positione d. For now, BJAUT would lose out due t o
this migration, as it has taken the strategic position of being 'a global motorcycle specialist'.
Value migration in the Indian two-wheeler industry
The Indian two-wheeler industry has evolved over the last four decades, with value
migrating from geared scooters to motorcycles, and now to automatic scooters, driven
by changing customer preferences and availability of new products. We analyze below
various changes in the industry across different sub-segments.
Changing customer priorities drove value outflow from scooters (geared) and mopeds to
motorcycles from the 1990s to the mid-2000s
Motorcycl e
100%
75%
50%
25%
0%
FY74
FY79
FY84
FY89
FY94
FY99
FY04
FY09
1HFY14
Scooter
Mop ed
Sour ce: Company, MOSL
Value migration: Is business design apt to cater to changing customer priorities?
In his book, 'Value Migration: How to Think Several Moves Ahead of the Competition',
Adrian J Slywotzky describes how value migrates from outmoded business models to
business designs that are better able to satisfy customers' priorities. Developing a
strategic understanding of how current and prospective customers change through time
could serve as a compass that would point to the best direction for any company seeking
to create value growth. There are three phases of value migration - value inflow, stability
and value outflow. These phases describe the relative value-creation power of the
business model, based on its ability to satisfy customer priorities better than competitors
and thus, earn superior returns.
8
December 2013

Automobiles
Changing consumer priorities driving value migration in the two-wheeler industry
Source: MOSL
"Significant growth in
disposable income and
sharp rise in young
consumers led to higher
demand for better two-
wheelers with good
looks, greater power,
high quality, but with
fuel efficiency. These
were the major drivers of
shift from scooters to
motorcycles." - BJAUT
Annual Report, 1999-2000
1. Geared scooters (Bajaj Chetak, LML NV, Lamby 150, etc)
a. Value inflow (Phase-I: 1960s to mid-1980s):
The period between the 1960s to
the mid-1980s was dominated by traditional metal-bodied geared scooters
due to relatively lower cost, higher mileage and lower maintenance compared
with the then available motorcycles like
Royal Enfield, Yezdi
and
Rajdoot.
Volumes of geared scooters are estimated to have grown at ~17% CAGR during
the period between the 1970s to the mid-1980s.
b. Stability (Phase-II: mid-1980s to mid-1990s):
The period between the mid-
1980s to the mid-1990s saw geared scooters maintaining their dominance,
just before the entry of Japanese players, with relatively superior product
offerings. During this period, scooter volumes grew at a CAGR of ~7.5%, also
aided by emergence of ungeared scooters (Kinetic
DX, Bajaj Sunny,
etc).
c. Value outflow (Phase-III: mid 1990s to 2007):
This phase saw increasing
dominance of four-stroke, fuel efficient, sturdy motorcycles, meeting the
changing priorities of emerging India - liberalization ushered higher economic
growth and urbanization. This resulted in continuous decline in geared
scooters, as consumers shifted to motorcycles and automatic scooters.
Production of
Bajaj Chetak
(synonym for geared scooters in India) was stopped
in 2005.
December 2013
9

Automobiles
Geared scooters became extinct by the mid-2000s
Vol umes ('000 u ni ts)
1,200
800
400
0
% of 2W i ndus try
60
40
20
Domestic two-wheeler market share trend (%)
BJAUT
LML
5
11
6
HMCL
Enfi el d
Yamaha
TVS L
23
1
4
5 5
3
34
25
Ki neti c
13
8
9
47
0
F Y93
FY03
Source: SIAM, MOSL
2. Motorcycles (Hero Splendor/Passion, Bajaj Pulsar, Honda Shine, etc)
Fuel efficiency, suitability
for poor roads key
reasons for customer
preference for
motorcycles
a. Value inflow (Phase-I: 1990s to mid-2000s):
While motorcycles had been
growing at ~20% CAGR during the value inflow stage of geared scooters, growth
gathered momentum after the entry of Japanese players with four-stroke (4S)
technology in 1985. It took almost 10 years for 4S motorcycles to find acceptance
in India. The Indian motorcycle industry grew at ~22% CAGR over FY93-08,
overtaking scooters in FY00. Value migrated towards motorcycles, with
customer priorities being better mileage, superior quality (product and ride)
and aesthetics.
b. Stability (Phase-II: mid-2000s onwards):
After strong growth during the 1990s
to the mid-2000s, motorcycle volume growth moderated to ~12% CAGR over
FY08-13. While in urban markets, motorcycles would have to compete with
automatic scooters for new and replacement demand, growth in motorcycle
volumes would be driven by increasing rural penetration.
Motorcycles gained at the expense of scooters in 1990s
Vol umes ('000 uni ts )
12,000
8,000
4,000
0
% of 2W i n dus try
86
64
42
20
Domestic two-wheeler market share trend (%)
Source: SIAM, MOSL
December 2013
10

Automobiles
"Scooters find multiple
uses in urban households
vs. motorcycles, which
are more suited for men"
stated by Mr Anil Dua,
Senior VP (Marketing &
Sales) HMCL in an
interview with ET, dated
Nov. 3, 2013
3. Automatic scooters (Honda Activa, Hero Pleasure, TVS Scooty, etc)
a. Value inflow (Phase-I: mid 2000s onwards):
Automatic scooters (Kinetic
DX,
Bajaj Sunny,
etc) have been around since the mid-1980s and have grown at
~14% CAGR over FY93-03. However, they gained traction with the launch of
Honda Activa,
the first 4S automatic scooter, in 2001. Customer acceptance of
automatic scooters has been increasing, especially in urban markets, driven
by narrowing fuel efficiency gap vis-à-vis motorcycles, improvement in urban
roads and unisex appeal. Automatic scooter volumes grew at ~22% CAGR over
FY08-13.
Domestic two-wheeler market share trend (%)
BJAUT
HMCL
10.3
HMSI
Yamah a
TVSL
4.9
12.8
2.6
18.9
42.9
17.9
FY13
Source: SIAM, MOSL
Automatic scooters are driving the resurgence of scooters
Vol u mes ('000 un i ts)
3,600
2,400
1,200
0
% of 2W i nd ustry
25
20
15
10
5
Others
22.5
5.4
3.1
33.8
24.9
FY03
Catalysts for changing customer priorities, leading to value migration to scooters
Rising per capita income
Increasing female worker participation in non-agri sectors
Average PCI In dex
1,933
Sha re of women e mpl o yed i n th e non agri cul tura l
sector (% o f total n onagri cu l tural e mpl oyment)
14
17
18
19
895
334
100
1980-1990
1990-2000
2000-2010
2010-2013
13
1990
1995
2000
2005
2010
Growing urbanization
Urba n po pul ati on (%)
28
26
23
31
Increasing road infrastructure in urban areas ('000 km)
Urb an Ro ads
411.8
252.0
186.8
123.1
72.1
20
18
1961
1971
1981
1991
2001
2011
1971
1981
1991
2001
2011
Source: World Bank, MORTH, Industr y, MOSL
December 2013
11

Automobiles
Value migration poses threat, but also opens up opportunities
Value migration is relocation of underlying value, rather than disappearing of
value, to products/business designs that aptly address changed priorities.
The changing dynamics pose challenges for incumbents, but also open up large
opportunities. Though changing customer priorities undermine the incumbents'
position of strength, they do not have to necessarily lose out. By having a
responsive business design, they can sustain their position and create a new value
proposition that addresses new priorities.
In context of the Indian two-wheeler industry, we have already witnessed value
migration from geared scooters to motorcycles. Lack of proactive business design
from BJAUT (incumbent leader in geared scooters) allowed HMCL to capture a
large part of the value migration to motorcycles.
However, the fact that BJAUT recovered part of the lost ground by reacting to the
changed world indicates that the incumbent can retain value by having a proactive
business design.
In the current context, we are witnessing early signs of value outflow from
motorcycles to automatic scooters in the urban markets, driven by higher
convenience and unisex design.
While HMSI has so far captured a large part of this value migration by being the
driver of this change, HMCL and TVSL are also well positioned. For now, BJAUT
would lose out due to this migration, as it taken has taken the strategic position of
being 'a global motorcycle specialist'.
December 2013
12

Automobiles
Japanese players had triggered shift towards motorcycles
Fuel efficiency, reliability and suitability for poor roads were key drivers
Traditional geared scooters dominated till the mid-1990s due to their lower cost, higher
mileage, and lower maintenance compared to the then locally available motorcycles.
The entry of Japanese players brought reliability, durability and fuel efficiency t o
motorcycles.
The shift from traditional geared scooters gathered pace in the 1990s, as higher income
levels and economic development led to increase in demand for better two-wheelers.
Sharp rise in fuel prices (in the late 1990s) led to a sudden and sharp rise in the share of
motorcycles due to their better mileage (scooter sales declined by 30-40% annually in
the late 1990s v/s annual decline of 10-15% earlier). By mid-2000s, geared scooters were
extinct.
Why scooters had dominated pre-1990s
"Yezdi had serious
mechanical issues,
especially starting
trouble. One had to
pump about 20 times to
get that machine started.
It stood no chance against
the peppy, new
generation Japanese
bikes." - West-based
HMCL dealer
Lack of reliable and fuel efficient motorcycle
Motorcycles, by nature of their design, are generally more rugged and sturdy than
scooters. They have better ground clearance, strong suspensions and larger
wheelbases.
However, pre-1980s, available motorcycle brands lacked reliability and fuel efficiency.
There were only three serious players in the Indian motorcycle market -
Bullet, Rajdoot
and Ideal Jawa (Yezdi). Rajdoot
was popular in rural areas because of its sturdy
suspension, while
Bullet
and
Jawa
were popular in the urban markets for their strong
performance.
While the products were popular, due to issues with respect to mechanical reliability
and fuel efficiency, majority of the customers preferred the then available traditional
geared scooters.
Reliability and low cost helped scooters, especially Bajaj Chetak
Though scooters were an imperfect solution, they offered better functionality than
motorcycles. They were preferred for their functionality of motorized mobility,
affordable pricing, reliability and higher mileage.
Bajaj Chetak
had captured a major
market share and became a must have for every middle-class Indian.
Bajaj Chetak
was synonymous with scooters and demand was so strong that it had a waiting period
of up to 10 years.
December 2013
13

Automobiles
Bajaj Auto advertisement highlighting sturdiness and reliability of its scooter
BJAUT's iconic 'Hamara
Bajaj' advertisement
(click here for video)
captures the joy ride of a
quintessential Indian
middle class family to its
finest details,
immediately connecting
with the consumers
Sour ce: Company, MOSL
Lamby 150 advertisement, positioning it as an ideal family vehicle
LML Vespa advertisement, highlighting its mi leage
Sour ce: Company, MOSL
December 2013
14

Automobiles
"Japanese motorcycles
with better ground
clearance, stronger
suspension and larger
wheelbase, performed
well on village roads.
They were more fuel
efficient than traditional
geared scooters due to
their four-stroke
technology. The good
looks and aesthetics
were an added bonus." -
North-based HMCL dealer
Entry of Japanese brought much-needed reliability and fuel efficiency
The 1980's saw a sea change in the Indian two-wheeler market, with the entry of
several Japanese players through joint ventures with Indian partners. They introduced
several 100cc motorcycles with state-of-the-art technology; these were far more fuel
efficient, reliable and easy to ride.
Moreover, Hero Honda (now Hero MotoCorp; HMCL) introduced four-stroke
technology, which is superior to the two-stroke technology that Yamaha, Suzuki and
Kawasaki (through Bajaj) had introduced, in terms of fuel efficiency and reliability.
Shift from geared scooters to motorcycles started in 1990s
Factors that drove the shift:
Motorcycles generally more suitable for bad roads:
Motorcycles performed well
on the relatively poor village roads, with their higher ground clearance, stronger
suspension and larger wheelbase.
Better technology with more reliable and fuel efficient engines:
Post the entry of
Japanese players and introduction of four-stroke technology by Hero Honda,
motorcycles became more fuel efficient and reliable.
Goods looks and aesthetics
were a bonus.
Hero Honda advertisements in the 90s, highlighting fuel efficiency, style and power
Source: Compan y, MOSL
Sharp increase in fuel prices accelerated shift in late 1990s
Apart from motorcycles being better in terms of looks, performance, reliability and
fuel efficiency, the following factors accelerated the shift away from traditional geared
scooters:
Oil crisis in the late 1990s led to a sharp increase in fuel prices. Motorcycles being
more fuel efficient than traditional geared scooters, their sales increased sharply.
With multiple motorcycle launches, the price difference between motorcycles
and geared scooters narrowed. This encouraged motorcycle purchases.
Sharp growth in the population of young (18-25 years old) consumers coupled
with significant growth in disposable incomes led to a quantum jump in the
demand for better two-wheelers - vehicles with good looks, greater power and
higher quality, but with fuel economy as well.
December 2013
15

Automobiles
Hero Honda advertisement, highlighting running expenses
at 10paise/km due to four-stroke technology from world
leader, Honda
Yamaha RX100 (two-stroke) advertisement, highlighting
better power, faster pick-up and s peed as the key featur es
Sour ce: Company, MOSL
Trend favoring motorcycles strengthened in early 2000s; Bajaj Auto exited geared scoot ers in
FY06, ungeared scooters in FY11
"Traditional scooters
stood for old family
values and the 'we' factor
- remember the Humara
Bajaj campaign?
Motorcycles are far more
individualistic and are an
image product." - South-
based HMCL dealer
Moto rcycl es
100%
75%
50%
25%
0%
Geared Scoo ters
Automa ti c Scoote rs
Moped s
Hero Sp l endo r
l au nch
Hond a Acti va
l aun ch
Baja j exi ts
gea red s co oters
B ajaj exi ts
s cooters
Source: SIAM, MOSL
December 2013
16

Automobiles
Share of scooters recovering post FY07
"Depending upon models
and their characteristics,
motorcycles have swept
rural, semi-urban and
urban India in a way that
would have been
inconceivable even a few
years ago." - BJAUT
Annual Report, 1999-2000
Sco oter (% of total 2Ws )
60
45
30
15
0
Pri or to moto rcycl e i nvas i on, average s co oters
s hare wa s ~45% ti l l earl y 2000s
Source: SIAM, Company, MOSL
Excerpts from dealer interaction
What were the key reasons for the shift from scooters to motorcycles in
the 1990s?
The biggest factor for the shift was higher mileage associated with four-stroke
motorcycles.
In those days, scooters used two-stroke technology. They delivered
35-40kmpl, while Hero Honda's four-stroke 100cc motorcycles delivered 60kmpl. In
the late 90s, fuel prices rose sharply. With 60kmpl fuel efficiency, motorcycles
became very popular and the share of four-stroke motorcycles increased
tremendously over 1997-2001.
Mr Ajay Kumar Patni,
Owner of Arun Automobiles,
BJAUT dealer since 1964
Motorcycles were also more comfortable due to their larger wheels and longer
wheelbase.
With the economy opening up in the early 90s, there was an increase in
economic activity, and consequently, traveling needs. Motorcycles offered better
mileage and convenience than scooters.
Though motorcycles were more expensive (INR30k v/s INR20k for scooters),
consumer financing was catching up rapidly.
Citibank was very aggressive in two-
wheeler financing then. This coupled with general increase in income levels
supported motorcycle demand.
December 2013
17

