Auto Mobile Initiating Coverage

8/6/2019 Auto Mobile Initiating Coverage

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I nit iat ing Cover age on Auto Mobile Sector

nalyst: aishali Parkar [email protected]

l: +91 22 42122400, 9820454757



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INDEX

Valuation Summary ....................................................................2

Industry out Look .......................................................................3

Supply side concern ....................................................................12

Demand Side Concern .................................................................14

Hero Honda Ltd. (HHL) ...............................................................16

Bajaj Auto Ltd. (BAL) ..................................................................23

TVS Motors Ltd. (TVS) ................................................................30

Maruti Suzuki Ltd........................................................................36

Mahindra & Mahindra Ltd............................................................44

TATA Motors Ltd. (TTMT) ............................................................51

Ashok Leyland Ltd. (ALL) ............................................................59



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+91 22 42122400, 9820454757 Valuation Summary

Financial Snapshot

Company Blmbg CMP Target Reco. Mcap Sales (Rs mn) EBITDA (Rs mn) PAT (Rs mn) EPS (Rs/share)

Code (Rs) (Rs) (Rsmn) FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

HeroHonda HH IN 1573 314128 135431 185742 204317 17097 26953 27883 12818 20640 22087 64.2 103.4 110.6

Bajaj Auto

BJAUT

IN 1475 213403 90497 122499 131871 13140 20492 23002 6545 13290 15175 45.4 91.9 104.9

TVS Motor

TVSLIN 59.3 14084 40089 48107 52918 1890 2733 3093 311 857 1094 1.3 3.6 4.6

Maruti

MSILIN 1496 432344 230851 334457 402539 24334 39996 46746 12187 21883 26465 42.2 75.7 91.6

M&M

MM

IN 972 264987 142684 177116 198370 14518 27562 29064 8265 17344 18006 30.3 63.6 66.0Tata Motors

TTMTIN 581.7 299023 282926 323720 349618 26992 40346 43867 10013 17250 19472 19.5 33.6 37.9

AshokLeyland AL IN 53 70508 60097 62801 82270 5191 6473 8501 1900 2534 3783 1.4 1.9 2.8

Key Ratio and Valuations

EBITDA Margin (%) PAT Margin (%) ROE (%) ROCE (%) EPS Growth (%) FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

HeroHonda 13% 15% 14% 279% 510% 466% 34% 42% 38% 28% 37% 33% 32% 61% 7% Bajaj Auto 15% 17% 17% 7% 11% 12% 35% 48% 40% 17% 25% 24% -13% 102% 14% TVS Motor 5% 6% 6% 1% 2% 2% 4% 10% 12% 6% 8% 9% -2% 176% 28%

Maruti 11% 12% 12% 5% 7% 7% 13% 19% 19% 17% 24% 24% -30% 80% 21% M&M 10% 16% 15% 6% 10% 9% 16% 26% 22% 8% 15% 14% -22% 110% 4%

Tata Motors 10% 12% 13% 4% 5% 6% 8% 13% 13% 5% 8% 8% -63% 72% 13%

AshokLeyland 9% 10% 10% 3% 4% 5% 5% 7% 10% 5% 7% 8% -60% 33% 49%

Key Ratio and Valuations

Asset Turnover (x) Adj. Debt/Equity (x) P/E (x) EV/EBITDA (x) P/BV(x)

FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11

HeroHonda 2.2 2.6 2.4 0.0 0.0 0.0 24.5 15.2 14.2 18.3 11.6 11.2 8.3 6.5 5.4Bajaj Auto 1.5 1.8 1.6 0.8 0.4 0.3 32.5 16.1 14.1 17.0 10.7 9.6 11.2 7.6 5.8TVS Motor 1.6 1.8 1.9 1.1 1.0 0.9 45.3 16.4 12.9 11.6 8.1 7.0 1.6 1.6 1.5Maruti 1.7 2.0 2.1 0.1 0.0 0.0 35.5 19.8 16.3 17.3 10.5 9.0 4.6 3.8 3.1M&M 0.5 0.6 0.7 0.5 0.4 0.2 32.1 15.3 14.7 20.0 10.5 9.7 1.17 1.33 1.21 TataMotors 0.7 0.8 0.8 1.0 9 0.8 29.9 17.3 15.4 15.5 10.5 9.4 2.4 2.2 2.0AshokLeyland 0.8 0.8 1.0 0.5 0.5 0.5 37.1 27.8 18.6 17.2 13.5 10.6 2.0 2.0 1.9



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Industry out Look

Indian Automobile sector has shown great comeback on sales in the last fe

months. Now with the optimistic changes in the world economic outloo

and in the domestic outlook, Indian automobile industry looks positive o

account of India being the second fastest growing economy and low co

manufacturing.

Automobile industry is divided in to three segments viz. two wheel

segment, Passenger car segment and Commercial vehicle segment. Out

the above, two wheeler segment and passenger car segment showe

tremendous growth. Commercial vehicle segment is on the path of recove

and showing the improvement with changing focus from M&HVs to LCVs.

Due to the global financial crises where global Auto industry was undergoin

tremendous pressure and companies like Ford filed bankruptcy. Global aut

makers like Toyota, Volkswagen turned to India as a new destination fo

their cars. As compared to the global scenario, Indian automobile secto

specially two wheeler and passenger car sector has suffered less. In laone year Indian Auto Industry grew at 3% YOY, and at 9% CAGR, fro

FY03 to FY09.

Auto Mobile Segment

TwoWheeler

Passenger Vehicle CommercialVehicle

Hero Honda Ltd. Bajaj Auto Ltd. TVS Ltd.

Maruti Suzuki Ltd Tata Motors Ltd M&M Ltd

Tata Motors Ltd Ashok LeylandLtd



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In 2008-09, total market share of Two Wheelers was 76.49%, an

Passenger Vehicles, Commercial Vehicles and Three Wheelers comprise

15.96%, 3.95% and 3.6% respectively.

Figure1 : Domestic Market Share for 2008-09

3.60%

76.49%

15.96%

3.95%

Passenger Vehicles Commercial Vehicles

Three Wheelers Two Wheelers

Source: SIAM



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Two Wheelers growth rate to Continue…

With 8.44 mn units, Two Wheelers segment is the largest selling segme

in India. The domestic two wheeler market is dominated by three maj

players Hero Honda (HH), Bajaj Auto (BAL) and TVS, they togeth

account for 89.5% of total Industry.

In the recent years, many other players like Honda Motorcycles an

Scooters India Limited (HMSI), Yamaha, Suzuki and other players havbeen able to keep their footprints. Their share has been increased

10.2% in FY09 from 7.6% in FY07.

Figure2 : Market Share estimation of Two wheelers Companies

61

22 21.5

7.3 7

48.1

54.559.8 60.3

21.928.831.8

8.7

7.8

12.9 10.4 10.510.5

87.2

0

10

20

30

40

50

60

70

FY07 FY08 FY09 FY10 FY11

In %

Hero Honda Bajaj Auto TVS Motor Others

Source: SIAM

Figure3 : Two Wheelers Growth Trend

9.859.03

8.44

8.077.57 8.49

15%

12%

-5%

5%7% 9%

0.00

2.00

4.00

6.00

8.00

10.00

12.00

FY-06 FY-07 FY-08 FY-09 FY-10E FY-11E

Mn.

-10%

-5%

0%

5%

10%

15%

20%

Growth %

Two Wheelers Y/Y Growth

Source: SIAM



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Two Wheelers market Share is divided in to three segments vi

Economy, Executive and Premium.

Economy Segment has a total market share of 28% with 1.9 mn bikes so

in FY09, and the 13% YOY drop in the sales. At the same time Executiv

segment grew at 13% YOY, 3.9 mn bike sold, with the market share o

57%, and premium segment grew at 14% YOY, 0.97 mn bike sol

comprising market share of 14%. This drop in economy segment clear

shows the shift of preferences from Economy segment to Executive an

Premium segments. The main reason of this shift is the thinning pric

difference between Economy and Executive bikes as well as better look

higher power and mileage.

Figure4 : Two Wheelers Segment wise Market Share in FY 09

3.9 mn

Executive,

57%

1.9 mn

Economy ,

28%

0.97 mnPremium,

14%

Source: SIAM

Future Out look

Two Wheeler segment has shown positive growth of 5% in FY09. Th

growth, in our view will continue in coming years, on account of stab

demand from rural India and new models launch. We estimate Tw

wheelers segment to grow at 7% in FY10 and 9% in FY11.



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Passenger Vehicles Segment Looks Attractive…

Passenger Vehicles segment grew at 13% CAGR from FY03 to FY09.

In last few years we have seen tremendous growth in passenger vehicle

especially in small and medium segment. This segment is mainly divided

to three segments viz. Small & Medium Segment, MUV (multi utili

Vehicle) -SUV (Sports utility Vehicle) segment and executive - Premiu

segment. In recent past India has become a manufacturing hub for aut

mobile companies due to its low manufacturing cost destination. Man

foreign companies have shown their willingness to open manufacturin

units in India, but due to sudden financial crises all over the world, the

plans got delayed. Still Indian companies like Maruti Suzuki, Tata Motor

and M&M are on schedule with their expansion plans.

In recent years many foreign auto companies like Hyundai, Toyot

Volkswagen launched their brands in India. Along with this, Indian Au

Major Maruti Suzuki Ltd. and Tata Motors Ltd launched various new cars o

Indian roads. It helped to raise more choices and options in the hands

Indian car buyers. In our view, growth in passenger cars looks attractive o

account of stable economic growth, new models & technology and main

due to selling auto fuels on subsidized rates. India looks like a favori

market for foreign brands which will give stiff competition to the loc

players like, in A2 segment Maruti Suzuki is getting competition from th

South Korean company Hyundai.

Passenger Vehicle Segment

Small & MediumSegment

MUV &

SUV

Executive & PremiumSegment

Maruti Suzuki Tata Motors

Hyundai M&M

M&MTata Motors

Toyota

Honda Motors Hyundai

Mercedes Others



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In coming years, we could see the segment shift from entry level to A2 an

A2 to A3 segments on account of growing income and infrastructur

developments in the areas of roads, bridges and national highways.

We estimate Passenger car segment to grow 9% and 13% in FY10 and FY1

respectively.

Figure5 : Passenger Vehicles Growth Trend

2.312.061.891.77

1.32 1.58

20%

13%12%

7%9%

7%

0.00

0.30

0.60

0.90

1.20

1.50

1.80

2.10

2.40

2.70

FY-06 FY-07 FY-08 FY-09 FY-10E FY-11E

Mn.

0%

5%

10%

15%

20%

25%

Growth %

Passenger Vehicles Y/Y Growth

Figure6 : Market Share expectation of Passenger Vehicles

6.58.4 7.9 8.3 8.4

46.1 46 45.945 44.5

16.4 14.7 14.715.6 16.4

37.50 39.3 39.4 39 38.8

5

10

15

20

25

30

35

40

45

50


Maruti Suzuki Tata Motors M&M Others



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Recovery in the Commercial Vehicle Sales…

Sudden contraction in the economy in FY 08 and FY 09 hit the commerci

vehicles growth badly. Still due to high growth rates in previous year

commercial vehicles segment grew at CAGR of 11.2%.

