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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
FY07 FY08 FY09 FY10 FY11
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
FY07 FY08 FY09 FY10 FY11
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
FY07 FY08 FY09 FY10 FY11
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
0
200
400
600
800
1000
1200
Q
1
F Y 0 6
Q
2
F Y 0 6
Q
3
F Y 0 6
Q
4
F Y 0 6
Q
1
F Y 0 7
Q
2
F Y 0 7
Q
3
F Y 0 7
Q
4
F Y 0 7
Q
1
F Y 0 8
Q
2
F Y 0 8
Q
3
F Y 0 8
Q
4
F Y 0 8
Q
1
F Y 0 9
Q
2
F Y 0 9
Q
3
F Y 0 9
Q
4
F Y 0 9
Q
1
F Y 1 0
2061.9
2631.5 2613.6
2077.5
1573.73
0
500
1000
1500
2000
2500
3000
3500
Q
1
F Y 0 6
Q
2
F Y 0 6
Q
3
F Y 0 6
Q
4
F Y 0 6
Q
1
F Y 0 7
Q
2
F Y 0 7
Q
3
F Y 0 7
Q
4
F Y 0 7
Q
1
F Y 0 8
Q
2
F Y 0 8
Q
3
F Y 0 8
Q
4
F Y 0 8
Q
1
F Y 0 9
Q
2
F Y 0 9
Q
3
F Y 0 9
Q
4
F Y 0 9
Q
1
F Y 1 0
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
60
80
100
120
140
160
Q
1
F
Y
0 6
Q
2
F
Y
0 6
Q
3
F
Y
0 6
Q
4
F
Y
0 6
Q
1
F
Y
0 7
Q
2
F
Y
0 7
Q
3
F
Y
0 7
Q
4
F
Y
0 7
Q
1
F
Y
0 8
Q
2
F
Y
0 8
Q
3
F
Y
0 8
Q
4
F
Y
0 8
Q
1
F
Y
0 9
Q
2
F
Y
0 9
Q
3
F
Y
0 9
Q
4
F
Y
0 9
Q
1
F
Y
1 0
174.63
225.11
246.76
175.85217.55
0
50
100
150
200
250
300
350
Q
1
F Y 0 6
Q
2
F Y 0 6
Q
3
F Y 0 6
Q
4
F Y 0 6
Q
1
F Y 0 7
Q
2
F Y 0 7
Q
3
F Y 0 7
Q
4
F Y 0 7
Q
1
F Y 0 8
Q
2
F Y 0 8
Q
3
F Y 0 8
Q
4
F Y 0 8
Q
1
F Y 0 9
Q
2
F Y 0 9
Q
3
F Y 0 9
Q
4
F Y 0 9
Q
1
F Y 1 0
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.
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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:
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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
FY07 FY08 FY09 FY10 FY11
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
FY05 FY06 FY07 FY08 FY09
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
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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
FY05 FY06 FY07 FY08 FY09
0%
2%
4%
6%
8%
10%
12%
14%
Total Debt Debt to Equity Ratio
Source: Company, MSSBL
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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
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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
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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
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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%
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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.
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 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
Mkt Cap (Rs bn) 178.14 52 Wk H/L (Rs) 1356/294 Face Value (Rs) 10
Shareholding Pattern
Non
Promoter
Corporate
Holding,
8.92
MF,Fis &
Banks , 7.37
FII, 16.95Others,
17.14
Promoters
, 49.62
As on 30th June 2009
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
CMP: Rs.1668 Target Price: Potential Downside:
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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
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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
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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
Bajaj Auto market share 26.00% 26.70% 20.40% 12.40%
Total 3-wheelers
Industry sales 419,855 528,797 506,006 497,793
Bajaj Auto sales 252,054 321,828 290,312 274,529
Bajaj Auto market share 60.00% 60.90% 57.40% 55.10%
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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
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Fina n cial and Valuation Summary
Yr end March 2008 2009 2010E 2011E
Income Statement (In Mn.)
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
Earning Before Tax 11340 9581 18986 21373
Tax -3780 -3016 -5696 -6198
Earning After Tax 8087 6545 13290 15175
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
Other operating activities - - -
Cash Flow From Operations (A) 26157 4115 14327 17627
Capital expenditure - -3860.8 -2873.78 -2995.244
Chg in investments -20730 - -3000 -8500
Other investing activities - 1784 - -
Cash Flow From Investing (B) -20730 -2077 -5874 -11495
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
Other financing activities -52 -269 -96 -102
Cash Flow From Financing (C) -5701 -1230 -6349 -4958
Cash At The Beginning of the Year 835 561 1369 3473
Net Chg in Cash (A+B+C) -274 808 2104 1174
Cash At The End of The Year 561 1369 3473 4647
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Yr end March 2008 2009 2010E 2011E
Balance Sheet (In Mn.)
