PIAGGIO S.p.A. Politecnico Student Research Global Investment Research Challenge 2011 Automobiles & Parts

PIAGGIO S.p.A.Politecnico Student Research

Global Investment Research Challenge 2011

Automobiles & Parts

Company OverviewWhy Invest in Piaggio

Financial AnalysisValuation

Risk Analysis

COMPANY OVERVIEW

Company Overview

Why invest in Piaggio

Financial Analysis

Valuation Risk Analysis

Data and Charts

• Wide brand portfolio• Wide brand portfolio• Premiumisation strategy

Company Overview

Mobility

Style

YoungSport

Business

Design

Safety Performance

Reliability

Environment

• Largest European producer of 2w and LCVs by revenues

Company Overview

Financial Analysis


Data and Charts


Company Overview

Production FacilitiesDistribution NetworkJoint Venture

• Internationalization strategy

Company Overview

Financial Analysis


Data and Charts


Company Overview• Latest results

Company Overview

Financial Analysis


Data and Charts

Europe India Vietnam

335,0002Ws 220,000

LCVs 60,0002Ws

360,0002Ws 197,000

LCVs 48,0002Ws

-7.5% +11.7% +25%

Unit Sold Vs Management Guidelines:

European Revenues (€’000)Revenues Breakdown

Source: Company Data, Politecnico EstimatesSource: Company Data

Actual Guidelines Delta

Revenues €1,485M €1,500M -1%1

Ebitda Margin 13.3% 13.3% 0%

EPS €0.115 €0.118 -2.5%

From Revenues to Earnings:


Company Overview• Latest results

Company Overview

Financial Analysis


Data and Charts

• Efficiency Improvements

• Financial Savings

• Higher Materials Costs

• One-off Fiscal Items

From Revenues to Earnings:


Company Overview• Our Rating

Company Overview

Financial Analysis


Data and Charts

BUY

HOLD

Price (03/31/11): €2.4112 M Target Price: €2.8Upside: 16.2%Rating: BUY


Indian sales report 2010 financial results

WHY INVEST IN PIAGGIO

Company Overview


Financial Analysis


Data and Charts

1. Launch of new products in India

2. Expansion in South-Eastern Asia

3. Consolidation in Europe


Company Overview

Financial Analysis


Data and Charts


Market volumes : 1M u (2010)Market growth: 8% (2011E)

Piaggio volumes: 220,000 u (2010)Piaggio growth: 13.5% (2011E)

Why invest in Piaggio: New products in India

3w

4w

Launch of Vespa: 2012EPiaggio volumes: 75,000 u (2013E)

Company Overview

Financial Analysis


Data and Charts

25%

24%23%

18%

10%


Why invest in Piaggio: Expansion in Asia

Vietnam

Malaysia Indonesia

Thailand Taiwan

Potential Market: 3M vehiclesPotential Market:

11M vehicles

Company Overview

Financial Analysis


Data and Charts


Why invest in Piaggio: Consolidation in Europe

EuropeanEBITDA Margin

+155bpsby 2013

• Improvement of global sourcing position

• Production plants rationalisation

• Synergies in the distribution network

Company Overview

Financial Analysis


Data and Charts

Eco Friendly Solutions:

Piaggio Market Share: 20%

Piaggio Volumes: 335,000 units (2010)


FINANCIAL ANALYSIS

Company Overview

Financial Analysis


Data and Charts


€1485M €1615M €1745M €1850M

7.6% Revenue CAGR 10-13Balance Sheet

Income Statement

Cash Flow Statement

+ 160bps EBITDA margin

€0.11 €0.14 €0.18 €0.22

8.8% OCF CAGR 10-13

14.8% From EMs11.9% EBITDA CAGR 10-13

Lower D&A and Financial Charges CAGR

24.3% EPS CAGR 10-13

~ €65M

~ €140M

OCF Capex ∆NWC ∆NFP Div. &Buy Back3.3% From DMs

Financial Analysis

2010 2013

Higher than Revenue CAGR

Source: Politecnico Estimates

2010 E 2011 E 2012 E 2013 E

€197M €218M €249M €276M

€153M €155M €181M €197M

2010 2011 E 2012 E 2013 E

NFP €350M €342M €318M €288M

Debt €528M €500M €470M €440M

Cash&other €155M €148M €147M €147M

Equity €443M €467M €499M €537M

Ability to meet short and long term obligations

~ €15M

~ €310M

~€530MDeleveraging while Improving ROE

Company Overview


Financial Analysis


Data and Charts

VALUATION

Company Overview


Financial Analysis


Data and Charts

• Sum-of-the-part approach

Two-Stage model Three-Stage model Analytical Period + Perpetuity Analytical Period + Convergence Stage + Perpetuity