Automobiles
Resurgence of scooters led by automatic segment
Convenience, universal appeal coupled with economic development driving demand
Increasing focus on automatic
scooters
Company
TVS
Honda
Hero
Suzuki
Honda
Mahindra
Mahindra
TVS
Mahindra
Yamaha
Suzuki
Hero
Honda
Piaggio
Mahindra
TVS
Brand
Scooty
Activa
Pleasure
Access
Aviator
Rodeo
Flyte
Wego
Kine
Ray
Swish
Maestro
Dio
Vesp a
Duro
Jupiter
Year
1994
2000
2005
2007
2009
2009
2009
2010
2010
2012
2012
2012
2012
2012
2012
2013
While the sale of traditional geared scooters declined, the share of automatic scooters
continued to increase, driven largely by higher demand from working women, college
students (female) and senior citizens.
With the launch of Honda Activa in the 2000s, automatic scooters started gaining acceptance
amongst men as well, due to attributes such as comfort, convenience and universal usage.
Automatic scooters (particularly those launched by Honda) were far ahead of traditional
geared scoot ers in terms of their perf ormance, reliability and fuel efficiency.
Urban markets could see further increase in the share of scooters, driven by (a) new
demand from a wider target audience, and (b) replacement demand from motorcycle
users.
Automatic scooters address shortcomings of geared scooters
While traditional geared scooters died down, the growth momentum in ungeared
(automatic transmission) scooters continued. Over the last two decades, automatic
scooters have grown at 16% CAGR against ~7% CAGR for the overall scooter segment.
Automatic scooters offer several advantages over traditional scooters. Attributes such
as convenience (self-start, no need to change gears), contemporary looks, and
powerful engines are making them popular amongst customers across age categories
and gender.
…but automatic scooters have been driving resurgence
over the last 10 years
Motorcycl es Gr. (%)
19.1
16.4
Automa ti c Scoote rs Gr. (%)
22.3
17.4
18.6
17.3
10.7
11.8
Share of scooters has declined over the last two decades
due to decline in geared scooters (% of 2Ws)…
Motorcycl e s
100
80
60
40
20
Scoote rs
20‐yea r CAGR 15‐year CAGR 10‐year CAGR 5‐yea r CAGR
Source: SIAM, MOSL
Share of automatic scooters has been rising, driven by several launches (% of total 2Ws)
52
39
26
13
Gea red Sco oters
Unge ared Scooters
Source: SIAM, Indus try, MOSL
December 2013
18

Automobiles
"Ungeared scooters were
initially used by urban
women and college
students, who prefer
automatic transmission,
self-start, light weight
and easy
maneuverability." -
South-based TVSL dealer
Initially, urban women and students drove demand for automatic scooters
Ungeared scooters, which were predominantly plastic bodied (lighter weight and
smaller size), with lower capacity engines (largely sub-100cc), were popular among
females. Usage by males was limited, considering the tiny/feminine looks of the
plastic bodied scooters.
Companies promoted automatic scooters through high decibel celebrity
endorsements, focusing on women empowerment.
With greater economic development, increasing women participation in the
workforce, demand from female customers increased at a healthy rate till FY12.
However, post FY12, there is a distinct trend towards large/unisex scooters.
Small scooters were popular among females
"Scooters are perceived
to be safer than
motorcycles. Hence,
parents generally buy
scooters for their school/
college going children in
the age bracket of 18-22
years." - South-based
HMSI dealer
S mal l s cooters ('000 un i ts)
43
43
42
30
% of to tal s co oters
26
752
28
759
447
560
783
521
F Y09
FY10
F Y11
FY12
FY13
FY14YTD
Sour ce: Industr y, MOSL
Hero Pleasure advertising campaign focusing on women empowerment
Hero Pleasure
advertisement, 'Why
should boys have all the
fun?', featuring
Bollywood actress
Priyanka Chopra
(Click
here to see video)
Sour ce: Company, MOSL
December 2013
19

Automobiles
Acceptance amongst men has also increased
"The scooter is turning
out to be the perfect
'second car' in the family.
High fuel prices and
traffic congestion make
scooters a convenient
mode of transport for
daily commutes, while
cars are more suitable for
occasional weekend
drives." - Noida-based
HMSI dealer
Growth for automatic scooters has accelerated over the last four years, with 26%
volume CAGR. Large scooters (>100cc) have been growing faster at ~31% CAGR. This is
largely driven by increasing acceptance of automatic scooters among men. Among
the reasons for the growing popularity of automatic scooters are:
Significant reduction in performance and fuel efficiency gap with motorcycles:
With advancement in technology, the performance of current generation scooters
has improved significantly and is near motorcycle levels. The fuel efficiency gap
v/s motorcycles has reduced - 40-45kmpl v/s 60-65kmpl for motorcycles (35-40kmpl
for geared scooters).
Universal appeal:
Being automatic transmission vehicles with self-start option
and consequent ease in driving, scooters can be used by both males and females,
young and old.
Convenience and comfort:
Automatic transmission scooters offer a lot of comfort
and convenience, particularly in urban traffic conditions.
Perfect primary family vehicle:
High fuel prices and traffic congestion make
scooters a convenient mode of transport for daily commutes, while cars are used
for occasional drives.
Comparison of competing two-wheelers
Parameters
Honda
Hero
Activa
Splendor Pro
Price (INR '000) ^
51.25
48.74
Engine (cc)
109
97
Power (bhp)
8.00
7.80
Weight (Kgs)
111
109
Mileage (Kms/Ltr) *
60
90
Mileage on-road (Kms/Ltr)
40-45
60-65
Wheelbase (mm)
1,238
1,230
Seat height (mm)
765
785
Ground clearance (mm)
153
159
^ Ex-showroom Mumbai, * Manufacturer's claim
Hero
Bajaj
Passion Pro
Chetak 2S
50
NA
97
145
7.80
6.25
116
103
84
60-65
35-40
1,235
1,230
795
840
165
145
Sour ce: Company, MOSL
Bollywood actress
Anushka Sharma in TVS
Scooty ad focusing on
women empowerment
Large scooters gaining wider acceptance, taking away share from small scooters
Large scoo ters ('000 uni ts )
% of total s cooters
70
74
72
Sour ce: Compan y, MOSL
57
57
58
(click here to see video)
1,806
586
F Y09
734
F Y10
1,041
2,090
1,361
F Y11
F Y12
F Y13
FY14YTD
Source: SIAM, Indus try, MOSL
December 2013
20

Automobiles
Mr Anil Dua, Senior VP,
Marketing & Sales, HMCL
indicated that with
Maestro
scooters, which
are targeted towards the
youth, urban consumers
are now more
comfortable with
scooters. Earlier, while
the women customers
were largely from cities,
male customers were
largely from smaller
towns.
Scooters becoming popular amongst youth as well
Our channel interactions indicate that scooters are gaining acceptance amongst
the youth. Brands such as
Honda Dio
and
Yamaha Ray-Z
are being bought by young/
college going boys.
However, they are not yet attractive relative to motorcycles, which still constitute
a big chunk of the market.
Attractiveness amongst youth would be the key inflection point.
Sensing this, two-wheeler players have launched several male-specific products
-
Hero Maestro, Honda Aviator, Yamaha Ray-Z, TVS Jupiter.
With several recent launches targeting the youth (young boys in the 18-25 years
bracket), acceptance amongst youth is also increasing at a rapid pace, especially as
the 'network' effect sets in. HMCL is focusing on positioning its Maestro scooters as a
'cool' product for young men. The product is endorsed by Bollywood star and youth
icon, Ranbir Kapoor.
Hero Maestro online advertisement focused on young men
TVS Jupiter advertisement positioning it as 'for men'
Sour ce: Company, MOSL
Hero Maestro advertisement featuring bollywood star Ranbir Kapoor
HMCL is focusing on
positioning its Maestro
scooters as a 'cool'
product for young men.
The product is endorsed
by Bollywood star and
youth icon, Ranbir Kapoor
(click here to see the
video)
Source: Compan y, MOSL
December 2013
21

Automobiles
Share of men and young boys rising over the last five years…
F em al e
2
58
70
Mal e (a ge 25+)
Yo uth
10
…reflected in rising share of bigger scooters
Smal l s co oters
Large s co oters
57
57
58
70
74
72
40
43
20
2013
F Y09
43
42
FY11
30
F Y12
26
FY13
28
FY14YTD
2008
F Y10
Sour ce: Industr y, MOSL
Scooter share of incremental 2W industry volumes (%)
99
Trend in volumes in best motorcycle and scooter brand ('000)
Sp l endo r
2,755
2,309
1,999
Acti va
2,337
94
57
25
15
30
584
1,011
655
1,209
1,282
885
FY09
FY10
FY11
FY12
FY13
1HFY14
FY10
FY11
FY12
FY13
1HFY14
Sour ce: Industr y, MOSL
December 2013
22

Automobiles
Excerpts from dealer interaction
How has been the trend in scooter sales in the Baroda market over the
last five years?
More and more customers are preferring scooters. In Baroda, the share of scooters
in total two-wheeler sales has increased from 15% to 30% over the last five years.
Mr Jayant Shah,
Owner of Kumar Motors,
HMCL dealer since inception
(1984)
Why are scooters increasingly becoming the preferred choice for
personal transportation?
Scooters are a convenient mode of transport for city driving due to automatic
transmission, self-start and light weight (easy maneuverability). With
advancement in technology, the mileage gap between scooters and motorcycles
has also reduced significantly.
What is the typical customer profile for scooters?
Students in the age bracket of 18-22 years, working women, housewives, small
traders and business men, aged people (over 40 years) are the key customer
categories for scooters.
Scooters are no longer only a female targeted product. Earlier products were
largely plastic bodied and small, and hence, perceived as female only products.
Today, there are a lot of options available in the scooter segment, with high power,
larger size and good looks -
Activa, Maestro,
etc.
In fact, now the share of male customers (self-employed, small traders, service
category) is much higher than female customers, though overall number of female
customers has also increased over the years.
Will scooters overtake motorcycles over the next 5-7 years?
Scooters will continue to grow ahead of motorcycles. However, motorcycles will
remain popular up-country and for longer distance travel (until infrastructure
improves significantly). Motorcycles have their own advantages in rural areas in
terms of being more comfortable on relatively poor quality roads and for long
distance travel (larger wheelbase, higher ground clearance, better shock
absorbers) and higher mileage (for cost conscious rural customers).
December 2013
23

Automobiles
Can share of scooters revert to historical level of ~45%?
Global (and select local) experience suggests acceleration in scooter share
Globally, scooters constitute ~55% of the two-wheeler market (ex China and Africa).
Excluding India, the share of scooters is at ~79% (including geared step-throughs).
In India, scooter penetration in economically developed states has been higher. Six states
contribute ~60% of scooter volumes. Penetration of scooters is increasing in urban centres,
while smaller towns are seeing increased acceptance.
~51% of the dealers we surveyed expect the share of scooters to be over 40% by 2020.
Historically, the share of scooters in India was ~45% for over 30 years ti ll 2000. The
experience of global peers and select developed states, and dealer feedback suggests
that the share of scooters might once again increase to 40-45%.
Large global markets skewed towards scooters
"The latent demand for
scooter was always there
because of its utility
value; it was a question
of bringing the right
product." HMSI Ex-
Operating Head (Sales
and Marketing) NK Rattan
said in an interview with
Economic Times dated
November 21, 2010.
Scooters constitute ~55% of the global two-wheeler market (ex China and Africa).
Excluding India, the share of scooters is ~79%.
Globally, large evolved two-wheeler markets are largely scooter/step-through
markets, with share as high as 100%.
Asia is the largest two-wheeler market, accounting for over 85% of the global
two-wheeler market (ex China and Africa). Market dynamics in India are similar
to other Asian countries, though India is behind its Asian peers in terms of
economic evolution. The evolution of the two-wheeler market in India is likely to
be on similar lines as in other Asian countries.
Indonesia, the third-largest two-wheeler market in the world after China and
India, with annual sales of 7m units, is primarily a scooter/step-through market.
A similar shift is likely in India, but not as fast and steep, considering the difference
in fuel efficiency, aesthetics and road infrastructure (especially in rural areas).
Globally, two-wheeler markets are skewed towards scooters, especially in Asia (m units) *
Scoote rs
1.3
0.5
Motorcycl e
Scoote rs
17.0
55%
Moto rcycl e
13.9
45%
10.1
12.5
1.6
0.5
0.8
2.9
Indi a
AS EAN
0.8
0.04
North
Ame ri ca
S outh
Ameri ca
Euro pe
* Excluding China and Africa
Source: Piaggio, MOSL
December 2013
24

Automobiles
Two-wheeler penetration high in ASEAN region, especially scooter penetration, due to higher development and urbanization
Mark et Si ze (m u ni ts)
13.8
30
7.3
6
21
3.1
2.1
29
31
30
59
21
Ind i a
Indo nes i a
Penetra ti on (% of popu l ati on)
Ge ared scoote rs/ste p-thrus (% of to tal 2W )
Automati cs (% o f total 2W)
Urb ani zati on (%)
51
60
31
39
Vi etna m
46
Thai l an d
51
34
Sour ce: Industr y, MOSL
Scooters dominate in Indonesia; will India follow?
Market skewed towards step-throughs:
Just as 100cc motorcycles dominate the
Indian two-wheeler market, step-throughs dominate the Indonesian market.
Step-throughs account for ~86% of the two-wheelers sold in Indonesia, the rest
being motorcycles.
Practicality, universal appeal of step-throughs make them popular:
Step-throughs
are popular due to their practicality (in crowded Indonesian streets), higher
mileage (than motorcycles available in Indonesia) and universal appeal (female
labor force participation high at 50% v/s 29% in India).
Step-through market shifted towards automatic transmission due to convenience:
Since 2004, with the launch of automatic transmission step-throughs (locally
called skubeks), the share of geared step-throughs (locally called bebeks) in
overall two-wheeler sales declined significantly in favor of skubeks due to their
convenience in the face of traffic congestion, supported by similar pricing, looks
and fuel efficiency.
Share of automatic transmission step-throughs increased significantly over 7-8 years
Bebe ks (ge ared)
5
61
95
39
Sk ubek s (ungeared )
2004
2012
Source: Indus try, MOSL
December 2013
25

Automobiles
Honda Blade (geared step-through; bebek)
Honda Vario (automatic transmission; skubek)
Source: Company, MOSL
Local experience of select developed states indicates higher share of scooters
The share of automatic scooters has been rising in the overall two-wheeler
industry across states over the last few years.
Anecdotal evidence suggests that states with higher economic development and
open culture have higher scooter sales penetration.
Our analysis of last few years' town-wise two-wheeler sales in Gujarat, Madhya
Pradesh, Maharashtra and Chattisgarh (four states contributing 27% of pan-India
market) indicates that scooter penetration is increasing even in smaller towns.
Top-6 states (four in the South and two in the West) contribute over 60% of scooter
demand. All these states are relatively more developed; hence, the higher scooter
penetration.
Share of ungeared scooters has increased across markets
Scooter share (% of total 2W)
FY11
FY13
1HFY14
29
42
51
18
22
48
19
30
35
26
31
33
22
28
33
24
28
32
24
28
31
17
21
25
17
21
23
15
19
22
15
19
20
17
17
18
16
18
18
9
13
14
14
14
14
13
12
13
9
10
11
PCI
(INR '000)
84
135
176
83
78
69
92
84
69
109
72
47
46
56
35
47
29
Urbanization
2W share
(%)
(%)
47.7
4.9
97.3
0.6
97.5
2.2
42.6
7.6
37.5
3.6
38.6
6.5
45.2
11.4
48.5
11.4
31.0
100.0
24.3
3.0
33.5
8.2
23.2
2.3
16.7
2.6
31.9
3.9
27.6
5.6
24.9
6.5
22.3
10.7
Source: SIAM, MOSPI, RBI, Industry
In 1HFY14, scooter sales
in Kerala and Chandigarh
were similar to
motorcycle sales
Kerala
Chandigarh
Delhi
Gujarat
Punjab
Karnataka
Maharashtra
TN
India Average
Haryana
AP
Chattisgarh
Orissa
WB
MP
Rajasthan
UP
December 2013
26

