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SYNOPSIS
Eicher Motors Limited designs,
develops, manufactures, and markets
trucks and buses, motorcycles,
automotive gears, and components in
India and internationally.
The Eicher Group has diversified
business interests in design &
development, manufacturing and
local/ international marketing of
Trucks & Buses, Motorcycles,
Automotive Gears and components.
Eicher is present in over 40
countries across the world.
During the quarter ended, the
robust growth of revenue is
increased by 25.03% Rs.12984.20
million.
Net Sales and PAT of the company
are expected to grow at a CAGR of
29% and 58% over 2009 to 2012E
respectively.
Years Net sales EBITDA Net Profit EPS P/E
CY 10 44212.60 4844.70 1889.20 70.13 19.28
CY 11E 55265.75 6725.90 2720.17 100.86 13.41
CY 12E 64108.27 7625.85 3171.15 117.58 11.50
Stock Data:
Sector: Automobile
Face Value Rs. 10.00
52 wk. High/Low (Rs.) 1449.758/975.00
Volume (2 wk. Avg.) 2450
BSE Code 505200
Market Cap (Rs.In mn) 36467.48
Share Holding Pattern
1 Year Comparative Graph
Eicher Motors BSE SENSEX
C.M.P: Rs. 1352.15 Target Price: Rs. 1528.00 Date: Aug 18th 2011 BUY
Eicher Motors Ltd Result Update: Q2 CY 11
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Peer Group Comparison
Name of the company CMP(Rs.) Market
Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Eicher 1352.15 36467.48 32.47 41.64 7.98 110.00
Ashok Leyland 24.00 63856.20 2.24 10.71 2.40 200.00
Tata Motors 758.35 482555.20 28.50 26.61 2.42 200.00
VST Trillers 499.30 4313.70 60.27 8.28 2.63 90.00
Investment Highlights
Q2 CY11 Results Update
Eicher Motors has reported a rise of 25.03% net sales for the quarter ended June
2011. During the quarter, the company disclosed a profit of Rs. 763.10 million as
against of Rs.551.80 million for the quarter ended June 30, 2010. Net sales are
increased by 25.03% to Rs. 12984.20 million from Rs.10384.80 million in the same
quarter previous year. In the same period, total income of the company was at
Rs.13395.80 million, a rise of 24.28% over the prior year period. Company EPS is
stood at Rs.28.29 for the quarter ended June 2011.
Quarterly Results - Consolidated (Rs in mn)
As At Jun-11 Jun-10 %change
Net sales 12984.20 10384.80 25.03
Net Profit 763.10 551.80 38.29
Basic EPS 28.29 20.61 37.27
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� Break up of Expenditure
Company Profile
Eicher Motors Limited, incorporated in 1982, is the flagship company of the Eicher
Group in India and a significant player in the Indian automobile industry. Its 50-50
joint venture with the Volvo group, namely, VE Commercial Vehicles, is involved in
business activities ranging from design, manufacturing and marketing of reliable, fuel-
efficient commercial vehicles of high quality and modern technology to manufacturing
engineering components and providing engineering design solutions. Eicher Motors’
two-wheeler division manufactures and markets Royal Enfield motorcycles.
Eicher has around 2500 employees located in 4 manufacturing facilities and 49
marketing & area offices all around India. The Group has around 308 vendors
supplying components and sub-assemblies, which testifies to the strength of the
vendor base. The Group’s products are brought to the customers through its strong
network of around 142 dealers distributed across the length and breadth of the
country. Eicher is present in over 40 countries across the world.
Over 85 executives work exclusively in the area of R&D. Product development and
product-engineering facilities are available at each of Eicher’s major manufacturing
locations. Expertise has been developed in the areas of design and development of
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Trucks & Buses, Automotive transmission, Electronic instrumentation, Material
science, Metrology as well as prototype manufacturing and testing.
Subsidiary companies
Eicher Trucks and Buses (ETB)
Volvo Trucks India (VTI)
Eicher Engineering Components (EEC)
Eicher Engineering Solutions (EES)
Company Products
Motors
It manufactures several kinds of commercial vehicles with gross vehicle weight ranging
between 5 to 11 tons. It has technical and financial collaboration with Mitsubishi
Motors Corporation of Japan which led to manufacturing of CANTER range of vehicles.