Valuation: Discounted Cash Flow


Company Overview


Financial Analysis


Data and Charts

€963M

2.5%

9.75%

30%

€33M

7.63%

Sales 2010

Sales CAGR 10-15

EBITDA margin 2010

Tax Rate

FCFF 2010

WACC

Valuation: Discounted Cash Flow

€389M

12.9%

19.5%

42%

€13M

9.31%

€133M

13.5%

20.5%

7.5%

€10M

10.72% Source: Politecnico Estimates

€963M

2.5%

9.75%

30%

€33M

7.63%

€133M

13.5%

20.5%

7.5%

€10M

10.72%

€2.90

€0.95

€1.30

€0.65

TP DCF EU + US India Vietnam

Company Overview


Financial Analysis


Data and Charts

Median Hero Mahindra Bajaj Tata

2011 E 9.35 x 10.60 x 8.10 x 11.12 x 5.46 x

• Piaggio’s Indian and Vietnamese businesses are comparable to its Indian peers

• Using the median EV/EBITDA multiple

EV Piaggio Asia

€ 1,114M

DCF EV

€ 970.5M13% discount

Valuation: Multiple Analysis

InitiationCoverage

Why Invest in Piaggio

Financial Analysis


CompanyOverview

Piaggio-Asia Hero Honda Mahindra & Mahindra

Bajaj Auto Tata Motors-5%

0%

5%

10%

15%

20%

25%

30%

35%Sales growth rate (2009-11E)

Company Overview


Financial Analysis


Data and Charts

Piaggio-Asia Hero Honda Mahindra & Mahindra

Bajaj Auto Tata Motors

Average EBITDA% (2010E-11E)

Piaggio

Hero Honda

Mahindra

Bajaj

Tata

Yamah

aHarl

ey KtmHonda

Suzu

ki

Peuge

ot0%

33%

67%

100%Geographical exposure to EMs

Valuation: Multiple AnalysisAs regards the whole Piaggio Group (EV/EBITDA multiple):

0%

10%

20%

30%

Sales growth rate (2009-2011)

0%

10%

20%

30%

Average EBITDA % (2010-11)EMs multiple- for the Asian Business:

DMs multiple- for the non-Asian Business:

9.3x 4.4x

Target Price: € 2.620%

33%

67%

100%

Business exposure to 2w market to LCVs market

Company Overview


Financial Analysis


Data and Charts

• DCF Analysis:

• Multiple Analysis:

• Year-end Target Price: (upside > 15%)

€ 2.62

€ 2.90

€ 2.80

70% weight

30% weight

Valuation: Target Price

Company Overview


Financial Analysis


Data and Charts

RISK ANALYSIS

Company Overview


Financial Analysis


Data and Charts

Probable

Possible

•Instable Vietnam •Labour market

•Supply Chain risk

•Tighter regulations

•Credit risk

•Increase in interest rates

Unlikel

y

•Strikes •Intellectual Property

•Liquidity risk•De-premiumisation

Rare

•Machinary failure •Vehicles defects

Marginal Minor Intermediate Major

Risk analysis: Risk matrix

Impact

Like

lihoo

d


• Unsuccessful product launches

• Stronger competition

• Exchange rate risk

• Increase in energy, raw materials and components costs

• GDP growth rates

Risk analysis: Risks from Asia




Company Overview


Financial Analysis


Data and Charts








Risk analysis: Risk matrixRisk analysis: Risks from Asia

Source: Pacific Exchange Rate Service

Company Overview


Financial Analysis


Data and Charts

Probable

Possible

•Instable Vietnam •Labour market

•Supply Chain risk

•Tighter regulations

•Credit risk

•Increase in interest rates

Unlikel

y

•Strikes •Intellectual Property

•Liquidity risk•De-premiumisation

Rare

•Machinary failure •Vehicles defects

Marginal Minor Intermediate Major

Risk analysis: Risk matrix

Impact

Like

lihoo

d






Risk analysis: Global risks


• Increase in energy, raw materials and components costs• Increase in energy,

raw materials and components costs

Company Overview


Financial Analysis


Data and Charts

• Increase in energy, raw materials and components costs


• Increase in energy, raw materials and component costs


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4

-2

0

2

4

6

8

Real GDP growth rates

World Major advanced economies (G7)ASEAN-5

Source: International Monetary Fund, World Economic Outlook Database

Risk analysis: Risk matrixRisk analysis: Global risks

Source: Company data

Company Overview


Financial Analysis


Data and Charts

• Price Confidence Interval: (€ 2.70 ; € 2.90)

