Macquarie - India Auto Sector

8/10/2019 Macquarie - India Auto Sector

1/102

~~ o~

Preparing for the ascent

Amit Mishra, CFAMacquarie Capital Securities (India) Private Limited

92, 2 nd North Avenue, Maker Maxity, BKC, Mumbai, India

+91 22 6720 [email protected]

October 2014Macquarie Research is a division of Macquarie Group Limited, an affiliate and parent company of Macquarie Capital (USA) Inc., a registered broker - dealerand member of The Financial Industry Regulatory Authority (FINRA). All transactions by U.S. investors involving securities discussed in this report must beeffected through Macquarie Capital (USA) Inc., which assumes responsibility in the U.S. for the contents of this report.

.analyst with FINRA, but instead have satisfied the registration/qualification requirements or other research-related standards of a foreign jurisdiction that havebeen recognized for these purposes by FINRA.

Please read Disclaimer on Page 99-101


2/102

Time to recalibrate Buy Tata, Maruti and Eicher Improvement in GDP growth, declining fuel prices and stable interest rate

Maruti Suzuki best placed if macro improves; underappreciated franchiseJLR preparing for next surge new models, China plant, engine production

M&M long-terms gains outweigh near-term risks

-

Ashok Leyland - future unlikely to be as robust as past

Ro al Enfield in 5 th ear and still acceleratin market share ains likel in CV

Company CMP (LCY) TP (LCY) RatingMarket Cap

(US$mn)Fwd P/E

(FY15E) (x )Fwd P/E

(FY16E) (x )EV/EBIDTA(FY15E) (x)

EV/EBIDTA(FY16E) (x)

DividendYield (%)

Tata Motors 505 700 Outperform 26,195 8.3 6.8 4.5 3.9 0.4% , , . . . . .

Mahindra & Mahindra 1,359 1475 Outperform 13,736 16.7 13.8 10.9 9.0 1.0%Eicher Motors 11,707 13650 Outperform 5,143 44.4 28.1 26.9 17.4 1.1%Hero MotoCorp 2,812 2750 Neutral 9,136 20.6 17.9 14.0 12.0 2.5%

Ashok Leyland 43 27 Underperform 1,973 NM 42.3 28.8 16.3 0.2%

Page 2Source: Bloo mberg, Macquari e Research, October 2014. Prices as of 7 th October 2014

, , . . . . .TVS Motors 219 NA NR 1,693 28.2 19.6 16.9 12.7 0.5%

Average 14.5 11.7 8.6 7.2 0.5%


3/102

Where do we stand in the demand cycle?Domestic Car Sales growth to turn pos itive in FY15E Utility Vehicle growth led by launch of slew of new models

CV sales to tu rnaround in 2HFY15E after two years of decline2W sales growth Structural weakness to cont inue

Page 3Source: SIAM, Macquarie Research, October 2014


4/102

Macro headwinds have started to recedeStable lending rate supporting car sales recovery GDP growth is likely to improve to 6.5% in FY16E

8.5

7.5

9.5 9.6 9.3

6.7

8.4 8.4

6.5 6.5

%

13.514.0

14.5

15.0

40%50%

60%

70%

4.4

5.8

3.84.5 4.7

5.4

11.0

11.5

12.0

12.5

13.0

-10%

0%

10%

20%

30%

CV sales have high correlation with industrial growthPetrol price has started to moderate

FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15E

10.0

10.5

-30%

-20%

Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13

Car sales growth (LHS) SBI PLR (RHS)

30

35

40

45

10.0%

15.0%

20.0% '000

6065

70

75 Rs/L

Rs9/L

10

15

20

25

-5.0%

0.0%

5.0%

Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12

30

35

40

45

50

Page 4

Source: Bloomberg , Macquarie Research, October 2014

0-10.0%

M&HCV sal es IIP Gro wth

Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14

Diesel Price Petrol Price


5/102

Truck freight rates have improvedFleet utilization has improved from 60 in Jan-14 to 70-75 in Sep-14

Price of old trucks (>5 years) dropped 25-30 in last two years, but has started torecover gradually nowecover gradually now

Freight rates have improved since Dec-13 due to demand from agri-sector

Replacement demand has improved in medium and heavy duty truck segments

Freight rate and diesel price changes (indexed to 100)

Replacement demand has improved in medium and heavy duty truck segments

Freight rate hike has been lower than past averages

143

14%

16% 16%

10%

12%

14%

16%

18%

118

123

128

133

138

9%8%

4%

7%

9%

3% 3%4%

2%

4%

6%

8%

98

103

108

113

13 Sep 2 Mar 1 May 2 Jun 2 Aug 1 Oct 1 Feb 1 Apr 2 Jun 3 Aug 2 Oct

Page 5

Source: IFTRT, Macquarie Research, October 2014

0%FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

ese r ce e - um a e - anc e - enna


6/102


7/102

The year ahead turnaround in auto demandBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EBus segment sales to decline 3% in FY14EM&HCV Passenger segment M&HCV Goods segment

LCV sales to decline 14% in FY14ELCV sales to decline 14% in FY14ELCV sales to decline 14% in FY14ELCV sales to decline 14% in FY14E Three-wheelersLCV se ment

Page 7

Source: SIAM, Macquarie Research, October 2014


8/102

How have auto stocks erformed?Easy money has been made, stock selection will be key for outperformance

Auto stocks are early cycle outperformers, among the best performing sectors YTDStock prices are already factoring in the cyclical recovery in demand across sectors

Our stock preference is based on structural factors Tata Motors vs Bajaj Auto

Indian auto stocks have outperformed broader markets Tata Motors (JLR) has outperformed European peers

330TTMT has stronglyoutperformed165

175

180

230

280

125

135

145

155

80

130

Sep-11 Jan -12 May-12 Sep -12 Jan -13 May-13 Sep -13 Jan -14 May-14 Sep -1485

95

105

115

J an -14 F eb- 14 Mar -14 Ap r-14 May -14 J un -14 J ul -14 Aug -14 Sep -14 O ct- 14

Page 8


TTMT MSIL MM BJAUT HMCL NIFTY


9/102

Stocks are at premium to historical valuationsMaruti Suzuki Mahindra

18.00

20.00

22.00

16.0

18.0

20.0

10.00

12.00

14.00

16.00

8.0

10.0

12.0

14.0

Hero MotoCorp Bajaj Auto

8.00J an -04 J ul -05 J an -07 J ul -08 J an -10 J ul -11 J an -13 J ul -14

MSIL - PER valuation Average

6.0Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11 Jan-13 Jul-14

M&M - PER valuation Average

15.016.0

17.018.019.0

16.0

17.0

18.0

9.010.011.012.013.0

.

13.0

14.0

15.0

Page 9Source: Bloomberg, Macquarie Research, October 2014

Jan -04 Jul -05 Jan -07 Jul -08 Jan -10 Jul -11 Jan -13 Jul -14Hero - PER valuation Average

12.0May-09 May-10 May-11 May-12 May-13 May-14

Bajaj - PER valuation Average


10/102

Stocks are at premium to historical valuationsTata Motors Ashok Leyland

24.0

29.0

54.0

64.0

9.0

14.0

19.0

14.0

24.0

34.0

44.0

Eicher Motors TVS Motors

4.0Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13TTMT - PER valuation Average

4.0Jan-04 Jul -05 Jan-07 Jul -08 Jan-10 Jul -11 Jan-13 Jul -14 AL - PER valuatio n Average

23.0

28.0

33.0

19.0

21.0

23.0

25.0

8.0

13.0

18.0

7.0

9.0

11.0

13.0

15.0

.

