Auto & Auto Ancillaries27Mar19 - InvestmentGuruIndiavid.investmentguruindia.com/report/2019/March/Automobiles...r sector EAP (page 20): Emkay Alpha Portfolio –Automobiles & Auto

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ED: ANISH MATHEW SA: DHANANJAY SINHA

India Equity Research | Auto & Auto Ancillaries

March 27, 2019

Sector Update

Automobiles Refer to important disclosures at the end of this report

Channel Checks: Demand woes continue in

2Ws; dealer inventories reach historical highs

Bajaj Auto SELL

CMP Target Price

2,980 2,500

Eicher Motors SELL

CMP Target Price

20,974 18,000

Hero Motocorp HOLD

CMP Target Price

2,543 2,700

TVS Motor HOLD

CMP Target Price

459 486

This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation:

Raghunandhan N L [email protected] +91 22 6624 2428

Mumuksh Mandlesha [email protected] +91 22 6612 1334

Dealer inventory days have increased to historical highs of around 3 months for HMCL, 2

months for BJAUT/TVSL, and 1 month for EIM (Royal Enfield). Discounts continue from

OEMs such as HMCL and BJAUT, while TVSL has started to participate selectively.

Volumes have declined in recent months due to higher vehicle prices, deferred purchases

during elections, lower crop realizations, and NBFC financing issues, as per our channel

checks. Despite pre-buying before BS6 transition, we expect only 7% growth in FY20 amid

high dealer inventories and weak consumer sentiment.

We reduce TVSL’s FY20/FY21 EPS estimates by 6%/9% to Rs18.5/Rs20.6, led by lower

volume and margin assumptions. Our EPS estimates remain broadly unchanged for

BJAUT, HMCL, and EIM.

Our view on the 2W space is negative due to muted earnings outlook over the next two

years, and our top Sell-rated stocks are EIM (TP: Rs18,000) and BJAUT (TP: Rs2,500;

Hold earlier). We downgrade TVSL’s rating to Hold from Accumulate, with a revised TP of

Rs486 (Rs595 earlier) and maintain our Hold rating on HMCL with a TP of Rs2,700.

Two wheelers: Key takeaways from dealer interactions

Dealer inventory days have significantly increased over the past few months and have

reached historically high levels. HMCL has the highest dealer inventory days at around 3

months, followed by 2 months for BJAUT/TVSL, and 1 month for EIM (Royal Enfield).

Subdued volume performance: Retail volumes have declined over the past three

months, driven by factors such as increasing cost of ownership, postponement of

purchases during the election period, lower crop realizations, and selective financing. The

volume decline is expected to continue in Q1FY20, driven by further price increases due

to adoption of the new safety norms.

Sales promotions: Promotions and discounts continue from OEMs such as HMCL and

BJAUT in the form of free insurance and warranties, while TVSL has started to participate

selectively.

Outlook and Valuations: We expect subdued earnings performance for 2W companies over

the next two years. Our top Sells-rated stocks are EIM (TP: Rs18,000) and BJAUT (TP of

Rs2,500; Hold earlier). We downgrade the rating on TVSL to Hold from Accumulate, with a

revised TP of Rs486 (Rs595 earlier) and maintain our Hold rating on HMCL at with a TP of

Rs2,700. Factoring in lower earnings growth, we taper our target valuation multiple to 22x P/E

(from 25x earlier) for TVSL, based on a PEG of 1.2x on FY19-21E EPS growth (1.2-1.3x PEG

applied for peers). Upside risks include strong macro-economic environment, lower

competitive intensity, pricing discipline in the industry, and benign commodity/currency rates.

Please see our sector EAP (page 20): Emkay Alpha Portfolio – Automobiles & Auto

Ancillaries

Financial Snapshot

(Rs mn) EPS EV/EBITDA P/E

FY20E FY21E FY20E FY21E FY20E FY21E

Bajaj Auto 171.9 186.5 11.1 9.8 17.3 16.0

Eicher Motors 957.2 1,041.5 14.3 12.5 21.9 20.1

Hero Motocorp 191.6 207.5 7.7 6.8 13.3 12.3

TVS Motor 18.5 20.6 13.0 11.8 24.7 22.3

Source: Company, Emkay Research

Automobiles India Equity Research | Sector Update


ED: ANISH MATHEW SA: DHANANJAY SINHA March 27, 2019 | 2

Other highlights

Dealers expect a reduction in inventory days in the coming months due to lower offtake

from OEMs and sequential demand improvement due to the marriage season (in North

India) as well as the festive season (Navratri in the North and regional festivals).

Rural areas have been outpacing urban areas in volume performance. However, near-

term demand has been impacted due to lower crop realizations.

Demand from the business community (40-50% of volume) has been subdued, due to

the tight liquidity situation.

Marginal impact of selective financing by NBFCs: Volume performance has been

marginally impacted by NBFC financing issues. Customers with weak credit profile are

witnessing higher scrutiny and longer approval periods. The financing ratio stands at ~50%

for the industry.

Premiumization trend is expected to witness a setback in the near term due to higher price

increases in >125cc vehicles due to the adoption of the new safety norms. Vehicles in the

>125cc vehicles are likely to witness price increases of over Rs5,000 due to the adoption

of Antilock Braking Systems, while <125cc vehicles are likely to see price increases of less

than Rs1,000 due to the adoption of Combined Braking Systems.




Investment rationale

Eicher Motors: Riding the rough terrain

Volume growth tapers: RE volumes suffered a double-digit decline over Nov’18-Feb’19,

despite the absence of negative one-off factors such as production losses due to labor

strikes and weak demand in the state of Kerala due to incessant rainfalls/floods. Volume

performance has been under pressure during the quarter due to the steep but inevitable

price increases influenced by external factors as well as the emergence of strong

competition.

Vehicle prices have increased substantially (more than 15%) in the 350cc category

motorcycles due to an increase in insurance premiums (~3%), adoption of new safety

norms (~10%), and pass-through of commodity inflation (~2%). Prices are expected to

increase further in Apr'20 due to the transition to BS6 emission norms (2-6%).

