INSTITUTIONAL EQUITY RESEARCH Auto Ancillariesbackoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Auto... · exposure to the highly price‐sensitive commercial vehicle segment

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Auto Ancillaries Tyres: Ready for the second leg INDIA | SECTOR UPDATE & INITIATING

6 September 2016

Read this report to find out: • Tyre industry landscape and changing dynamics • Interview with the largest importer of Chinese tyres in India • Natural rubber not entering bull cycle in a hurry • Our thesis on how Ceat is building a strong consumer‐facing franchise and why we like

its future strategies Tyre industry to revive The Indian tyre industry has grown by 4% in FY11‐16 in terms of tonnage sold (to 1.7mn tonnes from 1.4mn tonnes). With a volume contribution of 55%, the CV segment forms the largest chunk, but it has been sluggish with a five‐year CAGR of just 2%; subdued economic activity not only meant weaker OEM sales but also lower movement of trucks leading to low wear and slower replacement demand. Passenger vehicle tyres have seen strongest demand offtake with 8% CAGR, whereas two‐wheeler demand CAGR was 6%. The tyre industry should post a 6% tonnage CAGR until FY21, with the PV segment posting the highest CAGR of 8%, 2W at 7%, and CV segment the slowest at 4%. Shift towards the passenger segment will help the industry to not only mitigate vagaries of cyclicality in the commercial vehicle industry, but also to boost margins (CV segment is highly sensitive with higher price elasticity). Chinese competition high but anti‐dumping might be a reality soon Our talks with the largest importer of Chinese TBR tyres indicate that competition even amongst Chinese players has become cutthroat with over 25 Chinese players frantically looking to gain share. We understand that the difference in cost within Chinese players is as high as 25%; moreover, many transporters have bypassed dealers and are importing Chinese tyres themselves. Meanwhile, our talks with industry experts suggest a very high probability of duties coming into play as early as December 2016, which would not only help domestic players experience strong volume growth, but also see pricing power coming back. Rubber not in a bull run yet Natural rubber prices have sharply rebounded – from lows of Rs 95/kg to recent highs of over Rs 145/kg. Our analysis suggest that this rebound is mainly a seasonal factor and not necessarily a trend reversal; further, looking at the global rubber stocks and production/consumption patterns, it is likely that rubber prices may not enter an upcycle anytime soon. The second quarter (April‐June) of a year is generally strong for rubber prices, as tapping of natural rubber declines globally, leading to a supply deficit in the market. However, prices trend to retreat from Q3, as output increases ‐ we expect similar trends. Initiate Ceat with BUY, Upgrade APTY We initiate coverage on Ceat with a BUY rating and TP of Rs 1,375, valuing the company at 10x FY18 earnings. We believe Ceat will post a 12% CAGR in earnings in FY16‐18, is geared towards strong structural growth, and will show sound cross‐cycle resilience in margins. We see 12% EPS CAGR (easily achievable), as the company benefits from increased capacities in key segments and maintains healthy ROE/ROCE (post‐tax) of 20%+. We see current valuations (7x FY18 EPS) as lucrative and see potential rerating as consumer‐facing businesses rise and cross‐cycle margin resilience increases. Apollo tyres: At current levels, the stock trades at 8x our FY18 earnings. We increase our estimate by 14% and upgrade our stance to BUY with a revised TP of Rs 239. We increase the target multiple to 10x FY18, led by strong volume outlook, rubber prices that do not seem to be entering a bull phase, and a higher probability of import duties on Chinese tyres.

Companies Ceat Ltd. Reco BUY CMP Rs955 Target Price Rs1375 Apollo Tyres Reco BUY CMP Rs195 Target Price Rs239 Nitesh Sharma, CFA (+ 9122 6667 9965) [email protected] Dhawal Doshi (+ 9122 6667 9769) [email protected]


AUTO ANCILLARIES SECTOR UPDATE

INDEX Tyre industry landscape ................................................................... 3 Threat from Chinese imports ........................................................... 6 Conversation with the largest importer of tyres from China ......... 7 Rubber outlook seems weak .......................................................... 9 Annexure .......................................................................................... 26

Companies Section

CEAT Ltd ..................................................................................................... 11

Apollo Tyres ............................................................................................... 24



Tyre industry landscape The Indian tyre industry has grown by 4% in FY11‐16 in terms of tonnage sold (to 1.7mn tonnes from 1.4mn tonnes). With a volume contribution of 55%, the CV segment forms the largest chunk, but it has been sluggish with a five‐year CAGR of just 2%; subdued economic activity not only meant weaker OEM sales but also lower movement of trucks leading to low wear and slower replacement demand. Passenger vehicle tyres have seen strongest demand offtake with a 8% CAGR, whereas two‐wheeler demand CAGR was 6%. Tyre industry volumes (mn units) Tyre industry tonnage (‘000 tons)

Source: Industry, PhillipCapital India Research

Industry slowly shifting towards consumer‐facing segments While the CV segment still forms over 55% of India’s tyre demand, globally, this segment contributes a smaller 28% of industry volumes. The major discrepancy between global and Indian statistics is mainly because penetration of PVs is still very low in India (below 20 per 1000 people). We expect the passenger vehicle segment to post the strongest growth in volumes due to a recovery in rural markets and as strong urban markets lead to consumers upgrading to 4Ws from 2Ws. The tyre industry should post a 6% tonnage CAGR until FY21, with the PV segment posting the highest CAGR of 8%, 2W at 7%, and CV segment the slowest at 4%. Shift towards the passenger segment will help the industry to not only mitigate vagaries of cyclicality in the commercial vehicle industry, but also to boost margins (CV segment is highly sensitive with higher price elasticity). Indian tyre industry still heavily dependent on the CV segment Global Industry mix


‐5%

0%

5%

10%

15%

20%

0

50

100

150

200

250

Mn un

its

MHCV PVs 2/3Ws % yoy

0%

2%

4%

6%

8%

10%

0

500

1000

1500

2000

2500

'000

tons

MHCV PVs 2/3Ws % yoy

72%58% 55% 50%

11%20% 22%

24%

17% 22% 23% 27%

0%

20%

40%

60%

80%

100%

FY05 FY15 FY16 FY21E

CVs PVs Others

CVs 28%

PVs 58%

Others 14%

Consumer‐facing segments – pvs and 2Ws – not only provide better margins/realisations, but also have higher customer stickiness with customer premiumisation boosting growth



Shift towards replacement is another key trend The contribution of OEMs to the tyre industry volumes has declined consistently; this segment now forms 31% of the industry demand. Within the replacement segment, CVs constitute over 61% of volumes, which, as discussed, is a highly price sensitive segment. Globally, even in the replacement segment (volumes), PVs dominate. The Indian industry will gradually shift towards passenger vehicle and 2W segments, which will aid margin improvement. Moreover, consumer preference towards premium products will boost growth. Replacement segment forms 69% of industry volumes

Source: Industry, PhillipCapital India Research Demand from OEMs is widely spread across segments Replacement demand is CV heavy, led by faster wear and tear


Radialisation to continue at a rapid pace We estimate ‘radialisation’ to continue at a rapid pace in the commercial vehicle segment – even today, c.60% of this industry uses archaic bias tyres. Radialisation is expected to cover c.80% of the industry by FY20, led by customers’ demand for better‐quality tyres with a longer life and the influx of ‘cheaper Chinese tyres’, which has made radial tyres more affordable to small fleet operators. A shift in preference towards radial tyres is beneficial to domestic players, as these command a 30‐50% pricing premium to bias tyres and are also more profitable.