Risk analysis: Montecarlo Simulation


Company Overview


Financial Analysis


Data and Charts

P = 80%

€2.8

0

€2.8

2

€2.8

5

€2.8

7

€2.9

0

€2.9

2

€2.9

5

€2.9

7

€2.7

7

€2.7

5

€2.7

2

€2.7

0

€2.6

7

€2.6

5

€2.6

2

0.64

0.65

0.66

0.67

0.68

0.69

0.70

0.71

0.72

0.73

0.74

0.75

0.76

0.77

0.78

0.79

0.80

0.81

0.82

0.88

0.89

0.90

0.91

0.92

0.93

0.94

0.95

0.96

0.97

0.98

0.99

1.01

1.02

1.03

1.04

1.05

1.06

1.07

1.08

1.09

1.10

1.11

1.12

1.13

1.14

1.15

1.16

1.17

1.18

0

50

100

150

200

250

300

350

400

Price of ASEAN operations Price of European operations Price of Indian operations

Num

bers

of i

tera

tions

• 74% of volatility comes from Asia

Risk analysis: Montecarlo Simulation


Company Overview


Financial Analysis


Data and Charts

0.61

0.62

0.63

0.64

0.65

0.66

0.67

0.68

0.69

0.70

0.71

0.72

0.73

0.74

0.75

0.76

0.77

0.78

0.79

0.84

0.85

0.86

0.87

0.88

0.89

0.90

0.63

0.64

0.65

0.66

0.67

1.18

1.19

1.20

1.21

1.22

1.23

1.24

1.25

1.26

1.27

1.28

1.29

1.30

1.31

1.32

1.33

1.34

1.35

QuestionsCompany Overview


Financial Analysis


Data and Charts

Questions

PIAGGIO S.p.A.Politecnico Student Research

ICFAS Investment Research Challenge 2011

Automobiles & Parts

Company OverviewWhy Invest in Piaggio

Financial AnalysisValuation

Risk Analysis

• Hedging Policy• Costs Breakdown• Corr. Oil , Rub, All.• Sensitivity on Oil Price• Sensitivity India• Sensitivity ASEAN• Sensitivity Europe• Political risk – India 1• Political risk – India 2• Japan’s earthquake• Interest Rates Risk• MS: Assumptions• MS: Impact • MS: Results• Sensitivity on steel

• India• Vietnam• Indonesia• Malaysia• Thailand• Summary• GDP growth rates

• On The Stock Market• 2010 Results• OWC• Stock Options Plan • Tax Rate• Sales’ Seasonality• Spare Parts• Aprilia and Moto Guzzi

• Main Competitors• EU Scenario• India Scenario• US Scenario• Vietnam Scenario

• CG Snapshot• Board of Directors• CG and CSR Valuation

• EMs and DMs Multiples• Piaggio Peers• Historical P/E• P/E Future Evolution

• Assumpt. Macro Scenario• Assumpt. Cost Inflation• Terminal Value• WACC

• Debt Structure• Altman Z-Score

• Balance Sheet• Income Statement• Cash Flow Statement India• Cash Flow Statement EU• Cash Flow Statement ASEAN• Ratios• ROE

Data and Charts

Data and ElaborationsFinancial Statements:

Strategy:

Company: Competitive Scenario:

• Strategic Levers• Premiumisation• Brand Diversification• Launch of Vespa • New Urban Vehicles

Macro Scenario:

Market:• From 3w to 4w• Electric and Hybrid• Indian 4w• Margins in 2w•Motorcycle Industry Outlook

Debt:

Acquisitions: • Piaggio as a Prey• Potential Buyers• Piaggio’s Acquisitions

DCF Model:

Multiples:

Risks:

CG and CSR:

Company Overview


Financial Analysis


Data and Charts

Data and ChartsData and Charts

Piaggio on the stock market

- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000

10,000,000

Source: Bloomberg, Politecnico Estimates

TTM Daily Average: 1.18 millions shares

(equal to 2.5-3 €M)

MARKET CAP:€ 923.98 M

FTSE Italia Mid Cap

2010 Results Slightly below consensus, but positive underlying trends.

• Volumes:

• Ebit Margin:

• Interests:• Tax Rate:

• EPS:

335k Actual Vs 355k Expected

220k Actual Vs195k Expected

60k Actual Vs48k Expected

7.5%. In line with consensus (+50bps from 2009)

48.9%. Higher than consensun (+12.9% from 2009)

€27.3M. In line with consensus (- €3M from 2009)

€0.115. In line with consensus (substantially in line with 2009)

European 2Ws: Indian LCVs: ASEAN 2Ws:

Data and Charts

XXX

Operating Working Capital:


2008 2009 2010 2011 E 2012 E 2013 E € (700)