Competitive intensity has increased in the cruiser motorcycles segment after the entry of

Jawa Motorcycles, which has provided an alternative to RE's unique brand positioning and

offerings. Jawa has witnessed strong order bookings, and its existing production capacity

is fully booked until Sep'19.

Recommend Sell: After 2% volume growth for RE in FY19E, we expect the growth rate to

remain in single digits at 9% in FY20E and 6% in FY21E. This is notably lower than the

46% volume CAGR over FY13-18. We have assumed revenue/earnings growth of

16%/12% over FY19-21E. We have a Sell rating on the stock, with a target price of

Rs18,000, valuing the RE business at a PE of 17x and the VECV business at a PE of 15x.

Exhibit 1: Key assumptions

Royal Enfield CY14 FY16 (15 M) FY17 FY18 FY19E FY20E FY21E

Volume (units)

Domestic 296,370 588,468 651,107 801,229 817,254 882,634 935,592

YoY % 71.6 58.8 38.3 23.1 2.0 8.0 6.0

Exports 6,221 11,707 15,383 19,264 20,612 26,796 32,155

YoY % 48.4 50.5 64.3 25.2 7.0 30.0 20.0

Total 302,591 600,175 666,490 820,493 837,866 909,430 967,747

YoY % 71.0 58.7 38.8 23.1 2.1 8.5 6.4

Realisation /unit (Rs) 100,175 103,073 105,598 109,173 117,443 127,784 136,641

YoY % 4.1 2.9 2.4 3.4 7.6 8.8 6.9

Revenue (Rsmn) 30,312 61,862 70,380 89,575 98,402 116,211 132,234

YoY % 78.0 63.3 42.2 27.3 9.9 18.1 13.8

VECV CY14 FY16 (15 M) FY17 FY18 FY19E FY20E FY21E

Domestic MHCV (units) 24,194 38,331 34,584 39,188 43,891 47,182 42,464

YoY % 26.7 12.8 13.3 12.0 7.5 -10.0

Domestic LCV (units) 9,863 15,703 14,822 16,684 17,852 19,191 17,656

YoY % 27.4 18.0 12.6 7.0 7.5 -8.0

Exports (units) 5,824 7,512 8,035 9,001 10,752 12,103 13,176

YoY % 3.2 33.7 12.0 19.5 12.6 8.9

Volume (units) 40,772 63,045 58,604 65,928 73,634 79,707 74,403

YoY % 23.7 16.2 12.5 11.7 8.2 -6.7

Realisation /unit (Rs) 1,412,258 1,465,533 1,449,765 1,521,762 1,605,051 1,645,551 1,776,454

YoY % 3.8 -1.1 5.0 5.5 2.5 8.0

Revenue (Rsmn) 57,581 92,395 84,962 100,327 118,186 131,162 132,173

YoY % 28.4 14.9 18.1 17.8 11.0 0.8





Exhibit 2: One-year forward P/E

Source: Bloomberg, Emkay Research

Exhibit 3: SOTP valuation

Basis of Valuation Equity value Equity value/share

Standalone (Motorcycles) 17x P/E 458,609 16,843

VECV (CVs) 15x P/E 32,825 1,206

Total 491,434 18,048

Rounded Off Target Price 18,000

Source: Emkay Research

TVS Motor – Valuations factor in most positives; Downgrade to Hold

Revenue growth to taper: After posting a robust growth rate of 20% in FY19E, we expect

revenue growth to taper to 13% over FY19-21E. Volume growth is likely to reduce to 7%

CAGR over next two years, led by a high base and price increases resulting from regulatory

changes.

Margin expansion constrained by higher competitive intensity: After an expansion in

EBITDA margin from 7.5% in FY18 to 8.2% in FY19E, we expect the margins to remain

broadly flat at 8.3% in FY21E due to the adverse impact from increased marketing spends

and the partial absorption of costs emanating from the transition to the BS6 standard.

Lowering EPS estimates by 6-9%: We reduce FY20/FY21 EPS estimates by 6%/9% to

Rs18.5/Rs20.6, reflecting a 3-4% reduction in our volume assumptions and the 20-30bps

cut in EBITDA margin expectations.

Downgrade to Hold: We downgrade our rating on TVSL to Hold from Accumulate, with a

revised TP of Rs486 (Rs595 earlier), based on 22x FY21E earnings (earlier 25x) and value

of TVS Credit Services at Rs33/share. We taper our target multiple to factor in lower

earnings growth, based on a PEG of 1.2x on FY19-21E EPS growth.

Exhibit 4: Changes in estimates

Rs mn FY19E FY20E FY21E

Earlier Revised % Change % YoY Earlier Revised % Change % YoY Earlier Revised % Change % YoY

Volumes (Units) 3,988,055 3,923,360 (1.6) 13.2 4,417,595 4,283,018 (3.0) 9.2 4,669,137 4,500,740 (3.6) 5.1

Sales 184,794 181,979 (1.5) 20.3 213,680 207,566 (2.9) 14.1 242,086 233,878 (3.4) 12.7

EBITDA 15,158 14,918 (1.6) 32.1 18,537 17,648 (4.8) 18.3 20,646 19,307 (6.5) 9.4

Margin (%) 8.2 8.2 (1) bps 73 bps 8.7 8.5 (17) bps 30 bps 8.5 8.3 (27) bps (25) bps

Net Profit 7,259 7,096 (2.2) 7.1 9,416 8,810 (6.4) 24.2 10,690 9,778 (8.5) 11.0

EPS 15.3 14.9 (2.2) 7.1 19.8 18.5 (6.4) 24.2 22.5 20.6 (8.5) 11.0


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1yr Fwd PE (x) 10 yr avg PE +1 STD -1 STD





FY16 FY17 FY18 FY19E FY20E FY21E

Sales volume (units)