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
Current Liabilities 18,773 24,376 25,661 26,778
Total Debt 13,343 15,700 13,700 15,700
Other non-current liabilities 1,419 1,648 1,648 1,648
Total Liabilities 33,536 41,724 41,009 44,126
Share capital 1,447 1,447 1,447 1,447
Reserves & surplus 14,429 17,250 26,288 36,607
Less: Misc. expenditure - - - -
Share Holders' Funds 15,876 18,697 27,734 38,053
Total Equites & Liabilities 49,412 60,420 68,743 82,179
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%
Asset turnover (x) 2.0 1.5 1.8 1.6
Leverage factor (x) 3.1 3.2 2.5 2.1
Return on equity (%) 50.9% 35.0% 47.9% 39.9%
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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.
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 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
Bloomberg Code BJAUT IN
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
Shareholding Pattern
Promoters
, 60.45
MF,Fis &
Banks,
11.57
Non
Promoter
Corporate
Holding,
5.25
FII, 5.06Others,
17.68
As on 30th June 2009
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
CMP: Rs.1668 Target Price: Potential Downside:
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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
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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
FY06 FY07 FY08 FY09 FY10E FY11E
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
FY06 FY07 FY08 FY09 FY10E FY11E
Lakh
0%
10%
20%
30%
Exports %of total Volume
Source: Company
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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
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Fina n cial and Valuation Summary
Yr end March 2008 2009 2010E 2011E
Income Statement (In Mn.)
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
Earning Before Tax 354 311 1096 1399
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
Other operating activities - - -
Cash Flow From Operations (A) 63 1616 2091 2795
Capital expenditure -3425 -446 -1322 -1454
Chg in investments 58 -1388 0 0
Other investing activities
Cash Flow From Investing (B) -1063 -2043 -1322 -1454
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
Other financing activities -115 -646 -498 -408
Cash Flow From Financing (C) 171 811 -927 -955
Cash At The Beginning of the Year 866 37 421 263
Net Chg in Cash (A+B+C) -828 383 -157 387
Cash At The End of The Year 37 421 263 650
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Yr end March 2008 2009 2010E 2011E
Balance Sheet (In Mn.)
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
Other non-current assets 528 753 753 753
Total Assets 22,096 24,831 26,120 27,303
Current Liabilities 5,668 6,158 7,019 7,655
Total Debt 6,663 9,060 9,060 9,060
Other non-current liabilities 1,549 1,511 1,511 1,511
Total Liabilities 13,880 16,729 17,590 18,226
Share capital 238 238 238 238
Reserves & surplus 7,978 7,864 8,293 8,840
Less: Misc. expenditure - - - -
Share Holders' Funds 8,216 8,102 8,530 9,077
Total Equites & Liabilities 22,096 24,831 26,120 27,303
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
Du Pont Analysis - ROE
Net margin (%) 0.9% 0.8% 1.8% 2.1%
Asset turnover (x) 1.7 1.6 1.8 1.9
Leverage factor (x) 2.7 3.1 3.1 3.0
Return on equity (%) 3.9% 3.8% 10.1% 12.1%
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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.
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 Ro
March (Rs. Mn) (%) (Rs. Mn) (%) (Rs. Mn) (%) (Rs.) (%) (x) (x) (%) (%
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
Bloomberg Code BJAUT IN
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
Shareholding Pattern
MF, Fis &
Banks,
18.58
Others, 2.03FII, 20.76
Non
Promoter
Corporate
Holding,
4.41
Promoters,
54.21
As on 30th June 2009
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
CMP: Rs.1668 Target Price: Potential Downside:
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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
FY05 FY06 FY07 FY08 FY09
0%
5%
10%
15%
20%
25%
Total Sales YoY Growth
18
4
7879777678
1720
1917
4343
0
20
40
60
80
100
FY04 FY05 FY06 FY07 FY08
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
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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%
Source: Company Source: Company
Segments
A1 Maruti 800
A2 Alto, Estilo*, Swift, A-star*, Ritz*,WagonR,
A3 Swift D-zire*, SX4*
C Omni, Versa
MUV Gypsy, Grand vitara
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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
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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
Source: Company Source: Company
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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
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Fina n cial and Valuation Summary
Yr end March 2008 2009 2010E 2011E
Income Statement (In Mn.)