In FY 09 commercial vehicles registered 0.43 mn of sales, degrew by 22

YOY.

Figure 7 : Commercial Vehicles Growth Trend

0.39

0.52

0.43 0.440.46

0.55

5%2%

-22%

6%12%

32%

0.00

0.10

0.20

0.30

0.40

0.50

0.60

FY-06 FY-07 FY-08 FY-09 FY-10E FY-11E

-30%

-20%

-10%

0%

10%

20%

30%

40%

Commercial Vehicles Y/Y Growth

Source: SIAM

Commercial vehicles include M&HCV and LCV which, mainly used in th

transportation of goods and their growth is sensitive to the econom

growth. In 2007, due to liquidity crunches, interest rates were shot up an

consumers were reluctant to take loans on such high interest rates whic

hit the commercial vehicle segment. However the situation has changed a

demand side with the softening of interest rates, changing economic outloo

and inter vitiation by the government by reducing excise duty and providin

depreciation benefits. As well as at supply side, the prices of raw materi

especially that of steel, aluminum, and rubber stabilized. This will help

sustain bottom line of auto makers.



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M&HCV Segment

Tata Motors and Ashok Leyland are the big players in the M&HCV busines

both controlling 88% of market share in M&HCV in FY 09. In our view, Ta

Motors will continue to be a market leader, although the share of M&HCV

taken by LCVs.

In M&HCV segment, sales of Tata Motors dropped by 13.4% YoY to 12298

units and Ashok Leyland’s sales dropped by 11.3% YoY to 19745 units.

Figure 8 : Market Share expectation of M&HCV Vehicles

60.461.261.661.362.9

28.227.127.127.827.9

11.411.711.310.99.2

0

10

20

30

40

50

60

70


In %

Tata Motors Ashok Leyland Others

Source: SIAM

LCV Segment

In the LCV business, Tata Motors and M&M shared 87.1% of market shar

in FY09. Tata Motors holding largest market share of 59.3%, however M&

also increased its market share over a period of time. There are fe

launches on the cards from M&M in near future, which will help to increas

the market share of M&M. At present M&M is enjoying 27.8% market share

in LCV segment.



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Figure 9 : Market Share expectation of LCV Vehicles

12

59.860.259.362.2

65.4

28.228.527.825.624.3

10.212.3

11.312.9

0

10

20

30

40

50

60

70


In %

Tata M otor s M &M Othe rs

Source: SIAM

In spite of bad economic conditions, LCV segment sales of Tata Moto

dropped only by 2.9% YoY to 168,466 units, whereas M&M sales droppe

by 14% YoY to 8994 units.

Future Out look

Passenger Vehicles have grown at CAGR of 11.2% since 2003 to 200

Present situation of economy is getting better, which will help commerci

vehicle segment to grow faster. Although in our view M&HCV will take lon

time to recover whereas, LCV segment looks good in current situation. Wit

adequate credit facility available and recovery in IIP (Index of Industri

Production) the growth rates in M&HCV and LCV sales to continue. W

estimate commercial vehicle sales to grow by 2% for FY 10; and at 5% fo

FY 11.



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Supply side concern Input Cost & Margin Outlook

The margin of auto industry is mainly dependent on the raw material cos

Steel, aluminum, rubber, plastic are the main raw materials used in the c

making; it comprises 70-75% of total cost. Therefore the bottom line automobile company is directly dependent on the prices of these produc

and directly impacts the bottom lines. Going forward, increase in the ra

material prices to previous higher levels is unlikely so that the margin look

positive.

Figure10: Raw Material Cost as % of Sales Vs EBITDA Margin

74.1

74.9

73.2

75.2

74.2

72.772.7

10.4

8.34

9.68

10.7 10.8 11.1 10.6

71

71.5

72

72.5

73

73.5

74

74.5

75

75.5

FY05 FY06 FY07 FY08 FY09 FY10 FY11

5

6

7

8

9

10

11

12

RM Cost as % of Sales EBITDA Margin

Source: Company

Although the prices of all commodities have fallen down from all time hig

the profit margin will also be dependent on the interest rate scenario an

liquidity flow in the system. After the steps taken by RBI the interest rate

scenario has got better, but still many expansion plans are on hold due

vague future economic growth picture and availability of finance. In ou

view the situation should change by second half of FY 10. As passenger ca

and two wheelers segment has shown better performance in 1 st half of F

10, the commercial vehicle segment is slowly coming to positive grow

rates. In spite of this there is a concern of growing inflation due to whic

RBI may increase base rates which could put pressure on the interest ra

scenario.



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In mid of 2007 all commodity prices started rising, by Q1 of FY 09 prices

all the commodities were at an all time high. Now the prices have correcte

sharply due to economic crises in all over the world. Steel & Aluminu

prices have currently corrected by 65% and 55% from their peak in Ju

2008. Now all prices are trading at FY 06 levels, which will help to mainta

the profit margins of Auto mobile industry. Although the prices have aga

shown the upward movement, in our view, it will not rise as much a

previous levels.

gure11: Price Movement in CR Steel (USD/Tonne) Figure12: Price Movement in Aluminum (USD/Tonne)

700

1072.5

687.5

750

663

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Source: Bloomberg Source: Bloomberg

Figure13: Price Movement in Crude (USD/bbl) Figure14: Price Movement in Rubber (USD/100 Kg)

59.96 64.52

85.44

81.25

59

0

20

40

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174.63

225.11

246.76

175.85217.55

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Source: Bloomberg Source: Bloomberg



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Demand Side Concern Lower than expected Monsoon concern for Rural Demand….

From last few years, Indian auto mobile sector especially Two wheelers a

Passenger car segment were pledging on the rural demand, as t

agricultural growth were steady in last few years. This year, due to lowthan expected monsoon (29 % lesser rainfall) government has decla

draught in 141 districts, it comes to about 46-47 per cent of total districts

the country, although the government is positive about the Rabi output.

In the last seven months, automobile companies have shown tremendo

positive growth in their numbers. September-October sales were revamp

on account of festival mood. Two Wheelers grew by 10% and Passenger

grew by 6.2% MoM. Commercial vehicles are also showing positive grow

which is a positive sign for commercial vehicle makers. In September a

October commercial Vehicles grew by 23.8% and 3.8% respectively. In

view if the economic growth remains stable then it will be a positive to en

Auto sector. Although there could be some set back from rural demand.

Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

2 -Wheelers

Motorcycle 573,543 579,727 601,222 577,969 648,705 673,891

Scooters & Mopeds 60,403 69,926 65,727 78,564 76,325 164,259

Total 2-Wheelers 633,946 649,653 666,949 656,533 725,030 838,150

MoM Growth % 4.30% 2.50% 2.70% - 1.60% 10.40% 15.60%

3-Wheelers 21,839 28,088 22,347 27,910 33,673 55,753

MoM Growth % - 14.30% 28.60% - 20.40% 24.90% 20.60% 65.57%

Passenger Vehicle

Car 82,811 89,513 93,173 93,306 100,231 129,683

UV 21,954 21,658 15,753 20,147 20,278 37,841

Total PV 104,765 111,171 108,926 113,453 120,509 167,524

MoM Growth % - 19.70% 6.10% - 2.00% 4.20% 6.20% 39 .01%

Commercial Vehile

LCV 15,966 18,051 15,834 19,637 20,254 24,626

M&HCV 8,567 10,927 9,471 11,695 12,266 20,825

Total CV 24,533 28,978 25,305 31,332 32,520 45,451

MoM Growth % - 33.50% 18.10% - 12.70% 23.80% 3.80% 39.76%

Total Volumes 785,083 817,890 823,527 829,228 911,732 1,106,878

MoM Growth % - 1.80% 5.40% 0.10% 0.60% 9.50% 21.40%

Aggregate of Bajaj Auto, Hero Honda, TVS Motor, Maruti, M&M, and Tata Motors Source: Company



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Correlation between GDP and Auto Industry

Automobile industry is positively correlated with the economic growth rat

of that country as auto consumption is related to the income of a

individual. Indian GDP has grown to 7.1% CAGR since 2000-01 to 2008-0

and auto mobile sales grew at CAGR of 9% in 2002-03 to 2008-09. In la

few years the private employment rate increased with the increase

salaries which led people with more money in their hand.

Figure15: GDP vs. Vehicles sold growth

11.25

10.8911.149.718.53

7.29

6.7

8.57.5

9.09.7

9.5

0.00

2.00

4.00

6.00

8.00

10.00

12.00

FY-04 FY-05 FY-06 FY-07 FY-08 FY-09

Mn.

-

2.0

4.0

6.0

8.0

10.0

12.0

Growth %

Total Vehicles Sold GDP

Source: SIAM, RBI

Interest Rate Scenario

Availability of finance and interest rates is the important factor that dri

the auto mobiles sales. After a financial bubble burst in the world econom

and due to the liquidity contraction, private banks were reluctant to prov

auto loans, and those who were eligible to get the loan were charging v

high interest rates in the range of 18-21%. That made willing a

consumers difficult to go for new vehicles, which contracted the sales grow

But now the scenario has changed with the liquidity situation improved a

also interest rates have come down. Currently, banks charge 9.5-15%

interest to their customers depending on the credibility. Also private ban

started disbursing auto loans. The change in the interest scenario a

liquidity is a positive sign to entire auto segment. Although the rising inflat

is a big concern, in current policy RBI has just increased SLR by 1

Further, if the inflation is not stabling RBI may increase the basic rates wh

may cause increase in the interest rates, which will be negative for a

sector.



16 of 66

Hero Honda Ltd. (HHL)

Continue to be a Market Leader …

Hero Honda Motors Ltd. is the world’s largest two wheeler makers, with

installed capacity of 4.2 million two wheelers. It is holding around 60%

market share in Indian Auto segment and has shown tremendous sa

growth and profitability growth in the gloomy environment.

Steady growth in sales: Market share of Hero Honda was 59.8 % in FY

In our view with the well diversified portfolio across the segment, its ru

reach, and mainly less dependence on financing will help Hero Honda

continue as a market leader with steady growth.

Strong bottom- line growth: Hero Honda to get benefit of its Tax exem

plant in Haridwar, Uttarakhand and softening of the raw material prices.

well as over a period of time Hero Honda has successively reduce its D

which will help to improve the bottom line.

Limited Export Opportunity: Hero Honda’s revenue is domestic sa

driven, due to signing a non-compete agreement with HMC. Currently H

Honda’s total export consists of only 2.2% of motor cycle.

Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0

FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue

trade at near to its past average valuations. We are initating coverage on t

stock with Hold rating with a target price of Rs1,402 (based on 14x FY1

Core EPS + FY10E Cash/ investments of Rs102 per share).