Motorcycles 712,002 773,163 916,811 1,009,868 1,098,213 1,142,142

Scooters 773,597 826,363 1,099,135 1,255,627 1,358,633 1,410,477

Mopeds 723,767 890,518 859,520 893,901 965,413 1,004,029

3Ws 15,536 12,277 16,429 17,415 18,285 17,371

Total Domestic 2,224,902 2,502,321 2,891,895 3,176,811 3,440,545 3,574,020

Exports 453,800 422,216 574,215 746,549 842,473 926,720

Total volume 2,678,702 2,924,537 3,466,110 3,923,360 4,283,018 4,500,740

YoY %

Motorcycles 6.6 8.6 18.6 10.2 8.7 4.0

Scooters 13.0 6.8 33.0 14.2 8.2 3.8

Mopeds -3.3 23.0 -3.5 4.0 8.0 4.0

3Ws -11.4 -21.0 33.8 6.0 5.0 -5.0

Total Domestic 5.0 12.5 15.6 9.9 8.3 3.9

Exports 9.6 -7.0 36.0 30.0 12.8 10.0

Total volume 5.8 9.2 18.5 13.2 9.2 5.1

Realization (Rs/unit) 41,455 41,456 43,651 46,383 48,463 51,964

YoY % 4.0 0.0 5.3 6.3 4.5 7.2

Revenue (Rsmn) 111,047 121,353 151,297 181,979 207,566 233,878

YoY % 10.6 9.3 24.7 20.3 14.1 12.7




Bajaj Auto: Valuations limit upside potential; Downgrade to Sell

Revenue growth to taper: After posting a robust growth rate of 20% in FY19E, we expect

revenue growth to taper to 12% over FY19-21E. Volume growth is likely to reduce to 7%

CAGR over next two years due to a high base and price increases resulting from regulatory

changes.

Margins unlikely to recover to previous levels: The EBITDA margin is likely to contract

from 19% in FY18 to 16.5% in FY19E, due to aggressive pricing/marketing initiatives in

domestic market and adverse product mix (lower share of 3Ws and premium motorcycles).

We expect the margin to remain flat at 16.5% in FY21E due to the adverse impact from

continued marketing spends and costs emanating from the transition to the BS6 standard.

Overall, we build in revenue/earnings growth of 12%/11% over FY19-21E, with an ROE of

~22%.

Downgrade to Sell: After the recent rally in stock prices by ~20%, P/E stands at 17x/16x

on FY20E/21E EPS estimates, limiting the upside potential from current levels. We

downgrade our rating to Sell from Hold, with an unchanged TP of Rs2,500, based on 13x

FY21E core earnings and value of KTM investment at Rs120/share.

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Volumes (units) FY16 FY17 FY18 FY19E FY20E FY21E

Domestic Motorcycles 1,898,957 2,001,471 1,974,577 2,517,702 2,698,472 2,800,375

Growth (%) 7.2 5.4 -1.3 27.5 7.2 3.8

Export Motorcycles 1,459,295 1,218,541 1,394,757 1,701,604 1,905,796 2,096,376

Growth (%) -4.1 -16.5 14.5 22.0 12.0 10.0

Domestic 3Ws/Quadricycles 254,995 253,147 369,637 399,308 420,168 400,210

Growth (%) 8.8 -0.7 46.0 8.0 5.2 -4.8

Export 3Ws/Quadricycles 280,232 192,792 267,820 382,038 402,143 422,511

Growth (%) -1.6 -31.2 38.9 42.6 5.3 5.1

Total volume 3,893,479 3,665,951 4,006,791 5,000,652 5,426,579 5,719,472

Growth (%) 2.2 -5.8 9.3 24.8 8.5 5.4

Realization (Rs/unit) 58,010 59,375 62,806 60,559 63,096 66,133

Growth (%) 2.3 2.4 5.8 -3.6 4.2 4.8

Revenue (Rsmn) 225,865 217,667 251,649 302,835 342,397 378,246

Growth (%) 4.5 -3.6 15.6 20.3 13.1 10.5




Exhibit 9: SOTP valuation

Basis of Valuation Equity Value (Rsmn)

Core business 13x FY21E P/E 685,591

Investment in KTM Power Sports 12x CY20E P/E and 30% holding discount 34,826

Total Equity value 720,416

Total Equity value/ share 2,490

Target Price (Rounded off) 2,500


Hero MotoCorp: Market share losses to continue

Market share losses to continue: HMCL has been losing market share in the domestic

2W segment. Its share declined to 36.6% in FY18 from 42.9% in FY13, due to its weak

presence in the Scooters space. The market share has further reduced in FY19 YTD, due

to a 35.8% fall in Scooter volumes and increasing competitive intensity in entry-level

motorcycles. Moreover, as per our channel checks, its market share is expected to remain

under pressure due to the weak response for new products. Accordingly, we expect a

4% volume CAGR over FY19-21E, which comes in below the industry growth rate of

6%.

Margins to remain under pressure: EBITDA margin is expected to contract from 16.4%

in FY18 to 14.7% in FY19E, led by commodity inflation and higher marketing spends. We

expect the margin to remain broadly flat at 14.6% in FY21E due to the adverse impact from

continued marketing spends and costs emanating from the transition to the BS6 standard.

Revenue/earnings growth is expected at 10% CAGR over FY19-21E, with an ROE of

~28%. We maintain Hold rating with a TP of Rs2,700 based on 13x FY21E EPS.

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Volume (units) FY16 FY17 FY18 FY19E FY20E FY21E

Domestic Motorcycles 5,603,136 5,693,681 6,499,051 6,943,623 7,331,675 7,524,882

Growth (%) -1.3 1.6 14.1 6.8 5.6 2.6

Export Motorcycles 132,718 140,579 178,156 179,938 194,333 209,879

Growth (%) 10.5 5.9 26.7 1.0 8.0 8.0

Domestic Scooters 818,777 789,974 883,667 777,627 808,732 824,907

Growth (%) 8.9 -3.5 11.9 -12.0 4.0 2.0

Export Scooters 77,521 39,812 26,319 23,687 25,582 27,629

Growth (%) -3.0 -48.6 -33.9 -10.0 8.0 8.0

Total Volume 6,632,152 6,664,046 7,587,193 7,924,874 8,360,322 8,587,297

Growth (%) 0.0 0.5 13.9 4.5 5.5 2.7

Realization/unit (Rs) 42,885 42,766 42,480 42,956 44,442 47,983

Growth (%) 3.1 -0.3 -0.7 1.1 3.5 8.0

Revenue (Rs/unit) 284,427 285,005 322,305 340,417 371,549 412,043

Growth (%) 3.1 0.2 13.1 5.6 9.1 10.9




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Key Financials (Standalone) — Bajaj Auto