38% 42%33% 30% 31% 31%

62% 58%67% 70% 69% 69%

0%

20%

40%

60%

80%

100%

FY11 FY12 FY13 FY14 FY15 FY16

OEM Replacement

29% 33% 35%

27% 26% 25%

22% 23% 22%

21% 17% 17%

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16

CVs PVs 2/3W Tractors Others

67% 65% 61%

14% 15% 14%

8% 10%9%

7% 6%5%

5% 4% 9%

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16

CVs PVs 2/3W Tractors Others



Radialisation in CVs to continue at a rapid pace

Source: Industry, PhillipCapital India Research Estimates Ceat and MRF are the only players with a meaningful exposure across segments MRF is the largest player, dominating with a 29% industry market share; it enjoys the best brand recall among consumers, as per industry experts. MRF and Ceat are the only players that have exposure across segments; within the two, Ceat has the lowest exposure to the highly price‐sensitive commercial vehicle segment. Market share across players Revenue exposure

Source: Crisil, PhillipCapital India Research

0%

20%

40%

60%

80%

100%

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

OEM Replacement

MRF 29%

Apollo 17%

JK Tyres 13%

Ceat 12%

Balkrishna 7%

Birla 5%

Bridgestone 4%

TVS Srichakra 4%

Others 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2/3W PVs MHCV LCV OHT Others

Ceat Apollo JK Tyres MRF



Threat from Chinese imports Imports of Chinese tyres in India has seen a significant surge – average monthly import volumes have risen 3.5x to ~140,000 units/month vs. FY14 average of c.40,000 units/month. However, this surge is only in the price‐sensitive truck‐bus radial segment; PV and 2W customers prefer better brands over pricing. Overall, the surge in imports is fuelled by: (1) anti‐dumping duty in the US distressing Chinese manufacturers, which then tried to find newer markets, (2) reluctance of domestic players to pass benefits of lower rubber prices to consumers, (3) Chinese companies have passed on all the benefits of benign raw material prices to consumers; our analysis suggests their average realisation hovers at ~Rs 150/kg vs. Rs 240/kg in FY13 (on landed‐cost basis). To understand more about how the importing of tyres works, we met with the largest importer of Chinese tyres. Key takeways in the next section. Chinese competition increased dramatically Chinese imports of TBR (value)

Source: Industry, PhillipCapital India Research Chinese players have passed lower rubber prices Chinese TBR tyre prices on landed cost


*prices on landed basis – Basic Duty + CVD + Cess ~ 30% additional + 10‐15% distribution cost.

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

FY14 FY15 FY16 Apr‐Jun 2016

Units

Chinese TBR Imports

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

20

40

60

80

100

120

140

160

FY13 FY14 FY15 FY16

% yoy

USD

Millions

‐

50

100

150

200

250

FY13 FY14 FY15 FY16

Rs/Kg

(Average realizations at landed prices)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY13 FY14 FY15 FY16

Rs/Tyre

The average MRP for a single TBR tyre has fallen to Rs 12,000 currently from Rs 19,000 about three years ago, but domestic players continue to sell tyres at about ~Rs 20,000.



Conversation with the largest importer of tyres from China To understand more about how importing of tyres works and future prospects, we met Mr Rahul Kakkad, second‐generation entrepreneur running the show at ‘Trans Tyres India Pvt. Ltd.’ About Trans Tyres The company is the largest importer of tyres into India, and offers CVs, PVs, and OTR tyres. It deals with four brands: 1) Chaoyang Tyres – amongst the largest tyre companies in China catering to the

TBR segment 2) Hankook Tyres – South Korean brand 3) Ultra Mile Tyres – Brand and moulds owned by Trans Tyres, but manufactured in

China due to cost benefits. The brand mainly sells TBR tyres and has recently ventured into the passenger‐vehicle segment, where it has received great acceptance.

4) Warrior and E‐Rikshaw – TBR offering of ‘Double Coin’ and E‐Rikshaw tyres Enjoyed strong demand for Chinese tyres Rahul said that the demand for his company’s products has been strong, as it provides quality Chinese tyres with a warranty of 100,000 kms (unconditional in PCR). It sells its TBR offerings at 20‐25% lower than Indian counterparts, while offering similar quality and value. It has seen a strong 30% CAGR in revenues in the last three years and is looking to enter newer segments and tap the OEM market. Competition: Not just within domestic players, Chinese brands compete among themselves Over the last four years, competition has totally changed in the Indian tyre industry. Rahul said that four years ago, importers competed with domestic brands over pricing, with only five Chinese tyre brands on Indian roads. However, besides domestic players, there is competition even among Chinese brands with 25+ Chinese brands now operating in India. This sudden shift in the scenario has also come about as many small and unorganised operators and large fleet owners have started importing containers of TBR tyres themselves, coupled with Chinese companies trying to find new avenues of growth. This has led to extremely low‐cost tyres making their way onto Indian roads – the difference between Trans Tyres’ TBR offering and the lowest‐cost Chinese TBR is as much as 20%; Chinese tyres can be a whopping 40% cheaper than domestic brands. Difficult to shift Chinese consumers back – the math behind Once a small fleet operator uses Chinese tyres, it is almost impossible to shift him back to a premium brand, says Rahul. With 90% trucks in India owned by single or small fleet operators, the segment is very sensitive to pricing and looks at immediate cost savings. While premium brands do provide better quality products, longer mileage difference in CPKM (cost per km) is not substantial. CPKM not materially different

Cost/Pair (Rs) Life (in kms) CPKM (Rs)Lower quality Chinese 23,000 75,000 0.31Highest quality Chinese 30,000 130,000 0.23Domestic best brand 40,000 180,000 0.22




Focusing on new avenues and consumer‐facing segments Given cutthroat competition within Chinese brands for the TBR pie, Trans Tyres is now looking at newer avenues for growth and has invested in R&D and moulds. The company has recently ventured into the passenger‐vehicle tyre segment under its own brand ‘Ultra Mile’. It owns the designs and moulds and undertakes manufacturing in China due to the cost arbitrage. The management says it has seen encouraging demand and feedback and is focusing on the rural and tourist segments, at least initially. Moreover, Trans is also in talks with large fleet operators and is looking to enter the OEM segment. While the passenger vehicle segment has been immune to the threat from Chinese competitors, the segment has clearly seen increasing number of players. However, it would be a tall task for Chinese companies to breakthrough this segment, as consumers are very brand and quality conscious.

Source: Company, PhillipCapital India Research

Anti‐dumping: Chinese factories and importers fear this; assign a high probability Chinese factories and importers are wary as anti‐dumping duty or safeguards on TBR segment have a very high probability of actual implementation in FY17. If these do come about, all domestic players would look at heydays ahead. "There is almost a 100% chance of an Anti Dumping or Safeguard duty, as early as November says Rahul". JK Tyres (not rated) with a 67% revenue exposure to MHCV segment would be the biggest beneficiary of Import duties on TBR if any, followed by Apollo which sees 48% of revenues coming from the truck bus segment.