Automobiles
Scooter sales contribution rising even in smaller towns (%)
FY10
40
28
26
32
19 22
22
26
FY13
FY13: State-wise scooter sales contribution (%)
Mah a‐
ras htra, 15
Others , 37
Tami l
Nadu , 11
Gu jarat, 11
Other towns Al l (4 s tates )
*
* Guja rat, Mahara shtra , MP & Chatti s garh
Metros
Ti er 1 ci ti es
An dhra
Prad esh, 7
Ka rnatak a,
9
Keral a, 10
Sour ce: Indus try, MOSL
Takeaways from dealer survey
Over 50% of dealers expect the share of scooters to increase to over 40% by 2020 - increasing trend seen across OEs and markets
What proportion of the total two-wheeler industry sales in your respective market comes/
would come from the scooter segment?
35
40
30
23
9
7
11
14
9
13
0
9
21 19
10
6
35
5
4
2008
2013
2020
Source: MOSL
Share of scooters expected to rise across categories of towns (%)
2008
50
37
30
23
18
10
22
6
20
40
39
37
2013
2020
Tie r I (Metro Cities )
Ti er II
Tier III
Rural
Source: MOSL
December 2013
27

Automobiles
Within male customers, do you believe that scooters are
cannibalizing motorcycle sales?
Incre‐
menta l
 
s a l es , 25%
Are young boys (age 18-22 years) also getting attracted and
buying scooters largely for their own usage?
Yes , 53%
No t yet,
47%
Ca nna ba l i z
i ng, 75%
Source: MOSL
OEM-wise dealer participant share (%)
Market classification of participant dealers (%)
Rura l , 15
T ier I
(Metro
Ci ti es), 21
34
26
T i er I II , 24
40
Hero Moto
HMSI
TVS Motor
T ie r II , 41
Source: MOSL
December 2013
28

Automobiles
Estimate share of scooters at 37% by 2020
However, dominance of motorcycles to continue
Based on our multi-model analysis, we expect scooter industry volumes to grow at ~20%
CAGR over FY14-20, twice the growth rate for motorcycles. Overall two-wheeler industry
volumes are likely to grow at 12% CAGR during this period.
The share of scooters would increase to 37% by 2020, with annual sales of 10.7m units
(equal to the current market size of the domestic motorcycle industry).
While the share of scooters is likely to increase, we expect the dominance of motorcycles
to continue, driven by increasing penetration in rural markets. Motorcycles fare better in
rural areas, where road infrastructure is relatively poor, are more suitable for longer
distance travel, and offer higher mileage (an important factor for cost conscious customers).
Mr YS Guleria, VP
(Marketing & Sales),
HMSI indicated that
scooter sales are strongly
correlated to economic
development and
education. "First it was
Chandigarh - a hub of
education in the north.
And then in South India,
Kerala - India's most
literate state - became
the first state where
scooters outsold bikes.
Our data show that
Gujarat is now emerging
as a major hub where
scooters are narrowing
the gap with motorcycles
pretty fast,".
Estimate share of scooters at 37% by 2020, volume CAGR at ~20%
Based on our multi-model analysis, we expect scooter industry volumes to grow
at ~20% CAGR over FY14-20, twice the growth rate for motorcycles. Overall two-
wheeler industry volumes are likely to grow at 12% CAGR during this period.
The share of scooters would increase to 37% by 2020, with annual sales of 10.7m
units (equal to the current market size of the domestic motorcycle industry).
We discuss the two methodologies used to estimate potential scooter volume
growth over the next six years, based on (A) expected penetration in urban and
rural markets, and (B) experiential evidence in relatively developed states.
Scooter volumes likely to grow at twice the growth rate for motorcycles
m units
Scooters
% of total
Motorcycle
% of total
Mopeds
% of total
Total Indus try
FY14E
3.5
24
10.4
71
0.7
5
14.6
FY20E
10.7
37
17.3
60
0.9
3
28.9
CAGR (%)
20.3
8.9
5.0
12.0
Source: MOSL
(A)
Estimating two-wheeler penetration in urban and rural markets, and further
estimating replacement and incremental demand for scooters within the urban-
rural mix.
Expect scooter share to increase to ~40% by FY20, implying 20% CAGR in scooter volumes
FY14E
FY20E
CAGR
Key Assumptions for scooters
Replacement demand (% of replacement demand
New demand (% of new demand)
Urban
3.3
8.7
17.5
75
50
Rural
0.2
2.9
54.4
25
15
Total
3.5
11.6
22.0
26
36
Source: MOSL
% of total
24.1
40.0
December 2013
29

Automobiles
(B)
Scooter demand following similar trend on pan-India basis, as currently
experienced in relatively developed and urbanized states.
Scooter share in developed states at ~34%, as against pan-India average of 23.5%
We note that it took just
three years for these
developed states to
improve scooter share
from 23% (current pan-
India average) to ~34%
(estimated pan-India
average by 2020)
Ratio
Kerala
Gujarat
Tamil Na du
Delhi
Karnataka
Punjab
Maharashtra
Average of above
Pan-India
FY11
29.5
25.9
17.1
18.6
23.8
21.6
24.4
23.0
17.4
FY13
42.2
30.6
20.7
29.7
28.0
28.2
27.8
29.6
21.3
1HFY14
51.2
33.3
24.9
35.3
31.6
32.7
30.6
34.2
23.5
Urban Popln (%)
47.7
42.6
48.5
97.5
38.6
37.5
45.2
Popln (m)
33.4
60.4
72.1
16.8
61.1
27.7
112.4
31.2
1,210.2
Sour ce: Industr y, MOSL
Share of automatic transmission step-throughs increased significantly over 7-8 years
Urbani zati o n (%)
27.7
29.2
30.9
32.8
34.8
2000
2005
2010
2015
2020
Source: UN, MOSL
Based on experience of developed states, scooter volumes can grow at ~19% CAGR to ~34% of
two-wheeler industry
FY14E
FY20E
CAGR
2W Demand
14.6
28.9
12.0
Motocycle
11.1
19.0
9.4
Scooter
3.5
9.9
18.7
% of total
24.1
34.2
Source: MOSL
Motorcycle volumes to grow at ~9%, driven by rural markets
While the share of scooters is likely to increase, we expect the dominance of
motorcycles to continue, driven by increasing penetration in rural markets.
In rural markets, motorcycles will continue to be preferred due to their suitability
for:
higher travelling distances (average of 40-50km/day v/s 10-15km/day in urban
markets)
relatively poor road infrastructure
largely male user category (relatively less open culture)
relatively cost conscious customers (motorcycles deliver higher weight-to-
fuel efficiency and maintenance cost is perceived to be lower).
December 2013
30

Automobiles
Estimating industry's volume to grow 12.4% CAGR
Domestic
Scooters
Motorcycles
Mopeds
Dom. industry vols (A)
Exports
Scooters
Motorcycles
Mopeds
Export industry vols (B)
Total industry vols (A+B)
FY14E
3,500,000
10,400,102
700,000
14,600,102
FY14
84,146
1,927,918
5,302
2,017,366
16,617,468
FY20E
10,518,574
17,361,371
938,067
28,818,012
FY20
166,089
4,459,392
8,414
4,633,895
33,451,907
CAGR (%)
20.1
8.9
5.0
12.0
CAGR (%)
12.0
15.0
8.0
14.9
12.4
Source: MOSL
Would profitability for scooters be very different from motorcycles?
Based on our interaction with the industry, gross margins on scooters are slightly
lower than motorcycle due to a) expensive automatic transmission and b) higher
body components. However, EBITDA margins would be largely driven by the
operating leverage and economies of scale, and is expected to be similar as
motorcycle on comparable volumes. When we compare EBITDA margins of HMSI
(large scooter contribution) with Hero MotoCorp (large motorcycle contribution),
EBITDA margins for FY13 for HMSI were lower by ~70bp vis-à-vis HMCL (at 45%
volumes of HMCL).
December 2013
31

Automobiles
HMCL, TVSL well seated for scooter ride
BJAUT, however, decides to stay out to be a global motorcycle specialist
While the increasing share of scooters could have a disruptive impact on listed players'
domestic operations, a proactive business model would help to benefit from changing
industry dynamics.
By being the driver of the shift towards scooters, HMSI would continue to benefit. HMCL
and TVSL are also well positioned for this migration.
Despite its late entry in the segment, HMCL has become the second-largest scooter
player, helped by its differen tiated positioning aimed at the youth. It plans tw o new
launches in FY15 coupled with 25% capacity expansion to 900k/year.
TVSL is getting its act together with multiple launches in both the scooter and motorcycle
space. With the recent launch of Jupiter, TVSL has a complete portfolio of scooter offerings.
The upcoming launch of Scooty upgrade would further strengthen its position in the
female scooter space.
For now, BJAUT would lose out on this migration, as it has taken the strategic position of
being a 'global motorcycle specialist'.
HMCL: Differentiated positioning in scooters, with focused marketing
Though HMCL was a late entrant in the scooter space (entered in 2006), it has
differentiated its positioning by targeting the youth as against competitors' focus
on the family.
Further, HMCL is preparing to strengthen its position by launching two scooters in
FY15, along with expansion of its scooter capacity.
We believe HMCL can outgrow the scooter market, leveraging its differentiated
positioning based on customer understanding, wide reach and focused marketing.
This coupled with added volumes from export markets and potential levers for
margin expansion makes HMCL our top two-wheeler pick.
Buy
with a target price
of INR2,680 (14x FY16E EPS).
TVSL: Dark horse with ingredients in place for sharp EPS growth
TVSL is getting its act together by having relevant products in place in both the
scooter and the motorcycle segments.
A moderate success of the
Jupiter
and the upcoming executive segment motorcycle
launch would drive significant operating leverage, margins and strong EPS growth.
Further, any clarity on Indonesian operations (success of recent launch or closure
of operations) could also act as a re-rating trigger for the stock.
We believe FY15 would be critical year for TVSL due to (a) full benefit of launches
in 2HFY14, and (b) multiple launches in FY15.
It is a dark horse, with potential to deliver annualized returns of 25-30% CAGR
over the next 2-3 years. We initiate coverage with a
Buy
rating and a target price of
INR85 (9x FY16E standalone EPS).
December 2013
32

Automobiles
"Great brands are built on
the foundation of
sacrifices. Making more
scooters doesn't mean
making more money. We
are a specialist
motorcycle company. We
won't venture out of that
easily."
- Mr Rajiv Bajaj,
Managing Director, BJAUT
BJAUT: Would exports make up for absence in scooters?
BJAUT would lose out in the domestic market, as it has taken a strategic decision
to focus on being a 'global motorcycle specialist'.
With its specialization strategy and focused approach, BJAUT aims to garner a
higher share of the global motorcycle market together with industry-leading
profitability.
Based on 12% export volume CAGR over FY14-20, BJAUT could underperform the
two-wheeler industry by 3%, considering its absence in the fast growing scooter
industry.
BJAUT would benefit on (a) uptrading in the domestic motorcycle market, driven
by economic recovery, and (b) revival in exports, which could offset the negative
of absence in scooters.
Buy
with a target price of INR2,255 (14x FY16E EPS). We
prefer HMCL and TVSL to play the trend of rising scooter share.
Domestic scooter market share
FY14-YTD
HMCL, 19.4
Domestic motorcycle market share (%)
Suzuk i ,
0.67
Oth ers,
F Y14-YTD
2.96
Yama ha,
4.8
Su zu ki , 9.1
Others , 2.7
Yamaha,
3.04
TVS L, 5.72
BJAUT,
21.00
TVSL, 12.4
HMSI, 15.22
HMCL,
51.40
HMSI, 51.6
Source: SIAM, MOSL
December 2013
33

Automobiles
Companies
December 2013
34

16 December 2013
Thematic | Sector: Automobiles
Hero MotoCorp
BSE SENSEX
S&P CNX
20,716
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
1,6,12 Rel. Perf. (%)
6,168
HMCL IN
199.7
412.4/6.6
CMP: INR2,065
TP: INR2,680
Buy
Riding on sharply focused, differentiated brands
Focus mainly on youth segment; plans two more launches in FY15
52-Week Range (INR)2,150/1,434
1/21/3
Valuation summary (INR b)
Y/E March
Sales
EBITDA
NP
EPS Gr. (%)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
Div. Yield (%)
17.7
7.1
3.1
12.8
5.6
8.4
3.4
10.8
4.3
7.0
3.6
2014E 2015E 2016E
256.5 297.0 339.8
37.3
23.3
(1.9)
43.1
55.2
64.0
43.2
32.3
38.4
48.8
64.6
49.8
49.5
38.2
18.5
45.2
61.5
45.0
Despite a late entry, the differentiated positioning aimed at youth helps HMCL to
be the second-largest scooter player.
It plans to further strengthen the scooter portfolio with two new launches in FY15.
Capacity expansion being undertaken by 25% to 900,000 units by Jan 2014 to meet
rising demand.
This coupled with added volumes from entry into new export markets and potential
levers to improve margins, makes HMCL our top pick in the two-wheeler space.
Maintain Buy with a target price of ~INR2,680 (14x FY16E EPS).
Adj. EPS (INR) 116.8 161.7 191.5
BV/Sh. (INR) 291.2 371.5 475.9
EV/EBITDA (x) 10.0
Shareholding pattern (%)
As on
Sep-13
Promoter
39.9
Dom. Inst
8.8
Foreign
42.8
Others
8.5
Jun-13 Sep-12
52.2
52.2
9.3
6.7
30.0
32.5
8.6
8.7
Stock performance (1 year)
Focus mainly on youth segment as against competitors focus largely on family
segment:
Although HMCL was a late entrant in the scooter space, it
differentiated by positioning its products towards the youth segment, against
competitors’ focus on the family segment. While Hero Pleasure (2006 launch)
is specifically designed and positioned at women, Maestro (2012 launch) is
sharply positioned at the fast-growing yet untapped youth segment.
Two new scooter launches planned in FY15:
HMCL is preparing to further
strengthen its scooter portfolio with two new launches in FY15. The new
products are expected to be unveiled at the Auto Expo 2014 (February 2014).
To meet the growing demand, company plans to increase the scooter
production capacity by 25% to 900,000 units annually by Jan 2014.
HMCL to outgrow industry with differentiated positioning and new launches:
We believe HMCL can outgrow the scooter market by its differentiated
positioning based on customer understanding, strong reach and focused
marketing.
Volumes to pick-up driven by rural momentum, new product launches and
entry in exports:
HMCL’s volume momentum is expected to pick-up driven
by a) full benefit of good monsoon starts reflecting in 2HFY14, b) product
lifecycle turns favorable with ~15 launches (upgrades/refreshes) in October
2013 and new product launches in 1HFY15 and c) gradual ramp-up in exports
over next 2-3 years. We are factoring in for volume growth of 5%/13.4%/
12.8% for FY14/FY15/FY16 (2%/10%/12% for domestic motorcycle).
Multiple levers to margin expansion:
HMCL’s EBITDA margins are expected
to improve from FY14 levels, driven by a) no fixed royalty beginning July
2014 (~320bp in FY14) and b) potential savings driven by cost cutting initiatives
yielding 4-5pp benefit over 30-40months.
HMCL our top pick in two-wheeler space:
HMCL offers strong rural presence,
scooter market share gain and potential export ramp-up. This coupled with
multiple margin levers, we expect 28% EPS CAGR over FY14-16E (factoring in
only ~25bp accretion from cost saving initiatives). Maintain
Buy
with target
price of ~INR2,680 (14x FY16E EPS).
December 2013
35