Page 10Source: Bloomberg, Macquarie Research, Octob er 2014

.

Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14EIM - PER valuation Average 5.0

.

Jan -04 Jul -05 Jan -07 Jul -08 Jan -10 Jul -11 Jan -13 Jul -14

TVS - PER valuation Average


11/102

, , ,

Page 11


12/102

Tata Motors is our top pick in the sector Premium car makers offer superior growth and margins

TTMT is one of our to icks in the lobal remium car s aceJLR business should be operationally stronger in the next five years

Volume per platform to rise 60k in FY14 to 200k by FY19

verse manu ac ur ng , na, raz , au ra a, n a

Indian truck business meaningful recovery expected in next six monthsCapex and R&D spend to be funded from operating cash flows

TTMT quotes at 8.3x FY16E PER (assuming 100% R&D expensing)

Page 12


13/102

Premium car makers: The sweetest iece of the ieWe estimate premium brands will sustain above-average

> - , . .premium segment)

,vs about 5%

pricing power is more important for success than scale

urrency sw ngs mean p ay ng e s never a orsc e,JLR, BMW are most sensitive

Page 13

Our global top premium brand picks are Daimler and Tata


14/102

Premium brands offer higher growth potential:2013-2018E: >7% CAGR vs. 5% for non-premium

8.5%

9.0%

100

120

Global light vehic le sales & premium brands* sharePremium and Luxury brands 1996, 2012 and 2018E

10,000,000

Annualized growt h rat e

6.0%

6.5%

7.0%7.5%

.

40

60

80

i n m n u n

i t s

4,000,000

6,000,000

, ,

+6.5%

Annualized growth rate1996 -2012

-

+7.2%

4.5%

5.0%

5.5%

0

20

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

0 1 3 E

0 1 4 E

0 1 5 E

0 1 6 E

0 1 8 E

0

2,000,000

1996 2012 2018E

+6.5%

- 0.9%

+6.3%+11.2%

Prem ium N on-prem ium Prem ium in % of total (rs)

Source: L MC, Macquarie Research, October 2014*following brands are included: Acura, Audi, Bentley, BMW, Cadillac,Infiniti, Jaguar, Land Rover, Lexus, Lincoln, Mercedes, Mini, Porsche,

Source: L MC, Macquarie Research, October 2014

US premium Asia premium European premium

Page 14

o s oyc e.


15/102

China income distr ibution 2010 and 14 years out (assuming 7.5% annual income growth)

90100

Households not in thenew car market

Households in the marktet for volume cars

Householdspotentially buyingpremium cars

4050607080

h o u s e

h o l d s

0

102030

% o

f

> 8 0

0 0 0

> 7 6

0 0 0

> 7 2

0 0 0

> 6 8

0 0 0

> 6 4

0 0 0

> 6 0

0 0 0

> 5 6

0 0 0

> 5 2

0 0 0

> 4 8

0 0 0

> 4 4

0 0 0

> 4 0

0 0 0

> 3 6

0 0 0

> 3 2

0 0 0

> 2 8

0 0 0

> 2 4

0 0 0

> 2 0

0 0 0

> 1 6

0 0 0

> 1 2

0 0 0

> 8 0

0 0

> 4 0

0 0 >

Rmb household income

Page 15

Income distribution 2010 Future income distribution year 2024

Source: Macquarie Research, Octob er 2014


16/102

Chinese households able to bu new remium car

35

40

45

20

2530

h o u s e

h o l d s

12% p.a.growth

5

10

15 % o

15% p.a.growth

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Years

Potential volume car buyers RMB 160k to 560k household income (% of total households)

Page 16

Potential premium car buyers above RMB 560k household income (% of total households)



17/102

PV penetration very low in many parts of China

Page 17



18/102

Market share of premium brands in Europe

Page 18

Source: LMC, company informatio n, Macquarie Research, October 2014


19/102

W. European market shares 1996, 2001, 2007 & 2012

Page 19

Source: LMC, company informatio n, Macquarie Research, October 2014


20/102

Growth driver 3: Im rovin affordabilit ofpremium brands Compact

premium3%

Full-size luxurycar

7%

Compact

Mid-size luxurycar

36%Product offering of German premium OEMs 1996 and 2012

Model mix1996 (total of1.8m units,BMW,Mercedes

premium sedan54%

CompactOther

Audi ) Aud i BMW Merced es Aud i BMW Merc edesSub-compact premium - - - A1 Mini SmartCompact premium A3 - - A3 1 series A + B-ClassCompact premium sedan A4 3 series C-Class A4 3 series C-ClassMid-size luxury car A6 5 series E-Class A6 5 series E-ClassFull-size luxury car A8 7 series S-Class A8 7 series S-Class

Compact SUV - - - Q3 X1 GLA*

premium13%

Compact

Mid-size SUV10%

Full-size SUV6%

Source: Company information, Macquarie Research, January 2014 Model mix 2012(total of 4.8m

-s ze - - - - assFull-size SUV - - - Q7 X5 M-ClassCoups, 4 door coups,convertibles

- - - A7 6 series CLS

*launch 1Q14

22%

Mid-size luxur

Sub-compactpremium

Convertible3%

Compact SUV5%

, ,Mercedes, Audi )

Page 20

car

18%

11% -

car 3%

Source: LMC, company information, Macquarie Research, October2014

Source: LMC, company information, Macquarie Research, October2014


21/102

Jaguar Land Rover Preparing for next surge

Page 21


22/102

JLR Preparing for next surgeJLR sold 430k cars in FY14, aims to sell 750k in 2018 (and eventually 1.0m)

We think these targets will be achieved earlier than forecastWe project 18% sales CAGR over next five years, driven by i) entry into highvolume segments and ii) start of local manufacturing in China

FY14 and we expect it to decline to 2.6 years in FY17E

750

900 mn

.

5.06.0

7.0

8.0

150

300

450

1.0

2.0

3.0

4.0

Page 22

-FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E FY19E

Jaguar Land Rover

Source: Company Data, Macquarie Research, October 2014

.

FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20ELan d Ro ver Jag uar To tal JLR


23/102

JLR new models to drive stron rowthJLR sales volumes growth to be driven by China localisation and new models

800,000

, ,

400,000

600,000

-

200,000

r

F Y 1

F r e e l a n

d e

E v o q u

D i s c o v e r

a n g e

R o v e

R R S p o r

D e f e n

d e X

F X J

X

F - T y p X

E

J a g

c r o s s o v e

E v o q u e

X

S u b - E v o q u

F Y 1 9 E

Page 23Source: Company Data, Macquarie Research, October 2014


24/102


25/102

Land Rover portfolio to expand from 6 to 8 modelsLand Rover has a 19% share of the global premium SUV market

Market share is high in UK, Brazil, China, but lags in W Europe and USA

Over the next five years, LR will launch two new models and replace twoexisting models

-

SUV market Luxury, Leisure and Dual-purposeDiscovery Sport model sales to commence in 1Q2015Land Rover sales volumes to double over the next five years

500,000

600,000

700,000

100,000

200,000

300,000

,


-

FY14 FY15E FY16E FY17E FY18E FY19EFreelander Evoque Discovery Range Rover Range Rover Sport Evoque XL Sub-Evoque Defender


26/102

Jaguar portfolio to expand from four to six modelsJaguar accounts for 1% of the global premium sedan market, competes withwell entrenched players like Audi, BMW, Mercedes-Benz

JLR is entering two new volume segments D segment sedan and compactcrossover

Rationalize platforms from three to two despite addition of two new modelsJaguar Crossover will be launched in 2015Jaguar sales volumes to nearly t riple over next f ive years

150,000

200,000

-

50,000

100,000


FY14 FY15E FY16E FY17E FY18E FY19EXF XJ XK F Type XE New crossover


27/102

Jaguar XE will sales meet expectations?It is a large volume segment with annual sales of 1.6 2.0m units, 4%market share will double Jaguars current volumes

,

Only model in the segment to offer Aluminum chassis best in class fuelefficiency and CO2 emissions

XEs success has huge implications for Jaguars ability to fulfill its modelplan for the futureJaguar Crossover will be launched in 2015German premium car makers have 80% share of th is segment

BMW30%

GM

Honda

1%Toyota

10%

Ford3%

Geely4%

Audi27%

2%


Daimler 23%


28/102

Jaguar XE will sales meet expectations?Jaguar XE comparison of specifications with the key competing models

Engine & Transmission Engine capaci ty (cc) Max Power PS Max Torque N-m 0-100kmph (sec) Fuel consumption mpg combined CO2 (g /km) EU combined cyc le

Jaguar XE2.0 Diesel 163 1,999 163 380 8.4 75.0 99

2.0 Diesel 180 1,999 180 430 7.8 67.3 109. , . .

2.0 Petrol 240 1,999 240 340 6.8 37.7 1793.0 Petrol 340 2,995 340 450 5.1 34.9 194

Mercedes ClassC200 Diesel 1,991 184 300 7.5 53.3 123C220 Blue TEC Diesel 2,143 170 400 7.7 70.6 103

ue ese , . .C200 Blue TEC Diesel 1,598 136 320 9.7 72.4 102

C300 Blue TEC (Diesel Hybrid) 2,143 204 500 6.4 78.5 94C300 4MATIC Petrol 2,143 241 370 NA 26.0 NAC400 4MATIC Petrol 3,000 329 480 NA 23.0 NA

Aud i A4. ese , . .

1.8TFSI Diesel 1,798 170 320 8.1 49.6 1341.8TFSI Diesel 1,798 170 320 8.3 48.7 1342.0TFSI quattro Diesel 1,984 225 350 6.4 42.2 155S4 quattro Diesel 2,995 333 440 5.0 36.7 178

2.0TFSI Premium Petrol 1,984 220 350 6.6 27.0 NA

BMW 3 Series316d 1,995 116 260 10.9 62.8 118316i 1,598 136 220 8.9 47.9 137318d 1,995 143 320 9.0 62.8 118320d 1,995 163 380 8.0 68.9 109320i 1,997 184 270 7.3 46.3 147325d 1,995 218 450 6.8 57.6 129


328i 1,997 245 350 5.9 44.1 149

330d 2,993 258 560 5.6 57.6 129335d 2,993 313 630 4.8 52.3 143335i 2,979 306 400 5.5 35.8 186


29/102

Capacity constraints to ease in 2HFY15E

Page 29



30/102

JLR ainin market share across all marketsJaguar Land Rover market share of the premium car segment

Market Share 2010 2011 2012 2013Europe 5.1% 4.9% 6.2% 6.7%Western Europe 4.8% 4.6% 5.9% 6.3%Eastern Europe 8.3% 8.5% 9.3% 9.1%Russia 12.6% 12.4% 13.3% 12.6%NAFTA 2.9% 3.1% 2.9% 3.3%USA 3.0% 3.2% 3.0% 3.3%South America 9.2% 10.5% 12.3% 12.5%

. . . . Asia-Paci fic 3.5% 3.9% 5.5% 6.2%China 3.7% 4.1% 6.0% 6.7%

India 1.5% 2.7% 9.8% 10.0%apan . . . .

Korea 3.3% 3.7% 4.1% 5.3%Other 7.9% 7.8% 10.9% 10.3%Total 4.2% 4.3% 5.1% 5.6%

Page 30

Source: LMC, company information, Macquarie Research, October 2014


31/102

JLRs China JV to aid faster growthJLR and Chery formed JV to manufacture Jaguar and Land Rover vehicles

Production to commence at JVs plant at Changshu (China) in 4Q2014

JV will manufacture Evoque, Discovery Sport and Jaguar XF models

These three models sold 55,000 units in China in FY14, we expect sales to

JLR pricing will get more competitive post localization

JLR will get 4% royalty from JV as well as make profits from sale of parts

290260

360

291

325

420400

300

350

400

450Model s MSRP LTM Sales

Freelander Imported 398,000 20,000 Audi Q3 Localised 285,000 69,101BMW X1 Localised 259,000 35,312

141 150160

49

166

210185

59

207 205

86115

167

50

100

150

200

250 , ,

Audi Q5 Localised 358,500 107,185Mercedes GLK Localised 418,000 51,231

XF Imported 550,000 9,000 Audi A6 Localised 383,000 159,438BMW 5 Series Localised 435,600 131,851Mercedes E Class Localised 443,000 53,305


0

Mercedes BMW Audi JLR2009 2010 2011 2012 2013


32/102

JLRs China JV implications of profitabilityScenario 1: All impor ts

Volumes sold 28,000 JLR-Chery JVVolumes sold 28,000

JLR-Chery JVVolumes sold 42,000

Scenario 2: Localized but no growth Scenario 3: Localized and 50% growth

Realisation 31,553

Revenues 883

RM Cost 618

Realisation 33,530

Revenues 939

RM Cost 744

Realisation 33,530

Revenues 1,408

RM Cost 1,082

EBITDA 159 EBITDA margin 18%

- Sourced from JLR UK 404

- Other 340 Royalty paid to JLR UK 38 Other costs 106

- Sourced from JLR UK 605

- Other 476 Royalty paid to JLR UK 56 Other costs 127

EBITDA margin 5%

JLR-UK

EBITDA margin 10%

JLR-UK

Royalty from JV 38 Components sold to JV 404 Margin on sales of components 125

Share of profits of JV 26

Royalty from JV 56 Components sold to JV 605 Margin on sales of components 185

Share of profits of JV 72


Total profits 189 Total profits 313


33/102

Land Rover winnin over the China luxur car bu er

JD Power China APEAL Stud 2013JD Power China APEAL Study 2012

780 800 820 840 860 880 900

AudiBMW

780 790 800 810 820 830 840 850

Land Rover Audi

exusMercedes-BenzBeijing HyundaiDongfeng Honda

BuickGAC Toyota

Don fen Yueda Kia

-Volvo

CadillacBMWLexus

Beijing HyundaiVolksw agen

SubaruShanghai VW

FAW VWFAW Toyota

Guangqi HondaSkoda

ong eng ue a aLuxgenSubaruRenault

GAC ToyotaFAW Volksw agenDongfeng Honda

SGM-ChevroletChangan Ford

Dongfeng PSADongfeng Citroen

FAW MazdaIndustry average

ang a o sw agenSkoda

FAW MazdaSGM Chevrolet

Dongfeng PeugeotZhonghua

Industr avera e

Page 33

Source: JD Pow er, Macquarie Research, October 2014


34/102


35/102

Will JLR make rofits on sellin Ja uar XE?JLR has spent 1.5bn on the new platform and associated manufacturingcapacities for Jaguar XE

series, Audi A4, Mercedes C Classic

XE is based on an expensive aluminum platform, cost of manufacturing isalso higher for aluminum based cars