Financial Summary

Year- end Sales YoY EBITDA YoY PAT YoY EPS YoY PE EV/EBITDA RoE RoCE

March (Rs. Mn) (%) (Rs. Mn) (%) (Rs. Mn) (%) (Rs.) (%) (x) (x) (%) (%)

FY08 120385 4% 13298 15% 9679 13% 48 13% 32 24 32% 26%

FY09 135431 12% 17097 29% 12818 32% 64 32% 25 18 34% 28%

FY10E 185742 37% 26953 58% 20640 61% 103 61% 15 12 42% 37%

FY11E 204317 10% 27883 3% 22087 7% 111 7% 14 11 38% 33%

Investment Rational

Bloomberg Code HROH.IN

Reuters Code HH.BO Current Shares O/S (mn) 199.7 Diluted Shares O/S (mn) 199.7

Mkt Cap (Rs bn) 332.56 52 Wk H/L (Rs) 1780/663 Face Value (Rs) 2

Shareholding Pattern in %

Others, 8.3MF, FIs &

Banks, 8.18

Foreign

Promoter ,

26

Indian

Promoter ,

28.96

FII, 28.56

As on 30th June 2009

-

100

200

300

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX Hero Honda

CMP: Rs.1668 Target Price: Potential Downside:



17 of 66

Steady Sales Growth:

Hero Honda is a world’s largest two wheeler manufacturing company, w

the total capacity of 4.2 million two wheelers. In FY09 Hero Honda wa

market leader in terms of sales with 59.8%. In our view Hero Honda

continue to be market leader with their growing distribution network, a

various launches across the sector.

Figure16: Market share of Hero Honda Figure17: Sales Growth of Hero Honda

61

48.1

54.5

59.8 60.3

31.828.8

21.9 22 21.5

7.88.712.9

7.3 7

0

10

20

30

40

50

60

70


In %

Hero Honda Bajaj Auto TVS Motor

26.60%11.53%

0.01%

11.20%14.47%

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000


No of Sale

0%

5%

10%

15%

20%

25%

30%

In %

Source: SIAM Source: SIAM

Weakness Limited Export Opportunities due to

non-compete Agreement with HMC

Dependent only on Two WheelerBusiness

Strengths Market Leader in Motorcycle Business

with the market share of 60% andstrong portfolio

Contribution in bottom line throughTax-Exempt Plant in Haridwar

Growing Distribution network & lestdependent on financing

Opportunities Un reached Rural Market

Threats Competition from BAL in economy,executive segment

Increasing Royalty

SWOT Analysis



18 of 66

Well diversified Portfolio:

Hero Honda is making bikes in three segments economy, executive a

premium. It has a well diversified portfolio with large number of bikes in

segments. Hero Honda launched 7 bikes in 2008-09; their m

concentration is in executive and premium segment to target youth.

Product Portfolio of Hero Honda

Hero Honda

Models Price Range

Economy

CD Dawn 40000

CD Deluxe

Executive

Splendor+

Splendor NXG

Passion Pro

Passion Plus

Super Splendor

Glamour

Glamour PGM FI

42000-56000

Premium

Achiever

CBZ X-Treme

Hunk

62900-85000

Karizma

Source: Company dealer

Reduction in Total Debt:

Hero Honda with its relatively lower dependence on financing is a cash r

company. Hero Honda has successfully reduced its debt burden over a per

of time, which has helped the company to strengthen net profit margin.

Figure18: Debt contribution of Hero Honda

78132

165

186

202

12%

8%

6%

4%

2%

0

50

100

150

200

250


0%

2%

4%

6%

8%

10%

12%

14%

Total Debt Debt to Equity Ratio

Source: Company, MSSBL



19 of 66

Strong Bottom Line Growth:

In recent period, commodities prices has come down to its 2006 level

which will help Hero Honda to reduce the raw material cost as th

aluminum, steel, rubber is the main raw material used in th

manufacturing. Along with the softness in commodity prices Hero Honda

Haridwar plant is operational from FY09, which is enjoying the tax incentiv

for both excise and income tax. In FY09 its contribution was 18% at aroun

620000 units, which will increase eventually in FY10 and FY11 by 28% an

32% respectively.

In our view, Hero Honda will give better performance in terms of n

margins than the industry; we estimate FY10E PAT of Rs. 16.8bn and FY11

PAT of Rs. 20.43bn.

Figure19: Revenue and Net margin Figure20: Revenue and EBITDA margin

9%10%

12%

13%

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

FY 2008 FY 2009 FY 2010 FY 2011

Rs. Mn

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%%

Revenues Net Margin

13%

14%

16%

16%

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

FY 2008 FY 2009 FY 2010 FY 2011

Rs. Mn.

1

1

1

1

1

1

1

1

1

1

2

Revenues EBITDA Margin

Source: Company, MSSBL Source: Company, MSSBL



20 of 66

Valuation:

At CMP of Rs. 1558

0

200

400

600

800

1000

1200

1400

1600

1800

2000

A p r - 0 3

J u n

- 0 3

S e p

- 0 3

N o v - 0 3

F e b

- 0 4

M a y

- 0 4

J u

l - 0 4

O c

t - 0 4

D e c

- 0 4

M a r

- 0 5

J u n

- 0 5

A u g

- 0 5

N o v - 0 5

F e b

- 0 6

A p r - 0 6

J u

l - 0 6

O c

t - 0 6

D e c

- 0 6

M a r

- 0 7

M a y

- 0 7

A u g

- 0 7

N o v - 0 7

J a n

- 0 8

A p r - 0 8

J u

l - 0 8

S e p

- 0 8

D e c

- 0 8

F e b

- 0 9

M a y

- 0 9

A u g

- 0 9

O c

t - 0 9

15x 14x 12x 10x



21 of 66

Financi al and Valuation Summary

Yr end March 2008 2009 2010E 2011E

Income Statement (In Mn.)

Revenue 120385 135431 185742 204317

Growth % 4% 12% 37% 10%

Operating Cost -78652 -94056 -117167 -130649

EBITDA 13298 17097 26953 27883

Growth 15% 29% 58% 3%

Depreciation -1603 -1807 -2247 -2471

EBIT 11695 15291 24706 25412

Growth % 15% 31% 62% 3%

Interest -20 -25 -24 -23

Other Income 2428 2549 3210 4060

Earning Before Tax 14103 17815 27892 29449

Tax -4424 -4997 -7252 -7362

Earning After Tax 9679 12818 20640 22087

Earning Margins 8.0% 9.5% 11.1% 10.8%

EPS 48.5 64.2 103.4 110.6

Growth % 12.8% 32.4% 61.0% 7.0%

No of Shares 199.70 199.70 199.70 199.70

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 14103 17815 27892 29449

Depreciation 1603 1807 2247 2471

Chg in working capital 2612 985 -1203 1098 Total tax paid -4420 -5016 -7252 -7362

Other operating activities - - -

Cash Flow From Operations (A) 12118 13590 21708 25679

Capital expenditure -3739 -3135 -7222 -8826

Chg in investments -6526 -11647 -3000 -5000

Other investing activities 555 715 0 0

Cash Flow From Investing (B) -7810 -8612 -10222 -13826

Free cash flow (A+B) 4308 4978 11486 11853

Chg in minorities

Debt raised/(repaid) -332 -535 0 0Dividend (incl. tax) -3972 -4439 -9907 -12369

Other financing activities -20 -25 -24 -23

Cash Flow From Financing (C) -4323 -4999 -9931 -12391

Cash At The Beginning of the Year 167 152 2196 3751

Net Chg in Cash (A+B+C) -16 -21 1555 -539

Cash At The End of The Year 151 131 3751 3212



22 of 66

Yr end March 2008 2009 2010E 2011E

Balance Sheet (In Mn.)

Cash 1,311 2,196 3,751 3,212

Current Assets 8,057 7,939 9,613 10,325

Investments 25,668 33,688 36,688 41,688

Net fixed assets 15,648 16,943 21,917 28,272

Other non-current assets 52 87 87 87

Total Assets 50,736 60,851 72,055 83,583

Current Liabilities 18,247 20,528 20,999 22,809

Total Debt 1,320 785 785 785

Other non-current liabilities 1,306 1,531 1,531 1,531

Total Liabilities 20,873 22,844 23,315 25,125

Share capital 399 399 399 399

Reserves & surplus 29,463 37,608 48,341 58,059Less: Misc. expenditure - - - -

Share Holders' Funds 29,862 38,008 48,740 58,459

Total Equites & Liabilities 50,736 60,851 72,055 83,583

Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 48.5 64.2 103.4 110.6

EPS growth (%) 12.8% 32.4% 61.0% 7.0%

EBITDA margin (%) 11.0% 12.6% 14.5% 13.6%

EBIT margin (%) 9.7% 11.3% 13.3% 12.4%

ROCE (%) 26% 28% 37% 33%

Net debt/Equity (%) 0% -4% -6% -4%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 32.5 24.5 15.2 14.2

Price/Book (x) 10.53 8.27 6.45 5.38

Yield (%) 1% 1% 3% 4%

EV/Net sales (x) 2.61 2.31 1.68 1.53

EV/EBITDA (x) 23.64 18.31 11.56 11.19

Yr end March 2008 2009 2010E 2011E

Du Pont Analysis - ROE

Net margin (%) 8.0% 9.5% 11.1% 10.8%

Asset turnover (x) 2.4 2.2 2.6 2.4

Leverage factor (x) 1.7 1.6 1.5 1.4

Return on equity (%) 32.4% 33.7% 42.3% 37.8%



23 of 66

Bajaj Auto Ltd. (BAL)

Pledging on new launches…

Bajaj Auto Ltd. is the second largest two wheeler makers in India, with t

installed capacity of 3.96 Mn; 3.6 Mn for two wheelers and 0.36 Mn for th

wheelers.

New Launches in economy and executive segments:

Bajaj Auto launched new bikes like Discover DTS-Si 100 and XCD- DTS-S

135 in economy and executive segments. It also launched upgraded Pul

models in last one year. According to the management, Bajaj Auto expec

to launch new models in executive segment in 2nd H FY10.

Strong hold on exports:

Bajaj Auto has shown tremendous strength in the exports. In FY 09, to

export grew by 25% YoY out of which, two wheelers growth was 31% Y

with 633463 units. Going forward, in our view, two wheeler exports

continue to grow by 25%, but three wheelers export could see set back

growth.

Improvement in Margins:

In our view, Bajaj Auto to improve its margin on account of better prod

mix, lower input costs and shifting its profitable products in Pantnagar pl

(Uttarakhand) where it enjoys the tax exemption.






Financial Summary



FY08 96900 -9% 13131 -35% 8087 8% 52 -28% 6 16.9 51% 21%

FY09 90497 -7% 13140 0.1% 6545 7% 45 -13% 7 17.0 35% 17%

FY10E 122499 35% 20492 56% 13290 11% 92 102% 4 10.7 48% 25%

FY11E 131871 8% 23002 12% 15175 12% 105 14% 3 9.6 40% 24%

Bloomberg Code BJAUT IN

Reuters Code BAJA.BO Current Shares O/S (mn) 144.7 Diluted Shares O/S (mn) 144.7


Shareholding Pattern

Non

Promoter

Corporate

Holding,

8.92

MF,Fis &

Banks , 7.37

FII, 16.95Others,

17.14

Promoters

, 49.62


0

100

200

300

400

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX Bajaj Auto




24 of 66

Investment Rational

Strong Hold on Exports:

In FY09, when all the economy were struggling with the depression in t

growth rate, Bajaj Auto showed relatively good performance on export s

by exporting 772519 units with the 25% YoY growth. Along with the sa

Bajaj Auto got the benefit of rupee depreciation against US dollar as th

most of the sales is US dollar dominated. In our view Bajaj Auto to contin

the export growth going forward. We expect export to grow 25% in FY10 a

21% in FY11.