Automobiles
In scooters, HMCL is focused mainly on youth segment as against
competitors focus largely on family segment
Although HMCL was a late entrant in the scooter space, it differentiated by
positioning its products towards the youth segment, against competitors’ focus
on the family segment.
Entered the scooter space in 2006 with launch of Hero Pleasure:
Sensing a shift in
customer preferences, company entered the scooter space in 2006 with the launch
of Hero Pleasure (100cc engine) scooter, specifically designed and positioned at
women.
Expanded portfolio in 2012 to tap demand potential from youth segment:
In 2012,
HMCL expanded its scooter portfolio with the launch of another scooter named
Maestro. With its contemporary looks and brand endorsement by bollywood actor
Ranbir Kapoor, Hero Maestro is sharply positioned at the fast-growing yet
untapped youth segment.
Two new launches planned in FY15:
HMCL is preparing to further strengthen its
scooter portfolio with two new launches in FY15. The new products are expected
to be unveiled at the Auto Expo 2014 (February 2014).
Expanding capacity by 25% to meet rising demand:
To meet the growing demand,
company plans to increase the scooter production capacity by 25% to 900,000
units annually by Jan 2014.
HMCL to outgrow industry with differentiated positioning and new launches:
We
believe HMCL can outgrow the scooter market by its differentiated positioning
based on customer understanding, strong reach and focused marketing.
HMCL estimated to grow at 10.7% CAGR, driven by scooters and exports
Dom. M/C share (%)
Dom. M/C vols.
Dom. Scooter share (%)
Dom. Scooter vols.
Total dom. vols
Export vols.
Export share (%)
Total (units)
Industry (Dom + Exports)
Underperformance
FY14E
51.2
5,322,675
19.6
687,163
6,009,838
259,056
4.1
6,268,895
16,617,468
FY20E
46.2
8,017,320
24.6
2,591,065
10,608,384
950,000
8.2
11,558,384
33,451,907
CAGR (%)
7.1
24.8
9.9
24.2
10.7
12.4
1.6
Source: MOSL
December 2013
36

Automobiles
Sharply focussed, differentiated positioning helps gain share
HMCL dom. s cooter s ha re (%)
17.4
13.3
9.7
14.4
19.3
17.2
20.1
Share of scooters on a rising trend (%)
Scooter
Motorcycl e
97
96
95
93
93
91
89
89
89
3
4
FY09
5
7
7
9
11
11
11
FY08
FY09
FY10
FY11
FY12
FY13
1HFY14
FY08
FY10 FY11
FY12 FY13 FY14E FY15E FY16E
Source: Company, MOSL
Volumes to pick-up driven by rural momentum and new product launches
Biggest beneficiary of good monsoon and expected government spending in rural
markets (being an election year), given its high dependence and dominance in
rural markets (~45% of volumes vs 35% for industry).
Product life cycle turning favorable, with 15 new offerings (upgrades/refreshes)
in October 2013 and planned new product launches in 1HFY15. Hero didn’t have
any launch since Nov-12, during which HMSI launched ~5 products.
Despite no new launches in FY14YTD, it has been able to restrict market share
loss, despite new launches from HMSI, on back of strong festive/marriage season
demand reflecting its strength in rural markets.
Export foray can support overall volume growth by 2pp p.a; to contribute
10% by FY20
Post exit from JV with Honda, HMCL is looking to export beyond Sri Lanka, Nepal,
Bangladesh and Colombia (markets where it was allowed to export by Honda). In
line with the ambition to become a global two-wheeler major, HMCL has made an
international foray in 2HFY13 covering Africa, Latin America and Central America.
To support international operations, HMCL has already set up assembly operations
in Sri Lanka and Kenya. It has plans to build 20 assembly facilities (including India)
to expand the company’s presence to 50 countries by the end of the decade.
In recent media interaction, Mr Pawan Munjal, MD, HMCL said, “We will be selling
in 50-plus countries by 2020 and produce 12 million motorcycles and scooters
every year. This will come from 20 assembly lines from inside and outside the
country.” Despite near term challenges, management maintains FY20 export
volume guidance of 1m units (10% of total volumes).
While the near term outlook looks challenging in various key exports markets,
the company is hopeful of better performance during 2HFY14. As of September
2013, it had presence in 10 countries, and plans to enter another 8 markets in
2HFY14 (four each in 3Q/4QFY14), taking total market coverage to ~18 (largely
Africa and Latin America). However, benefit of entry into new markets would be
only visible in FY15 onwards.
Entry in new export markets can improve overall growth by 2pp p.a. We estimate
exports of ~0.23m units in FY14, ~0.44m units in FY15 and ~0.53m units for FY16.
37
December 2013

Automobiles
Present already in ~12 countries currently, to rise to ~18 by end-FY14
Markets
Nepal
Sri Lanka
Distributor Partner
NGM
ABANS
Products introduced/launched
Introduced Hero Xtreme, Pleasure
Launched HF Deluxe, HF Dawn, Splendor Pro,
Splendor NXG, Super Splendor, Glamour, Passion
Pro, Karizma ZMR, Hunk, Xtreme, Achiever
Launched Hunk, Karizma, Glamour, HF Dawn,
Splendor NXG, Super Splendor, Achiever
Pleasure, Passion Pro, Glamour, Hunk, Thriller,
Karizma ZMR and Karizma R
HF Dawn
Central America
Indy Motos Group
(Guatemala, El Salvador
and Honduras)
Peru
MOTOCORP SAC
Kenya
Burkina Faso
Ivory Coast
Ecuador
RYCE East Africa
Source: MOSL, Company
Exports contribution targeted at ~10% of volumes by FY20
Exports ('000 uni ts )
Exports (% of tota l vol umes )
10
6.9
3.8
441
529
7.3
1,200
232
FY14E
FY15E
FY16E
FY20
Source: MOSL, Company
Comprehensive margin improvement project can yield 400-500bp benefit
over 30-40 months
HMCL has initiated cost rationalization programme effective April 2013 with a
team of 300 people to improve efficiencies and improve profitability of the
company. The project would be carried out over five phases spread over 30 months
(plus ~12 months for testing).
Cost management project is expected to yield 4-5pp benefit over 30-40months,
driven by a) value engineering/re-engineering of components (~65% currently
sourced from associate companies), b) outbound logistics (driven by customized
fleets & new Gujarat plant), and c) Optimizing marketing spend.
The benefit of first phase was seen in 1HFY14 largely driven by value engineering/
re-engineering of components of couple of models (entry level motorcycle and a
scooter), some modifications on outbound logistics etc.
For 2HFY14, the company has guided savings of INR600-800m with large ticket
benefit to be visible only after 12-15 months.
Overall, management expects annual savings of INR15-17b by FY18 (400-500bp of
EBITDA margins). We estimate benefit of savings of ~INR700m (~25bp) in FY15.
38
December 2013

Automobiles
Further, royalty would stop from Jun-14, resulting in annual savings of ~INR8b or
~320bp at EBITDA level.
However, it would need to invest in a) R&D (to increase from 0.4% in FY13, 0.7% in
FY14E and 1.3-1.8% in FY15), and b) investments in export markets.
EBITDA Margins to improve meaningfully from FY15
24
17
EBITDA Ma rgi ns (%)
15
Vol Gr (%)
13
5
9.5 -3
16.9
FY10
11.8
FY11
11.0
FY12
FY13
11.3
FY14E
13.9
FY15E
14.6
FY16E
13
Levers to profitability
Base Case
FY14E
FY15E
13.4
13.9
161.7
FY16E
12.8
14.6
191.5
2,680
FY17E
13.0
14.8
211.4
2,960
Volume Growth (%)
5.0
Adj EBITDA Margins (%)
11.3
EPS (INR)
116.8
TP (14x)
Cost cutting initiatives: Base case 100bp savings in FY16
Adj EBITDA Margins (%)
11.3
Implied cost savings (INR b)
EPS (INR)
116.8
EPS Upgrades (%)
TP (@ 16x)
14.4
1.5
167.1
3.4
15.6
16.3
3.4
5.7
203.9
232.1
6.4
9.8
3,262
3,714
Source: MOSL, Company
Hero MotoCorp our top-pick in two-wheelers; Buy
HMCL offers strong rural presence, scooter market share gain and potential export
ramp-up. This coupled with multiple margin levers, we expect 28% EPS CAGR over
FY14-16E (factoring in only ~25bp accretion from cost saving initiatives).
We are factoring in for volume growth of 5%/13.4%/12.8% for FY14/FY15/FY16 (2%/
10%/12% for domestic motorcycle) for Hero MotoCorp, adj. EBITDA margins of
11.3%/13.9%/14.6% (+180bps/260bp/70bp) and EPS of ~INR117/INR162/INR191 for
FY14/FY15 (v/s consensus INR109/INR143/INR165).
The stock trades at 12.8x FY15 EPSE and ~10.8x FY16E EPS. Maintain
Buy
with target
price of ~INR2,680 (14x FY16E EPS).
December 2013
39

Automobiles
EPS to grow at 28% CAGR, after 4 years of muted EPS
74
EPS
EPS Growth (%)
38.4
18.4
-10.0
112
FY10
101
FY11
119
FY12
18.5
10.1
-10.9
106
FY13
117
FY14E
162
FY15E
192
FY16E
Payout expected to remain high
Ca s h (INR/s h)
110
105
65
70
75
DPS (INR/s h)
45
60
289
FY10
153
FY11
117
FY12
175
FY13
195
FY14E
250
FY15E
332
FY16E
Source: MOSL, Company
December 2013
40

Automobiles
HMCL: Financials and Valuation
Income Statement
Y/E March
Volumes (‘000)
Volume Growth (%)
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Adj EBITDA Margin (%)
Depreciation
EBIT
Interest cost
Other Income
PBT
Tax
Effective Rate (%)
PAT
Change (%)
% of Net Sales
Adj. PAT
Change (%)
2012
6,235
15.4
233,681
21.4
34,078
14.6
11.0
10,973
23,105
213
5,756
28,647
4,866
17.0
23,781
23.4
10.2
23,781
18.4
2013
6,074
-2.6
235,827
0.9
30,991
13.1
9.5
11,418
19,574
119
5,838
25,292
4,110
16.3
21,182
-10.9
9.0
21,182
-10.9
2014E
6,380
5.0
256,544
8.8
37,291
14.5
11.3
11,432
25,859
125
6,109
31,843
8,522
26.8
23,321
10.1
9.1
23,321
10.1
2015E
7,237
13.4
296,979
15.8
43,244
14.6
13.9
5,781
37,463
125
6,735
44,073
11,789
26.7
32,284
38.4
10.9
32,284
38.4
(INR Million)
2016E
8,164
12.8
339,835
14.4
49,500
14.6
14.6
4,499
45,001
125
7,812
52,688
14,441
27.4
38,248
18.5
11.3
38,248
18.5
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Deferred Tax
Loans
Capital Employed
Application of Funds
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
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
2012
399
42,499
42,898
2,083
17,143
62,124
2013
399
49,663
50,062
1,324
3,022
54,408
2014E
399
57,755
58,154
1,324
1,900
61,378
2015E
399
73,792
74,192
1,324
-100
75,416
(INR Million)
2016E
399
94,633
95,032
1,324
-100
96,256
63,083
25,228
37,855
388
39,643
21,003
6,756
2,723
768
10,092
664
36,765
22,932
2,933
10,901
-15,762
62,124
67,355
36,645
30,710
621
36,238
28,848
6,368
6,650
1,810
13,336
683
42,008
18,733
8,876
14,399
-13,161
54,408
82,976
48,077
34,899
1,000
36,238
34,050
6,927
7,234
4,638
14,508
743
44,809
20,379
8,786
15,644
-10,759
61,378
94,976
53,858
41,117
1,000
36,238
47,548
8,019
8,374
13,500
16,794
861
50,488
23,591
10,171
16,727
-2,940
75,416
104,976
58,357
46,619
1,000
36,238
68,989
9,176
9,583
30,028
19,218
985
56,590
26,995
11,638
17,956
12,399
96,256
December 2013
41

Automobiles
HMCL: Financials and Valuation
Ratios
Y/E March
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)
Working Capital (Days)
Asset Turnover (x)
Fixed Asset Turnover
Leverage Ratio
Debt/Equity (x)
2012
119.1
18.4
132.0
214.8
45.0
43.5
2013
106.1
-10.9
120.2
250.7
60.0
65.1
2014E
116.8
10.1
132.2
291.2
65.0
64.0
2015E
161.7
38.4
190.6
371.5
70.0
49.8
(INR Million)
2016E
191.5
18.5
214.1
475.9
75.0
45.0
19.5
17.2
12.2
1.6
8.2
2.9
17.7
15.6
10.0
1.5
7.1
3.1
12.8
10.8
8.4
1.2
5.6
3.4
10.8
9.6
7.0
1.0
4.3
3.6
65.6
49.9
45.6
43.6
43.1
55.2
48.8
64.6
45.2
61.5
4
11
36
-25
3.8
5.9
11
10
29
-20
4.3
6.9
11
10
29
-15
4.2
7.8
11
10
29
-4
3.9
7.8
11
10
29
13
3.5
7.7
0.4
0.1
0.0
0.0
0.0
Cash Flow Statement
Y/E March
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
Interest Paid
Dividends Paid
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
December 2013
2012
28,647
2,807
-5,827
-6,906
698
-3,290
16,130
-5,034
13,430
8,396
-213
-24,369
-24,582
-56
393
337
2013
25,292
3,941
-6,133
-7,872
1,073
-3,800
12,500
-6,004
5,079
-925
-119
-10,444
-10,563
1,012
337
1,349
2014E
31,843
3,082
-8,522
-696
125
25,832
-7,650
0
-7,650
-125
-15,229
-15,354
2,827
1,810
4,638
2015E
44,073
3,781
-11,789
-956
125
35,234
-10,000
0
-10,000
-125
-16,247
-16,372
8,863
4,638
13,500
(INR Million)
2016E
52,688
4,499
-14,441
1,188
125
44,060
-10,000
0
-10,000
-125
-17,407
-17,532
16,528
13,500
30,028
42