JLR will have to spend in marketing and promotional activities to sell this car

,

iQ Al platform will underpin three more Jaguar models in future

,based on this platform will be over 200k

At these volume levels and with models spanning price points of 27,000 to

Page 35

, , we e eve s p a orm w ecome pro a e or e company


36/102

Market mix will im rove over next five ears51,483

50,000

75

80

85

'000

Average realizations for JLR in var ious markets Range Rover net realized price in key markets

39,40437,585

36,005

42,178

40,000

45,000

55

60

65

70

30,000

35,000

China UK USA Europe RoW35

40

45

China UK USA Europe

Share of China sales is likely to rise over next f ive years

28

30

32

'000

60%

70%

80%

90%

100%

20

22

24

26

10%

20%

30%

40%

50%

Page 36

16

18

China UK USA Europe

0%FY14 FY15E FY16E FY17E FY18E FY19E

China UK North Ameri ca Europe RoWSource: Company in formation, Macquarie Research, October 2014


37/102

China and US markets have a rich model mix

9.6%

9.1% 6.4% 6.1% 14.3% 10.8%90%

100%

16.7%

10.9%7.4%

15.2%

13.8%.

29.4%

14.5%

70%

80%

30.7%

26.5%45.5%

28.8%12.2%50%

60%

19.6%

16.9%

10.9%5.7% 18.8%

17.7%

20%

30%

40%

3.6%

17.1%10.1% 10.0%

5.6%6.2%

.

1.6%8.1%

3.6%

0%

10%

Page 37

na urope or mer ca o

XF XJ XK F-Type Defender Freelander Evoque Discovery RR Sport RRSource: Company information, Macquarie Research, October 2014


38/102


39/102

How will mar ins com are if 100% R&D is ex ensed FY14 FY15E FY16E FY17E FY18E

Revenue 19,386 21,404 24,835 30,255 36,093 Product development expense as % Revenue 6.5% 7.0% 6.8% 6.4% 5.7%

Total product development cash expense (A) 1,266 1,500 1,700 1,925 2,075 Capitalised 1,030 1,150 1,275 1,400 1,475 Charged to P&L (B) 236 350 425 525 600 % of R&D cost capitalised 81% 77% 75% 73% 71%

Amortised through P&L (C) 489 593 709 835 969 Total expensed through P&L (D=B+C) 725 943 1,134 1,360 1,569 Total expensed as % of cash expenses (D/A) 57% 63% 67% 71% 76%

Reported EBIT 2,518 2,723 3,034 3,712 4,391 Re orted EBIT Mar in 13.0% 12.7% 12.2% 12.3% 12.2% . . . . .

EBIT pre R&D expense and amortisation 3,199 3,666 4,168 5,072 5,960 Total product development cash expense 1,266 1,500 1,700 1,925 2,075

Adjus ted EBIT 1,933 2,166 2,468 3,147 3,885 Adjus ted EBIT margin 10.0% 10.1% 9.9% 10.4% 10.8%


Reported PAT 1,776 2,095 2,411 2,991 3,571 Adjus ted PAT 1,337 1,669 1,973 2,554 3,179

Page 39


40/102


41/102

JLR benchmarkin R&D s end

14%

16%7.5%%

R&D cash-out as a % of automotive revenues JLRs capital investments as % of sales

4%

6%

8%

10%

12%

4.5%

5.5%

.

0%

2%

FY10 FY12 FY14 FY16E FY18E FY20E

R&D Cost as % of sales Other capital investments as % of sales

2.5%

3.5%

2006 2007 2008 2009 2010 2011 2012 2013

Daimler VW BMW Renault PSA Fiat JLR

70%

80%

90%

100%

4.0%

5.0%

6.0%

7.0%% of sales

of R&D cash-out

erence etween state an a uste marg ns

30%

40%

50%

60%

-1.0%

0.0%

1.0%

2.0%

3.0%

Page 41

10%FY10 FY12 FY14 FY16E FY18E FY20E

% R&D spend charged to P&L % R&D spend capitalised

-2.0%Q1 06 Q4 06 Q3 07 Q2 08 Q1 09 Q4 09 Q3 10 Q2 11 Q1 12 Q4 12 Q3 13

Daimler VW BMW Renault PSA Fiat JLRSource: Company information, Macquarie Research, October 2014


42/102

Positive FCF des ite hi h ca ital investment

8.0%

4,000

4,500

R&D spend to rise, but likely to peak in terms of % of sales JLR to fund higher capital investments from operating CF

6.5%

7.0%

7.5%

1,000

1,500

,

2,000

2,500

3,000

3,500

5.0%

5.5%

.

0

500

FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E FY19E FY20E

R&D Spen ds R&D Co st as % of sales

-

500

1,000

,

FY11 FY12 FY13 FY14 FY15E FY16E FY17E

pera ng cas - ow or ng ap a c anges ap a nves men s

mn Facility amount Outstanding Undrawn First call date500m 8.25% Senior Notes due 2020 500 500 Mar-16

JLR debt position as of 30 th June 2014

400m 5% Senior Notes due 2022 400 400 NA$410m 8.125% Senior Notes due 2021 241 241 May-16$500m 5.625% Senior Notes due 2023 293 293 Feb-18$700m 4.125% Senior Notes due 2018 411 411 NARevolving 3 and 5 year credit facility 1,325 - 1,325

Page 42

Total 3,376 2,013 1,363

Source: Company information, Macquarie Research, October 2014


43/102

0.75

USD-GBP currency rateFX Sens itivity 1% depr eciation in GBP Bas e r ate 1% appreciation in GBPSales

RMB sales 34.8 34.5 34.2

0.65

0.70. .

US$ sales 15.2 15 14.9GBP sales 15.4 15.4 15.4EUR sales 15.6 15.4 15.2BRL sales 3 3 3RUB sales 6.1 6 5.9

0.55

0.60

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

GBP USD currenc y rate

ZAR sales 2.5 2.5 2.5Other sales 8.2 8.2 8.2Total s ales 100.8 100 99.2

Expenses

0.11

0.11

0.11

EUR-GBP currency rate expenses . 2.6 2.6

US$ expenses 1.1 1.1 1.1GBP expenses 49.3 49.3 49.3EUR expenses 28.3 28 27.7

BRL expenses 0.2 0.2 0.2RUB ex enses 0.5

0.10

0.10

0.10

0.10

. . . .ZAR expenses 0.2 0.2 0.2Other expenses 0.6 0.6 0.6Total expense 82.8 82.5 82.2

EBITDA 17.9 17.5 17.1

Page 43

0.09

0.09

.