Figure21: Export trend of Bajaj Auto Ltd.

301766

633463

836171

1045214

482026

129489134884139056136315140645

77%

40%

21%25%

26%

0

200000

400000

600000

800000

1000000

1200000

FY07 FY08 FY09 FY10E FY11E

0%

10%

20%

30%40%

50%

60%

70%

80%

90%

Total two-wheelers Three –wheelers Growth Rate

Source: Company

Weakness Less Models in the portfolio to relyup onConcentrating on Urban Consumers

Strengths Strong Export Market Share Improvement inPremium Segment

Opportunities Growing Rural Market New Launches in Premium SegmentForay in to LCV(Light CommercialVehicle) BAL – Renault – Nissan alliance forsmall car

Threats Competition from HH in economy,executive segment

SWOT Analysis



25 of 66

New Launches in Economy & Executive Segment:

In recent years, Bajaj Auto’s growth in the economy and executiv

segments were eaten up by market leaders, due to limited models in th

segment and no new product launch in these segments.

To compete with the market leaders and new entrant Bajaj Auto has com

up with two models namely Discover-100-DTS-Si in economy segment an

XCD DTS-Si in executive segment, company plans to launch couple

models in executive segment by second half of FY10. Bajaj Discover has go

good response from the customers. In our view, right product mix from th

company will help to increase its market share. We expect, the total mark

share of Bajaj will increase to 22% in FY10.

Figure22: Segment wise growth of Bajaj Auto

Source: Company

Product Portfolio Figure23: Segment wise market share of Bajaj Auto

*New Launch Source: Company Dealer Source: Company

Segment FY06 FY07 FY08 FY09

Economy 78135 81245 57065 45169

YoY Growth 5% 4% -30% -21%

Executive 35969 56131 48148 32375

YoY Growth 180% 56% -14% -33%

Premium 31465 35865 32373 28825

YoY Growth 36% 14% -10% -11%

Bajaj Auto

Models Price Range

Economy Platina 100 40000-48000

Platina 125 DTS-Si

Discover 100 DTS-Si*

Exicutive 53000-58500

XCD DTS-Si*

Discover 135 DTS-Si

PremiumPulsar DTS-i* 69000

Super Premium

Pulsar 180 DTS-Si

Pulsar 220 DTS-Si

Avenger DTS-Si

72000-81000

38%

47%38% 39% 38%

15% 20% 18%11%

54%

65%72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

FY06 FY07 FY08 FY09

Economy Executive Premium



26 of 66

Commercial Vehicle Segment Scenario

Market Leader in Three wheeler passenger

vehicles:

Bajaj Auto is the market leaders in the three wheelers segment. The thre

wheeler segment is divided in to two sub segment, passenger vehicles an

goods carriers. In recent years, passenger vehicles market share ha

dropped from 76.8% in FY06 to 63.6% in FY09, though Bajaj auto is th

dominant player in the three wheeler passenger vehicles, and it will reta

its market share at these levels.

Competition from small four wheelers:

Bajaj Auto has lost big share in the three wheeler goods carrier market. Th

company has seen the drop from 26% in FY06 to 12.4% in FY09. The ma

reason was stiff competition from the introduction of small four wheele

like TATA ACE. In our view, Bajaj Auto to lose more market share, due

preferences of small four wheelers over three wheelers vehicles for good

carrier.

Bajaj Auto’s Commercial Vehicles Market Share

Figure24: Market Share of commercial Vehicles

64%

12%

55%

77% 76%70%

27%26%20%

60% 61% 57%

0%

10%

20%

30%

40%

50%

60%

70%80%

90%

FY06 FY07 FY08 FY09

Passe nger vehicle sales Goods carriersTotal 3-wheelers

Source: Company

FY06 FY07 FY08 FY09 Passenger vehicle

sales

Industry sales 281,167 369,380 375,180 415,411

Bajaj Auto sales 215,993 279,341 263,598 264,332

Bajaj Auto market share 76.80% 75.60% 70.30% 63.60%

Goods carriers

Industry sales 138,688 159,417 130,826 82,382

Bajaj Auto sales 36,061 42,487 26,714 10,197


Total 3-wheelers

Industry sales 419,855 528,797 506,006 497,793

Bajaj Auto sales 252,054 321,828 290,312 274,529




27 of 66

Valuation

0

200

400

600

800

1000

1200

1400

1600

1800

D a t e

1 2 / 1 1 / 2 0 0 8

4 / 1 2 / 2 0 0 8

2 6 / 1 2 / 2 0 0 8

1 6 / 0 1 / 2 0 0 9

6 / 2 / 2 0 0 9

2 7 / 0 2 / 2 0 0 9

2 3 / 0 3 / 2 0 0 9

1 6 / 0 4 / 2 0 0 9

8 / 5 / 2 0 0 9

2 8 / 0 5 / 2 0 0 9

1 7 / 0 6 / 2 0 0 9

7 / 7 / 2 0 0 9

2 7 / 0 7 / 2 0 0 9

1 4 / 0 8 / 2 0 0 9

3 / 9 / 2 0 0 9

2 4 / 0 9 / 2 0 0 9

1 7 / 1 0 / 2 0 0 9

Source: Company

14x 12x

8x

6x



28 of 66

Fina n cial and Valuation Summary

Yr end March 2008 2009 2010E 2011E


Revenue 96900 90497 122499 131871

Growth % - 9% - 7% 35% 8%

Operating Cost -73227 -69738 -87464 -94746

EBITDA 13131 13140 20492 23002

Growth - 35% 0% 56% 12%

Depreciation -1740 -1298 -1410 -1526

EBIT 11391 11842 19082 21475

Growth % - 57% 4% 61% 13%

Interest -52 -210 -96 -102

Other Income 5072 4953 5775 8103


Tax -3780 -3016 -5696 -6198


Earning Margins 8.3% 7.2% 10.8% 11.5%

EPS 52.2 45.4 91.9 104.9

Growth % - 27.8% - 13.2% 102.4% 14.2%

No of Shares 144.68 144.68 144.68 144.68

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 11340 9581 18986 21373

Depreciation 1740 1298 1410 1526

Chg in working capital 16858 -2650 -469 824 Total tax paid -3780 -3213 -5696 -6198



Capital expenditure - -3860.8 -2873.78 -2995.244

Chg in investments -20730 - -3000 -8500

Other investing activities - 1784 - -


Free cash flow (A+B) 5427 2038 8453 6132

Chg in minorities

Debt raised/(repaid) -2756 2416 -2000 0Dividend (incl. tax) -2894 -3377 -4253 -4856


Cash Flow From Financing (C) -5701 -1230 -6349 -4958


Net Chg in Cash (A+B+C) -274 808 2104 1174




29 of 66

Yr end March 2008 2009 2010E 2011E


Cash 561 1,369 3,473 4,647

Current Assets 15,936 21,884 23,638 23,932

Investments 18,571 18,085 21,085 29,585

Net fixed assets 13,034 15,644 17,108 18,576

Other non-current assets 1,310 3,439 3,439 3,439

Total Assets 49,412 60,420 68,743 80,179


Total Debt 13,343 15,700 13,700 15,700



Share capital 1,447 1,447 1,447 1,447

Reserves & surplus 14,429 17,250 26,288 36,607

Less: Misc. expenditure - - - -



Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 52.2 45.4 91.9 104.9

EPS growth (%) -27.8% -13.2% 102.4% 14.2%

EBITDA margin (%) 13.6% 14.5% 16.7% 17.4%

EBIT margin (%) 11.8% 13.1% 15.6% 16.3%

ROCE (%) 21% 17% 25% 24%

Net debt/Equity (%) 81% 77% 37% 29%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 6.2 7.1 3.5 3.1

Price/Book (x) 13.21 11.21 7.56 5.81

Yield (%) 1% 2% 2% 2%

EV/Net sales (x) 2.30 2.47 1.79 1.67

EV/EBITDA (x) 16.94 17.05 10.73 9.59

Yr end March 2008 2009 2010E 2011E

Du Pont Analysis – ROE

Net margin (%) 8.3% 7.2% 10.8% 11.5%



Return on equity (%) 50.9% 35.0% 47.9% 39.9%



30 of 66

TVS Motors Ltd. (TVS)

Weak amongst the p layers …

TVS Motors is the third largest motorcycle makers and second largest scoomanufacturer in India, with the market share of 7.8% and 21% respective

Losing market share on account of Unfavorable product mix:

TVS Motors continuously losing its market share on account of unfavora

product mix. In our view it will continue to lose its market share from 7.8

in FY09 to 7.3% in FY10 and 7% in FY11.

Steady exports:

In recent years, company has shown steady growth in their exports. In FY

Company’s export stood for 1.96 lakh, 44% increase from 1.36 lakh in FY

Indonesian venture will help the company to maintain its growth in exp

segment.

High debt structure compared to peers:

TVS Motors has highest debt structure as compared to its peers in t

industry. Currently debt /equity ratio is 1.12 which is highest in the indus

and keeping pressure on bottom line.



trade at near to its past average valuations. We are initiating coverage

this stock with Hold rating with a target price of Rs1,402 (based on 1

FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

Financial Summary

Year- end Sales YoY EBITDA YoY PAT YoY EPS YoY PE EV/EBITDA RoE RoC

March (Rs. Mn) (%) (Rs. Mn) (%) (Rs. Mn) (%) (Rs.) (%) (x) (x) (%) (%

Y08 36835 -18% 1322 -35% 318 -52% 1.3 -52% 41.7 15 3% 4

Y09 40089 9% 1890 43% 311 -2% 1.3 -2% 42.6 12 3 % 5

Y10E 48107 20% 2733 45% 857 175% 3.6 175% 15.4 8 10% 7

Y11E 52918 10% 3093 13% 1094 27% 4.6 27% 12.1 7 12% 8


Reuters Code BAJA.BO Current Shares O/S (mn) 144.7 Diluted Shares O/S (mn) 144.7



Promoters

, 60.45

MF,Fis &

Banks,

11.57

Non

Promoter

Corporate

Holding,

5.25

FII, 5.06Others,

17.68


0

100

200

300

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX TVS Motors




31 of 66

Investment Rationale

Unfavorable product mix:

TVS Motors is a third largest manufacturer of motorcycle. Due to

unfavorable product mix TVS has lost the market share over a period of tim

In India, economy and executive segments is the dominant segment whe

industry majors both Hero Honda and Bajaj are well placed with their w

diversif ied product portfolio and competitive pricing. Where as, in case of T

Motors, the product portfolio is not well diversified. They have fewer produ

with less competitive pricing as compared to their peers.