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
Earning Before Tax 25030 16759 31715 38356
Tax -7722 -4571 -9832 -11890
Earning After Tax 17308 12187 21883 26465
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
Cash Flow From Operations (A) 18228 11933 29045 37095
Capital expenditure -16789 -16136 -26817 -12076
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
Dividend (incl. tax) -1299 -1444 -1667 -2016
Other financing activities -743 -579 -299 -194
Cash Flow From Financing (C) 1323 -5362 -3967 -4211
Cash At The Beginning of the Year 14228 3305 19390 17651
Net Chg in Cash (A+B+C) -10923 16085 -1739 -4192
Cash At The End of The Year 3305 19390 17651 13459
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Yr end March 2008 2009 2010E 2011E
Balance Sheet (In Mn.)
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
Other non-current assets 996 789 789 789
Total Assets 124,110 136,754 163,477 193,857
Current Liabilities 28,257 33,976 42,483 50,414
Total Debt 9,002 6,989 4,989 2,989
Other non-current liabilities 2,697 2,340 2,340 2,340
Total Liabilities 39,956 43,305 49,812 55,743
Share capital 1,445 1,445 1,445 1,445
Reserves & surplus 82,709 92,004 112,220 136,669
Less: Misc. expenditure - - - -
Share Holders' Funds 84,154 93,449 113,665 138,114
Total Equites & Liabilities 124,110 136,754 163,477 193,857
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%
Asset turnover (x) 1.7 1.7 2.0 2.1
Leverage factor (x) 1.5 1.5 1.4 1.4
Return on equity (%) 20.6% 13.0% 19.3% 19.2%
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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.
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 RoC
March (Rs. Mn) (%) (Rs. Mn) (%) (Rs. Mn) (%) (Rs.) (%) (x) (x) (%) (%
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
Bloomberg Code BJAUT IN
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
Shareholding Pattern
MF, Fis &
Banks,
18.58
Others, 2.03FII, 20.76
Non
Promoter
Corporate
Holding,
4.41
Promoters,
54.21
As on 30th June 2009
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
CMP: Rs.1668 Target Price: Potential Downside:
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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
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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
FY07 FY08 FY09 FY10 FY11
(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
Source: Company Source: Company
*PTL merged with M&M in 2007
FY07 FY08 FY09 FY10 FY11
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%
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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.
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Valuation:
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Fina n cial and Valuation Summary
Yr end March 2008 2009 2010E 2011E
Income Statement (In Mn.)
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
Earning Before Tax 12340 10262 22998 23876
Tax -3034 -1997 -5654 -5870
Earning After Tax 9306 8265 17344 18006
Earning Margins 7.5% 5.8% 9.8% 9.1%
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
Cash Flow From Operations (A) 8258 16313 12333 24009
Capital expenditure -7171 -9152 -8865 -10831
Chg in investments -16039 -9229 0 0
Other investing activities 2459 -1030 0 0
Cash Flow From Investing (B) -20751 -19410 -8865 -10831
Free cash flow (A+B) -12493 -3097 3468 13178
Chg in minorities
Debt raised/(repaid) 10095 11123 -4000 -2000
Dividend (incl. tax) -1180 -3203 -2199 -2283
Other financing activities -801 -952 -1096 -1070
Cash Flow From Financing (C) 8113 6969 -7295 -5354
Cash At The Beginning of the Year 12991 11872 15744 11917
Net Chg in Cash (A+B+C) -4379 3872 -3827 7824
Cash At The End of The Year 8612 15744 11917 19742
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Yr end March 2008 2009 2010E 2011E
Balance Sheet (In Mn.)
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
Other non-current assets 135 489 489 489
Total Assets 102,449 315,162 281,636 302,512
Current Liabilities 32,510 47,978 44,703 48,997
Total Debt 25,871 40,528 36,528 34,528
Other non-current liabilities 567 - - -
Total Liabilities 58,948 88,505 81,231 83,525
Share capital 2,391 2,726 2,726 2,726
Reserves & surplus 41,110 49,895 65,039 80,762
Less: Misc. expenditure - - - -
Share Holders' Funds 43,501 52,621 67,765 83,488
Total Equites & Liabilities 102,449 141,126 148,996 167,012
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
Du Pont Analysis - ROE
Net margin (%) 7.5% 5.8% 9.8% 9.1%
Asset turnover (x) 1.2 0.5 0.6 0.7
Leverage factor (x) 2.4 6.0 4.2 3.6
Return on equity (%) 21.4% 15.7% 25.6% 21.6%
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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.
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 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%
Bloomberg Code BJAUT IN
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
Shareholding Pattern
MF, Fis &
Banks,
18.58
Others, 2.03FII, 20.76
Non
Promoter
Corporate
Holding,
4.41
Promoters,
54.21
As on 30th June 2009
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
CMP: Rs.1668 Target Price: Potential Downside:
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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
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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
FY05 FY06 FY07 FY08 FY09
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
FY06 FY07 FY08 FY09 FY10E FY11E
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
Source: Company Source: Company
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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
FY05 FY06 FY07 FY08 FY09
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
Source: Company Source: Company
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.