Income Statement

Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E FY21E

Revenue 217,667 251,649 302,835 342,397 378,246

Expenditure 173,443 203,815 253,005 284,951 315,954

EBITDA 44,224 47,834 49,830 57,446 62,292

Depreciation 3,073 3,148 2,730 2,941 3,169

EBIT 41,151 44,686 47,100 54,505 59,123

Other Income 12,220 13,473 16,148 17,659 19,175

Interest expenses 14 13 52 58 63

PBT 53,356 58,146 63,196 72,107 78,234

Tax 15,081 17,145 19,591 22,353 24,253

Extraordinary Items 0 (320) 0 0 0

Minority Int./Income from Assoc. 0 0 0 0 0

Reported Net Income 38,276 40,681 43,605 49,754 53,982

Adjusted PAT 38,276 41,001 43,605 49,754 53,982

Balance Sheet


Equity share capital 2,894 2,894 2,894 2,894 2,894

Reserves & surplus 167,448 188,145 209,672 234,234 260,883

Net worth 170,341 191,039 212,565 237,127 263,777

Minority Interest 0 0 0 0 0

Loan Funds 1,199 1,208 1,208 1,208 1,208

Net deferred tax liability 3,136 3,234 3,866 4,587 5,370

Total Liabilities 174,677 195,481 217,639 242,922 270,354

Net block 20,018 18,783 18,568 19,927 21,758

Investment 147,315 175,883 205,883 233,883 262,883

Current Assets 40,237 42,964 44,401 49,231 53,856

Cash & bank balance 2,937 7,780 2,470 1,744 1,077

Other Current Assets 17,437 4,515 5,285 6,004 6,748

Current liabilities & Provision 33,315 42,714 52,263 61,869 69,893

Net current assets 6,922 250 (7,862) (12,638) (16,037)

Misc. exp 0 0 0 0 0

Total Assets 174,677 195,481 217,639 242,922 270,354

Cash Flow


PBT (Ex-Other income) (NI+Dep) 41,137 44,673 47,048 54,448 59,059

Other Non-Cash items 0 0 0 0 0

Chg in working cap 2,533 11,069 2,057 1,482 1,214

Operating Cashflow 21,172 29,135 32,525 36,751 39,413

Capital expenditure (1,970) (627) (3,000) (5,000) (5,000)

Free Cash Flow 19,203 28,508 29,525 31,751 34,413

Investments (35,546) (28,568) (30,000) (28,000) (29,000)

Other Investing Cash Flow 633 10,016 0 0 0

Investing Cashflow (24,663) (5,708) (16,852) (15,341) (14,825)

Equity Capital Raised 0 0 0 0 0

Loans Taken / (Repaid) 128 9 0 0 0

Dividend paid (incl tax) (2,022) (20,931) (22,078) (25,192) (27,332)

Other Financing Cash Flow (266) 2,351 1,148 3,113 2,141

Financing Cashflow (2,167) (18,585) (20,983) (22,136) (25,255)

Net chg in cash (5,658) 4,843 (5,310) (726) (667)

Opening cash position 8,595 2,937 7,780 2,470 1,744

Closing cash position 2,937 7,780 2,470 1,744 1,077





Key Ratios

Profitability (%) FY17 FY18 FY19E FY20E FY21E

EBITDA Margin 20.3 19.0 16.5 16.8 16.5

EBIT Margin 18.9 17.8 15.6 15.9 15.6

Effective Tax Rate 28.3 29.5 31.0 31.0 31.0

Net Margin 17.6 16.3 14.4 14.5 14.3

ROCE 34.4 31.4 30.6 31.3 30.5

ROE 25.3 22.7 21.6 22.1 21.6

RoIC 171.1 253.5 483.3 791.0 1,160.5

Per Share Data (Rs) FY17 FY18 FY19E FY20E FY21E

EPS 132.3 141.7 150.7 171.9 186.5

CEPS 142.9 152.6 160.1 182.1 197.5

BVPS 588.7 660.2 734.6 819.5 911.6

DPS 55.0 60.0 63.3 72.2 78.4

Valuations (x) FY17 FY18 FY19E FY20E FY21E

PER 22.5 21.0 19.8 17.3 16.0

P/CEPS 20.9 19.5 18.6 16.4 15.1

P/BV 5.1 4.5 4.1 3.6 3.3

EV / Sales 3.3 2.8 2.2 1.9 1.6

EV / EBITDA 16.4 14.5 13.4 11.1 9.8

Dividend Yield (%) 1.8 2.0 2.1 2.4 2.6

Gearing Ratio (x) FY17 FY18 FY19E FY20E FY21E

Net Debt/ Equity (0.8) (0.9) (0.9) (0.9) (0.9)

Net Debt/EBIDTA (3.1) (3.6) (3.9) (3.9) (4.0)

Working Cap Cycle (days) 6.7 (10.9) (12.5) (15.3) (16.5)

Growth (%) FY17 FY18 FY19E FY20E FY21E

Revenue (3.6) 15.6 20.3 13.1 10.5

EBITDA (7.5) 8.2 4.2 15.3 8.4

EBIT (8.0) 8.6 5.4 15.7 8.5

PAT (2.6) 6.3 7.2 14.1 8.5

Quarterly (Rs mn) Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19

Revenue 63,876 67,733 74,193 80,118 74,094

EBITDA 12,498 13,152 12,814 13,680 11,561

EBITDA Margin (%) 19.6 19.4 17.3 17.1 15.6

PAT 9,524 10,799 11,152 11,525 11,019

EPS (Rs) 32.9 37.3 38.5 39.8 38.1


Shareholding Pattern (%) Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Promoters 49.3 49.3 49.3 49.3 49.3