Product portfolio Figure25: TVS Growth Trend

17%

13%

-9%

4%

2%

4%

6

6.2

6.4

6.6

6.8

7

7.2

7.4

FY06 FY07 FY08 FY09 FY10E F Y11E

Mn

-15%

-10%

-5%

0%

5%

10%

15%

20%

Motercycle YoY Growth

Source: Company Dealer Source: Company

Models Price

Range

Economy

StaR City 47900

Executive

Flame SR 125 55000

Premium

Apache RTR 180 76500

Apache RTR FI 160

Moped/Scooters

Scooty Pep+ 41000

Scooty Streak 43000

Weakness Weak Portfolio in the Motorcyclemarket

High Cost Structure due to lowcapacity utilization

High Debt company as compared toBAL and HH

Strengths Second Largest Manufacturer of Scooters in India.Handsome Export Growth in recentpast.

Opportunities Expand the portfolio through entry inThree Wheelers

Threats Stiff Competition from HH and BAL

SWOT Analysis



32 of 66

TVS Motors is second largest manufacturer of scooter and only manufactu

of mopeds in India. Scooters accounted for 14% share in total category

TVS. Currently TVS Motor’s total market share in scooters is 21% which h

decreased by 344bps to Hero Honda and Suzuki. In FY 09 TVS launch

Scooty streak, which has got a good response. Also company plans to laun

scooter by second half of FY10. We expect the success of Scooty streak a

new launch will help the company to maintain its market share.

Figure26: Growth Trend of Ungeared Scooter Figure27: Growth trend of Mopeds

10%

16%

14%

18%

15%

7%

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

FY06 FY07 FY08 FY09 FY10E FY11E

Mn

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

ungeared Scooter YoY Growth

7%

10%

5%

4%

2%

3%

0

0.1

0.2

0.3

0.4

0.5

0.6


Mn

0%

2%

4%

6%

8%

10%

12%

Mopeds YoY Growth

Source: Company, SIAM,MSSBL Source: Company, SIAM,MSSBL

Steady Export:

TVS Motors has shown tremendous growth in its exports. In FY09 expo

grew at 1.95 lakh by 44% YoY as compared to 1.36 lakh in FY08.In ou

view, the export will continue to rise on account of high end models in th

exports markets and the reach of the company with the various venture

We expect export to grow 25% and 28% in FY10E and FY11E respectively.

Figure28: TVS Motors export volume trend

10% 12%

17%

23%

25% 28%

0

0.5

1

1.5

2

2.5

3

3.5


Lakh

0%

10%

20%

30%

Exports %of total Volume

Source: Company



33 of 66

TVS Motors Indonesian ventures

TVS Motors developed TVS NEO, a bebek exclusively for Indonesian mark

through its 100% subsidiary PT TVS Motor Company Indonesia. The plant

located at karawang near Jakarta and has a manufacturing capacity

300,000 units. PT TVS, Indonesia expanded its dealer network from 25

104 during 2008-09. This in our view will help in increasing sales

Indonesia.

Valuation



34 of 66


Yr end March 2008 2009 2010E 2011E


Revenue 36835 40089 48107 52918

Growth % - 18% 9% 20% 10%

Operating Cost -31782 -35522 -41891 -46080 EBITDA 1322 1890 2733 3093

Growth - 35% 43% 45% 13%

Depreciation -946 -1029 -1139 -1286

EBIT 376 861 1595 1807

Growth % - 68% 129% 85% 13%

Interest -22 -550 -498 -408

Other Income 909 703 573 717


Tax -36 -0.20 -239 -305

Earning After Tax 318 311 857 1094Earning Margins 0.9% 0.8% 1.8% 2.1%

EPS 1.3 1.3 3.6 4.6

Growth % - 52.3% - 2.2% 175.9% 27.6%

No of Shares 237.50 237.50 237.50 237.50

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 354 311 1096 1399

Depreciation 886 958 1139 1286

Chg in working capital -1014 -139 -403 8

Total tax paid -168 -68 -239 -305




Chg in investments 58 -1388 0 0

Other investing activities


Free cash flow (A+B) -1000 -427 770 1342

Chg in minorities

Debt raised/(repaid) 328 1651 0 0

Dividend (incl. tax) -42 -195 -429 -547


Cash Flow From Financing (C) 171 811 -927 -955


Net Chg in Cash (A+B+C) -828 383 -157 387




35 of 66

Yr end March 2008 2009 2010E 2011E


Cash 37 421 263 650

Current Assets 7,711 8,516 9,779 10,408

Investments 3,390 4,777 4,777 4,777

Net fixed assets 10,431 10,364 10,547 10,715


Total Assets 22,096 24,831 26,120 27,303


Total Debt 6,663 9,060 9,060 9,060



Share capital 238 238 238 238





Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 1.3 1.3 3.6 4.6

EPS growth (%) -52.3% -2.2% 175.9% 27.6%

EBITDA margin (%) 3.6% 4.7% 5.7% 5.8%

EBIT margin (%) 1.0% 2.1% 3.3% 3.4%

ROCE (%) 5% 6% 8% 9% Net debt/Equity (%) 81% 107% 103% 93%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 41.7 42.6 15.4 12.1

Price/Book (x) 1.61 1.63 1.55 1.46

Yield (%) 0% 1% 3% 4%

EV/Net sales (x) 0.54 0.55 0.46 0.41

EV/EBITDA (x) 15.03 11.58 8.06 7.00

Yr end March 2008 2009 2010E 2011E


Net margin (%) 0.9% 0.8% 1.8% 2.1%



Return on equity (%) 3.9% 3.8% 10.1% 12.1%



36 of 66

Maruti Suzuki Ltd.

True leader in passenger segment …

Maruti Suzuki is the market leader in small passenger cars, with the marshare of 46.5% in passenger vehicles.

Maintaining market share on account of wide product range:

Maruti Suzuki, with its large number of cars across the segment is a mar

leader in the small and medium segment. In FY09, market share

passenger vehicles went up to 46.5% from 45.9% in FY08.

Steady exports:

In FY09, Maruti Suzuki exported 70023 units; the highest ever export w

the growth of 32.1% over last year. In current year, from April to Octo

the export has shown tremendous growth, on account of global slow do

and increase in the preference for small and medium cars. In our vie

export will be strong in coming years as there is demand for new models l

A-star.

Strong financials

With the reduction in the raw material prices, increase in export a

domestic demand, Maruti Suzuki looks good on financial front. It has a deb

equity of 0.07x which will help to improve bottom line.






Financial Summary

Year- end Sales YoY EBITDA YoY PAT YoY EPS YoY PE EV/EBITDA RoE Ro


Y08 210252 22% 31308 21% 17308 11% 60 11% 25 14 21% 2

Y09 230851 10% 24334 -22% 12187 -30% 42 -30% 35 17 13% 1

Y10E 334457 45% 2733.25 64% 21883 80% 76 80% 20 10 19% 2

Y11E 402539 20% 39996 17% 26465 21% 92 21% 16 9 12% 2


Reuters Code BAJA.BO

Current Shares O/S (mn) 144.7 Diluted Shares O/S (mn) 144.7

Mkt Cap (Rs bn) 178.14

52 Wk H/L (Rs) 1356/294

Face Value (Rs) 10


MF, Fis &

Banks,

18.58

Others, 2.03FII, 20.76

Non

Promoter

Corporate

Holding,

4.41

Promoters,

54.21


0

100

200

300

400

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX Maruti Suzuki




37 of 66

Investment Rational

Maruti Suzuki Ltd. is a market leader in the small and medium segment ca

with the thirteen different models across the segment and the market sha

of 46.5%. Maruti Suzuki has two manufacturing plants; Gurgaon plant wit

the capacity of 7, 00,000 per annum and Manesar plant with the capacity

3, 00,000 per annum.

Maruti Suzuki enjoys preference over other manufacturer due to its stron

sales network in 454 cities with 681 sales points and service network

1314 cities with 2767 service outlets.

Figure29: Sales Growth Trend Figure30: Share of Segment in the Industry

4%

13%

5%

14%

20%

0

100000

200000

300000

400000

500000

600000

700000

800000

900000


0%

5%

10%

15%

20%

25%

Total Sales YoY Growth

18

4

7879777678

1720

1917

4343

0

20

40

60

80

100


A1,A2,C A3 A4-A6

Source: Company Source: Company

Weakness Dependent only on the PassengerCar Segment.

Strengths Market Leader in Small and Mediumsegment

Better Rural penetration and highestService centers across the Nation.

Japanese Technology

Wide Product Portfolio in A2 and A3Segment

Opportunities Rural Market Penetration

Export growth in A2 & A3 Segment

Threats Competition from Tata Motors, Hyundai, Nissan, Honda, Toyota

Any further contraction in economicgrowth

SWOT Analysis



38 of 66

Wide product range:

Maruti Suzuki is the key player in the Indian small and medium au

segments with the wide range of cars in 5 different segments. A2 segme

is the largest selling segment followed by C and A3 segments. In last tw

years Maruti Suzuki has launched five new cars in A2 and A3 segments.

Product Portfolio

* New Launches

Source: Company

In FY09, A2 and A3 segment sales were up than the FY08 sales. Maru

Suzuki concentrated on these two segments with new launches like Sx

Swift D-zire, A-Star, and Ritz. We expect A2 and A3 segment to grow b

35% and 18% respectively, and A1 and C segment to reduce by 15% an

20% respectively, although company has come up with the LPG version

Maruti 800.

Figure31: Segment salescontribution in 2008 Figure32: Segment sales contribution in 2009

C

13%

A1

10%

MUV

1%A3

7%

A2

69%

A2

70%

C

11%

A1

7%

MUV

1%A3

11%


Segments

A1 Maruti 800

A2 Alto, Estilo*, Swift, A-star*, Ritz*,WagonR,

A3 Swift D-zire*, SX4*

C Omni, Versa

MUV Gypsy, Grand vitara



39 of 66

Steady Export:

In all over the world due to economic depression sales of large auto mobile

impacted.

Maruti Suzuki exports entry-level models across the globe to over 10

countries. It has posted ever strong export of 70,023 in FY09, on account

launch of A-star as the new Alto in Europe. With a CO2 emission as low a

103 g/km, a fuel consumption of 4.4litres /100km, conformance to Euro

emission norms that are expected in 2010, sporty features and affordab

prices. The company has got the contract from Nissan in Europe, wher

Nissan is planning to buy further 30,000 cars from Maruti Suzuki and reta

it in Europe under its brand name ‘Pixo”.

Europe will be the important destination for the Maruti Suzuki cars, and w

expect Maruti Suzuki’s export to grow by 25% in FY10 and 20% in FY11.

Figure33: Maruti Suzuki’s Export Trend

25%

20%-4.4%

-28.9%

13.0%

34.9%

32.1%

0

20000

40000

60000

80000

100000

120000

FY05 FY06 FY07 FY08 FY09 FY10EFY11E

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Export YoY Growth

Source: Company



40 of 66

Margins to improve:

Maruti Suzuki is the cash rich company with debt-equity of 0.07x. it ha

always enjoyed a benefit of low manufacturing expenses, better brandin

as well as recently commodity prices has gone down significantly which w

help the company to improve the bottom line margins.