It manufactures around 20000 vehicles per annum.
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Motorcycles
It manufactures bullet motorcycles Royal Enfield. It manufactures six different models
ranging from 300cc to 600cc. The manufacturing plant has installed capacity of
39,000 motorcycles per annum.
Engineering Components
The company manufactures complete range of automotive gears. The range of gears
includes Spiral bevels (Crown wheel and pinions), Straight bevels and Transmission
gears.
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Financial Results
12 Months Ended Profit & Loss Account (Consolidated)
Value(Rs.in.mn) CY09 CY10 CY11E CY12E
Description 12m 12m 12m 12m
Net Sales 29549.00 44212.60 55265.75 64108.27
Other Income 891.70 1033.90 1199.32 1343.24
Total Income 30440.70 45246.50 56465.07 65451.51
Expenditure -27942.10 -40401.80 -49739.18 -57825.66
Operating Profit 2498.60 4844.70 6725.90 7625.85
Interest -86.70 -95.00 -99.75 -105.74
Gross profit 2411.90 4749.70 6626.15 7520.12
Deprecation -538.80 -573.00 -624.57 -687.03
Profit Before Tax 1873.10 4176.70 6001.58 6833.09
Tax -578.20 -1108.20 -1536.40 -1742.44
Profit After Tax 1294.90 3068.50 4465.17 5090.65
Minority Interest -461.00 -1179.30 -1745.00 -1919.50
Net profit 833.90 1889.20 2720.17 3171.15
Equity capital 266.90 269.40 269.70 269.70
Reserves 10423.60 12052.00 16517.17 21607.83
Face value 10.00 10.00 10.00 10.00
EPS 31.24 70.13 100.86 117.58
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Quarterly Ended Profit & Loss Account (Consolidated)
Value(Rs.in.mn) 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11E
Description 3m 3m 3m 3m
Net sales 12435.10 13896.60 12984.20 13373.73
Other income 238.60 253.70 411.60 391.02
Total Income 12673.70 14150.30 13395.80 13764.75
Expenditure -11230.30 -12272.50 -11722.50 -12103.22
Operating profit 1443.40 1877.80 1673.30 1661.52
Interest -8.20 -14.40 -21.00 -22.26
Gross profit 1435.20 1863.40 1652.30 1639.26
Depreciation -146.60 -154.40 -153.80 -158.41
Profit Before Tax 1288.60 1709.00 1498.50 1480.85
Tax -351.40 -483.30 -338.10 -377.62
Profit After Tax 937.20 1225.70 1160.40 1103.23
Minority interest -388.60 -492.90 -397.30 -417.17
Net profit 548.60 732.80 763.10 686.07
Equity capital 269.40 269.60 269.70 269.70
Face value 10.00 10.00 10.00 10.00
EPS 20.36 27.18 28.29 25.44
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Key Ratios
Particulars CY09 CY10 CY11E CY12E
No. of Shares(In Million) 26.69 26.94 26.97 26.97
EBITDA Margin (%) 8.46% 10.96% 12.17% 11.90%
PBT Margin (%) 6.34% 9.45% 10.86% 10.66%
PAT Margin (%) 4.38% 6.94% 8.08% 7.94%
P/E Ratio (x) 43.28 19.28 13.41 11.50
ROE (%) 12.11% 24.90% 26.60% 23.27%
ROCE (%) 25.41% 40.80% 41.54% 36.41%
Debt Equity Ratio 0.12 0.08 0.05 0.04
EV/EBITDA (x) 14.44 7.52 5.42 4.78
Book Value (Rs.) 400.54 457.36 622.43 811.18
P/BV 3.38 2.96 2.17 1.67
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Charts:
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Outlook and Conclusion
At the current market price of Rs.1352.15, the stock is trading at 13.41 x
CY11E and 11.50 x CY12E respectively.
Earning per share (EPS) of the company for the earnings for CY11E and CY12E
is seen at Rs.100.86 and Rs.117.58 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 29% and
58% over 2009 to 2012E respectively.