€ (500)

€ (300)

€ (100)

€ 100

€ 300

€ 500

€ 700

PayablesReceivablesInventories

2008 2009 2010 2011 E 2012 E 2013 E € (10)

€ -

€ 10

€ 20

€ 30

NWC

Mill

ions

Mill

ions

Data and Charts

Data and Charts

Piaggio’s Stock Option Plan

Stock Option Plan approved on 07 May 2007 and updated on 25 January 2010 The Board of Directors is responsible of the Stock Option Plan Max 10,000,000 of granted Stock Options equal to 2.52% of the share capitalThe Stock Options are European style options

Grant Date/Commencement Date

0 5

Expiration Date

3

Vesting Date

EXERCISE PERIOD

Grant Date (GD) Beneficiaries Stock Options Number

Expected Liabiliy

Stock market price at GD Strike Price

31 July 2008 3 Directors and 16 Executives 2,435,000 €1,600,000 €1.391 €1.216

03 October 2008 1 Executive 300,000 €186,600 €1.512 €1.570

15 January 2009 1 Director 390,000 €220,000 €1.1569 €1.221811 May 2009 2 Executives 250,000 €125,000 €1.2238 €1.223718 December

20093 Directors and 29 Executives 4,720,000 €3,000,000 €1.8818 €1.826

04 January 2010 1 Executive 500,000 €350,000 €2.004 €1.892

Data and Charts


Tax RatesPiaggio’s tax rates by region:

Piaggio’s aggregate tax rate:

Country Tax rate

Italy 27.5%

Europe ~30%

US 35%

India 43%

Vietnam 7.5%

ASEAN ~25%

44%

Piaggio’s taxes not based on taxable income:IRAP

Indian Dividend Distribution Tax

Data and Charts

Data and Charts

Seasonality in Piaggio’s sales

Seasonal fixed-term contracts. Peaks’ impact on OWC is:

FQ1 2006

FQ2 2006

FQ3 2006

FQ4 2006

FQ1 2007

FQ2 2007

FQ3 2007

FQ4 2007

FQ1 2008

FQ2 2008

FQ3 2008

FQ4 2008

FQ1 2009

FQ2 2009

FQ3 2009

FQ4 2009

FQ1 2010

FQ2 2010

FQ3 2010

FQ4 2010

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700

REVENUES from 2006 to 2010

Peak in the European

springtime.

Payables BEFORE the peak

Receivables AFTER the peak

Inventories BEFORE the peak

Data and Charts

Data and Charts

Spare parts segment

Higher marginality

PIAGGIO’S Business Units

2Ws

Scooters

Motorcycles

Spare Parts

LCVs

Spare Parts

10% of Total Revenues in 2010

Strategic for LCVs in India

New logistics center in Pontendera (Italy)

Data and Charts

Data and Charts

Aprilia and Moto Guzzi

Source: Acem

Substitution trend in Europe (‘000 units)

Two significant brands for Piaggio linked to: increasing importance of motorbikes in the European market: a trend that has begun since the early ‘90

need to enrich and complete Piaggio’s brand diversification Piaggio’s large investments in 2010 for them synergies with Piaggio distribution network

Data and Charts

Piaggio Strategic LeversInternationalization Premiumization

• Design • Environment

• Safety • Innovation • Robustness

• New markets• New products• New plants

Cost Efficiency • Improvement of global sourcing position

• Production Plants Rationalization • Sinergies in Distribution Network

Outsourcing and SCM• Production of engines

• Centralized logistic center for the spare parts business

Data and Charts

Data and Charts

Premiumisation strategy

Piaggio’s prices are higher than its competitors:customers

recognize higher quality and unique

solutions.

Revenues COGs R&D

Premiumisation’s impact

Data and Charts

Data and Charts

Brand diversification

Wide Brand Portfolio

Wide Range of Customers

Data and Charts

Distribution network already present…

…but for LCVs distribution

Larger organizational structure (Piaggio India has its own CEO)

Piaggio’s R&D department improved Vespa to better target the Indian’s customers

Vespa gained a successful commercial presence in India:

..in 1960, Rahul Bajaj obtained the license to produce the Vespa in India, till 1970 when the Indian government revoked the license. Now Piaggio has better fundamentals to compete in India in respect to the ‘80s and ‘90s.

XXX

Launch of Vespa: India vs Vietnam

Source: Indian news, Politecnico Estimates

Data and Charts

Scooter MP3:

- launched in October 2007- 72,000 units sold so far- hybrid models since 2009

Car prototype NT3:

- November 2010 (Milan Motor Show)- launch expected in 2012-13- three-seat city car

XXX

New types of vehicles: urban mobility

Source: News, Politecnico Estimates

Data and Charts

Piaggio as a Prey WHAT DOES A PREDATOR GET?