Banner depicting Ultramiles’PCR offering

Rahul Kakkad with one of his offerings



Rubber outlook seems weak Natural rubber prices have sharply rebounded – from lows of Rs 95/kg to recent highs of over Rs 145/kg. Our analysis suggest that this rebound is mainly a seasonal factor and not necessarily a trend reversal; further, looking at the global rubber stocks and production/consumption patterns, it is likely that rubber prices may not enter an upcycle anytime soon. The second quarter (April‐June) of a year is generally strong for rubber prices, as tapping of natural rubber declines globally, leading to a supply deficit in the market. However, prices tend to retreat from Q3, as output increases. We expect similar trends ahead. Natural rubber prices (Rs/kg) NR surplus/deficit vs. average qoq price movement


Structural upsurge in rubber sometime away While rubber producing companies have curtailed exports to support prices, data suggests that production still exceeds or matches consumption, leaving the world’s natural rubber stock at 3.4mn tonnes – i.e., 30% of global annual demand. Only a sharp revival in demand would lead to sustained price growth in rubber prices. Total rubber production/consumption NR stock and surplus


0

50

100

150

200

250

300

Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15 Jan‐16

‐25%‐20%‐15%‐10%‐5%0%5%10%15%20%25%30%

‐800

‐600

‐400

‐200

0

200

400

600

800

Q1C

Y12

Q2C

Y12

Q3C

Y12

Q4C

Y12

Q1C

Y13

Q2C

Y13

Q3C

Y13

Q4C

Y13

Q1C

Y14

Q2C

Y14

Q3C

Y14

Q4C

Y14

Q1C

Y15

Q2C

Y15

Q3C

Y15

Q4C

Y15

Q1C

Y16E

Q2C

Y16E

Surplus % mom

10,000

10,500

11,000

11,500

12,000

12,500

2011 2012 2013 2014 2015

'000

tons

Total Production Total Consumption

‐200

0

200

400

600

800

1000

0

500

1000

1500

2000

2500

3000

3500

4000

2011 2012 2013 2014 2015

'000

tons

WORLD NR STOCKS WORLD NR SURPLUS



Compa

nies Sectio

n



Ceat Ltd (CEAT IN) Building a strong consumer‐facing franchise INDIA | AUTO ANCILLARIES | Initiating Coverage

6 September 2016

We initiate coverage on Ceat with a BUY rating and TP of Rs 1,375, valuing the company at 10x FY18 earnings. We expect Ceat to post a strong 30% growth in FY18 earnings as it benefits from new capacities and improved mix. We believe the company is geared towards strong structural growth, and will show sound cross‐cycle resilience in margins. Our BUY thesis is based on: (1) Tyre industry reviving, with a recovery in demand from OEMs and replacement with a

strong monsoon, better economic activity, and rural resurgence (2) Strong R&D capabilities; about 80 new products annually (3) Strategic shift towards consumer‐facing PVs and 2W tyre business (4) 35% capacity expansion and ramped up distribution Crafting strong brands and increasing its reach Since the last five years, Ceat has made a strategic shift in its strategy, and has been focusing on high‐margin 2Ws and PVs. It has already made a strong mark in these segments with current 2W/PV market share at 27%/10% vs. 11%/0% in FY10, mainly led by: (1) its focus on R&D (spends on this front have increased to Rs 500mn from Rs 13mn in FY10‐16) leading to average 80 new products every year, (2) increasing distribution – Ceat has tripled its district coverage and doubled its exclusive Ceat Shoppe’ (franchises), (3) heightened advertisement and promotional activities with ad spends rising by 5x in the last five years. Capacity expansion in the right segments Ceat is more than doubling its PV capacities; as it faced supply bottlenecks in 2W, it is increasing its capacity by over 45% in this segment. Our checks suggest that both these segments enjoy 30‐50% higher realizations vs. the truck‐bus segment, hence better margins. We estimate 2W and PV segments to post a strong 27% CAGR volume growth until FY18. Immune to risk from Chinese imports Our biggest worry on the tyre sector has been the threat from low‐cost Chinese tyre imports, which still sell at 25‐30% discount. This risk doesn’t seem to be fading – our dialogue with the largest Chinese importer suggests that the pricing situation in TBRs is so grim now that Chinese companies are fighting with not only Indian companies, but within themselves too (this segment has 25 Chinese players, frantic to gain share). However, given that the truck‐bus segment is now only 34% of Ceat’s revenue (industry 55%), it is reasonably insulated; Chinese players are not focused on 2W/PV segments, as these consumers demand strong brand names and quality offerings, which would be too time intensive and tedious for them. Valuations At the current price, Ceat trades at 7x our FY18 EPS, despite being reasonably immune to cutthroat Chinese competition. We see 12% EPS CAGR between FY16‐18 (easily achievable), as the company benefits from increased capacities in key segments and maintains healthy ROE/ROCE (post‐tax) of 20%+. We see current valuations as lucrative and see potential rerating as consumer‐facing businesses rise and cross‐cycle margin resilience increases. Initiate with a BUY and a TP of Rs 1,375, valuing the company at 10x FY18 earnings.

BUY CMP RS 955 / TARGET RS 1375 (44%) COMPANY DATA O/S SHARES (MN) : 40MARKET CAP (RSBN) : 39MARKET CAP (USDBN) : 0.652 ‐ WK HI/LO (RS) : 1318 / 731LIQUIDITY 3M (USDMN) : 8.0PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Jun 16 Mar 16 Dec 15PROMOTERS : 50.8 50.8 50.8FII / NRI : 26.2 30.0 27.2FI / MF : 5.2 4.0 6.1NON PRO : 6.1 1.3 5.0PUBLIC & OTHERS : 11.8 13.9 11.0 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 10.8 4.4 ‐15.8REL TO BSE 8.8 ‐1.9 ‐27.9 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY16 FY17E FY18ENet Sales 57,141 60,151 70,844EBIDTA 8,223 7,784 9,567Net Profit 4,579 4,294 5,583EPS, Rs 112.5 105.5 137.2PER, x 8.5 9.1 7.0EV/EBIDTA, x 5.4 5.3 4.0P/BV, x 1.9 1.6 1.3ROE, % 22.2 17.7 19.1Debt/Equity (%) 30.4 21.7 18.1

Source: PhillipCapital India Research Est.

Nitesh Sharma, CFA (+ 9122 6667 9965) [email protected] Dhawal Doshi (+ 9122 6667 9769) [email protected]

0

100

200

300

400

A‐14 O‐14 A‐15 O‐15 A‐16CEAT BSE Sensex


CEAT LTD INITIATING COVERAGE

Ceat digressing from the industry While the industry has been fighting tooth and nail in the truck and bus segment, Ceat has strategically focused on shifting away from this segment – a move which makes sense as: (1) truck‐bus segment is highly immune to threats from cheaper imports, (2) it is a price‐sensitive segment, thereby diminishing margins and return ratios over the longer term, and (3) cyclicality is very high in the segment.