On the basis of EV/EBITDA, the stock trades at 5.42 x for CY11E and 4.78 x
for CY12E.
Price to Book Value of the stock is expected to be at 2.17 x and 1.67 x
respectively for CY11E and CY12E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.1528.00 for Medium to Long term investment.
Industry Overview
The Indian automobile industry, the seventh largest in the world, has demonstrated a
phenomenal growth. The industry has grown significantly over the last ten years,
during which industry volumes have increased by 3.2 times, from a level of 4.7 million
numbers to 14.9 million numbers, according to Vishnu Mathur, Director General,
Society of Indian Automobile Manufacturers (SIAM).
The industry, by virtue of its deep connects with several key segments of the economy,
occupies a prominent place in the country’s growth canvas. It exhibits a strong
multiplier effect and has the ability to be the key driver of economic growth. A robust
transportation system plays a key role in a country's rapid economic and industrial
development, and the well-developed Indian automotive industry justifies this catalytic
role by producing a wide variety of vehicles, which include passenger cars, light,
medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters,
motorcycles, mopeds, three wheelers, tractors etc.
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Auto Industry in India – Growth Drivers
The automobile sector in India has been experiencing significant growth in the last few
years on the back of factors that include:
• Favourable demographic distribution with rising working population and middle
class Urbanisation
• Rising affluence of the average consumer as per capita income rises - According
to McKinsey, the middle class in India will grow from 50 million to 550 million
by 2025. With a tremendous growth in wealth as the economy grows, there will
be significant increases in spending on discretionary items and consumer
durables
• Increasing disposable incomes in rural agri-sector
• Overall GDP growth, with a rise in industrial and agricultural output
• Introduction of ultra-low-cost cars
• Increasing maturity of Indian original equipment manufacturers (OEMs)
• Availability of a variety of vehicle models meeting diverse needs and preferences
– robust production
• Greater affordability of vehicles
• Easy finance schemes
• Favourable government policies
Indian Automobile market – Key statistics
India's automobile industry, currently estimated to have a turnover of US$ 73 billion,
accounts for 6 per cent of its GDP, and is expected to hit a turnover of US$ 145 billion
by 2016.
The automobile industry currently contributes 22 per cent to the manufacturing GDP
and 21 per cent of the total excise collection in the country, according to Mr Praful
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Patel, Minister, Heavy Industries and Public Enterprises. In 2010-11, the total
turnover and export of the automotive Industry in India reached a new high of US$ 73
billion and US$ 11 billion respectively. The cumulative announced investments
reached US$ 30 billion during this period. He also said that the forecasted size of the
Indian Passenger Vehicle Segment is nearly 9 million units and that of 2 wheelers,
close to 30 million units – by 2020.
India achieved the position of the top growing passenger car market in the world
during the January-June period in 2011, overtaking the US, which grew at 14.40 per
cent, according to SIAM. In passenger vehicles, India was the fastest growing market
at 18.20 per cent during the six month period.
India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year
ending March 2012, according to Pawan Goenka, President, SIAM. The industry body
said that Indian automakers sold 143,370 cars in June 2011.
The four-wheel passenger vehicle market has grown impressively at the hands of the
new middle class, and there is huge opportunity, as market penetration remains low.
Domestic market share for 2010-11
India’s automobile industry is growing fast, but two wheelers remain a dominant
category. More than 78 percent of motor vehicles on the road are two-wheelers, their
popularity driven by low price, high fuel mileage, and an ability to drive efficiently
through dense traffic. The share of different types of vehicles during 2010-11 was
passenger vehicles (16.25), commercial vehicles (4.36), three wheelers (3.39), and two
wheelers (76.00).
Recent Investments/ Trends
The auto industry has made huge investments in the country. As per 2008-09, the
total investment of auto industry in India was Rs 60,952 crore (US$ 13.89 billion).
Another Rs 78,000 crore (US$ 17.78 billion) of new investments have been announced
by the auto industry out of which some have already been made and the rest will come
up over the next 2-3 years. The industry, therefore, is keeping pace with the growing
demand for vehicles in all segments.