In the gloomy economic condition Maruti Suzuki has shown tremendou

growth in its sales. In FY10, so far the sales were steady and company ha

shown remarkable growth in their sales. Although going forward, Maru

Suzuki have to face many challenges like stiff competition from establishe

players like Tata Motors, Hyundai as well as large car manufacturer lik

Toyota, Honda coming in small car segment. On the other hand ba

monsoon is a concern for rural demand for small cars.

In our view, Maruti Suzuki will get stiff competition, but with its o

scheduled plant expansion and large number of product portfolio Maru

Suzuki will improve its margin.

Figure34: Sales Growth Trend Figure35: EBITDA Growth Trend

23%

42%

33%

16%

15%

65000

70000

75000

80000

85000

90000

Apr-09 May-09 Jun-09 Jul-09 Aug-09

0%

5%

10%

15%

20%25%

30%

35%

40%

45%

Total Sales YoY Growth %

17.5% 11.7%

12.3%

11.4%

17.6%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

FY07 FY08 FY09 FY10E FY11E

0%

5%

10%

15%

20%

EBIDTA EBITDA Margin




41 of 66

Valuation:

0

200400600800

10001200140016001800

D a t e

1 0 / 8 / 2 0 0 4

2 1 / 1 2 / 2 0 0 4

4 / 5 / 2 0 0 5

1 3 / 0 9 / 2 0 0 5

2 5 / 0 1 / 2 0 0 6

1 2 / 6 / 2 0 0 6

1 9 / 1 0 / 2 0 0 6

6 / 3 / 2 0 0 7

1 8 / 0 7 / 2 0 0 7

2 7 / 1 1 / 2 0 0 7

1 0 / 4 / 2 0 0 8

2 5 / 0 8 / 2 0 0 8

1 3 / 0 1 / 2 0 0 9

4 / 6 / 2 0 0 9

1 6 / 1 0 / 2 0 0 9

0

100000

200000

300000

400000

500000

600000

D a t e

2 7 / 0 8 / 2 0 0 4

2 8 / 0 1 / 2 0 0 5

2 7 / 0 6 / 2 0 0 5

2 9 / 1 1 / 2 0 0 5

0 4 / 0 5 / 2 0 0 6

2 8 / 0 9 / 2 0 0 6

0 5 / 0 3 / 2 0 0 7

0 3 / 0 8 / 2 0 0 7

0 3 / 0 1 / 2 0 0 8

0 9 / 0 6 / 2 0 0 8

1 0 / 1 1 / 2 0 0 8

2 3 / 0 4 / 2 0 0 9

2 2 / 0 9 / 2 0 0 9

16x 14x 12x 10x

11

108x6x



42 of 66


Yr end March 2008 2009 2010E 2011E


Revenue 210252 230851 334457 402539

Growth % 22% 10% 45% 20%

Operating Cost -144834 -187386 -227688 -274378

EBITDA 31308 24334 39996 46746

Growth 21% - 22% 64% 17%

Depreciation -5682 -7065 -7982 -8196

EBIT 25626 18894 28570 32819

Growth % 11% - 26% 51% 15%

Interest -596 -510 -299 -194

Other Income 8876 6013 6981 10779


Tax -7722 -4571 -9832 -11890


Earning Margins 8.2% 5.3% 6.5% 6.6%

EPS 59.9 42.2 75.7 91.6

Growth % 10.8% - 29.6% 79.6% 20.9%

No of Shares 289.00 289.00 289.00 289.00

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 25030 16758 31715 38356

Depreciation 5682 7065 7982 8196

Chg in working capital -71 -999 -1120 2239 Total tax paid -8647 -4524 -9832 -11890

Other operating activities (3,766) (6,367) 299 194



Chg in investments -16843 22181 0 -25000

Other investing activities 3158 3469 0 0

Cash Flow From Investing (B) -30474 9514 -26817 -37076

Free cash flow (A+B) -12246 21447 2228 19

Chg in minorities

Debt raised/(repaid) 3365 -3339 -2000 -2000



Cash Flow From Financing (C) 1323 -5362 -3967 -4211


Net Chg in Cash (A+B+C) -10923 16085 -1739 -4192




43 of 66

Yr end March 2008 2009 2010E 2011E


Cash 3,305 19,390 17,651 13,459

Current Assets 27,674 35,521 45,148 50,840

Investments 51,807 31,733 31,733 56,733

Net fixed assets 40,328 49,321 68,156 72,036


Total Assets 124,110 136,754 163,477 193,857


Total Debt 9,002 6,989 4,989 2,989



Share capital 1,445 1,445 1,445 1,445





Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 59.9 42.2 75.7 91.6

EPS growth (%) 10.8% -29.6% 79.6% 20.9%

EBITDA margin (%) 14.9% 10.5% 12.0% 11.6%

EBIT margin (%) 12.2% 8.2% 8.5% 8.2%

ROCE (%) 24% 17% 24% 24%

Net debt/Equity (%) 11% 7% 4% 2%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 25.0 35.5 19.8 16.3

Price/Book (x) 5.14 4.63 3.80 3.13

Yield (%) 0% 0% 0% 0%

EV/Net sales (x) 2.08 1.82 1.25 1.05

EV/EBITDA (x) 13.99 17.26 10.49 9.02

Yr end March 2008 2009 2010E 2011E

Du Pont Analysis – ROE

Net margin (%) 8.2% 5.3% 6.5% 6.6%



Return on equity (%) 20.6% 13.0% 19.3% 19.2%



44 of 66

Mahindra & Mahindra Ltd.

Strong Come Back….

Mahindra & Mahindra is a largest utility vehicles (UV) and tracmanufacturing company in India. In FY09, UV market share of M&M w

57.2% as compared to 51.5% in FY08, and a market share of tractor w

40.8% as compared to 38.9% in FY08.

Despite of Monsoon deficit tractors sales has improved:

In FY09, farm equipment was accounting 43.2% in net segment revenue.

current year, due to shortfall in monsoon M&M was expected to get a dir

hit on its tractor sales numbers but it has shown good sales in trac

segments and surprised the market.

Foray in to two wheelers business:

M&M after acquiring Kinetic Motors Company Ltd. (KMCL), is foray in to t

wheelers business with the launch of Mahindra Radeo, Mahindra Duro, a

Mahindra Flyte.






Financial Summary

Year- end Sales YoY EBITDA YoY PAT YoY EPS YoY PE EV/EBITDA RoE RoC


FY08 123710 11% 15603 -5% 9306 -13% 39 -13% 25 16 21% 12

FY09 142684 15% 14518 -7% 8265 -22% 30 -22% 32 20 16% 8

FY10E 177116 24% 27562 90% 17344 110% 64 110% 15 11 26% 15

FY11E 198370 12% 29064 5% 18006 4% 66 4% 15 10 22% 14



Current Shares O/S (mn) 144.7

Diluted Shares O/S (mn) 144.7


52 Wk H/L (Rs) 1356/294

Face Value (Rs) 10


MF, Fis &

Banks,

18.58


Non

Promoter

Corporate

Holding,

4.41

Promoters,

54.21


0

100

200

300

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX M&M




45 of 66

Investment Rational

M&M is a market leader in UV segment with the market share of 57.2% an

in farm equipment segment with 40.8%. M&M has total installed capacity

250000 units for four wheelers, 72000 units for three wheelers and 23300

units for tractors.

M&M has presence in UV segment, farms equipment, three wheeler

commercial vehicles and passenger vehicles.

Figure36: FY09 sales composite of M&M

LCV

8604 3%

Tractor

95329

30%

Logan

13423 4%Three

Wheelers

44533

14%

UV

160963

49%

Source: Company

Weakness Only one Model (Logan) inPassenger Vehicle Segment

Likely to see Margin pressure onaccount of aggressive pricing.

Strengths Market Leader in Tractors Business and UV segment

Well Diversified Portfolio includes (PV,MUV, LCV, Tractors)

Strong Hold on MUV Segment

Opportunities New Launches in Light CommercialVehicles (LCV) i.e. (Mahindra MaxTruck)

Foray into the Two-Wheeler Segmentby acquiring kinetic Motor CompanyLtd. (KMCL)

Threats Competition from Tata Motors inLCV segment

Uncertain Monsoon could affect thetractor Business

SWOT Analysis



46 of 66

Despite of Monsoon deficit tractors sales has improved

M&M is a major player in farm equipment business in India with the marke

share of 40.8% in FY09. In India, farm activity is mainly dependent on th

monsoon, therefore the tractors sales is also dependent on the monsoon.

spite of monsoon deficit in all over the country, M&M reported 19 % YO

growth in 1H in tractor’s sales. The low base of 2H FY09 will lead to stron

volume growth momentum in 2H FY10 as well. We expect tractor growth t

continue on account of new launches and the benefit from the PTL merger.

M&MTractor’s sales trend Figure 37: M&M’s tractor sales growth trend

21% 21%20%18%

-3%0

20

40

60

80

100

120

140

160

180


(000'units)

-5%

0%

5%

10%

15%

20%

25%

Tractor YoY % growth

Source: Company

Figure 38: Domestic market share of tractor business M&M’s monthly Tractor sales growth trend

3.13.64.5Others 6.1

3.7 64.4JD 3.5FNH 4.4 4.4 5.3 5.3

8.99.810.3Sonalika 11.6

13.514.713.9Escorts 9.3

EICHER 23.7 23.4 23.522.3

PTL 11.7

M & M 2 9 . 7

40.838.939

FY06 FY07 FY08 FY09

8285

13500 13567

9022

10594

16986

18772

9%

1%

24%

40%

22%

10%

16%

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Total Tractor Sales YoY growth


*PTL merged with M&M in 2007


Domestic 95006 90509 113269 134790 161748

YoY % growth 22% -5% 25% 19% 20%

Export 7525 8533 6933 7626 8770

YoY % growth 8% 13% -19% 10% 15%

Tractor 102531 99042 120202 142416 170518

YoY % growth 21% -3% 21% 18% 10%



47 of 66

UVbusiness looks better

M&M is a market leader in utility vehicles business with the market share

57.2% in FY09 as compared to 51.5% in FY08. UV segment contribute

49% of the product portfolio in FY2009. M&M launches Xylo in 2009 and g

a good response from the customers. In the 1H of the FY10, UV segme

have done well in terms of sales and market share has gone up at 63-64%

Management is confident to maintain market share going forward.

Figure39: UV sales Trend

56%

33%

56%

42%

-3%

33%36%

0

5000

10000

15000

20000

25000

Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09

-10%

0%

10%

20%

30%

40%

50%

60%

Utility Vehicles YoY growth

Source: Company

Foray in to two wheelers business:

M&M acquired Kinetic Motors Company Ltd. (KMCL) in 2008, and foray in

two wheelers business with the launch of Mahindra Radeo, Mahindra Du

and Mahindra Flyte. M&M has a plan to design and market a full range

scooters and motorcycles for Indian and global market. M&M will get s

competition from domestic two wheeler makers like Hero Honda, Bajaj Au

TVS, as well as foreign two wheeler makers. In our view, it is too early

talk about the success of M&M in two wheeler segment as this segment

dominated by the big domestic players.