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

GBP CNY currency rate Source: Bloo mberg, Macquarie Research, October 2014

EBITDA Mar gin 17.8% 17.5% 17.2%


44/102

Risk 2: Stricter emission normsEU average CO2 emissions for 2012 JLR is behind peers

170

190 g/km

90

110

130

150

50

70

F i a t

R e n a u

l t

P e u g e o

t

T o y o

t a

C i t r o e n

S e a

t

F o r d K

i a

H y u n

d a i

S k o d a

V W

O p e l

D a c

i a

N i s s a n

B M W

A u d

i G M

M a z

d a

V o

l v o

D a i m

l e r

J a g u a r

a n d R o v e r

JLR has made significant progress towards 2015 EU targets243 240 236

228223

206220

240g/km

187175

140

160

180

200

Page 44Source: EPA, Macquarie Research, October 2014

100

120

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-Target


45/102

India business the worst is over

175%

225%

12

17%

25%

35%

45%

200,000

250,000

Strong correlation between industr ial growth and CV sales TTMT - M&HCV volumes poised for a rebound

-

25%

75%

125%

-3

2

7

-35%

-25%

-15%

-5%

5%

50,000

100,000

150,000

-75%-8 Apr-06 Oct-07 Apr-09 Oct-10 Apr-12 Oct-13

M&HCV sales (% YoY) (RHS) Industrial Production (% YoY) (LHS)

-55%

-45%

-FY93 FY97 FY01 FY05 FY09 FY13 FY17E

M&HCV Volume % Growth

12%

14%

16%

35,000

45,000

128

133

138

143

opera ng pro s an marg ns

0%

2%

4%

6%

8%

5,000

15,000

25,000

103

108

113

118

123

Page 45

-4%

-2%

-15,000

- ,

FY93 FY97 FY01 FY05 FY09 FY13 FY17EOperating profi t Margin (%)

Source: IFTRT, Company Data, Macquarie Research, October 2014

98

13 Sep 2 Mar 1 May 2 Jun 2 Aug 1 Oct 1 Feb 1 Apr 2 Jun 3 Aug 2 OctDi es el Pri ce Del hi - M umbai Delh i - R an chi Del hi - C hennai


46/102

SOTP based target price of Rs700/sharep

Business Valuation basis FY16E EBITDA Multiple EV FY17E EBITDA Multiple EVTata Motors standalone EV/EBITDA 29,046 10.0 290,460 44,954 8.0 359,632 JLR (Adj. for R&D cost capitalised) EV/EBITDA 365,292 5.0 1,826,458 450,782 5.0 2,253,908 JLR - Chery JV EV/EBITDA 21,500 10.0 107,500 39,300 8.0 157,200 Other subsidiaries and investments 192,640 197,456 Total 2,417,058 2,968,196 Less: Standalone debt 157,612 133,962 Less: JLR debt (118,100) (253,300) Less: Pension liabilities 67,400 67,400 Less: Holding company debt 53,200 53,200

, , , , Equity Value/share 701 922

Page 46

Source: Company information, Macquarie Research, October 2014


47/102

Maruti Suzuki (MSIL IN, Rs2939, OP,

TP:Rs3,600)

Page 47


48/102

Long-term fundamentals remain strongKey drivers of growth - rising income, improving affordability, aspirational &young demographics, low penetration and poor public transport

We expect annual passenger vehicle sales to double in the next 6 years

Vehicle penetration vs Per Capita GDP (2012) India PV sales and per capita income growth

3.5

4,000

4,500m781800900

1,000

50

60units/'000 k

1.0

1.5

2.0

2.5

.

2,000

2,500

3,000

3,500624 597

377303 292

160 160 144300

400500600700

20

30

40

0.0

0.5

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013500

1,000

,

Passenger Vehicle Sales GDP per Capita (PPP)

8117

0100

U S A

G e r m a n y

J a p a n

K o r e a

T a i w a n

R u s s i a

S i n g a p o r e

T h a i

l a n d

o r l d a v g .

B r a z

i l

C h i n a

I n d i a

0

10

Page 48

Vehicle penetration GDP per capita

Source: World Bank, Company Data, Macquarie Research, October 2014


49/102


50/102


51/102

Passen er vehicles re arin for the ascent Passenger vehicle sales to grow at 12% CAGR between FY14-17E

25%

30%

35%

3.0

3.5mn

Sales have stagnated

10%

15%

20%

1.5

2.0

2.5

17% CAGR

-5%

0%

5%

0.5

1.0

-10%0.0FY03 FY05 FY07 FY09 FY11 FY13 FY15E FY17E

Cars UV Vans Growth (YoY)

Page 51



52/102

Predominantly a small car marketHatch back accounts for 52% of total PV sales

26% 26% 25% 24% 22% 22% 21% 20% 26% 26%80%90%

100%

56% 56% 57% 58% 60% 61% 62% 60% 55% 52%

18% 18% 17% 18% 19% 22%

20%30%40%50%60%

0%10%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Hatch Sedan MUV and SUV However, there has been some shif t within segments

1%10% 10% 8% 7% 10% 10% 10% 12%

13% 16%5% 5% 5% 8%

6% 5% 5% 6% 6% 5%2% 2% 3% 2% 2% 1% 1% 1% 1% 1%

23% 22% 20% 19% 18% 19% 17% 16% 19% 17%

4% 4% 5% 5% 4% 3% 3% 4% 7% 9%

60%

70%80%90%

100

26% 25% 25% 23% 20% 17% 19% 19% 17% 16%

28% 25% 26% 24% 24% 22% 19% 16% 13% 13%

21% 24% 25%25% 24%

10%20%30%40%50%

Page 52


0%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 A B1 B2 C1 C2 D2 MUV SUV


53/102

Global car makers have not succeeded in IndiaLong-term potential of the market has attracted global OEMs to India

ar e s c a eng ng, g ven ow car pr ces an eman ng cus omers

None of the global car markers, except Hyundai, has made an impact

Car makers have struggled with their product strategies, trying to strikethe right balance between product quality and pricing

uss e e ween oca managemen an g o a managemen

Vicious circle : Penetration Volume Prices - Costs

Lack of innovation in hiring top managers in every company have hada stint with Maruti Suzuki

Page 53


54/102


55/102

Maruti Suzuki Product Portfolio$3k-6k $6k-8k $7k-12k $12k-16k >$16k

Cars

MPV &Vans

Page 55Source: Comp any Data, Octob er 2014


56/102

Identif in a s in Marutis ortfolioMaruti dominates the hatchback (A, B1, B2) and compact sedan (C1)segment

But it has no presence in other segments like SUV (14% of industry), C2sedan (5% of industry) and premium hatchback segment

India Passenger Vehicle sales segments (2014) Maruti has only 25% share in the diesel car segment

While Maruti has 61% market share in the petrol vehicles (FY14), itsmarket share in the diesel vehicles was only 25%

Maruti25%

A16%

B1MPV

SUV14%

Others

13%

B2C1

D11%

D20%

Page 56

75%5%

Source: SIAM, Macquari e Research, October 2014


57/102

Maruti a ressive model launch lan aheadMaruti plans to fill white spaces in its portfolio as it plans to launch 12new vehicles in the next five years

Launched Celerio , 1 st Indian car with semi-automatic transmission

Ciaz midsize sedan bookings for 4 months of sales before the launch

SUVs SX4 Crossover in Feb-15, followed by compact SUV in 2016

Premium hatchback in 2015 compete with Hyundai i20 and VW Polo

Ciaz mid s ize sedan (Oct-15) Compact SUV mid 2016SX4 Crossover Feb-15

Launch smallest diesel engine in India (800cc) in Celerio and Wagon-R

Page 57Source: Comp any Data, Octob er 2014


58/102

MSIL best placed to benefit from this growthMaruti has 3x dealerships of #2 player in the industry Maruti is adding more dealers each year than any other player