•Business: 2W and LCV in Europe. 2W, 3W and 4W in India. 2W in ASEAN.

•Market Share: 20% in 2W Europe 40% in 3W, 4% in 4W India Niche player in 2W ASEAN

•Revenues: €1,485M in 2010 (~$2,065M)

•Leverage: 1.2x

AT WHAT PRICE?

• Market Cap: ~€895M (~ $1,245M)

• Ownership: Immsi S.p.a. (53% share)

~€470M

~€220M • Premium to pay for the deal (+25%)

Best Case: €600M Worst Case: €1,130M

• Market Value of the Control Stake

~€420M • Pubblic Offer to Minority Shareholders (compulsory in the Italian order in case of acquisition of the control stake)

~€20M • Fees

Data and Charts

Potential Buyers INDIAN CONGLOMERATE COMPANIES:

Automotive Business: Commercial Vehicles and Personal Vehicles. Market Share: 1% in Indian 3W LCVs and 31% in 4W.Revenues: Rs184,520 M (~$4,095M)Market Cap: $7,740MLeverage: 0.14x

Automotive Business: Commercial Vehicles and Personal Vehicles.Market Share: 57% in indian 4W LCVs. Revenues: Rs918,934 M (~$20,390M)Market Cap: $14,803MLeverage: 1.0x

Recent acquisitions: Ssangyong Motors (Korean Premium SUV manufacturer )

Recent acquisitions: Jaguar and Land Rover (2008)

BENEFITS FROM ACQUIRING PIAGGIO:

• Entry in Western Markets• Consolidation in Indian Market

• Premium Brands + Technology Transfer• Entry in 2W

Data and Charts

Data and Charts

Leader in motorbikes Large brand portfolio

Piaggio’s acquisitionsPiaggio’s past acquisitions:

In the future Piaggio will not make acquisitions: according to its strategy; there are not potential takeover targets. For example:

Company Positive Negative

Ducati • High margin (18%)• Strong distribution network

• Insignificant share in emerging markets

Scooters India • High annual capacity• Highly cost effective product

• It hasn’t a strong brand position in 3W as Ape

Data and Charts

Data and Charts

Piaggio’s main competitorsEUROPEAN COMPETITORS INDIAN COMPETITORS

2W 2W

LCVs LCVs

Auto Auto

DRIVER PIAGGIO MAHINDRA BAJAJ TATA GM NISSAN

PRODUCT DESIGN QUALITY

PRODUCTION PROCESS QUALITY

PRICE

DISTRIBUTION NETWORK

DRIVER PIAGGIO HONDA YAMAHA BMW KYMCO SUZUKI

BRAND

DESIGN

ENGINE INNOVATION

QUALITY

PRICE

Data and Charts

Data and Charts

Competitive scenarios: EUSegment Total market

sales (2010)Piaggio’s Market

share (2010)

Motorcycles total 1,548,000 20%

Scooters 970,000 27%

Motorbikes 578,000 7%

LCVs 1,500,000 0.92%

Data and Charts

Data and Charts

Competitive scenarios: India

Data and Charts

Data and Charts

Competitive scenarios: the US

2006 2007 2008 2009 201020,000

40,000

60,000

80,000

100,000

120,000

140,000

€82,330 €79,281

€94,952

€61,255

€22,217

$103,379 $108,666

$139,652

$85,437

$29,440

US net sales Euro (€) USD ($)

March 8°, 2011, Piaggio US changed its CEO: Paolo Timoni > Miguel Martinez

Market with very peculiar requirements and customer needs.

Data and Charts

Strong impact of the economic crisis. 60% reduction in volumes

Scooter segment: 5% of total in 2010, down from 12% in 2007

Piaggio’s market share in scooter market: 30% (6,700 vehicles)

2006 2007 2008 2009 2010 2011 2012700

800

900

1000

1100

1200

1300

1400

1500

GDP per capita (US $)

IndiaVietnam

Data and Charts

Competitive scenarios: Vietnam

90% of total vehicles in Vietnam are scooters (motorbike segment: absent)

2006 2007 2008 2009 2010 2011 20120

5

10

15

20

25

CPI Inflation (%)