48 of 66

Valuation:



49 of 66


Yr end March 2008 2009 2010E 2011E


Revenue 123710 142684 177116 198370

Growth % 11% 15% 24% 12%

Operating Cost -103621 -119199 -138449 -156868

EBITDA 15603 14518 27562 29064

Growth - 5% - 7% 90% 5%

Depreciation -2387 -2915 -3468 -4118

EBIT 13216 11603 24094 24946

Growth % - 8% - 12% 108% 4%

Interest -876 -1341 -1096 -1070

Other Income 1937 3592 4835 5415


Tax -3034 -1997 -5654 -5870



EPS 38.9 30.3 63.6 66.0

Growth % - 13.3% - 22.1% 109.8% 3.8%

No of Shares 239.07 272.62 272.62 272.62

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 12416 10262 22998 23876

Depreciation 2387 2915 3468 4118

Chg in working capital -2503 5800 -9575 815

Total tax paid -2777 -1003 -5654 -5870

Other operating activities -1264.20 -2079.00 1095.83 1070.36



Chg in investments -16039 -9229 0 0

Other investing activities 2459 -1030 0 0


Free cash flow (A+B) -12493 -3097 3468 13178

Chg in minorities

Debt raised/(repaid) 10095 11123 -4000 -2000





Net Chg in Cash (A+B+C) -4379 3872 -3827 7824




50 of 66

Yr end March 2008 2009 2010E 2011E


Cash 8,612 15,744 11,917 19,742

Current Assets 27,941 208,921 173,826 180,164

Investments 42,151 57,864 57,864 57,864

Net fixed assets 23,609 32,143 37,540 44,253


Total Assets 102,449 315,162 281,636 302,512


Total Debt 25,871 40,528 36,528 34,528

Other non-current liabilities 567 - - -


Share capital 2,391 2,726 2,726 2,726





Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 38.9 30.3 63.6 66.0

EPS growth (%) -13.3% -22.1% 109.8% 3.8%

EBITDA margin (%) 12.6% 10.2% 15.6% 14.7%

EBIT margin (%) 10.7% 8.1% 13.6% 12.6%

ROCE (%) 12% 8% 15% 14%

Net debt/Equity (%) 40% 47% 36% 18%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 25.0 32.2 15.3 14.8

Price/Book (x) 5.36 1.17 1.33 1.21

Yield (%) 1% 1% 1% 1%

EV/Net sales (x) 2.02 2.04 1.64 1.41

EV/EBITDA (x) 16.05 20.02 10.54 9.65

Yr end March 2008 2009 2010E 2011E


Net margin (%) 7.5% 5.8% 9.8% 9.1%



Return on equity (%) 21.4% 15.7% 25.6% 21.6%



51 of 66

TATA Motors Ltd. (TTMT)

Signs of revival …

Tata Motors is a major player in commercial vehicles segment, with

market share of 63.8% in FY09 as compared to 62.2% in FY08. Being

major player in commercial vehicle’s segment, TTMT got huge setback

FY09.

Recovery in sales numbers:

After a tremendous reduction in sales numbers in all segments in FY 09, T

Motors have shown good come back in FY10 April to October’s sales numb

were good on account of recovery in economic condition, changing fo

from M&HCV segment to LCV segment with new launches and new launch

Fiat in passenger vehicles segment which has strategic JV with the compan

Utility Vehicles segment sales continuously falling:

Tata Motors witnessing continuous fall in to the utility vehicles (UV) segme

In FY 09 Tata launch TATA Sumo Grande but it was not a big success

launch.

JLR fund raising on track:

In October 2009, Tata Motors raised total US$750 million via foreign curren

convertible notes (US$375 million) and Global Depository Receipts (US$3millions). As well as company successfully raised Rs. 42bn through issuan

of non convertible Debenture in the local market. The company is planning

raise remaining amount via internal accruals.






Financial Summary



FY08 328850 4% 36544 4% 20289 6% 53 6% 11 7.20 26% 11%

FY09 282926 -14% 26992 -26% 10013 -

63% 19 -63% 30 15.53 8% 5%

FY10E 323720 14% 40346 49% 17250 72% 34 72% 17 10.52 13% 8%

FY11E 349618 8% 43867 9% 19472 13% 38 13% 15 9.41 13% 8%






52 Wk H/L (Rs) 1356/294

Face Value (Rs) 10


MF, Fis &

Banks,

18.58


Non

Promoter

Corporate

Holding,

4.41

Promoters,

54.21


0

100

200

300

400

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX Tata Motors




52 of 66

Investment Rational

Tata Motors is India’s largest automobile company. After acquiring Jag

and Land rover it is a complete car maker providing large range of smal

premium passenger cars as well as commercial vehicles. It is world’s th

largest truck makers and second largest bus makers. In India Tata Motor

a market leader in commercial vehicles segment with the market share

63.8% in FY09 as compared to 62.2% in FY08.

Figure40: Product share of Tata Motors in FY09

M & HCV,

113674,

24%

PV,

167673,

36%

UV,39329, 8%

LCV,

151338,

32%

Source: Company

Weakness

Utility Vehicles segment hits due toless innovative and new models.

Strengths Leadership in Commercial Vehiclesbusiness (M&HCV, LCV)

Truly a complete car maker includingall segment in the four –wheelers(from Premium to small segmentcars)

Opportunities Penetration Opportunities in Europeand America for other products in

portfolio than JLR.

Threats Debt-servicing burden to increase

Exports to hit due to mainconcentration on commercialVehicles.

Further de-growth in the economycould hit the business.

SWOT Analysis



53 of 66

Recovery in sales numbers:

Tata Motors has a vast range of segments in its portfolio. After a degrowth

sales numbers by 8% in FY09 to 533806 units, Tata Motors have shown

signs of recovery in FY 10 on account of economic recovery signs, bet

liquidity and reduction in interest rates. In commercial segment M&H

segment have shown positive YoY growth from July to October months.

LCV Segment, Company has shown tremendous growth on account of n

launches like Tata Ace EX, Tata Super Ace, Tata 407 Pickup, and Tata Mag

In passenger vehicles segment Tata has a joint venture with Fiat. This y

fiat launches two models in the market Fiat Linea in January 09 and F

Grande Punto in June 09, Fiat Linea has been well accepted by the market

well as Tata Motors launched new Indigo Manza in October, which will help

increase the sales numbers of passenger vehicles segments. In our vie

Tata Motors will post 6% growth in FY 10 and 15% growth in FY 11

account of economic stability.

Figure41: Segment wise Sales Trend of Tata Motors

129 129

173 166

114

61

86

126

147 151

34 3848 48 39

145 151

179167

196

0

50

100

150

200

250


Nos.(000)

M & HCV LCV UV PV

Source: Company

Figure42: YoY Sales Trend of Tata Motors Figure43: MoM sales Trend of Tata Motors

28%

14%

1%

-8%

15%

6%

0

100000

200000

300000

400000

500000

600000

700000


Nos

-15%

-10%

-5%

0%5%

10%

15%

20%

25%

30%

Total Sales YoY Change

-4%

19%

-6%-2%

0%

-12%-13%

0

10000

20000

30000

40000

50000

60000

Apr-09 May-

09

Jun-09Jul-09 Aug-

09

Sep-

09

Oct-09

Nos.

-15%

-10%

-5%0%

5%

10%

15%

20%

25%

Total Sales YoY % Growth




54 of 66

Utility Vehicles segment sales continuously falling

Tata Motors have shown continuous reduction in the Utility Vehicles segme

In FY 09, UV segment degrew by 17.5% to 39329 units as compared

47491 units in FY 08. Along with the economic depression the main reaso

were unable to launch successful new models and stiff competition fr

other players like M&M, Ford, and Chevrolet. Tata Motors launched Su

Grande in 2008 and Safari GX in February 2009, but it didn’t succeed

improving the sales growth.

Figure44: YoY UV’s sales trend for Tata Motors Figure45: MoM UV’s sales trend for Tata Motors

39

48

34

38

48

26.4%

-0.4%

7.5%

10.7%

-17.5%

0

10

20

30

40

50

60


Nos (in 000)

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

UV YoY % Growth

2208

2550 24752609

2455

26383307

-15%

0%

-49%

-11%

-22%

-26%

-40%

0

500

1000

1500

2000

2500

3000

3500

Apr-09May-09Jun-09 Jul-09Aug-09Sep-09Oct-09

Nos.

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

UV YoY % Growth


Reduction in the input cost is a big relief:

Profitability of the auto industry is highly dependent up on the raw mate

prices as the main raw material used by this sector is steel, aluminu

rubber and plastic. Crash in the commodity prices is a big relief for the a

maker companies. Tata Motors also benefited from the reduction of the r

material prices to improve their margins. Recently raw material prices h

shown up ward movement, which may put pressure on the profit margins

in our view, prices will not rise as much as previous high.



55 of 66

JLR fund raising on track:

Tata Motors acquired two UK based Auto brands namely Jaguar and La

Rover in June 2008 for net consideration of $2.3 bn.

The Jaguar Land Rover acquisition was routed through the Company’s 10

subsidiary, Jaguar Land Rover Limited, U.K., which had availed a short te

bridge loan facility of US$ 3 billion from a syndication of banks a

guaranteed by the Company. The Company prepaid part of the said faci

out of proceeds of a Rights Issue and certain divestments and the bala

outstanding as on March 31, 2009 was US$ 2.02 billion. For repayment of

said amount, the Company in May 2009 issued 7 years Non-Convert

Debentures aggregating Rs.42 bn on a private placement basis. In Octo

2009 Tata Motors also raised total US$750 million via foreign curre

convertible notes (US$375 million) and Global Depository Receipts (US$3

millions). The company is planning to raise remaining amount via inter

accruals.

In Q1 FY10, JLR posted loss of £64 million. Further, JLR expected to p

good sales numbers in coming years on account of lower operating co

(manpower realization, RM outsourcing), stabilizing the economic condit

all over the world and good demand from developing countries like Rus

and China. Therefore in our view, further, JLR will be efficient to meet

working capital requirement.

Also, Tata Motor’s debt repayment schedule provides company with flexibi

in medium term. Issuance of Rs 42 bn of debentures and US$ 375 mil

FCCB can considerably change the debt repayment schedule of the T

Motors. In our view, Tata Motors expects to register good performance

domestic front which will help to pay down long term debt in FY10E.