Focused on consumer‐facing segments Truck‐bus segment now forms only 34% of Ceat’s revenues (58% in FY11), led by its strategic focus on increasing presence in the premium consumer‐facing segments of PVs and 2Ws. Truck segment still forms over 55% of industry sales and competition remains high in this segment. Our checks suggest that realisation (per kg) difference between a CV tyre and a 2W tyre could be as high as 50%, and hence, margins would be sturdier. This has helped the company to boost margins as well as return ratios. Ceat revenue split Industry revenue split


Replacement price premium vs. OEMs across segments Shift in margin and return profile


58%

34% 30%

11%

28% 33%

13%13% 12%

4% 13% 15%

14% 12% 11%

0%

20%

40%

60%

80%

100%

FY11 1QFY17 FY18E

Trucks and Buses 2/3 Wheeler LCV PVs Farm/speciality

CVs 55%

PVs 22%

2W 12%

OTR 3%Tractor 8%

0%

10%

20%

30%

40%

50%

60%

CVs Uvs Cars 2W

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

5%

10%

15%

20%

25%

30%

35% ROE EBITDA Margin (RHS)



Inroads mainly led by R&D and delivering quality products The company has been focused on building a superior brand image and has been consistently investing in research and development activity – this has helped it to roll out quality products and build sustainable brands, crucial in the consumer facing 2W and PV segments. Ceat has upped its allocation on R&D over FY07‐16 to Rs 510mn from Rs 17mn, which helped the company to launch an average of 80 new products each year over the last five years – a feat it had never achieved in its four‐decade history. Focus on research has helped Ceat to enter newer models, enter the PVs segment in FY12, and to cater to OEMs. R&D consistently rising

Source: Company, PhillipCapital India Research New product development


0.00

0.20

0.40

0.60

0.80

1.00

1.20

0

100

200

300

400

500

600

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Rs M

n

Recurring Capital Expenditure % of sales RHS

0

20

40

60

80

100

120

FY12 FY13 FY14 FY15 FY16

New Products developed



Reach and marketing Given its focus on building consumer brands, Ceat has channelled its efforts on effectively communicating and building its brand awareness. It has consistently increased its spend on advertisement and marketing activities to Rs 1,186mn (2.1% of revenues) from Rs 200mn (0.7% of revenues) in FY10. Moreover, apart from print and TV advertisements, it has also channelized its efforts on building a robust distribution network through its franchise model ‘Ceat Shoppe’, which not only sells Ceat’s products, but also adds to the experience and servicing aspect (air‐conditioned showrooms catering to all tyre‐servicing requirements such as wheel alignment, punctures). Advertisement spends have increase by 5x in five years

Source: Company, PhillipCapital India Research Ceat Shoppes now form ~10% of domestic revenues


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

0

200

400

600

800

1000

1200

1400

2010 2011 2012 2013 2014 2015 2016

Rs Mn % of Revenues

0

100

200

300

400

500

600

700

FY12 FY16

Number of Ceat Shoppes Districts Covered



OEM penetration to improve its brand strength In its quest to make a strong aftermarket brand in the PVs and 2W segment, the company started focusing on the OEM segment – this helped it to increase its brand image/recall and also helped in launching superior quality products. Moreover, its internal estimates suggest that there is 30% customer stickiness towards the tyre brand that comes fitted with the vehicle. Ceat is present across large OEMs with the addition of Honda 2Ws as its latest client (last year). OEM segment contribution to revenue has risen to 23% from lows of 13% in FY10 – a staggering 25% CAGR. Ceat has made inroads across major OEMs

Source: Company, PhillipCapital India Research OEM segment revenue has grown at a staggering 25% CAGR


0%

5%

10%

15%

20%

25%

‐

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2010 2011 2012 2013 2014 2015 2016

OEM Revenues OEM % of Revenue



Market share – then and now The right products and investments in brand awareness, distribution, and promotion have led to a substantial market share gain in the consumer 2W and PVs segment. Its share of the PVs segment is now ~10% from nothing in FY11, and its share in 2W has tripled in the same period. With lower competitive pressures and better realisation, we expect this strategy to bear fruit going ahead. Substantial market share gains in strategic segments Contribution to revenues

Source: Industry, PhillipCapital

Ceat has a dominating 27% share in the 2W segment… … and 7% share in the passenger car segment…


0%

5%

10%

15%

20%

25%

30%

Cars UVs 2Ws

2011 2016

0%

5%

10%

15%

20%

25%

30%

FY10 FY12 FY14 FY16

PVs segment 2W segment

MRF 35%

CEAT 27%

TVS Srichakra 22%

Others 16%

MRF 20%

Bridgestone 20%

Ceat 7%

Others 53%



…while its share in the UV segment has risen to 15% from non‐existent


Capacities in the right segments Given the focus on meaningfully increasing PV segment and 2W segment businesses, the company has significantly increased capacities. Its PV capacities are slated to rise by 2.3x and 2Ws by 1.4x through its new capacities in Halol and Nagpur (already commissioned and estimated to be fully ramped up by 1QFY18). New assets to boost topline and earnings


MRF 20%

Bridgestone 20%

Ceat 15%

Others 45%

0

50

100

150

200

250

300

350

400

450

PVs 2Ws OHT/ Others TBR TBB

MTP

D

Current FY18 peak



Details of capacities Total Capacities MTPD MTPY Status Bias only Bhandup 250 87,500 80% Utilization

Nashik (Total) 200 70,000 80% Utilization Nashik (TBB) 90 31,500 Nashik (Farm) 30 10,500 Nashik (PVs radial) 12 4,200 Nashik (OHT and Speciality) 68 23,800

Radial only Halol phase 1 (Total) 150 52,500 Halol P1 (TBR) 80 28,000 Halol P1 (PVs) 70 24,500

New Halol phase 2 (Total) 120 42,000 50MTPD already commissioned. Aims to achieve 120MTPD production by 1QFY18. Halol phase 2 (PVs) 110 38,500 Halol phase 2 (TBR) 10 3,500

New Nagpur (Total) Nagpur (All 2Ws) 120 42,000 20MTPD already commissioned. Aims to achieve 120MTPD production by 1QFY18. OHT ‐ Ambernath 100 35,000 Initially will commission 40MTPD by FY18

Others Sri‐Lanka 60 21,000 Outsourced (mainly 2W, tubes) 300 90,000 Total post expansion 1,300 Current Capacities 960

% Increase 35%

Source: Company, PhillipCapital India Research *MTPD based on approximate peak achievable capacities

Truck and bus‐bias segment to remain sluggish The truck and bus bias segment, which used to form 61% of Ceat’s revenues, has shrunk to 34% recently, mainly as: (1) the company is focusing on consumer segments, and (2) increased preference towards radial tyres. Ceat has seen a 3% compounded decline in revenues in FY13‐16, a trend we expect to continue. It has a total capacity of 340MTPD, with facilities in Bandup (Mumbai) and Nashik. Management aims to shift production facilities (as this segment shrinks) to Nasik from Bhandup, thereby freeing 23 acres of prime land that is valued at over US$ 150mn at current rates. T&B segment revenues to remain sluggish… …while TBB is a fading segment where Ceat still holds fort

Source: Industry, PhillipCapital India Research Estimates

‐10%

‐8%

‐6%

‐4%

‐2%

0%

2%

4%

6%

8%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2013 2014 2015 2016 2017E 2018E

Rs M

n

Truck and Bus Revenues % yoy

MRF 24%

Apollo 21%

Ceat 13%

Others 42%



Exports – sluggishness to fade Exports now contribute 13% of revenues, down from a peak of 22% in FY13 – a sharp decline as the global market was flooded with Chinese players, which led to market‐share losses that were incited further by radialisation in its key export markets. However, exports are likely to improve as additional capacities in the radial segment would lead to reviving exports to a certain extent. Exports under pressure Export split by country


Srilanka JV The company has a 50:50 joint venture with Kelani Holdings having a manufacturing capacity of 61MTPD. Ceat holds a dominating 50% market share in the country, as it is the only company that has manufacturing capabilities – making it the most price‐competitive player. Given low competitive pressures, it has been able to improve margins by retaining RM benefits, despite weak market conditions. Sri Lanka revenues under pressure, but margins continue to expand