16 December 2013
Thematic | Sector: Automobiles
Bajaj Auto
BSE SENSEX
S&P CNX
20,716
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
1,6,12 Rel.Perf.(%)
6,168
BJAUT IN
289.4
552/8.9
CMP: INR1,908
TP: INR2,255
Buy
Would exports make up for absence in scooters?
Asean, Brazil markets vital to sustain volume growth
52-Week Range (INR)2,229/1,656
-8/0/-16
Valuation summary (INR b)
Y/E March
Sales
EBITDA
NP
EPS Gr. (%)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
Div. Yield (%)
16.0
5.7
2.6
13.7
4.7
8.5
3.1
11.8
3.9
6.8
3.4
2014E 2015E 2016E
210.5 241.0 281.9
43.5
34.5
13.4
39.3
54.7
49.0
50.3
40.3
16.7
37.8
52.3
50.1
59.4
46.6
15.8
36.1
49.8
46.9
Adj. EPS (INR) 119.3 139.2 161.1
BV/Sh. (INR) 333.9 403.3 488.9
Bajaj exited scooters segment in 2010 to be a global motorcycle specialist. It aims
to garner a higher market share in the global motorcycle market, together with
industry leading profitability.
Company’s strategy of specialization has worked well over the past few years, with
superior profitability versus peers, despite weak motorcycle demand environment.
However, inroads into Japan-dominated Asean and Brazilian market are imperative
to maintain healthy volume growth over the long term, considering its absence
from the scooter segment.
Despite assuming 12% export volume growth, Bajaj could underperform the industry
by 3% over FY14E-20E due to absence from scooters.
Company would benefit on a) resumption in up-trading in domestic motorcycles
driven by economic and consumer sentiment recovery and b) revival in exports,
which could offset the negative of absence in scooters segment. We prefer HMCL
and TVSL to play the trend of rising scooter share.
EV/EBITDA (x) 10.4
Shareholding pattern (%)
As on
Sep-13
Promoter
62.1
Dom. Inst
8.1
Foreign
11.1
Others
18.8
Jun-13 Sep-12
62.1
61.0
9.7
11.7
9.7
10.5
18.6
16.9
Stock performance (1 year)
Bajaj exited scooters to be a global motorcycle specialist:
Faced with declining
scooter sales and the need to be a global motorcycle specialist, Bajaj exited
the scooter space in 2010. With its specialization strategy, focused approach
on motorcycles coupled with KTM and Kawasaki’s association, Bajaj aims to
garner a higher share of the global motorcycle market (currently estimated
at 10%), together with industry leading profitability.
Specialization strategy lends superior profitability despite weak demand:
Bajaj’s strategy of specialization has worked well over the past few years
and has been one of the key reasons for its superior profitability versus
peers, despite weak demand environment for motorcycles.
Inroads into Japan dominated Asean and Brazilian market imperative to
maintain healthy volume growth over long term:
While the current growth
in exports is driven by the under-developed and developing economies,
going forward Bajaj due to its association with KTM and Kawasaki plans to
aggressively enter the Japan dominated Asean (annual sales of 15m units)
and Brazil market (annual sales of 2m units). Asean markets are dominated
by Japan majors like Honda and Yamaha. Except Philippines, Bajaj’s previous
attempts into the Asean markets have been unsuccessful.
Company could underperform the industry due to absence from scooters:
Assuming a 12% export volume CAGR over FY14E-20E, Bajaj could
underperform the two-wheeler industry by 3% due to absence from the
fast-growing scooter industry.
Valuation & view:
While valuations at 14x FY15 and 12.1x FY16 EPS are
reasonable, demand recovery along with stability in competitive intensity
would be the key driver for the stock performance. Maintain
Buy
with target
price of INR2,255 (14x FY16E EPS).
December 2013
43

Automobiles
Bajaj exited scooters to be a global motorcycle specialist, with focus on
superior profitability
Faced with declining scooter sales and the need to be a global motorcycle specialist,
Bajaj exited the scooter space in 2010.
With its specialization strategy, focused approach on motorcycles coupled with
KTM and Kawasaki’s association, Bajaj aims to garner a higher share of the global
motorcycle market (currently estimated at 10%), together with industry leading
profitability.
Recent comment by Rajiv Bajaj sums up their position on scooters “Great brands
are built on the foundation of sacrifices. Making more scooters doesn’t mean
making more money. We are a specialist motorcycle company. We won’t venture
out of that easily.”
Bajaj’s strategy of specialization has worked well over the past few years and has
been one of the key reasons for its superior profitability versus peers, despite
weak demand environment for motorcycles.
However, BJAUT’s market share has been impacted as scooter has grown at 2x of
motorcycle volumes over last 5 years, as a result its domestic two wheeler market
share has shrunk by 530bp since FY08 to ~17.9% in FY13 (~15.4% in 1HFY14).
Bajaj's market share in domestic two wheeler on a declining trend
Dom. motorcycl e s hare (%)
37.0
32.0
27.0
22.0
17.0
12.0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
1HFY14
Dom. 2W s ha re (%)
Source: Company, MOSL
Exports offers significant headroom to grow, but inroads into ASEAN and
Brazil market key to maintain healthy growth
Bajaj Auto, due to its headstart in exports and well placed global alliances (with
KTM and Kawasaki), is best placed to benefit from this huge opportunity in the
international market.
While the current growth in exports is driven by the under-developed and
developing economies, going forward Bajaj due to its association with KTM and
Kawasaki plans to aggressively enter the Japanese dominated Asean (annual sales
of 15m units) and Brazil market (annual sales of 2m units).
ASEAN and Brazil markets are dominated by Japan majors like Honda and Yamaha.
Except Philippines, Bajaj’s previous attempts into the Asean markets have been
unsuccessful. Both of its alliances with KTM (for LatAm) and Kawasaki (for ASEAN)
are expected to play major role in gaining foothold in these two markets.
December 2013
44

Automobiles
In most of its existing export markets, BJAUT is the market leader and is expected
to grow in-line with the industry with limited scope of further market share gain.
BJAUT exports are predominantly to Africa and South Asia
La ti n Ameri ca
1%
40%
Afri ca
As i a & ME
Europe
1%
32%
41%
18%
FY12
47%
20%
FY13
Source: Company, MOSL
Could underperform the industry in the long term due to absence in scooters
Assuming a 12% export volume CAGR over FY14E-20E, Bajaj could underperform
the two-wheeler industry by 3% due to absence from the fast-growing scooter
industry.
However, Bajaj could benefit from:
Up-trading in domestic motorcycles driven by economic and consumer
sentiment recovery
Revival in exports, which could offset the negative of absence from scooters
segment.
Based on our estimates, we expect BJAUT motorcycle volumes to grow at 9.1%
CAGR over FY14-20E vis-à-vis industry growth (including exports) of 12.4%. It would
be critical for BJAUT to succeed in ASEAN and Brazilian markets (not factored in
our estimates) to make-up for absence in scooters.
Bajaj Auto to underperform industry growth due to lack of presence in scooters
Bajaj
Dom. M/C share (%)
Vols.
Implied dom. 2W share (%)
Export vols.
Export share (%)
Total (units)
Industry (Dom + Exports)
Underperformance
FY14E
22
2,288,022
15.7
1,286,810
36.0
3,574,832
16,617,468
FY20E
20
3,472,274
12.0
2,539,934
42.2
6,012,208
33,451,907
CAGR (%)
7.2
3.6
12.0
9.1
12.4
3.3
Source: MOSL
December 2013
45

Automobiles
Well diversified product/market mix, with limited exposure to domestic
executive level segment
Well diversified product/market mix, with 2W exports & 3W volumes contributing
27% & 21% respectively to total revenues.
Exposure upto 110cc motorcycle segment, where competitive intensity is
increasing, is only ~29% of volumes.
Exports, which are scaling up rapidly, is expected to contribute ~41% to FY14
revenues, and would benefit from alliance with Kawasaki (market access) and
KTM (access to brand, technology & markets).
Bajaj’s 3W passenger business is virtual monopoly with over 85% market share in
permit segment and ~65% market share in over all passenger segment. 3W business
enjoys margins of over 30%.
Well diversified revenues, with domestic two-wheelers contributing ~42%
Dom - 2W
7
10
14
12
9
11
21
11
Dom - 3W
7
10
19
10
Exports - 2W
7
10
18
9
7
13
21
8
51
Exports - 3W
9
11
23
8
49
Spare s a l es
10
14
27
8
42
10
14
27
7
42
58
49
54
55
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
Source: Company, MOSL
Only ~15% of EBITDA at risk due to HMSI’s focus on entry/executive level
motorcycle
Considering BJAUT’s well diversified product portfolio and market mix, we
estimate ~28% EBITDA contribution from domestic motorcycle and ~14% from
domestic entry/executive segment motorcycle (as of 1HFY14).
Exports contribute ~50% to EBITDA, where as domestic premium segment and
domestic 3W would contribute ~14%/12%.
EBITDA contribution from domestic two-wheeler business at ~28% (1HFY14)
Spa res
12%
Exports - 3W
18%
Domes ti c -
Entry/Executi ve
14%
Domes ti c -
Premi um
16%
Exports - 2W
29%
Domes ti c - 3W
12%
Source: Company, MOSL
December 2013
46

Automobiles
Margin resilience despite various adverse developments, a reflection of
business model and weaker INR
BJAUT’s maintained its profitability in 18-20% range in FY13 despite a) adverse
product mix (lower exports to high margin Sri Lanka market), reduction in export
incentives (from 5.5% to 2% effective Oct-12) and marginal decline in volumes.
Margin resilience signifies the success of its twin brand strategy as well as reflects
the inherent strength of its strategy of differentiation and deeper market
segmentation.
BJAUT, being one of the largest net exporters from India, would be one of the
biggest beneficiaries of of weak INR.
We estimate exports of ~USD1.4/USD1.6b in FY14/FY15, at USD/INR rate of 60. For
every INR1 movement, BJAUT’s margins/EPS for FY15 change by 50bps/2.7%.
EBITDA margins resilient despite pressure on volumes
EBITDA ma rgi ns (%)
30.0
34.1
20.9
13.7
14.3
13.5
21.7
19.3
19.0
18.2
(2.6)
FY10
FY11
FY12
FY13E
20.7
12.5
Vol ume Growth (%)
21.1
14.5
(9.9)
(10.5)
FY08
FY09
(5.6)
FY14E
FY15E
FY16E
Source: Company, MOSL
Valuation & view
We believe BJAUT’s lack of presence in scooter is made up with its well diversified
product portfolio, significant headstart in exports, well positioned global strategic
alliances, premium profitability and consistent step-up in dividends.
However, its decision to be a global motorcycle specialist and sacrificing
opportunity in scooter segment, would result in BJAUT missing out in strong growth
potential of the scooter segment.
We are downgrading our FY14/FY15 EPS estimates by ~2% each to ~INR119/INR139
to factor in for weak volume momentum.
While valuations at 13.7x FY15 and 11.8x FY16 EPS are reasonable, demand recovery
along with stability in competitive intensity would be the key driver for the stock
performance. Maintain
Buy
with target price of ~INR2,255 (14x FY16E EPS).
December 2013
47

Automobiles
BJAUT: Financials and Valuation
Income Statement
Y/E March
Volumes
Change (%)
Net Sales
Change (%)
EBITDA
Change (%)
EBITDA Margins (%)
Depreciation
EBIT
Int. & Fin. Charges
Other Income
Non-recurring Exp.
PBT
Tax Rate (%)
PAT
Adj. PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Deferred Tax
Loans
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
No. of Days
Sundry Debtors
Cash & Bank Balances
Loans & Advances
Others
Current Liab. & Prov.
Sundry Creditors
No. of Days
Other Liabilities
Provisions
Net Current Assets
No. of Days
Application of Funds
E: MOSL Estimates
2012
4,349,560
13.7
195,290
19.1
37,200
17.3
19.0
1,456
35,744
222
6,080
1,340
40,262
25.4
30,041
31,069
18.8
2013
4,237,151
-2.6
199,973
2.4
36,353
-2.3
18.2
1,640
34,713
5
7,955
0
42,662
28.7
30,436
30,436
(2.0)
2014E
4,000,094
-5.6
210,535
5.3
43,500
19.7
20.7
1,793
41,707
13
7,614
0
49,308
30.0
34,515
34,515
13.4
2015E
4,500,473
12.5
240,996
14.5
50,285
15.6
20.9
2,013
48,272
10
9,274
0
57,536
30.0
40,276
40,276
16.7
(INR Million)
2016E
5,153,493
14.5
281,859
17.0
59,406
18.1
21.1
2,148
57,258
10
9,357
0
66,605
30.0
46,623
46,623
15.8
(INR Million)
2016E
2,894
138,573
141,467
4,620
713
146,800
49,224
26,198
23,026
1,000
64,305
129,127
10,571
17
6,506
86,837
21,146
4,067
70,659
30,906
59
8,133
31,620
58,469
1
146,800
2012
2,894
57,517
60,411
484
975
61,870
33,961
19,143
14,817
417
48,828
46,749
6,785
16
4,228
16,538
16,227
2,970
48,941
20,031
52
7,161
21,749
-2,192
1
61,870
2013
2,894
76,126
79,020
1,151
713
80,883
38,289
20,244
18,044
2,936
64,305
39,502
6,363
14
7,676
5,589
17,741
2,133
43,903
19,796
50
6,682
17,425
-4,401
1
80,883
2014E
2,894
93,714
96,608
2,137
713
99,457
43,224
22,037
21,187
1,000
64,305
66,147
7,853
17
4,834
34,125
16,314
3,021
53,181
22,960
58
6,042
24,178
12,966
1
99,457
2015E
2,894
113,811
116,704
3,288
713
120,705
46,224
24,050
22,174
1,000
64,305
95,025
9,016
17
5,549
58,956
18,035
3,468
61,799
26,360
59
6,937
28,503
33,226
1
120,705
December 2013
48

Automobiles
BJAUT: Financials and Valuation
Income Statement
Y/E March
Basic (INR)
EPS
Core EPS
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)
Working Capital (Days)
Leverage Ratio
Debt/Equity (x)
2012
107.4
90.6
112.4
208.8
45.0
48.7
2013
105.2
83.2
110.8
273.1
45.0
49.7
2014E
119.3
98.2
125.5
333.9
50.0
49.0
2015E
139.2
113.5
146.1
403.3
60.0
50.1
(INR Million)
2016E
161.1
135.3
168.5
488.9
65.0
46.9
17.8
17.0
13.1
2.5
9.1
2.4
18.1
17.2
13.3
2.4
7.0
2.4
16.0
15.2
10.4
2.2
5.7
2.6
13.7
13.1
8.5
1.8
4.7
3.1
11.8
11.3
6.8
1.4
3.9
3.4
56.7
73.0
43.7
59.8
39.3
54.7
37.8
52.3
36.1
49.8
8
12
36
-16
13
11
34
-10
8
13
38
-17
8
13
38
-17
8
13
38
-17
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
2012
OP/(Loss) before Tax
38,829
Interest/Div. Received
3,261
Depreciation & Amort.
1,456
Direct Taxes Paid
-11,483
(Inc)/Dec in Working Capital
797
CF from Oper. Activity
32,860
(Inc)/Dec in FA+CWIP
(Pur)/Sale of Invest.
CF from Inv. Activity
Inc. / Dec.in Networth
Inc/(Dec) in Debt
Interest Paid
Dividends Paid
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Beginning Bal.
Closing Balance
E: MOSL Estimates
December 2013
-1,159
-6,557
-7,716
0
-2,001
-222
-13,420
-15,644
9,501
5,565
15,066
2013
34,713
7,955
1,640
-11,560
-8,740
24,007
-7,386
-15,477
-22,862
3,307
-262
-5
-15,134
-12,094
-10,950
16,538
5,589
2014E
41,707
7,614
1,793
-13,806
11,169
48,476
-3,000
0
-3,000
0
0
-13
-16,927
-16,940
28,536
5,589
34,125
2015E
48,272
9,274
2,013
-16,110
4,571
48,020
-3,000
0
-3,000
0
0
-10
-20,179
-20,189
24,831
34,125
58,956
(INR Million)
2016E
57,258
9,357
2,148
-18,649
2,639
52,752
-3,000
0
-3,000
0
0
-10
-21,860
-21,870
27,881
58,956
86,837
49