910

1,110

1,310

1000

1200

-90

110

310

510

710

200

400

600

800

Maruti sells 27% of cars through exchange of old carsMaruti rising rural sales, now 30% of sales

M

a r u

t i

H y u n

d a i

M a h i n d r a

G M

T a t a

T o y o t a

F o r d

H

o n d a V

W

S

k o d a

R e

n a u l

t

N i s s a n

F i a t 0

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Outlets Cities

20%

25%

30%

5,000

6,000

7,000

8,000

20%22%24%26%

28%

150,000

200,000

250,000

5%

10%

15%

0

1,000

2,000

3,000

,

12%14%16%18%

0

50,000

100,000

FY09 FY10 FY11 FY12 FY13 FY14

Page 58


FY09 FY10 FY11 FY12 FY13 FY14

No. of RDSE Rural sales as a % of to tal domestic sales

No. of cars sold through exchange % of total domestic sales


59/102

Consistently on top in JD Power studies2013 JD Power India Customer Satisfaction Index 2013 JD Power India Sales Satisfaction Index

849849

841841

MarutiHonda

AverageHyundai

876834833

825

Maruti Average

HyundaiHonda

841841

836825

824824

MahindraToyota

VWTata

RenaultNissan

813799

790789

781780

ToyotaTata

RenaultChevrolet

NissanSkoda

2013 Initial Quality Study Premium Compact segment2013 APEAL Study Premium Compact segment

817814

808

SkodaFord

Fiat

774762

740

VWFord

Fiat

77Maruti SuzukiSwift

Segment

860

855

Maruti SuzukiSwift

Volkswagen

92

Average

VolkswagenPolo

853

o o

Segment Average

Page 59

Source: JD Pow er, Macquarie Research, October 2014

116Hyundai i20

838Hyundai i20


60/102

MSIL Focused and rofitable model ortfolio

Alto 2,66,785 2,58,281 -3.2% Highest selling model in IndiaSwift 1,84,897 1,98,571 7.4% 2nd highest selling model in IndiaDzire 1,69,571 1,97,685 16.6% 3rd highest selling model in IndiaWagon R 1,35,694 1,56,369 15.2% 4th highest selling model in IndiaOmni 69,954 64,164 -8.3%

Ertiga 76,375 59,822 -21.7%Eeco 40,563 37,951 -6.4%Ritz 59,126 31,712 -46.4%

e er o , aunc e n eSX4 6,707 4,028 -39.9% New model will be launched in FY15Gypsy 2,804 1,295 -53.8%M800 17,833 16,948 Discontinued in Feb 14

, , Estilo 11,279 6,282 Discontinued in Feb 14

Page 60

Source: Company data, Macquarie Research, October 2014


61/102

MSIL gaining share from competitionOver the last four years, Maruti has regained most of its lost market share

, , the initial euphoria

Key launches from competitors in FY14 Honda Amaze , Ford EcoSport ,Hyundai i10 Grand and Xcent

Maruti owns the four largest selling brands in the market Alto, Swift,

Some of the competitors have started to pull-out products from hatch back

segment (Skoda Fabia)Maruti appears best placed in the car industry to benefit from animprovement in the demand outlook

Page 61


62/102

Exports another growth opportunityExports accounted for only 10% of Marutis sales in FY14

,Maruti will now be developing some of the emerging markets (Africa,LATAM and Middle East)

Maruti will be investing in marketing as well as manufacturing (ifrequired) to grow sales

Marutis strengths in designing, developing and manufacturing small lowcost cars gives it an edge in African countries

, ,Largest export model is Alto, but Swift and Dzire shares are rising

Page 62


63/102

We expect MSILs margins to improve 240bp over next three years

Average discounts to narrow as demand scenario improves

Upside risk to near-term margins from JPY and benign commodity pricesMarutis ASP and margins to improve over next 3 years Cost reduction s teps have cumulatively led to savings of

40

45

50

55

320

340

360

380

0.8%

1.0%

1.2%

3,000

3,500

4,000Rs

20

25

30

35

240

260

280

300

0.2%

0.4%

0.6%

500

1,000

1,500

2,000

,

Page 63

FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E

ASP (Rs' 000) EBITDA/Car (Rs'000)


0.0%0FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Co st savings % o f reven ues


64/102

Discounts incentives have likel eaked Average discounts have increased from 3% of ASP in FY11 to 6% now

Discounts have increased on account of i) weak demand, ii) competition,

Discounts unlikely to fall to the previous lows, but it should moderate asdemand picks-up

Discounts have increased over the last 2 years

35 000

Maruti has cut discounts on three models recentlyReduction in discounts to potentially add 150bp to operating margins

20,000

25,000

30,000

, s

13 1214

15

13

17

19

18

15.0

17.0

19.0

.Rs 000

-

5,000

10,000

,

Alto Wagon R Swift - Diesel Dzire - Diesel Ertiga - Omni Eeco

10 10 10 10

89

11 11

9

1211

5.0

7.0

9.0

11.0

.

Page 64

Source: Comp any Data, Macquarie Research, October 2014

Aug-14 Sep-14.

1QFY10 3QFY10 1QFY11 3QFY11 1QFY12 3QFY12 1QFY13 3QFY13 1QFY14 3QFY14 1QFY15


65/102

Earnings to grow at a 36% CAGR (FY14-17E)Expect volume to grow ahead of industry; 16% in FY15E and 19% in FY16E

New models - Celerio, Ciaz, S-Cross, Premium hatchback, LCV and SUVs

Focused portfolio of high selling and profitable models

Operating margin to expand 240bp i) operating leverage, ii) lower discounts andiii) benefits of cost reduction initiatives and localisation

Gross prof it per vehicle to stay near high levels Operating profit margin per vehicle to improve50,000 Rs/vehicle

100,000 Rs/vehicle

30,000

35,000

40,000

45,000

60,000

70,000

80,000

90,000

15,000

20,000

25,000

20,000

30,000

40,000

50,000

Page 65Source: Comp any Data, Macquarie Research, October 2014

,FY 06 FY 08 FY 10 FY 12 FY 14 FY 16E

,FY 06 FY 08 FY 10 FY 12 FY 14 FY 16E


66/102

Maruti Suzuki Management quality and strategyProfessional Management Team

One of the best management teams in the Indian auto space Shareholding StructureManagement not compensated through stock options, butvariable component in remuneration is high DII

14%

Others

8%

Strong systems and best practices have been institutionalized

Top managers, having left for other companies, have not beenable to replicate success

SMC56%

FII22%

Corporate StrategyIn terms of priority, market share defense is above profitability


Improved on all aspects of car manufacturing and selling tocounter rising competitive intensity

In the near term, company plans to launch products in the

Page 66


67/102

Maruti Suzuki early cycle outperformer Maruti Suzuki outperforms during early cycle Maruti outperforms during stable or declining rate cycle

1,2001,4001,600

13.5

14

14.5

15

2300

2800

200400600800

,

10.5

11

11.5

12

12.5

13

800

1300

1800

Maruti Suzuki one year forward roll ing EV/EBITDAMaruti Suzuki one year forward rolling PER

Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14

Maruti Suzuki BSE Auto Index NIFTY Index

10300Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

MSIL Stock Pr ice (Rs) SBI PLR

17

19

21

23 EIM

30.0

35.0

40.0

45.0 FY15E PER

5

7

9

11

13MSIL

TTMT

HMCLBJAUT

MM

10.0

15.0

20.0

25.0

2 Yr EPS CAGR

Page 67


pr- pr- pr- pr- pr- pr- pr- pr- pr- pr-

1Yr Fwd PER Average -1 +1

5.05% 10% 15% 20% 25% 30% 35% 40% 45%


68/102

Maruti Suzuki Key risks to growth and profitabilityJPY-INR currency movement impacts the margin profile (and stockperformance)

Imported components (direct & indirect) equivalent of 16% ofsales

6% of sales is paid in JPY as royalty to Suzuki

Delay in demand recovery in the Indian market

Fuel prices and interest rates rise further?