FIIs 17.2 17.2 16.7 16.4 16.1

DIIs 8.8 8.5 7.9 8.0 8.2

Public and Others 24.7 25.0 26.1 26.3 26.4

Source: Capitaline



ED: ANISH MATHEW SA: DHANANJAY SINHA March 27, 2019| 10

Bajaj Auto RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

4-Feb-19 2,643 2,500 12m Hold Raghunandhan NL

30-Jan-19 2,500 2,500 12m Hold Raghunandhan NL

27-Dec-18 2,737 2,910 12m Accumulate Raghunandhan NL

25-Oct-18 2,478 2,870 12m Accumulate Raghunandhan NL

23-Jul-18 2,684 3,250 12m Accumulate Raghunandhan NL

21-May-18 2,721 3,460 12m Accumulate Raghunandhan NL

5-Feb-18 3,186 3,560 12m Accumulate Raghunandhan NL

18-Oct-17 3,227 3,150 12m Hold Raghunandhan NL

4-Oct-17 3,174 3,080 12m Hold Raghunandhan NL

4-Sep-17 2,915 2,850 12m Hold Raghunandhan NL

21-Jul-17 2,816 2,850 12m Hold Raghunandhan NL

19-May-17 2,973 2,900 12m Hold Mihir Jhaveri

3-Feb-17 2,808 2,750 12m Hold Mihir Jhaveri

31-Jan-17 2,833 2,750 12m Hold Mihir Jhaveri

7-Dec-16 2,699 2,750 12m Hold Bibhishan Jagtap

28-Oct-16 2,848 2,650 12m Hold Bibhishan Jagtap

29-Jul-16 2,701 2,650 12m Hold Kaushal Maroo

27-May-16 2,564 2,550 12m Hold Kaushal Maroo


RECOMMENDATION HISTORY CHART

Source: Bloomberg, Company, Emkay Research

Note:

We have updated our Rating Distribution with effect from March 20, 2019 – Kindly refer the Disclaimer page, however for our erstwhile recommendations till March 19, 2019, the rating

distribution of the expected total return stands as (Buy – Over 25%, Accumulate – Over 10% , Hold – Upto 10%, Reduce – Below 10%, Sell – Underperforms the broad market indices or its

related universe).

2350

2595

2840

3085

3330

3575

29

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6

26

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-16

26

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7

23

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-17

23

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8

20

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-18

20

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BUY Hold SellAccumulate Reduce PriceTarget Price




Key Financials (Consolidated) — Eicher Motors

Income Statement


Revenue 70,334 89,650 98,402 116,211 132,234

Expenditure 48,594 61,573 68,658 81,942 94,788

EBITDA 21,740 28,076 29,743 34,269 37,446

Depreciation 1,538 2,233 2,950 3,533 4,048

EBIT 20,201 25,843 26,793 30,736 33,398

Other Income 2,273 2,801 3,935 5,041 6,461


PBT 22,439 28,591 30,665 35,710 39,789

Tax 7,203 9,359 10,733 12,320 13,528

Extraordinary Items (460) (2,201) (175) 0 0

Minority Int./Income from Assoc. 1,895 2,566 2,699 2,737 2,168


Adjusted PAT 17,131 21,797 22,631 26,127 28,429

Balance Sheet


Equity share capital 272 273 273 273 273


Net worth 53,451 70,301 88,947 110,614 134,093


Loan Funds 1,119 1,508 1,545 1,715 1,869

Net deferred tax liability 778 1,421 1,727 2,085 2,482


Net block 8,686 14,978 20,080 24,547 27,319

Investment 49,913 55,847 75,847 95,847 119,847

Current Assets 7,754 21,065 15,838 17,167 17,928

Cash & bank balance 251 12,120 5,958 5,498 4,675

Other Current Assets 860 2,263 2,484 2,933 3,338


Net current assets (6,990) (928) (6,988) (9,260) (11,181)

Misc. exp 0 0 0 0 0

Total Assets 55,347 73,230 92,219 114,414 138,445

Cash Flow




Chg in working cap 1,635 6,450 205 2,170 1,495


Capital expenditure (5,470) (8,120) (8,000) (8,000) (6,000)

Free Cash Flow 9,336 13,902 13,538 18,205 21,092

Investments (12,022) (5,934) (20,000) (20,000) (24,000)

Other Investing Cash Flow 57 (7,397) 0 0 0




Dividend paid (incl tax) 0 (3,608) (3,810) (4,460) (4,949)

Other Financing Cash Flow (138) 11,769 201 651 489

Financing Cashflow 115 8,497 (3,636) (3,705) (4,377)

Net chg in cash (241) 11,869 (6,162) (459) (823)

Opening cash position 492 251 12,120 5,958 5,498

Closing cash position 251 12,120 5,958 5,498 4,675





Key Ratios


EBITDA Margin 30.9 31.3 30.2 29.5 28.3

EBIT Margin 28.7 28.8 27.2 26.4 25.3


Net Margin 21.7 21.5 20.3 20.1 19.9

ROCE 48.6 44.6 37.1 34.6 31.5

ROE 38.1 35.2 28.4 26.2 23.2

RoIC 1,040.7 1,531.0 591.1 363.3 314.3


EPS 645.6 798.6 829.1 957.2 1,041.5

CEPS 703.6 880.4 937.2 1,086.6 1,189.8

BVPS 2,014.5 2,575.5 3,258.6 4,052.4 4,912.6

DPS 102.6 109.8 116.0 135.8 150.7


PER 32.5 26.3 25.3 21.9 20.1

P/CEPS 30.1 24.1 22.6 19.5 17.8

P/BV 10.4 8.1 6.4 5.2 4.3

EV / Sales 7.5 5.8 5.2 4.2 3.5

EV / EBITDA 24.1 18.7 17.1 14.3 12.5

Dividend Yield (%) 0.5 0.5 0.6 0.6 0.7


Net Debt/ Equity (0.6) (0.7) (0.7) (0.7) (0.8)

Net Debt/EBIDTA (1.5) (1.7) (2.1) (2.4) (2.8)

Working Cap Cycle (days) (37.6) (53.1) (48.0) (46.4) (43.8)