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The Karnataka government has cleared investment proposals amounting to more than
Rs 8,662 crore (US$ 19.74 billion), which include the plans of Honda Motorcycle India
plans for a manufacturing unit in the State. Mr Murugesh Nirani, Karnataka
Industries Minister, has said that Honda Motorcycles and Scooter India would be
investing Rs 1,350 crore (US$ 307.7 million) in Narsapur Industrial area of Kolar
district of the State.
Demand for two-wheelers from six of the eight domestic mobike manufacturers rose
16 per cent in June to more than 880,000 units, compared to 761,000 units in June
2010.
Australia is looking at possibilities of building better relations between its world-class
firms and rapidly growing Indian automotive industries with an objective to create new
export opportunities.
Pune-based Force Motors has signed an agreement with Daimler AG, under which
Daimler will supply technology for the development of a multi-purpose vehicle (MPV)
by Force Motors
Swedish automobile manufacturer Volvo Cars Corp is looking at introducing corporate
editions of its luxury sedans S60 and S80 to shore up volumes in the Indian
automobile market.
French car maker PSA Peugeot Citroen has selected a site near Sriperumbudur, to the
west of Chennai, in Tamil Nadu for setting up its car plant. The company is planning
to invest Rs 4,000 crore (US$ 911.72 million) in an integrated automobile project.
Toyota has launched its first made-for-India small car, the EtiosLiva, in the intensely
competitive hatchback segment. The car, priced between Rs 399,000 and 599,000
(US$9,094 and 13,653), will compete with Maruti Suzuki Swift, Hyundai i20,
Volkswagen Polo and Ford Figo.
Auto industry in India – Government Initiatives
With the gradual liberalisation of the automobile sector since 1991, the number of
manufacturing units in India has grown progressively.
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Currently, 100 per cent Foreign Direct Investment (FDI) is permissible under
automatic route in this sector including passenger car segment. The import of
technology/technological upgradation on the royalty payment of 5 per cent without
any duration limit and lump sum payment of US$ 2 million is also allowed under
automatic route in this sector.
The automobile industry is delicensed, and import of components is freely allowed.
With an objective of accelerating and sustaining growth in the automotive sector and
to steer, co-ordinate and synergise the efforts of all stakeholders, the Automotive
Mission Plan (AMP) 2006-2016 was prepared. The plan aims at making India global
automotive hub. The AMP 2006-2016 aims at doubling the contribution of automotive
sector in GDP by taking the turnover to US$ 145 billion and providing additional
employment to 25 million people by 2016.
In the long term, the government has expressed plans to follow a two pronged strategy
for spurring automotive Research &Development (R&D). The first is aimed at
addressing the existing infrastructure gap in the field domain of automotive testing
and homologation through the Department’s flagship National Automotive Testing and
R&D Infrastructure Project(NATRiP), which is being implemented at a cost of Rs 2,288
crores (US$ 521.5 million), and is expected to be completed by the end of 2012. The
second part of the strategy is aimed at leveraging the investments being made in
NATRiP facilities for collaborative R&D with the industry, especially for the small and
medium enterprises (SMEs) in the auto component space.
Further, with the recent announcement of the launch of the National Mission for
Electric Mobility and the setting up of the National Council and Board for Electric
Mobility, Mr Patel emphasised on the commitment of the government for early
adoption of electric vehicles, including hybrid vehicles, and the manufacturing of these
vehicles and their components.
The government is considering setting up two automotive manufacturing hubs spread
over 10,000 acres each in central and eastern India.The new hubs, aimed at
consolidating India's position as an important destination for low-cost automotive
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production, will be in addition to the three existing zones — Haryana, Maharashtra
and Tamil Nadu.
Auto Industry in India – Road Ahead
The automotive industry is at the core of India’s manufacturing economy - India is all
set to become one of the world’s most attractive automotive markets for both
manufacturers and consumers. The resulting benefits to society, such as economic
growth, increased jobs, and stability for families employed by the automotive industry,
are significant.
The long-term potential for growth of the auto industry is very favourable, on account
of low vehicle penetration in the country. As income levels rise and easy finance is
available, the industry will continue to see a healthy growth rate. SIAM estimates that
the growth of the auto industry in FY12 will be in the region of 12-15 per cent.
________________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
17
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