0%

5%

10%

15%

20%

25%

‐

2,000

4,000

6,000

8,000

10,000

12,000

2011 2012 2013 2014 2015 2016

Rs M

n

Exports Revenue % of Revenue

Middle East 29%

South East Asia 24%

Africa 18%

South America 17%

Others 12%

0%

5%

10%

15%

20%

25%

30%

2,000

2,050

2,100

2,150

2,200

2,250

2,300

2,350

2,400

2,450

2,500

2012 2013 2014 2015 2016

Srilanka Revenues EBITDA Margin



Volumes growth to be robust Ceat has seen a 6% CAGR in consolidated volumes in FY16‐18, and we estimate it to post a strong 12% CAGR in volumes in FY16‐18 as the company’s strategy bears fruit. We estimate PV segment to post the highest volume CAGR at 30% followed by 2W segment at 25% (where our checks suggest that dealers are stock out and where demand outstrips supply). Volume growth


‐

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2010 2011 2012 2013 2014 2015 2016 2017E 2018E

MT

Trucks and Buses 2/3 Wheeler LCV PVs Farm Speciality



Valuations At the current price, Ceat trades at 7x our FY18 EPS, despite being relatively insulated from cutthroat Chinese competition. We see it easily achieving a 12% EPS CAGR, as it benefits from increased capacities in the key segments and maintains healthy ROE/ROCE (post‐tax) of 20%+. We see current valuations as lucrative, and see potential rerating as its consumer‐facing businesses rise and cross‐cycle margin resilience increases. Initiate with a BUY rating and a TP of Rs 1,375, valuing the company at 10x FY18 earnings.

One‐year forward band charts


3x

6x

9x

12x

0

200

400

600

800

1000

1200

1400

1600

1800(Rs)

P/E band

0.5x

1x

1.5x

2x

0

200

400

600

800

1000

1200

1400

1600 P/BV band(Rs)

2x

4x

6x

8x

0

10000

20000

30000

40000

50000

60000

70000

80000

90000 EV/EBITDA band(Rs mn)

0.2x

0.4x

0.6x

0.8x

0

10000

20000

30000

40000

50000

60000 EV/Sales band(Rs mn)

0.2x

0.4x

0.6x

0.8x

0

10000

20000

30000

40000

50000

60000 Mkt cap/sales band(Rs mn)



Company snapshot Ceat is the fourth largest tyre manufacturer in India with a presence across segments and its own manufacturing capacity of 660MTPD and outsourced capacity of 60MTPD. It has a very strong brand name in the 2W segment with a 27% market share, and has been consistently increasing its share in the PV segment. The company is in the process of expanding capacities by 35% in the focussed consumer‐facing segments. It has a 50% JV partnership with Kelani Holdings in Sri‐Lanka where it dominates with a 50% marketshare. Ceat’s revenue has seen 14% CAGR over FY10‐15 Its margin profile has improved consistently


Return ratios are robust FCF to improve as capex cycle is over


Key risks (1) Volatile rubber prices (2) weak demand outlook (3) growing Chinese imports SWOT analysis Strengths Weaknesses • Robust brand name in PVs and 2W segments • R&D capabilities and fast roll out of new

products • Exposure to emerging market Sri Lanka

• Presence in TBB segment, which is shrinking • Smaller player in a competitive market

Opportunities Threats • Consistently increasing presence in PVs • Exports of radial tyres, where it is lagging

• Increasing competition from Chinese imports • Raw material volatility


‐

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2010 2011 2012 2013 2014 2015 2016 2017E 2018E

INR Mn

Truck and Bus 2/3 WheelerLCV Passenger Cars and UV'sFarm Speciality

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014 2015 2016 2017E2018E

INR Mn

EBITDA EBITDA Margin (RHS)

0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013 2014 2015 2016 2017E 2018E

ROE ROCE (post tax)

0.0

0.5

1.0

1.5

2.0

2.5

‐5,000

‐4,000

‐3,000

‐2,000

‐1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2011 2012 2013 2014 2015 2016 2017E2018E

INR Mn

FCF Debt‐Equity Ratio



Financials

Income Statement Y/E Mar, Rs mn FY15 FY16 FY17e FY18eNet sales 57,521 57,141 60,151 70,844Growth, % 4 ‐1 5 18Other income 0 0 0 0Total income 57,521 57,141 60,151 70,844Raw material expenses ‐35,333 ‐31,689 ‐34,351 ‐40,024Employee expenses ‐3,789 ‐4,088 ‐4,060 ‐4,959Other Operating expenses ‐11,595 ‐13,141 ‐13,955 ‐16,294EBITDA (Core) 6,804 8,223 7,784 9,567Growth, % 3.4 20.9 (5.3) 22.9Margin, % 11.8 14.4 12.9 13.5Depreciation ‐934 ‐1,075 ‐1,217 ‐1,305EBIT 5,870 7,148 6,568 8,262Growth, % 2.7 21.8 (8.1) 25.8Margin, % 10.2 12.5 10.9 11.7Interest paid ‐1,319 ‐907 ‐766 ‐644Other Non‐Operating Income 226 299 328 361Non‐recurring Items 0 0 0 0Pre‐tax profit 4,777 6,539 6,130 7,979Tax provided ‐1,577 ‐1,978 ‐1,855 ‐2,414Profit after tax 3,201 4,561 4,275 5,565Others (Minorities, Associates) 33 18 18 18Net Profit 3,233 4,579 4,294 5,583Growth, % 14.9 41.6 (6.2) 30.0Net Profit (adjusted) 3,233 4,579 4,294 5,583Unadj. shares (m) 41 41 41 41Wtd avg shares (m) 41 41 41 41 Balance Sheet Y/E Mar, Rs mn FY15 FY16 FY17e FY18eCash & bank 1,236 1,073 2,821 5,703Debtors 7,050 6,188 7,335 8,639Inventory 6,801 6,621 4,041 4,709Loans & advances 824 1,478 1,478 1,478Total current assets 15,912 15,359 15,676 20,529Investments 3,124 403 403 403Gross fixed assets 24,183 30,395 34,395 36,895Less: Depreciation ‐8,590 ‐9,412 ‐10,628 ‐11,933Add: Capital WIP 2,290 3,043 3,043 3,043Net fixed assets 17,883 24,026 26,810 28,005Non‐current assets 1,305 1,593 1,593 1,593Total assets 36,975 39,814 42,915 48,963Current liabilities 13,228 12,148 12,584 13,718Total current liabilities 13,228 12,148 12,584 13,718Non‐current liabilities 6,598 6,698 5,698 5,698Total liabilities 19,826 18,847 18,282 19,416Paid‐up capital 405 405 405 405Reserves & surplus 16,418 20,241 23,906 28,820Shareholders’ equity 17,149 20,968 24,633 29,546Total equity & liabilities 36,975 39,814 42,915 48,963 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY15 FY16 FY17e FY18ePre‐tax profit 4,777 6,539 6,130 7,979Depreciation 934 1,075 1,217 1,305Chg in working capital 2,968 ‐903 1,867 ‐837Total tax paid ‐1,475 ‐1,661 ‐1,855 ‐2,414Other operating activities ‐4,880 3,487 766 644Cash flow from operating activities 2,324 8,537 8,125 6,677Other investing activities 495 ‐24 0 0Cash flow from investing activities ‐2,533 ‐7,080 ‐4,000 ‐2,500Free cash flow ‐209 1,457 4,125 4,177Debt raised/(repaid) ‐704 1,400 ‐1,000 0Other financing activities ‐1,237 ‐4,299 ‐1,377 ‐1,295Cash flow from financing activities ‐1,940 ‐2,899 ‐2,377 ‐1,295Net chg in cash ‐2,150 ‐1,442 1,749 2,882 Valuation Ratios