Maruti doesnt et similar success in new se ments SUVs and LCVsHigh competitive intensity may lead to further increase in discounts

Page 68


69/102

Mahindra (MM IN, Rs1,359, OP, TP:Rs1,475)

Page 69


70/102

Mahindra New models to revive SUV salesBest play on rural automotive demand market leader in tractors and SUVsSUV sales to remain weak in FY15E; hurt by slowing eco growth and aged model portfolio

SUV sales for M&M to recover stron l on back of new model launches in FY16EKey models Bolero and Scorpio dont face competitive threat from new launchesUncertain monsoon outlook, clouds tractor business growth outlook

Ex-listed subsidiaries, core auto business at ~12.5x FY16E PERUtility Vehicle sales to grow 19% CAGR (FY14-17E) Tractor growth to improve in FY16E

20%

30%

40%

250

300

350 '000

20%

30%

40%

50%

200

250

300

350'000

-10%

0%

10%

50

100

150

-10%

0%

10%

50

100

150

Page 70Source: Company Data, SIAM, Bloomberg, Macquarie Research, Octob er 2014

-20%-FY03 FY05 FY07 FY09 FY11 FY13 FY15E FY17E

Tractor sales YoY Growth

--FY03 FY05 FY07 FY09 FY11 FY13 FY15E FY17E

Trac tor sales YoY Growth


71/102

Tractors Long-term growth drivers remain intactTractor penetration in India (25 per 1000ha) is higher than global average of 20 per 1000ha

Average HP per hectare in India is far below the world average

China tractor penetration is 1.4x of that in India

US penetration is 2.4x in terms of hectares (ha) per HP of tractors

High proportion of bullock usage in states like WB, MP, Bihar, Orissa, Karnataka and Assam

-

Tractor penetration in US is 2.4x of that in India Lower share of machine labour to drive farm mechanisation

100%

50%

60%70%80%90%

0%10%20%30%40%

Page 71

Source: CRISIL, Bloo mberg, Macquarie Research, October 2014

P U N

K E R

C G

T N

H A R

A P

U P

U K

G U J

M A H

B I H M

P W B

A S O

D I

Human Labour Bullock Labour Machine Labour


72/102


73/102

Overdue multi le conversion

Company name M&M stakeMarket cap(Rsm)

M&Mstake(Rsm)

M&M value /share post20% discount(Rs)

Tech Mahindra 26.0% 567,203 146,169 190.8 M&M Financial services 52.1% 157,974 82,338 107.5 Mahindra Lifespace Developers 51.0% 21,441 10,903 14.2 Mahindra Holiday & resorts 75.0% 25,480 19,110 24.9 Mahindra Ugine steel 50.4% 16,717 8,415 11.0 Swaraj Engines 33.2% 12,420 4,127 5.4

Mahindra one year forward rolling EV/EBITDAMahindra one year forward rolling PER

sangyong o ors . , , . EPC Industries 54.8% 5,069 2,777 3.6

Mahindra CIE 0.3% 18,939 60 0.1 Total value 882,861 315,873 412

12

6.5

7.5

8.5

4

8

2.5

3.5

4.5

.

Page 73Source: Bloomberg , Macquarie Research, October 2014

0 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14

1Yr Fwd PER Av erag e -1 +1

1.5 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14

1 Yr Fwd EV/EBITDA Averag e -1 +1


74/102

Two-wheelers

Hero MotoCorp (HMCL IN, Rs2,812, N, TP:Rs2,750) , , , , ,

Page 74


75/102

Motorcycle sales nearing peak levelsBest years of growth are behind us ... Motorcycle penetration amongs t all men (per 1000)

25020.0 mn

100

150

10.0

15.0

MC penetration amongst men (15-59 years) per 1000 MC penetration - men (15-59 years, HHI>Rs60k/annum)

0

50

FY10 FY13 FY16E FY19E FY22E FY25E FY28E0.0

.

FY10 FY13 FY16E FY19E FY22E FY25E FY28E

300

400

500

300

350

400

100

200

100

150

200

Page 75Source: Ind ia Census, Company Data, Macquarie Research, October 2014

0FY10 F Y13 F Y16E FY19E FY22E FY25E FY28E0



76/102

Scooters to drive 2W sales growthScooters to grow strongly over the next 5 years Scooter penetration amongst all women (per 1000 )

12.0mn

100

120

4.0

6.0

8.0

.8.6% CAGR

40

60

80

Scooter penetration amongst women (15-59 years) per 1000 Scooter penetration - women (15-59 years, HHI>Rs60k/annum )

0.0

2.0


0

20


120

140

160

180

200

250

20

40

60

80

100

50

100


0FY10 FY13 FY16E FY19E FY22E FY25E FY28E 0



77/102

Competitive intensity set to rise in 2WsHonda (HMSI) is aggressively ramping up 2W capacity (4x in 4 years)

O enin dealershi s in rural markets; lans to add 1,000 touch oints/ ear

Honda has plans to launch two new motorcycles in next quarter

Honda has announced aggressive plans to expand its network in rural areas andhas set sales volume growth target of 21% for FY15E

Honda to reach 30% market share in India Hondas aggressive capacity expansion p lans 4x in 4 years

100%7.0

mn

50%

60%

70%

80%

90%

0.6

1.8

4.0

5.0

6.0

0%

10%

20%

30%

40% 6.4

1.6

0.6

0.6

1.2

1.0

2.0

3.0


FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17EHero Bajaj Honda TVS Others 0.0

Mar11 Jun

11 Feb

12 Apr

13 Mar

14 Feb

16 Feb

16


78/102

BJAUT Slipping behindSales of new models have not been encouraging

Launched six new variants in Discover, but brand sales declined 25%

Frequent changes have hurt Discover brand, in our view

No respite from competition; rising competitive intensity to hurt margins

Headwinds in export markets (Egypt and Sri Lanka) likely to ease

Domestic 3W volumes to grow 10% in FY15EDomestic 2W volumes to grow modestly

10%

20%

30%

40%

50%

2.00

2.50

3.00 mn

20%

30%

40%

0.15

0.20

0.25 mn

-30%

-20%

-10%

0%

0.50

1.00

1.50

-10%

0%

10%

0.05

0.10

Page 78

Source: Company Data, Macquarie Research, October 2014Source: Company Data, Macquarie Research, October 2014