Revenue 42.4 27.5 9.8 18.1 13.8

EBITDA 60.8 29.1 5.9 15.2 9.3

EBIT 62.6 27.9 3.7 14.7 8.7

PAT 55.7 17.6 14.6 16.3 8.8


Revenue 22,690 25,280 25,478 24,082 23,411

EBITDA 7,072 7,972 8,096 7,293 6,795

EBITDA Margin (%) 31.2 31.5 31.8 30.3 29.0

PAT 5,309 6,486 5,762 5,663 5,330

EPS (Rs) 194.8 238.0 211.5 207.8 195.6



Promoters 50.5 50.5 50.5 49.4 49.3

FIIs 32.1 31.0 31.1 31.5 30.8

DIIs 4.9 5.9 5.8 5.6 6.2


Source: Capitaline




Eicher Motors RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

22-Mar-19 21,447 18,000 12m Sell Raghunandhan NL

19-Feb-19 20,410 18,000 12m Sell Raghunandhan NL



31-Jan-19 19,006 18,000 12m Sell Raghunandhan NL

27-Dec-18 22,995 27,700 12m Buy Raghunandhan NL

12-Nov-18 21,934 25,700 12m Accumulate Raghunandhan NL

6-Jul-18 27,626 31,900 12m Accumulate Raghunandhan NL

9-May-18 30,316 31,900 12m Accumulate Raghunandhan NL

7-Feb-18 28,010 30,200 12m Accumulate Raghunandhan NL

14-Nov-17 30,090 38,000 12m Accumulate Raghunandhan NL

4-Oct-17 30,885 34,000 12m Accumulate Raghunandhan NL

4-Sep-17 31,754 33,000 12m Accumulate Raghunandhan NL

9-Aug-17 31,489 33,000 12m Accumulate Raghunandhan NL

13-Jul-17 28,056 28,000 12m Accumulate Kaushal Maroo

5-May-17 25,833 28,000 12m Accumulate Kaushal Maroo

3-Feb-17 23,386 27,000 12m Accumulate Kaushal Maroo

1-Feb-17 24,030 27,000 12m Accumulate Kaushal Maroo

7-Dec-16 23,382 26,000 12m Accumulate Kaushal Maroo

29-Jul-16 22,461 22,500 12m Accumulate Kaushal Maroo

6-May-16 20,216 21,200 12m Accumulate Kaushal Maroo




Note:



related universe).

18000

22000

26000

30000

34000

38000

29

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6

26

-Sep

-16

26

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r-1

7

23

-Sep

-17

23

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20

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-18

20

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9





Key Financials (Standalone) — Hero Motocorp

Income Statement


Revenue 285,005 322,305 340,417 371,549 412,043

Expenditure 238,657 269,503 290,511 316,087 351,813

EBITDA 46,348 52,802 49,906 55,463 60,230

Depreciation 4,927 5,556 6,105 6,696 7,340

EBIT 41,421 47,246 43,801 48,767 52,890

Other Income 5,224 5,258 7,092 7,597 8,166


PBT 46,585 52,442 50,812 56,266 60,939

Tax 12,813 15,468 16,260 18,005 19,501

Extraordinary Items 0 0 0 0 0



Adjusted PAT 33,771 36,974 34,552 38,261 41,439

Balance Sheet




Net worth 101,113 117,689 129,316 144,653 161,055


Loan Funds 0 0 0 0 0



Net block 43,956 46,545 49,606 55,410 60,570

Investment 58,899 75,252 80,252 90,252 104,252

Current Assets 39,438 42,407 45,619 49,962 55,452

Cash & bank balance 1,367 1,413 2,322 2,706 3,045



Net current assets (2,249) (2,176) (1,436) (1,341) (3,489)

Misc. exp 0 0 0 0 0

Total Assets 105,256 122,805 134,941 150,840 167,852

Cash Flow




Chg in working cap 3,993 342 612 741 841



Free Cash Flow 23,565 33,703 28,914 33,406 37,381

Investments (9,917) (16,354) (5,000) (10,000) (14,000)

Other Investing Cash Flow 1,969 (1,952) (7,092) (7,597) (8,166)





Other Financing Cash Flow 169 (144) 0 0 0

Financing Cashflow (20,787) (20,610) (23,006) (23,022) (23,042)

Net chg in cash 54 46 908 384 339

Opening cash position 1,314 1,367 1,413 2,322 2,706

Closing cash position 1,367 1,413 2,322 2,706 3,045





Key Ratios


EBITDA Margin 16.3 16.4 14.7 14.9 14.6

EBIT Margin 14.5 14.7 12.9 13.1 12.8


Net Margin 11.8 11.5 10.1 10.3 10.1

ROCE 47.6 46.0 39.5 39.4 38.3

ROE 35.7 33.8 28.0 27.9 27.1

RoIC 106.6 113.4 98.6 100.3 100.4


EPS 169.1 185.1 173.0 191.6 207.5

CEPS 193.8 213.0 203.6 225.1 244.3

BVPS 506.3 589.3 647.6 724.3 806.5

DPS 85.0 95.0 95.0 95.0 103.8


PER 15.0 13.7 14.7 13.3 12.3

P/CEPS 13.1 11.9 12.5 11.3 10.4

P/BV 5.0 4.3 3.9 3.5 3.2

EV / Sales 1.6 1.4 1.3 1.2 1.0

EV / EBITDA 9.8 8.4 8.7 7.7 6.8

Dividend Yield (%) 3.3 3.7 3.7 3.7 4.1


Net Debt/ Equity (0.5) (0.6) (0.6) (0.6) (0.6)

Net Debt/EBIDTA (1.1) (1.3) (1.5) (1.5) (1.6)

Working Cap Cycle (days) (4.6) (4.1) (4.0) (4.0) (5.8)