16 December 2013
Thematic | Sector: Automobiles
TVS Motor
BSE SENSEX
S&P CNX
20,716
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
6,168
TVS IN
475.1
25.5/0.4
56/28
10/50/32
CMP: INR54
TP: INR85
Buy
A dark horse
Well seated for scooter ride, good product pipeline; favorable risk-reward
Valuation summary (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
10.1
1.8
6.4
2.8
7.2
1.5
4.6
3.7
5.7
1.3
3.4
4.7
2013 2014E 2015E
78.5
4.6
2.5
5.3
39.9
29.8
19.2
19.3
30.2
93.3 106.9
5.9
3.6
7.5
40.4
35.0
23.1
24.3
31.3
7.1
4.5
9.4
25.9
41.5
24.6
26.9
31.0
TVSL is well positioned to benefit from the scooterization wave with its complete
scooter porfolio. Over the next 12-18 months, TVSL plans to launch multiple products
across segments to reinforce and fill gaps in product portfolio.
Operating leverage and mix to drive margins from 5.8% in FY14E to 6.7% in FY16E.
EBITDA losses in Indonesian operations continue to reduce. Any further clarity (success
of recent launch or closur e of operations) could also act as a re-rating trigger.
Expect earnings CAGR of 33%, FCF of 24.8% over FY14E-16E with return ratios (RoE)
improving from 19.2% in FY14E to 24.6% in FY16E.
Initiate coverage with a Buy rating and target price of INR85. We value TVSL at 9x
FY16E standalone EPS.
Shareholding pattern (%)
As on
Sep-13 Jun-13 Sep-12
Promoter
57.4
57.4
57.4
Dom. Inst
Foreign
Others
18.3
2.9
21.4
18.1
3.0
21.5
18.3
1.7
22.6
Stock performance (1 year)
TVS Mo tor
S ens ex - R ebas ed
60
50
40
30
20
TVSL is well positioned to benefit from the scooter ride:
With the recent
launch of Jupiter, TVSL has the complete range of scooters, with product
across every sub-segment (women, unisex, men). Response to Jupiter has
been strong, with a waiting period of three months in non-South markets
(South launch, 60% of TVSL scooter market, expected in 4QFY14). Upcoming
launch of Scooty Zest (110cc engine, currently offering 90cc variant) will
further strengthen its positioning in the women's scooter space. Expect
scooter volumes to register a CAGR of 19.5% over FY14E-16E driven by product
actions, capacity ramp-up and robust scooter industry growth.
Strong product pipeline to reinforce, fill gaps in portfolio:
Limited product
actions were the key reason for significant market share loss from 22.3% in
FY03 to 12% in 1HFY14. Unlike the past, TVSL has a strong product pipeline
and plans to launch a product every quarter, including two new executive
motorcycles and diesel three-wheeler.
Success of new launches could give disproportionate gains given wide
distribution network and low base:
Due to its widespread distribution
network (second best to Hero Moto) and low base, success of any one or two
launches could drive disproportionate gains in market share and volumes.
Expected recovery in South from 4QFY14 to drive cyclical recovery in volumes:
TVSL has high exposure to South/Tamil Nadu with 56%/33% of its FY13 volumes
(v/s industry share of 31%/11%) respectively. With a favorable monsoon,
adequate water levels in reservoirs and reducing power deficit, recovery in
demand from southern market is expected to drive strong volume
improvement from 4QFY14. New launches, expected recovery in South (56%
of volumes) coupled with robust 19.5% CAGR in scooter volumes to drive
13.2% CAGR in overall volumes over FY14E-16E
Sale of non-core investments coupled with healthy cash from operations to
transform the company into net cash:
Healthy cash from operations (FCF
CAGR of 24.8% over FY14E-16E) coupled with sale of non-core investments
would transform the company into net cash by FY16E from net debt of INR6.2b
50

TVS Motor
in FY13. TVSL recently sold its majority stake in its energy venture thereby
reducing consolidated debt by INR2.6b.
EBITDA losses in Indonesian operations reduce:
Recent launch of Skubek TVSL
Dazz
(automatic transmission step-thru, 61% of the market) could improve
company's Indonesia performance. We, however, conservatively factor annual
EBITDA losses and incremental investments of INR500m over FY14E-16E (v/s
FY13 EBITDA loss of INR375m and NIL investments in FY13). Total investments
would increase from INR4.7b in FY13 to INR6.2b by FY16E.
BMW Motorrad tie-up to give additional revenue stream and technological
edge:
We believe this tie-up would give TVSL an additional revenue stream in
the form of contract manufacturing for BMW Motorrad. Moreover, it would give
an aspirational value to TVSL products, particularly for its premium products.
TVSL would invest EUR20m over CY13-15 with first product expected to be
launched by CY15-end. Due to inadequate details, we have not factored the
P&L implications, though ave covered the investment requirements on a
conservative basis.
Valuation and view: Risk-reward favorable; bull case returns could be 80%
Considering well positioned scooter portfolio, robust product pipeline coupled
with possibility of disproportionate gains on new launch success, we believe
risk-reward is favorable.
Expect earnings CAGR of 33% over FY14E-16E driven by volume CAGR of 13.2%,
margin improvement of 5.8% to 6.7% by FY16 and reduction in interest cost.
Initiate coverage with a Buy rating and target price of INR85. We value TVSL at
9x FY16E standalone EPS.
Key risks:
1) Failure of new launches, 2) higher than estimated cash losses in
Indonesian operations, 3) Higher than expected investments outside standalone
business.
16 December 2013
51

TVS Motor
Story in charts
Significant market share loss over last 10 years due to
limited product actions compared to peers
Expected recovery in South to benefit TVSL considering
its high exposure (56% of vols.) versus industry (31%)
New launches, strong scooter growth and recovery in
South to drive volume CAGR of 13.2% over FY14E-15E
Unlike past, TVSL has a robust product pipeline over the
next 12-18 months, including two new motorcycles
New launch success could give disproportionate gains
given wide network and low base
Strong 16.7% CAGR in revenues driven by volume growth
of 13.2% CAGR and realization increase.
Significant market share loss over last 10 years
Domestic 2W share (%)
Robust product pipeline over 12-18 month (indicative)
Timeline Product
2QFY14 Jupiter
4QFY14 Jupiter
4QFY14
4QFY14
1QFY15
1QFY15
1HFY15
Comments
Launch in non-South states
Launch in Southern states
(60% of TVSL scooter market)
Scooty Zest 110cc engine as in Wego, Jupiter
Star City
Product upgrade (all-new platform)
Diesel 3W Diesel segment constitute 65% of three-
wheeler market
Victor
To share platform with
Star City upgrade model
4-stroke
To improv e fuel efficiency signific a ntly
Moped
Expected recovery in South 4Q onwards beneficial to TVSL (%)
Wide distribution to be supplemented with new launches
No rth
Ea st
We st
Sout h
31
56
34
22
9
13
TVS Motor
13
22
Ind ust ry
Hero Moto
TVS Motor
Ba jaj Auto
HMSI
No. of dealers
900
850
650
700
Expect volume CAGR of 13.2% over FY13-15E
To tal vol umes (' 000 u ni ts)
15.2
11.3
8.2
4.1
2,032
‐7.5
2,198
FY12
FY13
2,116
FY14E
2,439
FY15E
2,713
FY16E
Growth (%)
Strong 16.7% CAGR in revenues led by volume growth
Net sales (INR m)
44.1
106,858
93,289
62,880
71,415
13.6
-1.1
FY11
FY12
FY13
FY14E
FY15E
FY16E
52
Growth (%)
70,650
78,524
18.8
11.1
14.5
16 December 2013

TVS Motor
Story in charts
Expect margins to improve on higher volumes and better
mix
Return ratios to improve with higher revenue growth
and better profitability
High cash from operations, limited investments outside
standalone business to transform into net cash company
PAT growth to be higher with better margins and lower
interest cost
FCF to register a CAGR of 24.8% over FY14E-16E despite
high capex
EBITDA losses on a reducing trend in Indonesia, further
clarity (on closure of operations) a re-rating trigger
Higher volumes and better mix to drive margins
6.6
EBITDA ma rgi n (%)
6.2
5.8
6.7
Higher PAT growth with better margin, lower interest cos t
PAT (INR m)
39.9
26.3
Growth (%)
40.4
25.9
5.8
(27.3)
2,491
1,810
FY13
2,532
F Y14E
3,555
F Y15E
4,476
F Y16E
FY12
FY13
FY14E
FY15E
FY16E
FY12
Return ratios to improve with better profitability
RoCE (%)
23.0
19.2
15.1
19.8
19.3
24.3
26.9
RoE (%)
23.1
24.6
FCF to register a CAGR of 24.8% over FY14E-15E
CFO (INR m)
4,440
2,672 3,303 2,536
Cape x (INR m)
5,232
3,278
FCF (INR m)
6,569
6,315
5,015
4,756
15.7
‐767
‐1,768
‐1,953
FY13
FY14E
‐1,559
FY15E
‐1,554
FY16E
F Y12
FY13
F Y14E
FY15E
FY16E
FY12
High FCF to transform into net cash company by FY16E
Net d ebt (INR m)
571
480
8,181
6,170
3,886
48
FY12
FY13
FY14E
FY15E
1,289
‐1,318
17
FY16E
198
In terest co st (INR m)
EBITDA losses reducing in Indonesia (INR m)
FY10
FY11
FY12
FY13
19,000
-17.4
1,000
-375
-37.5
-245
4,742
38.7
Sales volumes (units)
15,000 19,800 23,000
Growth (%)
32.0
16.2
Revenues
683
854
1,074
EBITDA
-642
-584
-490
EBITDA Margin (%)
-94.0
-68.4
-45.6
PAT
-1,017
-623 -1,124
Cumm. Investments
2,928
3,524
4,742
% of S/A Net Worth
33.8
35.3
40.5
FY13 post USD16.7m gain on sale of surplus land
16 December 2013
53

TVS Motor
Stretched R&D impacted TVSL’ market share
Limited launches, product specific issues, shift in market preference for bigger
scooters significantly dented its market position
Constrained R&D bandwidth, post split with Suzuki in 2001, led to inadequate product
actions in the past.
Despite launching motorcycles at par on technology with peers over the last three to five
years, it suffered due to product specific issues.
Shift in market preference for bigger/higher engine capacity scooter impacted its share
in scooters.
"R&D handled too many
projects at the same
time.''- Mr KN
Radhakrishnan,
President, TVSL in an
interview with Business
Today in April 2008
Constrained R&D bandwidth, post split with Suzuki in 2001, led to inadequate
product actions in the past:
During the early phase of ramping up its R&D capabilities
(post split with Suzuki in 2001), TVSL had spread itself too thin. At one point, the
R&D team was working on five projects that were diverse in terms of segments
(entry, executive and premium motorcycles), geographies (a step-through model
for the Indonesian market) and a three-wheeler. This constrained TVSL’ R&D
bandwidth which resulted in relatively lower new launches/timely upgrades of
existing successful products like
Victor.
Despite launching motorcycles at par on technology with peers over the last 3-5
years, it suffered due to product specific issues:
For instance,
Jive
(110cc auto-
clutch motorcycle) was a technologically innovative product. However, it failed to
find acceptance among customers. Similarly,
TVS Flame
(aggressive styling with
‘twin-spark-plug’ technology) lost its momentum due to the long drawn legal
battle with Bajaj Auto (which TVSL won in the Supreme Court in 2009).
Shift in market preference for bigger/higher engine capacity scooter impacted its
share in scooters:
TVSL was the second largest player in the scooter segment, with
26.6% share in FY06. How ever, its product offering in scooters was entirely
dependent on
Scooty
brand (only 70cc variant then). With launch of
Hero Pleasure
in 2006 (with a bigger 100cc engine) coupled with rising preference for family
scooter (due to universal appeal), TVSL lost significant market share in scooters.
Significant decline in market share over the years…
Domestic 2W share (%)
...Primarily due to absence in the executive motorcycle
segment (constitutes over 60% of volumes)…
Dom. Motorcycl e sh are (%)
15.3
19.2
12.9
16.4
12.9
12.9
8.7
6.7
7.9
7.0
6.2
5.5
Sour ce: Company, MOSL
16 December 2013
54

TVS Motor
…coupled with preference shift for bigger/family segment...
S ma l l scoo ters
Large scoo ters
...impacted its share in scooters too
Dom. Sco oters sha re (%)
25.7
21.4
26.6
23.7
17.9
14.7
20.9
23.8
20.5
21.5
19.4
57
57
58
70
74
72
15.8
43
43
42
30
FY12
26
F Y13
28
FY14YTD
F Y09
F Y10
FY11
Sour ce: Company, MOSL
TVSL’ new model introductions over 10 years much lower than competition
Compared to major competition in the two-wheeler space, the frequency of new
product launches has been relatively lower from TVSL. Moreover, as mentioned above,
due to its constrained R&D bandwidth, company was not able to sustain the momentum
of successful products like
Victor
due to absence of timely upgrade/refreshes.
TVSL’ launches were few and far compared to competition (motorcycles)
"Victor was a good first
attempt. It did well
initially before we
realised that durability of
certain parts was not
good enough,'' - Mr Vinay
Harne, Senior Vice-
President (R&D) in an
interview with Business
Today in April 2008.
TVS Motor
2013
Hero Moto
2012
Phoenix
Passion XPro,
Ignitor
Impulse
2011
2010
2009
Bajaj Auto
Discover 125T,
100M, 100T,
KTM 390
Pulsar 200NS,
Discover 125ST,
KTM 200
Discover 125
HMSI
Dream Neo
Dream Yug a,
CBR150R
CBR250R
CB Twister
Jive, Max 4R
Pulsar 135,
XCD 135,
Discover 100
Platina 125,
Discover 135
Hunk
XCD 125,
Pulsar 220,
Pulsar 200
Platina
CD Deluxe,
Discover 110,
Achiever, Super Avenger
Splendor, Glamour
Ambition
KT 100, Discover
CD Dawn,
Wind 125
Karizma
Dawn, Ambition
Passion, Joy
Elimina t o r,
Pulsar, Caliber
16
10
63
26
11
42
2008
2007
Flame
Star
CBF Stunner
2006
2005
Apache
CB Shine
2004
2003
2002
2001
2000
No. of models
Continuing model
Continuing model (%)
16 December 2013
CB Unicorn
Centra
Victor, F iero
9
3
33
8
8
100
Source: MOSL, Company
55

TVS Motor
Unlike past, TVSL has strong product pipeline
Well seated for the scooter ride
Common platform strategy to support series of new launches; TVSL plans to reduce the
platforms to two or three. This would improve the time to market, product quality and
dur ability, coupled with be tter profitability.
Plans to launch a product every quarter over the next 12-18 months. This will help to
strengthen its current offerings and fill gaps in the portfolio.
Given widespread distribution network and low base, successful product actions could
drive disproportionate gains in market share and volumes .
With the recent launch of Jupiter, TVSL has the complete range of scooters, with product
across every sub-segment. Management expects scooter volumes to increase to 55,000-
60,000 units in 4QFY14 v/s ~39,000 in 2QFY14.
TVSL's upcoming Scooty
upgrade will share the
same 110cc engine as
Wego and Jupiter.
Similarly, the new Star
City (all-new platform)
and Victor motorcycle
would share the same
platform, stated a West-
based TVSL Dealer
Common platform strategy to support series of new launches:
Historically, TVSL had
multiple platforms across its two-wheeler portfolio. Now, it has adopted a common
platform strategy and plans to reduce it to two to three common platforms straddling
across segments. This would enable the company to quicken product introductions,
timely upgrades/refreshes, coupled with associated benefits of margin
improvement led by higher commonality of parts/consolidation of supplier base.
Plans to launch a product every quarter,
including two executive motorcycles,
Scooty Zest
(with 110cc engine) and diesel three-wheelers. Multiple product actions
will strengthen its current offerings and fill gaps in product portfolio.
Robust product pipeline over the next 12-18 months (Indicative list)
Timeline
2QFY14
4QFY14
4QFY14
4QFY14
1QFY15
1QFY15
1HFY15
Product
Jupiter
Jupiter
Scooty Zest
Star City
Diesel 3W
Victor
4-stroke Moped
Comments
Launch in non-South states
Launch in Southern states (60% of TVSL scooter market)
110cc engine as in Wego, Jupiter
Product upgrade (all-new platform)
Diesel segment constitute 65% of three-wheeler market
To share platform with Star City upgrade model
To improv e fuel efficiency signific a ntly
Source: Compan y, Industr y, MOSL
"TVS was slower in
launching the product for
the last three years,
because we invested the
time on quality. Going
forward, every quarter
we will introduce one
new product," - Venu
Srinivasan, CMD, TVSL
New launches to fill gaps in product portfolio
BJAUT
Scooter
-
HMCL
Pleasure,
Maestro
HMSI
Activa,
Dio,
Aviator
-
Dream Neo,
Dr eam Y uga,
Shine
Unicorn,
Trig ger,
CBR150R,
CBR250R
-
TVS
Scooty,
Wego,
Jupiter*
Star City,
Star Sports
Phoenix,
Victor**
Apache
Motorcycle
Economy
Executive
Platina
Discover (100cc,
125cc, 150cc)
Pulsar,
KTM,
Kawasaki
CD Deluxe
Splendor,
Passion,
Glamour
X-treme,
Hunk,
Karizma
Premium
Moped
-
-
*Recently launched, ** Upcoming launch
16 December 2013
XL Super
Sour ce: Company, MOSL
56