FY15 FY16 FY17e FY18ePer Share data EPS (INR) 79.4 112.5 105.5 137.2Growth, % 14.9 41.6 (6.2) 30.0Book NAV/share (INR) 413.3 507.3 597.3 718.0CEPS (INR) 102.4 138.9 135.4 169.2CFPS (INR) 179.9 123.8 172.7 139.4Return ratios Return on assets (%) 12.7 14.2 12.2 13.5Return on equity (%) 19.2 22.2 17.7 19.1Return on capital employed (%) 19.5 21.3 17.4 18.9Turnover ratios Asset turnover (x) 2.9 2.6 2.3 2.6Sales/Total assets (x) 1.6 1.5 1.5 1.5Sales/Net FA (x) 3.3 2.7 2.4 2.6Working capital/Sales (x) 0.0 0.0 0.0 0.0Receivable days 44.7 39.5 44.5 44.5Inventory days 43.2 42.3 24.5 24.3Payable days 87.2 48.0 47.9 47.7Working capital days 9.2 13.7 1.6 5.7Liquidity ratios Current ratio (x) 1.2 1.3 1.2 1.5Quick ratio (x) 0.7 0.7 0.9 1.2Interest cover (x) 4.5 7.9 8.6 12.8Total debt/Equity (%) 37.2 30.4 21.7 18.1Net debt/Equity (%) 29.9 25.2 10.1 (1.4)Valuation PER (x) 12.0 8.5 9.1 7.0PEG (x) ‐ y‐o‐y growth 0.8 0.2 (1.5) 0.2Price/Book (x) 2.3 1.9 1.6 1.3EV/Net sales (x) 0.8 0.8 0.7 0.5EV/EBITDA (x) 6.5 5.4 5.3 4.0EV/EBIT (x) 7.5 6.2 6.3 4.7



Apollo Tyres (APTY IN) Improving environment, bigger capacities INDIA | AUTO ANCILLARIES | Company Update

6 September 2016

We upgrade Apollo Tyres to BUY from Neutral with a revised TP of Rs 239 (Rs 169 earlier), now valuing the company at 10x FY18 earnings. Our thesis is based on: (1) volume pickup across segments with the sluggish tractor and truck‐bus segments showing strong demand improvement, (2) better product mix and higher utilisation aiding margins, (3) capacity expansion to 2,300MTPD vs. (from 1,645MTPD) by FY19, (4) expectations of rubber prices remaining under pressure. We see Apollo posting an 8% CAGR in earnings in FY16‐18. We now assign a high probability of anti‐dumping/safeguard duties coming into play. Truck‐bus and farm segment forms 58% of APTY's domestic revenues, which would see a strong boost in case of any duties on imports ‐ this would not only lead to a volume boost, but also bring in pricing power and better margins. Volume outlook improving The company posted strong 13% volume growth in 1QFY17 and the management expects this strong double‐digit growth to continue as demand from tractors and truck‐bus segment revives ‐ these segments form 58% of Apollo’s domestic revenues. After speaking to various officials, companies, Chinese importers, and factories, we believe that duties on Chinese TBR could come as soon as December 2016 ‐ this would be a significant positive as it would not only help Apollo to gain back volumes, but also bring pricing power back to the industry, which could lead to a further rerating of the industry. We estimate Apollo to post a 11% CAGR in domestic volume between FY16‐18. Capacity expansion on track The company is in the midst of doubling its capacities in the TBR segment and its new Chennai plant is expected to start commercial production by 3QFY17. In case import duties are imposed, these new capacities would lead to meaningful volume growth. Its European division plant in Hungary is slated to be commissioned by the end of FY17, which would lead to EU margins improving, as labor cost in Hungary is significantly lower. Valuation At current levels, the stock trades at 8x our FY18 earnings. We increase our estimate by 14% and upgrade our stance to BUY with a revised TP of Rs 239, increasing the target multiple to 10x FY18 led by strong volume outlook, rubber prices that do not seem to be entering a bull phase, and a higher probability of import duties on Chinese tyres. Volumes to pick up after a long while


BUY (Upgrade) CMP RS 195 TARGET RS 239 (+23%) COMPANY DATA O/S SHARES (MN) : 509MARKET CAP (RSBN) : 99MARKET CAP (USDBN) : 1.552 ‐ WK HI/LO (RS) : 199 / 128LIQUIDITY 3M (USDMN) : 6.6PAR VALUE (RS) : 1 SHARE HOLDING PATTERN, % Jun 16 Mar 16 Dec 15PROMOTERS : 44.2 44.2 44.2FII / NRI : 34.4 34.2 30.8FI / MF : 7.0 7.7 10.5NON PRO : 5.4 5.6 6.7PUBLIC & OTHERS : 9.0 8.3 7.9 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 20.8 25.3 11.8REL TO BSE 18.8 19.0 ‐0.3 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY16 FY17E FY17ENet Sales 117,930 132,146 144,654EBIDTA 19,682 21,052 23,156Net Profit 10,452 11,091 12,176EPS, Rs 20.5 21.8 23.9PER, x 9.5 8.9 8.2EV/EBIDTA, x 5.4 5.5 4.9P/BV, x 1.6 1.4 1.2ROE, % 16.9 15.4 14.7Debt/Equity (%) 21.8 35.5 22.9

Source: PhillipCapital India Research Est. Nitesh Sharma, CFA (+ 9122 6667 9965) [email protected] Dhawal Doshi (+ 9122 6667 9769) [email protected]

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

100,000

200,000

300,000

400,000

500,000

600,000

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Domesitc Volumes (MT Tons) % yoy