Revenue 0.2 13.1 5.6 9.1 10.9

EBITDA 4.0 13.9 (5.5) 11.1 8.6

EBIT 3.1 14.1 (7.3) 11.3 8.5

PAT 6.9 9.5 (6.5) 10.7 8.3


Revenue 73,142 85,640 88,098 90,909 78,648

EBITDA 11,580 13,706 13,773 13,787 11,048

EBITDA Margin (%) 15.8 16.0 15.6 15.2 14.0

PAT 8,054 9,674 9,092 9,763 7,691

EPS (Rs) 40.3 48.4 45.5 48.9 38.5



Promoters 34.6 34.6 34.6 34.6 34.6

FIIs 42.3 41.9 39.6 38.9 40.0

DIIs 11.5 12.0 14.4 14.8 15.4


Source: Capitaline




Hero Motocorp RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

4-Feb-19 2,780 2,700 12m Hold Raghunandhan NL

31-Jan-19 2,614 2,700 12m Hold Raghunandhan NL

27-Dec-18 3,129 3,350 12m Hold Raghunandhan NL

16-Oct-18 2,895 3,560 12m Buy Raghunandhan NL

3-Aug-18 3,251 4,130 12m Buy Raghunandhan NL

26-Jul-18 3,137 4,130 12m Buy Raghunandhan NL

2-May-18 3,664 4,660 12m Buy Raghunandhan NL

6-Feb-18 3,542 4,710 12m Buy Raghunandhan NL

2-Nov-17 3,736 4,820 12m Buy Raghunandhan NL

4-Oct-17 3,795 4,230 12m Buy Raghunandhan NL

4-Sep-17 3,979 4,230 12m Buy Raghunandhan NL

25-Jul-17 3,709 4,230 12m Buy Raghunandhan NL

11-May-17 3,462 3,700 12m Buy Mihir Jhaveri

9-Feb-17 3,265 3,700 12m Buy Mihir Jhaveri

3-Feb-17 3,214 3,600 12m Buy Bibhishan Jagtap

7-Dec-16 3,228 3,600 12m Buy Bibhishan Jagtap

28-Oct-16 3,352 3,600 12m Buy Bibhishan Jagtap

1-Sep-16 3,548 3,600 12m Buy Kaushal Maroo

9-Aug-16 3,412 3,400 12m Buy Kaushal Maroo

6-May-16 2,890 3,400 12m Buy Kaushal Maroo




Note:



related universe).

2590

3037

3484

3931

4378

4825

29

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6

26

-Sep

-16

26

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7

23

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-17

23

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20

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Key Financials (Standalone) — TVS Motor

Income Statement


Revenue 121,353 151,297 181,979 207,566 233,878

Expenditure 112,782 140,005 167,061 189,918 214,571

EBITDA 8,571 11,292 14,918 17,648 19,307

Depreciation 2,878 3,387 3,983 4,386 4,738

EBIT 5,693 7,905 10,934 13,261 14,570

Other Income 1,734 1,448 46 181 264


PBT 6,987 8,786 10,283 12,768 14,171

Tax 1,406 2,161 3,188 3,958 4,393

Extraordinary Items 0 0 0 0 0



Adjusted PAT 5,581 6,626 7,096 8,810 9,778

Balance Sheet




Net worth 24,083 28,804 33,862 40,141 47,111


Loan Funds 11,072 11,892 11,331 11,145 10,962



Net block 19,839 23,719 26,707 29,321 31,583

Investment 15,880 20,355 22,355 26,855 32,355

Current Assets 22,705 26,410 32,034 36,538 41,025

Cash & bank balance 85 109 400 456 369



Net current assets 71 (3,207) (3,625) (4,517) (5,351)

Misc. exp 0 0 0 0 0

Total Assets 36,412 42,178 46,777 52,998 59,926

Cash Flow




Chg in working cap (514) 3,505 541 493 517



Free Cash Flow (352) 4,215 5,379 7,273 8,525

Investments (2,206) (4,475) (2,000) (4,500) (5,500)

Other Investing Cash Flow 583 472 0 0 0



Loans Taken / (Repaid) 1,119 820 (561) (186) (183)


Other Financing Cash Flow 727 (13) 162 492 278

Financing Cashflow 0 (1,636) (3,134) (2,899) (3,377)

Net chg in cash (242) 24 291 56 (87)

Opening cash position 327 85 109 400 456

Closing cash position 85 109 400 456 369





Key Ratios


EBITDA Margin 7.1 7.5 8.2 8.5 8.3

EBIT Margin 4.7 5.2 6.0 6.4 6.2


Net Margin 4.6 4.4 3.9 4.2 4.2

ROCE 22.3 23.8 24.7 26.9 26.3

ROE 25.6 25.1 22.6 23.8 22.4

RoIC 30.5 39.3 50.8 56.4 58.0


EPS 11.7 13.9 14.9 18.5 20.6

CEPS 17.8 21.1 23.3 27.8 30.6

BVPS 50.7 60.6 71.3 84.5 99.2

DPS 2.5 3.3 3.6 4.5 4.9


PER 39.1 32.9 30.7 24.7 22.3

P/CEPS 25.8 21.8 19.7 16.5 15.0

P/BV 9.1 7.6 6.4 5.4 4.6

EV / Sales 1.9 1.5 1.3 1.1 1.0

EV / EBITDA 26.7 20.3 15.3 13.0 11.8

Dividend Yield (%) 0.5 0.7 0.8 1.0 1.1


Net Debt/ Equity 0.5 0.4 0.3 0.3 0.2

Net Debt/EBIDTA 1.3 1.0 0.7 0.6 0.5

Working Cap Cycle (days) 0.0 (8.0) (8.1) (8.7) (8.9)


Revenue 9.3 24.7 20.3 14.1 12.7

EBITDA 5.8 31.8 32.1 18.3 9.4

EBIT (0.8) 38.9 38.3 21.3 9.9

PAT 14.1 18.7 7.1 24.2 11.0


Revenue 36,987 39,928 41,685 49,935 46,640

EBITDA 3,005 2,807 3,212 4,282 3,757

EBITDA Margin (%) 8.1 7.0 7.7 8.6 8.1

PAT 1,544 1,656 1,466 2,113 1,784

EPS (Rs) 3.2 3.5 3.1 4.4 3.8



Promoters 57.4 57.4 57.4 57.4 57.4

FIIs 21.4 20.2 20.0 18.4 15.9

DIIs 10.0 10.6 11.1 12.8 15.1


Source: Capitaline




TVS Motor RECOMMENDATION HISTORY TABLE

Date Closing

Price TP

Period (months)