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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
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Valuation
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Fina n cial and Valuation Summary
Yr end March 2008 2009 2010E 2011E
Income Statement (In Mn.)
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
Earning Before Tax 25765 10138 21905 24726
Tax -5476 -125 -4655 -5255
Earning After Tax 20289 10013 17250 19472
Earning Margins 6.2% 3.5% 5.3% 5.6%
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
Cash Flow From Operations (A) 61600 12845 32037 42189
Capital expenditure -43719 -40113 -22790 -15383
Chg in investments -8150 16645 0 0
Other investing activities -5350 -82979 0 0
Cash Flow From Investing (B) -57219 -106447 -22790 -15383
Free cash flow (A+B) 4381 -93602 9247 26806
Chg in minorities
Debt raised/(repaid) 4019 98583 0 0
Dividend (incl. tax) -6749 -6424 -5175 -5841
Other financing activities 14054 -11112 -9216 -9216
Cash Flow From Financing (C) 11325 81047 -14391 -15057
Cash At The Beginning of the Year 8268 23973 11418 6275
Net Chg in Cash (A+B+C) 15706 -12555 -5144 11749
Cash At The End of The Year 23973 11418 6275 18023
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Yr end March 2008 2009 2010E 2011E
Balance Sheet (In Mn.)
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
Current Liabilities 106,566 109,996 107,173 113,676
Total Debt 62,805 131,656 131,656 131,656
Other non-current liabilities 13,732 20,107 20,107 20,107
Total Liabilities 183,103 261,759 258,936 265,439
Share capital 3,855 5,141 5,141 5,141
Reserves & surplus 74,540 117,161 129,236 142,866
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
Du Pont Analysis - ROE
Net margin (%) 6.2% 3.5% 5.3% 5.6%
Asset turnover (x) 1.3 0.7 0.8 0.8
Leverage factor (x) 3.3 3.1 2.9 2.8
Return on equity (%) 25.9% 8.2% 12.8% 13.2%
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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.
Reduction in the input cost is a big relief:
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.
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).
Year- end Sales YoY EBITDA YoY PAT YoY EPS YoY PE EV/EBITDA RoE Ro
March (Rs. Mn) (%) (Rs. Mn) (%) (Rs. Mn) (%) (Rs.) (%) (x) (x) (%) (%
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%
Bloomberg Code BJAUT IN
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
Shareholding Pattern
MF, Fis &Banks,
18.58
Others, 2.03FII, 20.76
Non
Promoter
Corporate
Holding,
4.41
Promoters,
54.21
As on 30th June 2009
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
CMP: Rs.1668 Target Price: Potential Downside:
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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
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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%
FY06 FY07 FY08 FY09 FY10
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 %
Source: Company Source: Company
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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.
Reduction in the input cost is a big relief:
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.
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Valuation:
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Fina n cial and Valuation Summary
Yr end March 2008 2009 2010E 2011E
Income Statement (In Mn.)
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
Earning Before Tax 6382 2084 3378 5044
Tax -1688 -185 -845 -1261
Earning After Tax 4693 1900 2534 3783
Earning Margins 6.0% 3.2% 4.0% 4.6%
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
Capital expenditure -6095 -7579 -4869 -6379
Chg in investments 101 -171 0 0
Other investing activities -2209 1046 0 0
Cash Flow From Investing (B) -8097 -6642 -4869 -6379
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
Other financing activities -547 -939 -1205 -1164
Cash Flow From Financing (C) 3645 4621 -1972 -2355
Cash At The Beginning of the Year 1952 8157 881 2907
Net Chg in Cash (A+B+C) 6205 -7276 2026 -1798
Cash At The End of The Year 8157 881 2907 1109
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Yr end March 2008 2009 2010E 2011E
Balance Sheet (In Mn.)
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
Current Liabilities 22,719 21,369 17,967 22,682
Total Debt 8,875 19,581 20,081 20,781
Other non-current liabilities 2,538 2,673 2,673 2,673
Total Liabilities 34,133 43,624 40,721 46,136
Share capital 1,330 1,330 1,330 1,330
Reserves & surplus 20,159 33,409 34,676 36,567
Less: Misc. expenditure - - - -
Share Holders' Funds 21,490 34,739 36,006 37,897
Total Equites & Liabilities 55,622 78,363 76,727 84,034
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
Du Pont Analysis - ROE
Net margin (%) 6.0% 3.2% 4.0% 4.6%
Asset turnover (x) 1.4 0.8 0.8 1.0
Leverage factor (x) 2.6 2.3 2.1 2.2
Return on equity (%) 21.8% 5.5% 7.0% 10.0%
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NOTES:
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