India

Vietnam

Vietnamese market accounts 2,800,000 vehicles sold in 2010

Source: IMF Source: IMF

Data and Charts

Macroeconomic data 2009 2010 2011 2012 2015

Real GDP growth (%) 5.678 9.668 8.373 7.976 8.128

GDP per capita (US $) 1,031.59 1,176.06 1,296.68 1,410.64 1,856.76

Inflation CPI (%) 10.882 13.187 6.668 4.693 4.033

Population (Millions) 1,199.06 1,215.94 1,232.68 1,249.28 1,299.24

Industry data 2009 2010 2011 2012 2015

2w total sales 7,437,619 9,371,231 10,148,600 10,990,000 13,959,500

3w total sales 349,727 440,368 468,500 498,000 600,500

4w LCVs total sales 384,194 531,395 584,500 642,000 855,800

Macro scenario: India

Data and Charts


Real GDP growth (%) 5.323 6.468 6.817 7.044 7.485

GDP per capita (US $) 1,068.26 1,155.57 1,272.18 1,387.16 1,771.85

Inflation CPI (%) 6.717 8.4 8 6.05 5

Unemployment rate (%) 6 5 5 5 5

Population (Millions) 87.211 88.257 89.316 90.388 93.681

Macro scenario: Vietnam

Data and Charts


Real GDP growth (%) 4.546 6 6.2 6.5 7

GDP per capita (US $) 2,329.45 2,963.28 3,270.01 3,532.00 4,440.58

Inflation CPI (%) 4.814 5.066 5.5 5.357 3.714

Unemployment rate (%) 8 7.5 7 6.5 7


Macro scenario: Indonesia

Data and Charts


Real GDP growth (%) -1.714 6.716 5.3 5.2 5

GDP per capita (US $) 6,950.47 7,754.99 8,238.51 8,748.81 10,455.22

Inflation CPI (%) 0.6 2.2 2.1 2.3 2.5

Unemployment rate (%) 3.7 3.5 3.2 3.1 3


Macro scenario: Malaysia

Data and Charts


Real GDP growth (%) -2.248 7.522 4.001 4.25 5

GDP per capita (US $) 3,940.97 4,620.71 4,888.46 5,161.49 6,268.62

Inflation CPI (%) -0.846 3.047 2.755 2.53 1.954

Unemployment rate (%) 1.39 1.39 1.39 1.39 1.39


Macro scenario: Thailand

Data and Charts

India Indonesia Malaysia Thailand Vietnam0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

GDP per capita (US $)

20092010201120122015

India Indonesia Malaysia Thailand Vietnam-2

0

2

4

6

8

10

12

14

Inflation, CPI (%)

20092010201120122015

1215.939

234.557

28.23367.653

88.257

Population (Millions, 2010)

India

Indonesia

Malaysia

Thailand

Vietnam

Population CAGR 2010-15India 1.33%Indonesia 1.30%Malaysia 1.70%Thailand 1.00%Vietnam 1.20%

Macro scenario: Summary

Data and Charts

Shift from 3 to 4 wheel LCVsMarket

segment2003-2010

CAGR2010

VolumesPiaggio’s market

share (2010)

3W 6.46% 500,000 40%

4W 10.74% 350,000 4%

Piaggio’s Product launches (4W)

Quargo Ape Truck

Data and Charts

Electric and hybrid marketsMP3 Hybrid Electric Porter Bifuel Porter

Max speed 62 miles/h 34 miles/h 80 miles/h

GHGs reduction 60% 100% 20%

Range (electric) 12 miles 66 miles -

Full-charge time 3 hours 8 hours -

Cost 11,000 $ 30,000 $ 16,500 $

India Europe USA

Presence of Piaggio’s Eco line

No Yes Yes

Competitors TVS, Hero Electric

Yamaha (2011E), Honda (2011E)

KTM (2011E), EVTAmerica, ZEV, etc.

5,000 electric Porter sold in 10 years, leader in the

niche “Green” Market

MP3 Hybrid

Porter

Data and Charts

XXXWe do not believe margins will suffer in the next yearsSource: Company’s financial statements, Politecnico Estimates

Indian market of 4w LCV’s: growing 10% YoY Price competition is not a rational strategy

Piaggio’s strategic positioning: quality leadership vs. cost leadership Piaggio’s products have a higher fuel efficiency in respect to competitors’ products

GM and Nissan start from scratch, while Piaggio is operating in India since 1999with 560 dealers across the country

Indian 4w market

Data and Charts

Europe and U.S. Low margins, but on the way to

increase, due to:- plant rationalization (elimination

of the factories in Spain)- the market will slowly recover

Vietnam and ASEAN: Higher margins, slightly decreasing

(conservative forecasting)- lower cost of labor;- advanced know-how in respect

to emerging markets’ based companies

XXX

2011 E 2012 E 2013 E 2014 E 2015 E20.0%20.5%21.0%21.5%22.0%22.5%23.0%

ASEAN EBITDA %

2011 E 2012 E 2013 E 2014 E 2015 E10.0%

10.5%

11.0%

11.5%

12.0%

EU and US EBITDA %

Margins in the 2w market


Data and Charts

Data and Charts

Motorcycle industry: world outlookCountry 2010 2009 Growth

Italy 294,000 389,000 -24.42%France 210,000 226,000 -7.08%Spain 106,000 106,500 -0.47%