TVS Motor
Victor re-launch should
strengthen TVSL's
presence in executive
segment i.e in ~45% of
the domestic two-
wheeler market
Given widespread distribution network and low base, success of new launches
could drive meaningful volume rise:
TVSL has a wide reach with over 850 dealers,
second best only to market leader Hero MotoCorp (~900 dealers) and much ahead
of Bajaj (~650 dealers) and HMSI (~700 dealers). Success of new launches could
give huge fillip to market share and volumes considering low base.
Recent launch of
Jupiter
scooter completes the scooter portfolio:
To strengthen its
presence in the executive motorcycle segment, TVSL had launched
Phoenix
125cc
motorcycle in September 2012. With recent
Jupiter
(110cc scooter) launch, TVSL has
a complete scooter portfolio. The scooter has been launched in non-South market
and has received strong response with waiting of thee months. Launch in South is
expected in January 2014 (coinciding with
Pongal
festival). Management expects
scooter volumes to increase to 55-60,000 units in 4QFY14 v/s ~39,000 in 2QFY14.
TVSL plans to launch two executive motorcycles; recent
launch of
Phoenix
motorcycle has been received well
TV S: Segme nt-wi se moto rcycl e marke t sh are (%)
20.1
Executive segment is the largest in motorcycles
with over 60% volume share
Segmen t-wi s e motorcycl e sh are o f i ndus try
vol s (%)
63
7.3
1.6
Eco nomy
Executi ve
Premi um
18
Econ omy
Executi ve
19
Premi u m
Sour ce: Company, MOSL
Launch of new
Scooty Zest
(with 110cc engine) to strengthen
presence in the small segment, while production ramp-up in
Jupiter
to boost market share in bigger/family segment
26.5
TVS: Segment-wise scooter market share (%)
TVSL network second best only to market leader
Hero Moto
No. of dealers
900
850
650
700
7.2
9.73
Apr-Aug 2013
(b efore Jupi ter)
Smal l
Se pt-Oct (after
Jup i ter)
He ro Moto
TVS Mo to r
Baja j Auto
HMSI
Bi gger/Fami l y Se gment
Sour ce: Company, MOSL
16 December 2013
57

TVS Motor
TVS
Scooty
aimed at female drivers
(currently 70cc, 110cc engine variant
launch in Jan-14)
TVS
Wego
positioned as
unisex product (110cc engine)
TVS
Jupiter
targeted for male
riders (110cc engine)
With the recent launch of Jupiter, TVSL has the complete range of scooters, with product across
every sub-segment (women, unisex, men)
Sour ce: Company, MOSL
16 December 2013
58

TVS Motor
Expected recovery in South to drive volumes
TVSL derived 56%/33% of its FY13 volumes from South/Tamil Nadu
Consumer sentiments in southern region, particularly Tamil Nadu, have been weak over
the last couple of years due to drought and major power shortage which impacted
industrial activity and small-scale industries. This had impacted TVSL’ volumes, particularly
its mopeds.
Going forward, income levels and consequent sentiments (mainly in rural belts) are
expected to improve with favorable monsoon, adequate water levels in reservoirs and
improvement in power availability.
TVSL has a high exposure to the southern region with 56% of its FY13 volumes v/s
industry exposure of 31%. Expected recovery in demand in southern region from 4QFY14
onwards would benefit TVSL given its high exposure
Southern region, particularly Tamil Nadu, has performed relatively weak:
Consumer sentiments in the southern region, particularly Tamil Nadu, have been
weak over the last couple of years due to a drought and major power shortage
which impacted industrial activity and small-scale industries. Given its high
exposure to the southern region, TVSL’s volumes, mainly moped sales, were
impacted.
Among south, exposure to Tamil Nadu is the highest (%)
TVSL derived 56% of its FY13 volumes from south (%)
North 
Ea s t 
Wes t 
31
56
34
22
9
13
TVS Motor
13
22
Indus try
South 
Source: Industry, MOSL
Tamil Nadu provide almost half of moped volumes…
FY13 State-wise sales break-up (%)
Others , 21
...weak sentiments in Tamil Nadu impacted moped sales
Growth YoY (%)
18.7 19.4
10.2
30.8
23.0
11.8
6.2
0.8
UP, 7
Tami l Nadu,
47
‐0.8
4.9
‐6.7
Andhra
Pradesh,
15
‐9.7
Karnataka, 9
Source: Industry, Company , MOSL
16 December 2013
59

TVS Motor
Favorable monsoon and better power availability to drive recovery 4QFY14
onwards:
Going forward, income levels and consequent sentiments (mainly in
rural belts) are expected to improve with favorable monsoon, adequate water
levels in reservoirs and improvement in power availability.
Expected recovery in South to drive volumes, given high exposure:
TVSL has a
high exposure to the southern region with 56% of its FY13 volumes v/s industry
exposure of 31%. In the southern region, exposure to Tamil Nadu, particularly for
scooters and mopeds at 33% and 47% respectively, is higher.
Power deficit trend improves in southern region (%)
South
20
15
10
5
0
Al l Indi a
Favorable monsoon across regions
Source: Industry, India Me teorlogical department, CEA
Product actions and recovery in South to drive 13% CAGR in
two-wheeler volumes over FY14E-15E
Two-wheel e rs (' 000 u ni ts)
Growth (%)
14.9
11.1
8.3
2.3
2,158
1,983
2,028
-8.1
F Y12
FY13
F Y14E
FY15E
F Y16E
2,331
2,590
Expect scooters to grow at strong rate driven by ramp-up
of
Jupiter
coupled with new
Scooty Zest
launch
FY12
FY13
FY14E
FY15E
FY16E
Mo torcycl es
Scooters
Mop eds
Sour ce: Company, MOSL
16 December 2013
60

TVS Motor
Immense export opportunity for three-wheelers
Launch of diesel variants and new permits to drive domestic recovery
Our industry interactions indicate that the three-wheeler export opportunity is immense,
with estimated annual market size of 0.9m units (Global market size of 1.5m units).
TVSL’ three-wheeler export volumes have increased by over 150% YTD FY14 driven
primarily by strong performance of the African markets (~75% of its volumes).
Launch of diesel variants coupled with new permits issuance to drive recovery in domestic
three wheeler volumes.
TVSL plans to increase capacity by 25% to 10,000 units per month to accommodate high
export growth and diesel variants launch in domestic market.
Expect three-wheeler volumes to register a CAGR of 18.5% over FY14E-16E (1HFY14
growth of 150%) driven by continued growth in exports and recovery in domestic volumes.
Three-wheeler is a high margin business. Bajaj Auto is estimated to have over 30% EBITDA
in three-wheelers. Even a smaller player like Atul Auto enjoys double digit margin (FY13
EBITDA margin of 11.6%) and over 30% return ratios.
Export markets for three-
wheelers primarily
include developing and
under-developed
countries like Africa
Three-wheeler export opportunity is immense to developing/under-developed
economies:
Our industry interactions indicate that the three-wheeler export
opportunity is immense, with estimated annual market size of 0.9m units. Export
markets for three-wheelers primarily include developing and under-developed
countries like Bangladesh, Sri Lanka, African countries and Latin American countries.
Demand from Africa drives robust growth in exports:
TVSL’ three-wheeler export
volumes have increased by over 150% YTD FY14, driven primarily by African markets
(~75% of its volumes). Increase in export volumes has been primarily through a
combination of entry into new markets, offering competitive pricing together with a
better product.
Launch of diesel three-wheeler to drive recovery in domestic volumes:
Diesel three-
wheeler segment constitutes a bigger chunk in the domestic three-wheeler market,
with 65% share. Of this, ~15% of the market consists of smaller diesel three-wheelers.
TVSL plans to enter this segment in 4QFY14/1QFY15. Company has already started selling
diesel three-wheelers in Kerala on a trial basis. Our industry interactions indicate that
TVSL plans to double sales in the domestic market, with the availability of diesel variants.
Diesel segment constitutes 65% of the 3-wheeler market
Petrol /
al te rnate
fu el
se gment,
35
Strong export growth, dieselvariant to drive domestic recovery
Dome sti c gr. (%)
Exports gr. (%)
150
43
34
6
Di ese l
s egmen t,
65
(34)
FY12
(33)
FY13
1HF Y14
16 December 2013
Source: MOSL
61

TVS Motor
Diesel three-wheeler
segment constitutes a
bigger chunk in the
domestic three-wheeler
market, with 65% share
Capacity expansion to 10,000 units:
Company is constrained by capacity, which currently
stands at 8,000 units per month. It plans to increase capacity to 10,000 units a month.
This would accommodate higher demand from exports coupled with ramp-up in
domestic volumes, driven by launch of diesel variants.
Three-wheeler is a high margin business:
Bajaj Auto (which is also largely into petrol/
alternate fuel segment) is estimated to achieve over 30% EBITDA on its three-wheeler
sales. A relatively smaller player like Atul Auto (FY13 annual sales of 32,000 units) also
enjoys double digit margin (FY13 EBITDA margin of 11.6%) and over 30% return ratios.
Expect 3Ws to register a CAGR of 18.5% over FY14E-15E
3W vol umes (uni ts )
78.7
108,050
23.6
-0.2
49,190
39,792
FY12
FY13
FY14E
FY15E
FY16E
87,895
22.9
14.1
123,325
Gro wth (%)
Share of high margin 3Ws to increase
Vo l ume s (%)
9.2
6.3
4.6
1.8
2.1
3.6
3.8
3.9
Revenu es (%)
9.9
10.2
FY12
FY13
FY14E
FY15E
FY16E
Source: MOSL
16 December 2013
62

TVS Motor
Operating leverage and better mix to drive margins
Upside risk exist with enhanced competitive position and better pricing power
Weak brand acceptance (due to product failure earlier) and consequent low volumes
resulted in significantly higher marketing spends and lower margins compared to peers.
Operating leverage benefits coupled with better gross margins on improved mix (higher
three-wheeler share) to drive margin improvement from 5.8% in FY13 to 6.7% in FY16E.
EBITDA CAGR of 24.8% (FY14E-16E) on revenue CAGR of 16.7% led by margin increase.
Success of new launches could drive considerable improvement in brand acceptance,
competitive positioning and volumes due to wide distribution network and low base.
Any improvement in competitive positioning and consequent narrowing of pricing gap
versus peers provides significant upside risk to our margins (currently not factored in).
Weak brand acceptance and consequent low volumes resulting in significantly higher
marketing spends:
Over the years, due to lack of successful product introductions,
TVSL brands (mainly in urban markets) have been hugely impacted. This resulted in
heavy marketing spends to drive volumes and thus is a constant strain on profitability.
…high marketing spends the key reason, coupled with high
Despite similar gross margins, EBITDA margin lower than peers… employee cost
and low
volumes
FY13 gro ss margi ns (%)
27.9
26.2
FY13 EBITDA margi ns (%)
28.0
TVS Mo tor
5.8
3.1
Hero Moto
6.5
Bajaj Auto
4.6
1.4
2.2
3.7
1.6 1.3
0.9
1.3
2.0
2.4
3.9
18.2
9.5
5.8
1.3
0.6
0.5
3.5
TVS
He ro
Baja j
Sour ce: Company, MOSL
TVSL’ recently-launched
product
Jupiter
(110cc
scooter) has been priced
at ~10% to market leader
Honda Activa
despite
offering higher features.
Success of certain model introductions could drive a turnaround:
The success of certain
model introductions could drive significant improvement in brand acceptance,
competitive positioning and consequent volumes due to TVSL’ low volume base and
wide distribution network.
Operating leverage and better mix to drive margins:
Higher volumes coupled with
better gross margins on improved mix (higher three-wheeler share) to drive margin
rise from 5.8% in FY13 to 6.7% in FY16.
Any improvement in competitive positioning provides upside risk to margins:
TVSL
has been generally aggressive in pricing the products due to its weak brand equity.
For example, the recently-launched product
Jupiter
(110cc scooter) has been priced
at ~10% to market leader
Honda Activa,
despite offering higher features. Improvement
in competitive positioning could lead to narrowing of pricing gap versus peers and
key driver for margin improvement (current not factored in our estimates).
16 December 2013
63

TVS Motor
Total volumes to register CAGR of 13.2%
Total vo l ume s (' 000 u ni ts)
15.2
11.3
8.2
4.1
2,032
-7.5
2,198
FY12
FY13
2,116
FY14E
2,439
FY15E
2,713
FY16E
Growth (%)
Product mix to improve with higher 3W, lower mopeds
Moto rcycl es
Thre e-wheel ers
10.6
6.3
22.2
20.7
40.1
Scoote rs
Spa re pa rts
10.9
9.2
18.0
23.3
38.6
10.5
9.9
17.2
25.0
37.4
Mop eds
10.6
10.2
16.7
25.6
36.9
FY13
FY14E
FY15E
FY16E
Sour ce: Company, MOSL
Higher volumes and better mix to drive EBITDA margin increase from 5.8% to 6.7% in FY16E
6.6
EB ITDA margi n (%)
6.2
6.7
5.8
5.8
FY12
FY13
FY14E
FY15E
FY16E
Sour ce: Company, MOSL
16 December 2013
64

TVS Motor
EBITDA losses reduce in Indonesia operations
Further clarity (on closure of operations) could also act as a re-rating trigger
Indone sia is the third largest two-wheeler market globally. Considering the size and
gr owth opportunity, TVSL entered Indonesia in FY07.
Unlike India, Indonesian market is largely dominated by step-thrus. Moreover c ompetitive
,
intensity is high, with over 90% share held by Honda and Yamaha combined.
Given dominance of Japanese majors coupled with significant market shift towards Skubek
segment in a few years time, TVSL continues to make cash losses.
Entry into Skubek segment in FY14 (constituting 61% of market) is expected to improve
performance. Management expects cash break-even by FY15-end.
However, we conservatively estimate annual cash losses and incremental investments of
INR500m over FY14E-15E.
Indonesia is the third-
largest two-wheeler
market globally, after
China and India
TVSL entered Indonesia in FY07 eyeing size, growth opportunity
Indonesia is the third-largest two-wheeler market globally, after China and India.
Considering the size and healthy growth potential, company entered Indonesia in
FY07 through its wholly-owned subsidiary PT TVS Motor Company Indonesia, with a
manufacturing facility and an annual capacity of 300,000 units.
Investments in Indonesia are held indirectly through TVS Motor Company (Europe)
B.V. and TVS Motor (Singapore) Pte Ltd.
Indonesian market dominated by step-thrus; over 90% of market share
held by Honda and Yamaha
Unlike the Indian market
where motorcycle sales
form a sizeable part, the
Indonesian market is
largely dominated by
step-thrus
Unlike the Indian market where motorcycle sales form a sizeable part, the Indonesian
market is largely dominated by step-thrus. Moreover, the Indonesian market is
dominated by Japanese players, Honda and Yamaha, holding over 90% of the market
share.
TVSL’ losses continue due to Japanese majors, preference for Skubeks
Company’s addressable market declined sharply (to 27% from over 90% in FY04) as
demand shifted to automatic transmission step-thrus called Skubeks, which provided
convenience and comfort comparable to the mileage and performance of geared
step-thrus called Bebeks. Until recently, TVSL was present only in the Bebek segment.
Skubek as a category increased to 61% in FY13 from almost nil in FY04.
Moreover, given the dominance of Japanese majors along with the significant market
shift for Skubeks in a few years time, TVSL continues to make losses in the Indonesian
operations, thereby requiring continuous investments to fund the cash losses.
Financials: Indoensia operations (INR m)
FY10
FY11
FY12
FY13
Sales volumes (units)
15,000
19,800
Growth (%)
32.0
Revenues
683
854
EBITDA
-642
-584
EBITDA Margin (%)
-94.0
-68.4
PAT
-1,017
-623
Cumm. Investments
2,928
3,524
% of S/A Net Worth
33.8
35.3
FY13 PAT post USD16.7m gain on sale of surplus land
23,000
19,000
16.2
-17.4
1,074
1,000
-490
-375
-45.6
-37.5
-1,124
-245
4,742
4,742
40.5
38.7
Sour ce: Company, MOSL
65
16 December 2013