Rating Analyst

22-Jan-19 554 595 12m Accumulate Raghunandhan NL

27-Dec-18 550 595 12m Accumulate Raghunandhan NL

23-Oct-18 535 590 12m Accumulate Raghunandhan NL

8-Aug-18 533 630 12m Accumulate Raghunandhan NL

16-May-18 611 670 12m Accumulate Raghunandhan NL

31-Jan-18 697 670 12m Reduce Raghunandhan NL

1-Nov-17 709 670 12m Reduce Raghunandhan NL

4-Oct-17 654 550 12m Reduce Raghunandhan NL

4-Sep-17 614 480 12m Reduce Raghunandhan NL

11-Aug-17 537 480 12m Reduce Raghunandhan NL

27-Apr-17 503 370 12m Sell Mihir Jhaveri

3-Feb-17 391 320 12m Reduce Mihir Jhaveri

25-Jan-17 393 320 12m Reduce Mihir Jhaveri

7-Dec-16 361 320 12m Reduce Mihir Jhaveri

27-Jul-16 288 240 12m Reduce Kaushal Maroo

4-May-16 291 255 12m Reduce Kaushal Maroo




Note:



related universe).

240

352

464

576

688

800

29

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6

26

-Sep

-16

26

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r-1

7

23

-Sep

-17

23

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20

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Emkay Alpha Portfolio – Automobiles & Auto Ancillaries

EAP sector portfolio

Company Name BSE200 Weight

EAP Weight

OW/UW (%)

OW/UW (bps)

BSE200 Weight (Normalised)

Auto & Auto Ancillaries 6.48 6.48 0% 0 100.00

Amara Raja Batteries 0.10 0.16 65% 6 1.53

Apollo Tyres 0.12 0.19 53% 6 1.87

Ashok Leyland 0.21 0.00 -100% -21 3.31

Atul Auto 0.00 0.06 NA 6 0.00

Bajaj Auto 0.69 0.36 -47% -32 10.61

Bosch* 0.28 0.28 0% 0 4.39

Eicher Motors 0.48 0.22 -54% -26 7.45

Endurance Technologies* 0.05 0.05 0% 0 0.72

Escorts 0.00 0.00 NA 0 0.00

Exide Industries 0.17 0.37 114% 19 2.63

Hero Motocorp 0.57 0.27 -53% -30 8.84

Mahindra & Mahindra 1.06 1.32 24% 26 16.33

Maruti Suzuki India 1.48 1.74 17% 26 22.87

Motherson Sumi 0.30 0.49 66% 19 4.57

MRF* 0.20 0.20 0% 0 3.07

Tata Motors 0.53 0.53 0% 0 8.22

Tata Motors DVR* 0.07 0.07 0% 0 1.14

TVS Motor 0.16 0.16 0% 0 2.44


* Not under coverage: Equal Weight

Sector portfolio NAV (for future addition)

Returns by EAP on rolling basis

Performance NAV 3M 6M 12M

EAP - Automobiles & Auto Ancillaries 100

BSE 200 weighted portfolio 100

*Formal performance measurement of EAP starts on 1st April 2019


Analyst: Raghunandhan Nl

Contact Details

[email protected]

+91 22 6624 2428

Sector

Automobiles and Ancillaries

Analyst bio

Raghu holds an MBA and comes with

total 11 years of research experience. His

team currently covers 14 stocks in the

Indian Automobiles and Ancillaries

space.

mailto:[email protected]




Emkay Rating Distribution

Ratings Expected Return within the next 12-18 months.

BUY Over 15%

HOLD Between -5% to 15%

SELL Below -5%

Emkay Global Financial Services Ltd.

CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

DISCLAIMERS AND DISCLOSURES: Emkay Global Financial Services Limited (CIN-L67120MH1995PLC084899) and its affiliates are a full-service, brokerage, investment banking, investment

management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in 1995

and is one of India's leading brokerage and distribution house.EGFSL is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited(NSE), MCX Stock

Exchange Limited (MCX-SX).EGFSL along with its subsidiaries offers the most comprehensive avenues for investments and is engaged in the businesses including stock broking (Institutional and retail),

merchant banking, commodity broking, depository participant, portfolio management, insurance broking and services rendered in connection with distribution of primary market issues and financial products

like mutual funds, fixed deposits. Details of associates are available on our website i.e. www.emkayglobal.com

EGFSL is registered as Research Analyst with SEBI bearing registration Number INH000000354 as per SEBI (Research Analysts) Regulations, 2014. EGFSL hereby declares that it has not defaulted with

any stock exchange nor its activities were suspended by any stock exchange with whom it is registered in last five years, except that NSE had disabled EGFSL from trading on October 05, October 08 and

October 09, 2012 for a manifest error resulting into a bonafide erroneous trade on October 05, 2012. However, SEBI and Stock Exchanges have conducted the routine inspection and based on their

observations have issued advice letters or levied minor penalty on EGFSL for certain operational deviations in ordinary/routine course of business. EGFSL has not been debarred from doing business by

any Stock Exchange / SEBI or any other authorities; nor has its certificate of registration been cancelled by SEBI at any point of time.

EGFSL offers research services to clients as well as prospects. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject

company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Other disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject

company(s) covered in this report-:

EGFSL or its associates may have financial interest in the subject company.

Research Analyst or his/her relative’s financial interest in the subject company. (NO)

EGFSL or its associates and Research Analyst or his/her relative’s does not have any material conflict of interest in the subject company. The research Analyst or research entity (EGFSL) have not been

engaged in market making activity for the subject company.

EGFSL or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research

Report: (NO)

EGFSL or its associates may have received any compensation including for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EGFSL or its

associates may have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EGFSL or

its associates may have received any compensation or other benefits from the Subject Company or third party in connection with the research report. Subject Company may have been client of EGFSL or

its associates during twelve months preceding the date of distribution of the research report and EGFSL may have co-managed public offering of securities for the subject company in the past twelve months.

The research Analyst has served as officer, director or employee of the subject company: (NO)

The Research Analyst has received any compensation from the subject company in the past twelve months: (NO)

The Research Analyst has managed or co‐managed public offering of securities for the subject company in the past twelve months: (NO)

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(NO)

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