Germany 89,000 113,000 -21.24%UK 29,000 31,868 -9.00%

USA 27,000 30,337 -11.00%Brasil 375,000 277,778 35.00%India 2,600,000 2,460,377 5.67%

Indonesia 6,700,000 5,321,684 25.90%Vietnam 2,700,000 2,263,202 19.30%

Thailandia 1,500,000 1,247,920 20.20%Malesia 428,000 407,619 5.00%

Philippine 402,000 328,969 22.20%

Country 2010 2009 Growth

India 11,300,000 9,300,000 21.51%China 16,000,000 17,391,304 -8.00%

Indonesia 7,600,000 5,801,527 31.00%Vietnam 2,750,000 2,305,113 19.30%

Thailandia 1,850,000 1,537,822 20.30%Philippine 768,000 619,355 24.00%Malesia 451,000 429,524 5.00%Taiwan 541,000 477,915 13.20%

USA 496,000 520,000 -4.62%Brasil 1,800,000 1,563,858 15.10%Italy 393,000 504,116 -22.04%

France 343,000 370,565 -7.44%Spain 167,000 174,278 -4.18%

Germany 181,000 213,000 -15.02%UK 96,000 111,630 -14.00%

Motorcycles ScootersCountry 2010 2009 Growth

Italy 99,000 115,116 -14.00%France 133,000 144,565 -8.00%Spain 61,000 67,778 -10.00%

Germany 92,000 100,000 -8.00%UK 67,000 79,762 -16.00%

USA 412,000 489,000 -15.75%Brasil 1,400,000 1,262,399 10.90%India 8,700,000 6,839,623 27.20%

Indonesia 648,000 514,286 26.00%Vietnam - - -

Thailandia 366,000 290,476 26.00%Malesia 73,000 60,331 21.00%

Philippine 22,000 20,952 5.00%

Data and Charts

Source: Company Data, Politecnico Estimates

Data and Charts

Balance Sheet 2008 2009 2010 2011 E 2012 E 2013 EFIXED ASSETS 899,186 892,251 909,909 917,080 920,218 923,412 Intangible assets 648,234 641,254 652,622 655,611 656,929 658,271 Tangible assets 250,354 250,415 256,759 260,887 262,707 264,559 Financial assets 598 582 528 582 582 582 NET WORKING CAPITAL (3,726) 17,212 30,553 52,103 72,844 92,798 Current trade receivables 90,278 103,164 90,421 103,292 116,800 129,597 Other current receivables 21,380 24,198 23,300 25,823 27,893 29,622 Other non-current receivables 12,587 12,914 12,655 13,718 14,818 15,737 Inventories 257,961 252,496 240,066 264,685 289,385 309,182 Trade payables (362,224) (345,987) (352,627) (377,660) (402,699) (425,820) Short term Tax receivables 27,772 23,979 44,200 40,200 39,400 37,000 Long term Tax receivables 8,166 4,990 967 4,708 4,708 4,708 Deferred tax assets 36,227 46,462 46,294 42,994 42,994 42,994 Short term Tax payables (19,065) (18,952) (19,290) (19,102) (19,102) (19,102) Long term Tax payables (166) - (3,361) - - - Other short term payables (70,677) (79,567) (69,503) (75,855) (87,164) (92,569) Other long term payables (5,965) (6,485) (5,961) (6,294) (6,799) (7,220)PROVISIONS (137,531) (133,685) (131,100) (124,680) (123,807) (122,733)NET CAPITAL EMPLOYED 757,929 775,778 785,970 808,645 816,645 824,808 NET FINANCIAL POSITION 359,708 351,976 349,938 341,645 317,957 287,535 Short term debt 140,691 113,178 156,800 140,000 110,000 90,000 Long term debt 264,789 443,164 371,048 360,000 360,000 350,000 Other liquid assets 5,787 4,127 23,051 10,000 5,000 5,000 Cash 39,985 200,239 154,859 148,355 147,043 147,465 TOTAL SHAREHOLDER’S EQUITY 398,221 423,802 442,890 467,000 498,688 537,273 SOURCES OF FUNDS 757,929 775,778 785,970 808,645 816,645 824,808

Data and Charts

Source: Company data, Politecnico Estimates

2008 2009 2010 2011 E 2012 E 2013 ENet Sales 1,570,060 1,486,882 1,485,304 1,613,932 1,743,286 1,851,390