50

90

130

170

Apr‐14 Apr‐15 Apr‐16Apollo Tyres BSE Sensex


APOLLO TYRES COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY15 FY16 FY17e FY18eNet sales 127,852 117,078 131,251 143,714Growth, % ‐5 ‐8 12 9Other income 0 852 895 940Total income 127,852 117,930 132,146 144,654Raw material expenses ‐70,628 ‐59,634 ‐65,692 ‐72,728Employee expenses ‐16,070 ‐15,870 ‐20,410 ‐21,534Other Operating expenses ‐21,848 ‐22,744 ‐24,991 ‐27,236EBITDA (Core) 19,306 19,682 21,052 23,156Growth, % 2.9 1.9 7.0 10.0Margin, % 15.1 16.8 16.0 16.1Depreciation ‐3,883 ‐4,239 ‐4,772 ‐5,283EBIT 15,423 15,444 16,280 17,873Growth, % 5.3 0.1 5.4 9.8Margin, % 12.1 13.2 12.4 12.4Interest paid ‐1,828 ‐916 ‐1,092 ‐1,201Other Non‐Operating Income 538 700 770 847Non‐recurring Items 0 478 0 0Pre‐tax profit 14,133 15,706 15,959 17,519Tax provided ‐3,532 ‐4,776 ‐4,867 ‐5,343Net Profit 10,601 10,930 11,091 12,176Growth, % 0.8 (1.4) 6.1 9.8Net Profit (adjusted) 10,601 10,452 11,091 12,176Unadj. shares (m) 509 509 509 509Wtd avg shares (m) 509 509 509 509 Balance Sheet Y/E Mar, Rs mn FY15 FY16 FY17e FY18eCash & bank 5,946 5,942 8,640 4,730Debtors 9,589 10,843 12,151 13,301Inventory 17,782 19,454 19,798 21,918Loans & advances 4,298 6,886 6,886 6,886Other current assets 376 1,088 1,088 1,088Total current assets 37,991 44,214 48,562 47,923Investments 1,470 1,226 1,226 1,226Gross fixed assets 88,694 93,539 118,539 133,039Less: Depreciation ‐46,009 ‐50,248 ‐55,020 ‐60,303Add: Capital WIP 2,182 9,750 9,750 9,750Net fixed assets 44,867 53,041 73,269 82,486Non‐current assets 1,822 12,159 12,159 12,159Total assets 86,151 111,046 135,622 144,200Current liabilities 15,338 21,054 23,557 27,477Provisions 7,176 6,693 6,693 6,693Total current liabilities 22,513 27,747 30,250 34,170Non‐current liabilities 13,215 21,477 33,477 26,977Total liabilities 35,728 49,224 63,727 61,147Paid‐up capital 509 509 509 509Reserves & surplus 49,914 61,313 71,386 82,544Shareholders’ equity 50,423 61,822 71,895 83,053Total equity & liabilities 86,151 111,046 135,622 144,200 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY15 FY16 FY17e FY18ePre‐tax profit 13,308 15,706 15,959 17,519Depreciation 3,883 4,239 4,772 5,283Chg in working capital ‐2,182 4,155 853 650Total tax paid ‐3,584 ‐2,253 ‐4,867 ‐5,343Other operating activities ‐803 ‐7,375 1,092 1,201Cash flow from operating activities 10,622 14,472 17,807 19,310Capital expenditure ‐6,373 ‐17,154 ‐25,000 ‐14,500Other investing activities ‐1,128 ‐6,760 0 0Cash flow from investing activities ‐7,500 ‐23,914 ‐25,000 ‐14,500Dividend (incl. tax) ‐447 ‐1,302 ‐1,018 ‐1,018Other financing activities ‐1,912 ‐1,005 ‐1,092 ‐1,201Cash flow from financing activities ‐9,966 2,482 9,890 ‐8,719Net chg in cash ‐6,844 ‐6,960 2,698 ‐3,909 Valuation Ratios

FY15 FY16 FY17e FY18ePer Share data EPS (INR) 20.8 20.5 21.8 23.9Growth, % 0.8 (1.4) 6.1 9.8Book NAV/share (INR) 99.1 121.5 141.2 163.2FDEPS (INR) 20.8 20.5 21.8 23.9CEPS (INR) 28.5 27.9 31.2 34.3CFPS (INR) 34.7 37.8 31.3 33.9DPS (INR) 0.9 2.6 2.0 2.0Return ratios Return on assets (%) 13.3 11.7 9.6 9.2Return on equity (%) 21.0 16.9 15.4 14.7Return on capital employed (%) 16.2 14.3 11.7 11.3Turnover ratios Asset turnover (x) 2.2 2.0 1.8 1.7Sales/Total assets (x) 1.4 1.2 1.1 1.0Sales/Net FA (x) 2.8 2.4 2.1 1.8Receivable days 27.4 33.8 33.8 33.8Inventory days 50.8 60.7 55.1 55.7Payable days 29.1 57.6 59.1 65.8Working capital days 47.7 53.7 45.5 39.9Liquidity ratios Current ratio (x) 2.5 2.1 2.1 1.7Quick ratio (x) 1.3 1.2 1.2 0.9Total debt/Equity (%) 15.9 21.8 35.5 22.9Net debt/Equity (%) 4.1 12.2 23.4 17.2Valuation PER (x) 9.4 9.5 8.9 8.2PEG (x) ‐ y‐o‐y growth 11.9 (6.8) 1.5 0.8Price/Book (x) 2.0 1.6 1.4 1.2Yield (%) 0.5 1.3 1.3 1.3EV/Net sales (x) 0.8 0.9 0.9 0.8EV/EBITDA (x) 5.2 5.4 5.5 4.9EV/EBIT (x) 6.6 6.9 7.1 6.4



Annexure Key financials of listed tyre players in India Net Revenues (Rs Mn) 2011 2012 2013 2014 2015 2016Ceat 36,024 46,527 50,522 55,540 57,521 57,141MRF 80,915 106,449 130,618 134,531 146,493 150,143Apollo Tyres 60,010 89,065 94,571 96,909 99,663 97,046TVS Srichakra 11,868 15,106 16,013 18,134 20,603 22,377JK Tyres 52,668 59,845 60,022 65,603 67,844 65,649Balkrishna Industries 19,341 28,200 31,906 35,767 37,799 32,418

Revenue growth Ceat 26.4% 29.2% 8.6% 9.9% 3.6% ‐0.7%MRF 31.5% 31.6% 22.7% 3.0% 8.9% 2.5%Apollo Tyres 10.6% 48.4% 6.2% 2.5% 2.8% ‐2.6%TVS Srichakra 57.5% 27.3% 6.0% 13.2% 13.6% 8.6%JK Tyres 33.1% 13.6% 0.3% 9.3% 3.4% ‐3.2%Balkrishna Industries 39.4% 45.8% 13.1% 12.1% 5.7% ‐14.2%

EBITDA (Rs Mn) Ceat 3.1% 5.9% 8.7% 11.8% 11.8% 14.4%MRF 10.3% 7.6% 9.7% 13.1% 13.2% 19.1%Apollo Tyres 8.3% 7.2% 9.3% 11.1% 13.2% 16.1%TVS Srichakra 8.3% 8.3% 5.3% 6.7% 10.1% 14.5%JK Tyres 5.5% 4.7% 8.1% 10.0% 11.1% 15.1%Balkrishna Industries 19.1% 18.1% 21.0% 25.4% 26.8% 35.9%

EBITDA Margins Ceat 3.1% 5.9% 8.7% 11.8% 11.8% 14.4%MRF 10.3% 7.6% 9.7% 13.1% 13.2% 19.1%Apollo Tyres 8.3% 7.2% 9.3% 11.1% 13.2% 16.1%TVS Srichakra 8.3% 8.3% 5.3% 6.7% 10.1% 14.5%JK Tyres 5.5% 4.7% 8.1% 10.0% 11.1% 15.1%Balkrishna Industries 19.1% 18.1% 21.0% 25.4% 26.8% 35.9%

EBITDA Growth 2011 2012 2013 2014 2015 2016Ceat ‐60.7% 141.2% 60.0% 50.2% 3.4% 20.9%MRF 20.2% ‐2.6% 55.8% 40.1% 9.2% 48.9%Apollo Tyres ‐35.4% 29.3% 36.3% 22.8% 22.1% 18.5%TVS Srichakra 51.3% 26.8% ‐32.0% 44.2% 69.4% 56.2%JK Tyres ‐28.4% ‐3.7% 74.4% 34.5% 14.7% 31.8%Balkrishna Industries ‐6.6% 37.6% 31.3% 35.7% 11.7% 14.6%

ROE Ceat 4% 1% 15% 30% 23% 25%MRF 23% 31% 22% 25% 22% 27%Apollo Tyres 11% 9% 14% 18% 22% 24%TVS Srichakra 39% 31% 23% 25% 43% 57%JK Tyres 9% 2% 16% 17% 26% 32%Balkrishna Industries 25% 28% 29% 30% 23% 22%

ROCE Ceat 9% 11% 18% 29% 26% 29%MRF 24% 29% 23% 29% 27% 33%Apollo Tyres 13% 13% 17% 20% 26% 30%TVS Srichakra 28% 26% 24% 22% 35% 59%JK Tyres 11% 8% 13% 14% 18% 21%Balkrishna Industries 23% 20% 18% 19% 17% 19%