-40%0.00FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15EFY16EFY17E

Domes ti c 2 -wheeler % g rowth

-.FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15EFY16EFY17E

Domestic 3-wheelers % growth


79/102

Hero MotoCorp Competitive challenges likely to hurtImpact on rural demand in case of weak monsoon is a key risk for HMCL sales

Competitive pressure set to rise - HMSI gaining market share from Hero and Bajaj

Hero has tied with global partners for technology and product design, but the newproducts are yet to be tested

Risk to mana ement uidance of mar in im rovement as com etition will restrictpricing power and lead to higher marketing spend

Heros 2W market share has dropped 200bp YoY to 41%Volume growth to remain


80/102


81/102

Eicher Motors Positioned to row

Secular growth in bikes, cyclical demand recovery in commercialvehiclesRoyal Enfield motorcycles in 5 th gear and still accelerating

Volvo-Eicher (VE) Commercial Vehicles from mass to premium

Volvo-Eicher (VE) Powertrain highly profitable growth engine

Healthy balance sheet and strong cash-flow generation

Trades at a premium valuation to the sector, but deservedly so

Key risk competition in the commercial vehicle space

Page 81


82/102

Eicher Motors Grou structure and shareholdin

Page 82

Source: Comp any Data, Macquarie Research, Apri l 2014


83/102

Ro al Enfield there is nothin else like a BulletBullet is the longest running modelin continuous roduction

Unique in terms of the enginecharacter for the distinctive Bullet

Authentic vintage styling , traditionalpaint schemes, 1950s style, nacelleand toolboxes contribute to itsdistinctive classic appeal

Eicher ac uired the brand in 1994 Bike is exported to 40+ countriesincluding US, UK, Australia, Japan Source: Company data, October 2014

Page 83


84/102


85/102

Ro al Enfield ust cant make them fast enou hDominates niche leisure bike segment in India; market share of >99% in the>250cc segment bikes

While the company has been very successful in the recent past, the same wasnot true at the start of the last decade

quieter engines, while keeping traditional customers happy

No real direct competitor to Royal Enfield Harley Davidson bikes are 3-4x moreexpens ve an n e

Despite quadrupling production in the last three years, the company is adding

more new orders each month than the monthly dispatchesOver the last few years, a typical RE customer had to wait for 6-12 months to getthe delivery of the bike

Page 85

This is in sharp contrast to the cyclical weakness in the rest of the automotivesegments


86/102

Ro al Enfield how lar e is the tar et market?Royal Enfield sales have increased 5x since 2010, but there still is a longwaitlist (4-5 months) to buy these bikes

Royal Enfield is not a commuter bike; it has a modest 1.5% market sharein two-wheeler segment in India

As a rule of thumb, company has been able to sell one1 RE bike in a

market where other companies together sell 30 bikesere s curren y a po en a mar e or - es annua y

(2013 sales of 178k bikes)

,bike segment sales

Exports provide further growth opportunities new bike models are

Page 86

targeted at international markets


87/102

Royal Enfield raising capacity to meet demandThe company started a new plant in April 2013 and are expanding further

Capacity will increase from 175k in 2013 to 300k in 2014 and 500k in 2015

The company has been increasing dealerships by 20-30% annually (added75 new dealers in 2013, 307 dealers at the end of 2013)

Given significant potential in smaller towns and cities, the company plans

to keep adding dealerships over the next several years

Page 87Source: Company data, October 2014


88/102


89/102

Volvo-Eicher CV equal JV formed in 2008Eicher had transferred its then-existing truck and bus, component and engineeringdesign services to the JV

Volvo had put cash and assets of $350m into the JV (cash of $275m and VolvoTruck Indias sales and distribution business)

. .8.1% in Eicher, which increased Volvos beneficial interest in VECV to 50%.

Subsequently, Volvo selected VECV for the production of the Volvo groups newg o a me um u y eng ne p a orm

Page 89Source: Company Data, Macquarie Research, Octob er 2014

f


90/102

Volvo-Eicher CV from mass to premiumCV industry is dominated by Tata Motors and Ashok Leyland (75% share between them)

Most of the trucks sold in India are still based on old platforms; poor road infrastructure

-With Volvos strength in product technology and Eichers distribution reach, VECV is wellplaced to gain from upgradation and modernisation trends

Eicher had products and 20% market share in the medium-duty segment, but


91/102

Volvo-Eicher CV from mass to premiumVECV has been the fastest growing CV player in last 4 years and has increasedits share of the heavy duty truck segment from 1.1% in CY09 to 4.4% in CY13

13% in CY13

The company has also expanded its dealership network for the HD segment andhas taken steps to tune up the after-sales network, too

VECV market share in 5-14T goods segment VECV market share in >16T goods segment


V l Ei h CV h h


92/102

Volvo-Eicher CV next growth phaseCompany has unveiled Pro series range of trucks and busesNew range consists of trucks in the 5T to 49T GVW range and Skyline Pro Bus

,Eicher claims the Pro Series has best in class fuel economy, higher loadingcapacity and superior uptime, resulting in better profitability compared to peersEicher aims to double its market share in the heavy-duty segment

Eicher Pro 6000 series Eicher Pro 8000 series

Page 92Source: Company data, Macquarie Research, October 2014

VE P i hi hl fi bl h i


93/102

VE Powertrain a hi hl rofitable rowth en ine VECV is setting up a new medium duty engine plant with investment of Rs5bn

Commercial roduction started in Jul 2013 and sales would raduall ram u to the full capacity of 100k units per annum over the next 4-5 years

Plant to become a hub for medium duty engines to meet Volvos needs globally

Two main variants of engines 4-cylinder 5L and 6-cylinder 8L

These engines will meet Euro-6, Japanese PNLT and US EPA norms

Paves way for increase in supply of other components from VECV to Volvo

We expect engines to have high margins and reduce the volatility in earnings

In 2013, VEPT exported 2,529 long blocks and engines to Volvo Group.

The initial annual production capacity of the engine plant is 25,000 units, which

Page 93

V l Ei h CV f t i


94/102

Volvo-Eicher CV from mass to premiumWe expect 23% earnings CAGR in VECV business

Earnings growth led by 22% CAGR in sales, 120bp expansion in margins

PAT growth to be lower than EBITDA due to rise in depreciation and tax rate

Since commencement, VECV has invested ~Rs18b in capacity and product

Eicher Trucks & buses we expect sales growth to rebound in CY15E


H lth b l h t d t g h fl


95/102

Healthy balance sheet and strong cash flow23% of assets in cash & investments Debt-free balance-sheet



96/102

- ,

Page 96



97/102

Page 97

Ashok Leyland Too far too fast


98/102

Ashok Leyland Too far, too fastM&HCV volume declined 25% in FY14, expected to recover 8% inFY15E

Strong growth in Tamil Nadu market is aiding market share gain for AL

Freight rates are increasing, fleet utilization has improved andreplacement value has also increased

LCV foray positive for volumes, margins dilutive in the medium term

Margins may not recover to their previous high levels as discounts andmarketing spend will remain high due to competition

Stock is expensive even if we factor in the best case scenario ofvolumes and margins

Page 98

Target price of Rs27 based on 8x FY16E EV/EBITDA


99/102


100/102


101/102


102/102

Documents

Macquarie - India Auto Sector