Figure46: Repayment schedule for long term Debt

11%

39%

12%

19%

11%

0%

8%

0%

5%

10%15%

20%

25%

30%

35%

40%

45%

FY10 FY11 FY12 FY13 FY14 FY15 FY16

% of Long Term Debt Repayment

Source: Company



56 of 66

Valuation



57 of 66


Yr end March 2008 2009 2010E 2011E


Revenue 328850 282926 323720 349618

Growth % 4% - 14 % 14% 8%

Operating Cost -238972 -215434 -239009 -256592

EBITDA 36544 26992 40346 43867

Growth 4% - 26% 49% 9%

Depreciation -6523 -8745 -9225 -9925

EBIT 30021 18247 31121 33942

Growth % 2% - 39% 71% 9%

Interest -4256 -8109 -9216 -9216

Other Income 9729 13699 15562 15562


Tax -5476 -125 -4655 -5255



EPS 52.6 19.5 33.6 37.9

Growth % 6.0% - 63.0% 72.3% 12.9%

No of Shares 385.54 514.05 514.05 514.05

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 20289 10013 21905 24726

Depreciation 6478 8701 9225 9925

Chg in working capital 37114 -950 -3653 3577

Total tax paid 2505 -1542 -4655 -5255

Other operating activities -4641.40 -3271.10 9215.89 9215.89



Chg in investments -8150 16645 0 0

Other investing activities -5350 -82979 0 0


Free cash flow (A+B) 4381 -93602 9247 26806

Chg in minorities

Debt raised/(repaid) 4019 98583 0 0


Other financing activities 14054 -11112 -9216 -9216



Net Chg in Cash (A+B+C) 15706 -12555 -5144 11749




58 of 66

Yr end March 2008 2009 2010E 2011E


Cash 23,973 11,418 6,275 18,023

Current Assets 79,865 85,499 86,329 89,255

Investments 49,103 129,681 129,681 129,681

Net fixed assets 104,523 145,993 159,558 165,017

Other non-current assets 3,975 11,449 11,449 11,449

Total Assets 261,438 384,040 393,292 413,425


Total Debt 62,805 131,656 131,656 131,656



Share capital 3,855 5,141 5,141 5,141


Less: Misc. expenditure 61 20 20 20

Share Holders' Funds 78,335 122,281 134,356 147,986Total Equites & Liabilities 261,438 384,040 393,292 413,425

Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 52.6 19.5 33.6 37.9

EPS growth (%) 6.0% -63.0% 72.3% 12.9%

EBITDA margin (%) 11.1% 9.5% 12.5% 12.5%

EBIT margin (%) 9.1% 6.4% 9.6% 9.7%

ROCE (%) 11% 5% 8% 8%

Net debt/Equity (%) 50% 98% 93% 77%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 11.1 29.9 17.3 15.4

Price/Book (x) 2.86 2.45 2.23 2.02

Yield (%) 3% 2% 2% 2%

EV/Net sales (x) 0.80 1.48 1.31 1.18

EV/EBITDA (x) 7.20 15.53 10.52 9.41

Yr end March 2008 2009 2010E 2011E


Net margin (%) 6.2% 3.5% 5.3% 5.6%



Return on equity (%) 25.9% 8.2% 12.8% 13.2%



59 of 66

Ashok Leyland Ltd. (ALL)

Struggling with time …

Ashok Leyland is the big player in the M&HCV segment with the market sh

of 47% in FY09 as compared to the 46% in FY08. ALL is mainly concentra

on M&HCV passenger carriers segment and has got a big hit due to econo

crises.

Sales numbers are improving:

In FY10, ALL has shown improvement in sales numbers on MoM ba

although YoY basis sales numbers are still depressed, and unlike other a

makers ALL has not diversified its portfolio with other segments there fore

will take time to improve the sales scenario.

LCV segment is some what ignoredfor long:

In FY09, when other players were concentrating on the LCV market with t

several launches, being a player in M&HCV ALL got big hit on sales numbe

ALL has only 4% market share in LCV market.


After a fall in commodity prices of steel, aluminum, rubber and plas

automobile company have got big relief. ALL will also get the benefit

decreasing raw material cost; it will help to improve profit margins.






Year- end Sales YoY EBITDA YoY PAT YoY EPS YoY PE EV/EBITDA RoE Ro


FY08 78249 8% 8780 14% 4693 6% 3 6% 15 8.53 22% 1

FY09 60097 -23% 5191 -41% 1900 -60% 1 -60% 37 17.19 5%

FY10E 62801 4% 6473 25% 2534 33% 1 33% 28 13.55 7%

FY11E 82270 31% 8501 31% 3783 49% 2 49% 19 10.61 10%






52 Wk H/L (Rs) 1356/294

Face Value (Rs) 10


MF, Fis &Banks,

18.58


Non

Promoter

Corporate

Holding,

4.41

Promoters,

54.21


0

100

200

300

O c t - 0 8

N o v - 0 8

D e c - 0 8

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

SENSEX Ashok Leyland




60 of 66

Investment Rational

Ashok Leyland Ltd. (ALL) is an auto maker in the commercial vehicle

segment. ALL dealing in to buses, trucks, defense special vehicles an

engines. In FY09, ALL got a big hit on account of economic slow down, a

commercial vehicles business is directly related to the economic growth.

ALL has a market share of 33% in M&HCV passenger carriers in FY10 so fa

as compared to the 47% in FY09.

Figure47: Product share of ALL in FY09

MDV

Passenger

19734

36%

MDV

Goods

33347

62%

LCV

1350

2%

Source: Company

Weakness Higher Fixed Cost due to Unutilizedcapacity

Concentrating only on M&HCV

Strengths Leadership in the Bus Segment with46% Market Share.

Sales for Defense increased by 1.4%in FY09

Opportunities

Could see some opportunities indefense orders.

Threats

Further de-growth in the economycould hit the business.

High Debt for expansion could hitthe bottom line

SWOT Analysis



61 of 66

Sales numbers are improving:

ALL is in manufacturing of M&HCV in commercial vehicles segment. In F

09, due to economic slowdown, ALL’s business was down by 34.7% Yo

basis as the consumption of commercial vehicles are directly related to th

growth of the economy.

In FY10, after various stimulation packages announced by the governme

and revival signs of economic growth better IIP data, ALL’s sales numbe

have improved on MoM basis, still YoY basis they are in negative territory

In our view, although the economy have shown the sign of recovery, th

bad monsoon is the worry, and further ALL will get tough competition fro

other players like TATA Motors where, there is a close competition betwee

TATA Motors and ALL in M&HCV passenger vehicles.

Figure48: Market share of M&HCV passenger vehicles

47% 46% 47%49%

33%

41%

54%

45%45%

45%

0%

10%

20%

30%

40%

50%

60%


Apr - Aug

Ashok Leyland Tata Motors

Source: SIAM

Figure49: FY10 sales trend of ALL Figure50: Yearly sales trend of ALL

-44%

-34%

-12%

13%

101%

2%

18%14%

-69%-65%

-1%

-66%

4065

4784

5452

1977

3966

1750

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

0

1000

2000

3000

4000

5000

6000

YoY Growth % MoM Growth % Total Sales Nos.

6165583307

83094

54431

13%

35%

0.3%

-34.7%

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

FY06 FY07 FY08 FY09

Nos.

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Total Sales Nos. YoY Growth %




62 of 66

LCV segment is some what ignored for long:

ALL has only 2% of LCV (light commercial vehicles) in their portfolio wi

the total market share of LCV passenger carriers of 4% in FY09 a

compared to 2% in FY 08 and do not have presence in LCV goods carrier

Although the market share has increased in LCV passenger carriers, bein

the commercial auto maker ALL should have different segments of produc

in their portfolio but ALL is concentrating only on M&HCV segment. In F

09, M&HCV segment degrew by 34% where as LCV segment registere

10% de-growth. New launches in LCV would have supported their botto

line.

ALL planning to come up with the joint venture with Nissan for LCV truck

but it has postponed to 2011 due to market conditions and land acquisitio

problem. It means when other industry players like TATA Motors and M&

launching new products in this segment ALL will not be able to launch the

product in the market.


The big impact on the bottom line was due to two reasons. One is due

fall in sales as compared to the previous year and second was sky touchin

prices of raw material like steel, aluminum, rubber and plastic. Companie

were unable to pass on the increase in raw material prices on th

customers. Now the prices of the commodity have come down sharply a

compared to the 2008 prices, which will help ALL to improve its bottom lin

margin. Although, the upward price movement in raw material prices is

worry.



63 of 66

Valuation:



64 of 66


Yr end March 2008 2009 2010E 2011E


Revenue 78249 60097 62801 82270

Growth % 8% - 23% 4% 31%

Operating Cost -70209 -55403 -56539 -73980

EBITDA 8780 5191 6473 8501

Growth 14% - 41% 25% 31%

Depreciation -1774 -1784 -1890 -2292

EBIT 7006 3406 4583 6208

Growth % 12% - 51% 35% 35%

Interest -497 -1187 -1205 -1164

Other Income 740 496 211 211


Tax -1688 -185 -845 -1261



EPS 3.5 1.4 1.9 2.8

Growth % 5.8% - 59.5% 33.4% 49.3%

No of Shares 1,330.34 1,330.34 1,330.34 1,330.34

Yr end March 2008 2009 2010E 2011E

Cash Flow (In Mn.)

Pre-tax profit 6382 2084 3378 5044

Depreciation 1774 1784 1890 2292

Chg in working capital 11986 -4643 9711 8198 Total tax paid -1281 -596 -845 -1261

Other operating activities 10,657 (5,256) 8,867 6,937

Cash Flow From Operations (A) 10657 -5256 8867 6937


Chg in investments 101 -171 0 0

Other investing activities -2209 1046 0 0


Free cash flow (A+B) 2560 -11898 3997 558

Chg in minorities

Debt raised/(repaid) 4261 58650 -27000 -8000

Dividend (incl. tax) 0 -2335 -1267 -1892




Net Chg in Cash (A+B+C) 6205 -7276 2026 -1798




65 of 66

Yr end March 2008 2009 2010E 2011E


Cash 4,514 881 2,907 1,109

Current Assets 24,239 30,775 24,134 29,152

Investments 6,099 2,636 2,636 2,636

Net fixed assets 20,548 43,974 46,953 51,040Other non-current assets 223 97 97 97

Total Assets 55,622 78,363 76,727 84,034


Total Debt 8,875 19,581 20,081 20,781



Share capital 1,330 1,330 1,330 1,330





Yr end March 2008 2009 2010E 2011E

Key ratios

EPS (Rs) 3.5 1.4 1.9 2.8

EPS growth (%) 5.8% -59.5% 33.4% 49.3%

EBITDA margin (%) 11.2% 8.6% 10.3% 10.3%

EBIT margin (%) 9.0% 5.7% 7.3% 7.5%

ROCE (%) 14% 5% 7% 8%

Net debt/Equity (%) 20% 54% 48% 52%

Yr end March 2008 2009 2010E 2011E

Valuations

PER (x) 15.0 37.1 27.8 18.6

Price/Book (x) 3.28 2.03 1.96 1.86

Yield (%) 0% 3% 2% 3%

EV/Net sales (x) 0.96 1.48 1.40 1.10

EV/EBITDA (x) 8.53 17.19 13.55 10.61

Yr end March 2008 2009 2010E 2011E


Net margin (%) 6.0% 3.2% 4.0% 4.6%



Return on equity (%) 21.8% 5.5% 7.0% 10.0%



66 of 66

NOTES:



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