Source: AceEquity, PhillipCapital India Research *MRF’s FY16 financials converted from 18months to 12 due to

year change

*only standalone business financials



Global comparison sheet MCap ____Sales____ ____EBITDA____ ___OPM (%)___ ____EPS____ EPS Growth (%) ____P/E____

Company $ Mn FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18EIndian tyre players MRF 2,362 147,831 167,784 31,882 34,050 21.6% 20.3% 3,957 4,066 ‐ 3% 9.4 9.2Apollo Tyres 1,417 132,237 148,156 20,474 22,581 15.5% 15.2% 21 22 1% 5% 8.8 8.4Balkrishna Industries 1,190 36,721 42,754 9,426 10,893 25.7% 25.5% 53 62 ‐7% 16% 15.5 13.2Ceat 539 60,771 70,295 7,530 9,168 12.4% 13.0% 96 119 ‐16% 25% 9.3 7.5JK Tyres 454 81,489 93,198 12,688 14,481 15.6% 15.5% 19 23 ‐11% 21% 6.9 5.7 Other Auto comps Mahindra CIE 858 61,149 62,851 7,787 8,077 12.7% 12.9% 10 12 ‐ 23% 18.2 14.8Motherson Sumi Systems 6,335 444,522 516,947 44,087 54,822 9.9% 10.6% 12 16 18% 30% 26.0 20.0Exide Industries 2,349 101,959 111,565 12,261 13,935 12.0% 12.5% 9 11 12% 13% 19.9 20.0Bharat Forge 2,986 76,891 87,613 14,170 16,988 18.4% 19.4% 29 38 3% 30% 29.4 22.8Bosch 11,326 115,564 142,000 21,354 27,806 18.5% 19.6% 489 641 24% 31% 49.3 37.6Minda IND 329 10,563 11,081 872 762 8.3% 6.9% 19 50 ‐72% 160% 72.6 28.0RK Forgings 172 11,094 13,277 2,195 2,714 19.8% 20.4% 25 37 27% 50% 16.1 10.7Gabriel 256 15,977 18,152 1,495 1,791 9.4% 9.9% 6 7 11% 20% 20.3 16.9Sona Koyo 182 16,853 18,538 2,065 2,352 12.3% 12.7% 2 3 24% 32% 32.3 24.5WABCO India 1,756 23,295 27,385 4,237 5,072 18.2% 18.5% 155 188 48% 22% 40.0 32.9TVS Srichakra 299 25,850 29,109 3,443 3,851 13.3% 13.2% 231 267 ‐5% 15% 11.3 9.8Average 4% 31% 23.9 17.3 Global tyre players Bridgestone 28,217 3,556,477 3,672,334 681,323 708,011 19.2% 19.3% 354 385 1% 9% 10.1 9.3Michelin 19,349 21,797 22,585 4,236 4,480 19.4% 19.8% 8 9 4% 10% 11.3 10.3Goodyear 7,661 15,960 16,316 2,678 2,709 16.8% 16.6% 4 4 26% 2% 7.3 7.1 Other global component players French Players Faurecia 5,624 19,865 20,625 1,628 1,738 8.2% 8.4% 3 4 23% 9% 10.5 9.6Compagnie Plastic Omnium 4,962 7,187 7,513 900 970 12.5% 12.9% 2 3 12% 20% 13.1 10.9Valeo 12,580 17,589 18,621 2,259 2,452 12.8% 13.2% 4 4 8% 12% 12.7 11.4 German Players Continental AG 42,479 42,606 44,717 6,858 7,222 16.1% 16.2% 15 17 10% 7% 12.3 11.5Leoni AG 1,222 4,568 4,727 330 368 7.2% 7.8% 2 3 ‐3% 56% 16.3 10.5ElringKlinger AG 1,100 1,643 1,730 264 292 16.1% 16.9% 1 2 ‐1% 21% 11.0 9.1 Other Europe CIE Auto 2,485 3,198 3,399 477 521 14.9% 15.3% 1 2 13% 22% 13.7 11.3SKF AB 7,679 73,638 75,726 10,434 11,061 14.2% 14.6% 10 11 ‐18% 12% 14.5 13.0 NA Players Wabco Hondings 5,935 2,969 3,157 526 580 17.7% 18.4% 6 6 2% 9% 18.6 17.0Magna International Inc. 15,682 38,074 41,627 3,938 4,348 10.3% 10.4% 5 6 16% 13% 7.7 6.9Autoliv 9,292 10,855 11,509 1,363 1,485 12.6% 12.9% 7 7 ‐8% 9% 15.8 14.4BorgWarner 7,424 9,534 9,974 1,571 1,637 16.5% 16.4% 3 4 9% 10% 10.7 9.7Federal‐Mogul 1,540 7,725 7,970 776 815 10.0% 10.2% 1 1 144% 20% 8.9 7.4Lear Corp. 8,310 19,451 19,585 1,924 1,963 9.9% 10.0% 13 14 23% 6% 8.7 8.2Gentex Corp. 5,085 1,832 2,015 646 729 35.2% 36.2% 1 1 11% 9% 14.8 13.5Johnson Controls Inc. 28,211 38,029 40,747 4,657 5,095 12.2% 12.5% 4 4 31% 4% 11.2 10.7Visteon Corp. 2,413 3,317 3,526 355 397 10.7% 11.3% 4 5 268% 5% 15.9 15.1Delphi Automotive PLC 19,194 17,545 18,712 3,090 3,335 17.6% 17.8% 6 7 15% 12% 11.7 10.5 Japanese Players Denso 33,180 4,442,650 4,608,011 547,381 593,966 12.3% 12.9% 285 315 ‐8% 11% 15.1 13.7Aisin Seiki 14,074 3,415,752 3,562,966 385,474 420,824 11.3% 11.8% 337 382 5% 13% 14.6 12.9Average 10,795 16,262 17,296 2,035 2,201 15.0% 15.3% 57% 10% 11.7 10.7

Source: Bloomberg, PhillipCapital India Research *all data except market cap in local market currency



Stock Price, Price Target and Rating History – Apollo Tyres

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

N (TP 71)

N (TP 125)

S (TP 160)S (TP 160)

B (TP 225)B (TP 225)

N (TP 159)

N (TP 159)

N (TP 169)

30

80

130

180

230

280

A‐13 O‐13 N‐13 J‐14 F‐14 A‐14 J‐14 J‐14 S‐14 O‐14 D‐14 F‐15 M‐15M‐15 J‐15 A‐15 S‐15 N‐15 D‐15 F‐16 A‐16 M‐16 J‐16 A‐16



Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 RafflesCityTower,

Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku

Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research IT Services Pharma & Speciality Chem

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996Banking, NBFCs Infrastructure StrategyManish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Anindya Bhowmik (9122) 6667 9764Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap TelecomConsumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 TechnicalsPreeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762Cement Dhawal Doshi (9122) 6667 9769 Production ManagerVaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966Economics Mid‐Caps & Database Manager EditorAnjali Verma (9122) 6667 9969 Deepak Agarwal (9122) 6667 9944 Roshan Sony 98199 72726Engineering, Capital Goods Oil & Gas Sr. Manager – Equities SupportJonas Bhutta (9122) 6667 9759 Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971Vikram Rawat (9122) 6667 9986

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974Ashka Mehta Gulati (9122) 6667 9934 ExecutionArchan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles



Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of thecompany(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.



Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient.

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer. If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Documents

INSTITUTIONAL EQUITY RESEARCH Auto Ancillariesbackoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Auto... · exposure to the highly price‐sensitive commercial vehicle segment