TVS Motor
Management guided cash break-even by FY15-end; cash losses reduce
FY13 performance was
boosted by a surplus land
sale for USD23.4m, which
led to a one-time profit
of USD16.9m
Average realizations in the Indonesian market are high at USD1,000/unit
(compared to USD700/unit in India).
Considering the high realizations and consequent high gross margins, as per
management, the Indonesian operations would break even with monthly sales of
5,000 units (v/s current monthly sales of ~2,000 units).
TVSL introduced a new Skubek
TVS Dazz
(automatic transmission step-thru) in
FY14. Hence, it expects monthly volumes and financial performance to improve.
Also, it plans to ramp up the dealer network to 150 by FY14-end (from 100 in FY13)
and tie up with multi-finance companies to leverage retail finance and increase
sales during FY14.
TVSL plans to use the Indonesian base to export to Asean countries.
Indonesian operations’ EBITDA losses reduce
EBITDA losses in the Indonesian operations have been on a reducing trend, with
cost control measures.
For FY13, TVSL Indonesia delivered a better performance with EBITDA loss reducing
to INR375m v/s INR490m in FY12, despite volumes declining by ~17%.
However, profits were boosted by a surplus land sale for USD23.4m, which led to
a profit of USD16.9m.
Factor cash losses, investment of INR500m annually over FY14E-16E
Due to the dominance of Japanese majors and weak historical performance, we
factor annual cash losses and investments of INR500m over FY14E-16E.
Any further clarity (success of recent launch or closure of operations) could also
act as a re-rating trigger.
16 December 2013
66

TVS Motor
BMW Motorrad tie-up: Largely a contract manufacturing
opportunity
In April 2013, TVS Motor and BMW Motorrad signed a long-term technology co-
operation agreement to develop and produce a new series of sub 500cc
motorcyclesto be sold through their own distribution network and under their own
brand.
In April 2013, TVS Motor and BMW Motorrad signed a long-term technology co-
operation agreement to develop and produce a new series of sub 500cc motorcycles
to be sold through their own distribution network and under their own brand.
Broad contours of the deal:
Jointly develop sub 500cc premium motorcycles. Each vehicle would have two
derivatives for both OEMs, one for TVSL and other for BMW.
BMW’s variant is expected to have premium technology and features, while
TVSL’s counterpart is expected to cater to the affordable segment positioned
above the current offering,
Apache.
Individual products would be sold through their own distribution channels in
India and across the globe and under their respective brand.
Manufacturing would be done entirely by TVSL.
The first product would hit the market in 2015-end.
TVSL would invest EUR20m over CY13-15. BMW would also invest an undisclosed
sum for joint development.
Rationale for the tie-up
For BMW Motorrad
Gain from TVSL's cost effective manufacturing
operations to expand operations in fast growing
Asian and South American markets. Global market
size for 250-750cc is 800,000 units.
Access to superior high-end technology Access to Indian market - world's second
largest and growing market
BMW association could improve its
Shared investments
market position and greater brand
acceptance in urban markets
Source: Company, MOSL
For TVS Motor
Outsourcing/contract manufacturing
opportunity giving additional revenue
stream
Similarity in TVS-BMW collaboration vis-a-vis Bajaj-KTM association
Product
Technology
alliance
Cost arbitrage
Intention to jointly product 250-500cc motorcycles for Indian and
global markets
Both foreign partners brings in the technology and aspirations to the
Cost effective operations of the Indian partner
Source: MOSL
16 December 2013
67

TVS Motor
Difference in TVS-BMW collaboration and Bajaj-KTM association
Brand gap
Bajaj-KTM
TVS-BMW
Narrow gap between Bajaj-KTM
Wider gap between TVS-BMW
brand i.e. Bajaj highest offering is brand i.e. TVSL biggest offering is
200cc motorcycle, while KTM's
of 180cc, while BMW's lowest
lowest offering starts from 50cc
offering is of 650cc
to to over 1000cc
Bajaj sells almost a million
TVSL relatively small player with
annual premium motorcycle
annual premium motorcycles sale of
180k units
Bajaj has 48% equity stake
Only a tie-up with no equity
in KTM
interest
Source: MOSL
Current volumes
Ownership
interest
Our view
Similar to Bajaj-KTM alliance, we believe this tie-up would give TVSL an
additional revenue stream in the form of contract manufacturing for BMW
Motorrad.
However, unlike the Bajaj-KTM alliance, we are apprehensive if the tie-up
involves joint product development. In its absence, TVSL may not be able to
gain significantly from the pact.
Due to inadequate details, we have not factored the P&L implications, though
have covered the investment requirements on a conservative basis.
16 December 2013
68

TVS Motor
Non-core investments remains a concern
TVSL recently divested majority stake in its non-core energy venture
Key subsidiaries'
performance
(INR m)
FY12 FY13
136
42
29
9
-892
-1
-245
-5
-926
MOSL
Sundaram Auto
51
TVS Energy
-69
TVS Wind Energy
-9
TVS Wind Power
-2
TVS Europe
24
TVS Singapore
0
TVS Indonesia -1,124
Sundaram
0
Business Dev.
Total Losses
-1,128
Sour ce: Company,
Investments in non-core businesses constitute 37% of FY13 standalone net worth and
have been a cause of concern. TVSL made these investments to leverage the TVS brand
name in other business opportunities.
TVS divested its majority stake in its energy venture in 2QFY14. Also, company has guided
for no major incremental investments in its housing business.
TVSL though plans to scale up its captive financing arm to support the two-wheeler
business and hence guided for further equity investment in this business.
We have factored further annual investments of INR500m largely in its captive financing
arm over FY14E-16E.
Investments into various business constitute 62% of standalone networth (INR m)
Unqoted Investments
Indonesian operations
TVS Europe
Less: Write down
TVS Singapore
TV S Indonesia (Pr ef. shar es)
Total (net of write do wn)
Low cost housing business
TVS Housing
Emerald Haven Realthy
Total
Holding (%)
100
100
100
Relationship
Subsidiary
Subsidiary
Subsidiary
FY12
1,265
2,012
1,465
4,742
FY13
1,265
(916)
2,012
1,465
3,826
FY14E
1,265
(916)
2,012
1,965
4,326
FY15E
1,265
(916)
2,012
2,465
4,826
FY16E
1,265
(916)
2,012
2,965
5,326
100
48.8
Subsidiary
Associate
1
400
401
1
400
401
1
400
401
1
400
401
1
400
401
Vehicle Finance arm (engaged in two-wheelers financing , also present in used cars and tractor financing)
TVS Motor Services
19
Subsidiary
4
4
4
TVS Motor Ser vices (Pr ef. shares)
Subsidiary
2,460
2,710
3,210
Total
2,464
2,714
3,214
Auto Component (business of supplying Interior and exterior plastic parts and rubber products for automobiles)
Sundaram Auto
100
Subsidiary
609
609
609
TVS Energy
Others
Total investments
Incremental investments
S/A Net Worth
% of S/A Net Worth
% of S/A Net Worth
(Ex-Indonesia, Ex-Engery venture)
768
32
9,015
11,696
77
37
768
32
8,349
12,247
68
37
33
32
8,614
265
14,172
61
30
4
3,710
3,714
4
4,210
4,214
609
33
32
9,614
1,000
16,615
58
29
609
33
32
10,614
1,000
19,479
54
27
Sour ce: Company, MOSL
16 December 2013
69

TVS Motor
Initiate at Buy with a target price of INR85
Risk-reward favorable; expect earnings CAGR of 33% over FY14E-16E
TVSL is well positioned to benefit from the scooterization wave with its complete scooter
porfolio. Over the next 12-18 months, TVSL plans to launch multiple products across
segments to reinforce and fill gaps in product portfolio.
Operating leverage and better mix to drive margins from 5.8% in FY14E to 6.7% in FY16E.
EBITDA losses in Indonesian operations continue to reduce. Any further clarity (success of
recent launch or closure of operations) could also act as a re-rating trigger
.
Expect earnings CAGR of 33% over FY14E-16E with return ratios (RoE) improving from 19.2%
in FY14E to 24.6% in FY16E.
Healthy cash from operations (FCF CAGR of 24.8% over FY14E-16E) coulpled with sale of
non-core investments would transform into net cash by FY16E from net debt of INR6.2b in
FY13.
Initiate coverage with a Buy rating and target price of INR85. We value TVSL at 9x FY16E
standalone EPS.
Key risks: 1) Failure of new launches, 2) higher than estimated cash losses in Indonesian
operations, 3) Higher than expected investments in outside standalone business.
TVS Motor PE band
22
17
12
7
2.5
2
9.5
8.1
P/ E (x)
Avg(x)
Pe a k(x)
M i n(x)
1 6.8
TVS Motor PB band
P/B (x)
4.0
3.0
2.0
1.0
0.0
0. 2
1. 6
Avg (x)
3. 5
Pe a k(x)
Mi n(x)
Source: Bloomberg, MOSL
Average discount to Hero Moto has been 33% over the last five years
80
Di scou nt (%)
60
40
20
0
Average (%)
Source: Bloomberg, MOSL
16 December 2013
70

TVS Motor
Key assumptions
Total v olumes (units)
Growth (%)
Motorcycle (units)
Growth (%)
Scooter (units)
Growth (%)
Moped (units)
Growth (%)
Three-wheelers (units)
Growth (%)
Domestic (units)
Growth (%)
Export (units)
Growth (%)
Net realization (INR/unit)
Growth (%)
Net Sales (INR m)
Growth (%)
FY13
2,032,240
-7.5
749,429
-11.1
441,552
-16.5
792,069
0.8
49,190
23.6
1,787,007
-6.5
245,233
-14.8
33,749
5.9
70,650
-1.1
FY14E
2,116,156
4.1
801,800
7.0
481,312
9.0
745,151
-5.9
87,895
78.7
1,807,116
1.1
309,063
26.0
36,531
8.2
78,524
11.1
FY15E
FY16E
2,438,707
2,713,269
15.2
11.3
911,661
1,016,481
13.7
11.5
599,066
687,817
24.5
14.8
819,930
885,646
10.0
8.0
108,050
123,325
22.9
14.1
2,086,736
2,321,364
15.5
11.2
351,994
391,925
13.9
11.3
37,564
38,629
2.8
2.8
93,289
106,858
18.8
14.5
Sour ce: Company, MOSL
16 December 2013
71

TVS Motor
Financials and Valuation
Standalone - Income Statement
Y/E March
Net Sales
Total Expenditur e
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT be f. EO Exp.
EO Expense/(Income)
PBT after EO Exp.
Curren t Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
2012
71,415
66,722
93.4
4,694
6.6
1,175
3,518
571
217
3,165
0
3,165
655
19
21.3
2,491
2,491
26.3
2013
70,650
66,560
94.2
4,090
5.8
1,304
2,786
480
246
2,552
916
1,636
520
-44
29.1
1,160
1,810
-27.3
2014E
78,524
73,930
94.2
4,594
5.8
1,291
3,302
198
271
3,375
-303
3,678
809
110
25.0
2,759
2,532
39.9
2015E
93,289
87,412
93.7
5,877
6.3
1,388
4,490
48
298
4,740
0
4,740
1,043
142
25.0
3,555
3,555
40.4
(INR Billion)
2016E
106,858
99,731
93.3
7,127
6.7
1,470
5,657
17
328
5,968
0
5,968
1,313
179
25.0
4,476
4,476
25.9
Standalone - Balance Sheet
Y/E March
Equity Share Capital
Tot al Reser ves
Net Worth
Deferred Liabilities
Tot al Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Tot al Investmen ts
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
2012
475
11,221
11,696
976
8,311
20,982
21,545
11,289
10,256
525
9,309
11,055
5,846
2,080
130
2,998
10,163
9,585
577
892
20,982
2013
475
11,772
12,247
931
6,345
19,523
22,479
12,365
10,115
361
8,688
12,029
5,097
3,005
175
3,752
11,670
11,136
534
359
19,523
2014E
475
13,696
14,172
931
4,345
19,448
24,479
13,656
10,823
314
8,953
12,768
5,357
3,012
459
3,940
13,412
12,207
1,204
-643
19,448
2015E
475
16,140
16,615
931
4,320
21,866
25,979
15,043
10,936
373
9,953
16,673
6,183
3,323
3,031
4,137
16,070
14,503
1,567
604
21,866
(INR Million)
2016E
475
19,226
19,701
931
3,820
24,452
27,479
16,514
10,966
427
10,953
20,663
7,082
4,099
5,138
4,344
18,558
16,612
1,945
2,105
24,452
16 December 2013
72

TVS Motor
Financials and Valuation
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Shar e
DPS
Payout (%)
Valuation (x) *
P/E
Cash P/E
P/BV
EV/Sale s
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Asset Turno ver (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
* Adjusted for treasury stocks
Y/E March
NP/(Loss) bef. Tax & EO It ems
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(inc)/dec in FA
(Pur)/Sale of Investments
Others
CF from Investments
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
16 December 2013
2012
5.2
7.7
24.6
1.3
28.8
2013
3.8
6.6
25.8
1.2
56.5
2014E
5.3
8.0
29.8
1.5
30.2
2015E
7.5
10.4
35.0
2.0
31.3
2016E
9.4
12.5
41.5
2.5
31.0
10.3
7.0
2.2
0.5
7.2
2.4
14.1
8.2
2.1
0.4
7.8
2.2
10.1
6.7
1.8
0.4
6.4
2.8
7.2
5.2
1.5
0.3
4.6
3.7
5.7
4.3
1.3
0.2
3.4
4.7
23.0
19.8
15.1
15.7
19.2
19.3
23.1
24.3
24.6
26.9
3.4
29.9
10
3.6
26.3
14
4.0
24.9
13
4.3
24.2
12
4.4
24.2
13
1.1
0.7
1.0
0.5
1.0
0.3
1.0
0.3
1.1
0.2
Standalone - Cash Flow Statement
2012
3,165
942
408
700
626
4,440
-31
4,409
-1,768
-2,699
658
-3,809
-778
-571
-659
2,269
261
861
-731
130
2013
1,628
1,076
327
527
800
3,303
878
4,181
-767
-295
77
-985
-276
-517
-715
564
-945
2,251
-2,077
175
2014E
3,375
1,291
198
920
1,287
5,232
-271
4,961
-1,953
-265
271
-1,947
-2,000
-198
-834
303
-2,729
285
175
459
2015E
4,740
1,388
48
1,185
1,325
6,315
-298
6,017
-1,559
-1,000
298
-2,261
-25
-48
-1,112
0
-1,184
2,572
459
3,031
(INR Million)
2016E
5,968
1,470
17
1,492
606
6,569
-328
6,241
-1,554
-1,000
328
-2,226
-500
-17
-1,390
0
-1,907
2,107
3,031
5,138
73

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