Reported Growth -7.2% -5.3% -0.1% 8.7% 8.0% 6.2%Business Units

Two Wheeler Vehicles 1,180,666 1,065,417 988,015 1,063,383 1,154,554 1,224,789 Reported Growth -8.8% -9.8% -7.3% 7.6% 8.6% 6.1%

Commercial Vehicles 389,394 421,465 497,289 550,549 588,732 626,600 Reported Growth 2.4% 8.2% 18.0% 10.7% 6.9% 6.4%

Geographical Area Europe and America 1,280,932 1,116,191 963,253 1,008,187 1,038,362 1,060,882

Reported Growth -8.6% -12.9% -13.7% 4.7% 3.0% 2.2%India 243,972 286,753 388,890 448,934 527,477 590,348

Reported Growth 2.5% 17.5% 35.6% 15.4% 17.5% 11.9%ASEAN 45,156 83,938 133,161 156,810 177,447 188,000

Reported Growth -13.2% 85.9% 58.6% 17.8% 13.2% 5.9% Other operating income 133,474 135,938 121,128 130,728 134,233 140,706 Cost for materials (936,603) (871,653) (881,075) (963,517) (1,040,742) (1,107,131) Cost for services (292,920) (272,065) (258,358) (279,210) (294,615) (307,331) Employee costs (250,967) (242,916) (240,115) (251,773) (256,263) (262,897) Other operating costs (33,993) (35,387) (29,821) (32,279) (36,609) (38,879)EBITDA 189,051 200,799 197,063 217,881 249,290 275,857 EBITDA margin 12.04% 13.50% 13.27% 13.50% 14.30% 14.90%

D&A 94,540 96,378 86,006 94,560 101,459 103,261 % Capex 91.85% 102.76% 89.50% 93.00% 97.00% 97.00%EBIT 94,511 104,421 111,057 123,321 147,831 172,596 EBIT margin 6.02% 7.02% 7.48% 7.64% 8.48% 9.32% Financial charges (41,288) (33,275) (33,905) (32,725) (32,548) (31,570) % Tot Financial Liabilities 10.18% 5.98% 6.42% 6.55% 6.93% 7.18% Other Financials 6,410 2,947 6,625 3,000 3,000 3,000 Earnings before tax 59,633 74,093 83,777 93,596 118,283 144,026 Taxation for the period 16,302 26,674 40,983 41,182 50,862 61,931 Actual tax rate (%) 27.34% 36.00% 48.92% 44.00% 43.00% 43.00%Consolidated net income 43,331 47,419 42,794 52,413 67,421 82,095 Profit margin 2.76% 3.19% 2.88% 3.25% 3.87% 4.43% Minority Shareholders 330 1,388 30 262 337 410 Earnings per share (€) 0.11 0.116 0.115 0.14 0.18 0.22 Avg. number of Ordinary Shares 396,041 396,041 371,793 371,793 371,793 371,793Dividend per share (€) 0.06 0.07 0.07 0.08 0.10 0.12 Earnings paid as dividends 22,120 25,795 26,000 28,303 35,733 43,510 Payout Ratio 51% 56% 61% 54% 53% 53%

Income Statement

Data and Charts


Data and Charts

Cash Flow Statement IndiaINDIA 2011 E 2012 E 2013 E 2014 E 2015 ELCV volumes (units) 243,756 258,381 271,817 285,408 299,393LCV ARPU (€) 1,842 1,910 1,977 2,036 2,0972w volumes (units) 50,000 75,000 95,000 110,000

2w ARPU (€) 680 707 735 765

Sales from India 448,934 527,477 590,348 650,970 712,000% tot sales 27.82% 30.26% 31.89% 33.38% 34.71%

% growth 15.44% 17.50% 11.92% 10.27% 9.38%

EBITDA from India 87,542 102,331 114,528 124,986 134,568EBITDA margin India 19.50% 19.40% 19.40% 19.20% 18.90%

D&A India 22,877 24,580 25,017 25,206 25,309% Capex India 90.00% 94.00% 94.00% 94.00% 94.00%

EBIT from India 64,665 77,750 89,511 99,780 109,259EBIT margin India 14.40% 14.74% 15.16% 15.33% 15.35%

Tax Rate India 42.00% 42.00% 42.00% 42.00% 42.00%

Op. Tax India 27,159 32,655 37,594 41,908 45,889Adj. Op. Tax India 34,713 40,725 47,069 52,582 57,556Adj. Tax Rate India 53.68% 52.38% 52.58% 52.70% 52.68%

D&A India 22,877 24,580 25,017 25,206 25,309Change in NWC India (4,363) (2,262) (2,265) (1,005) (84)Cash Flow From Indian Operations 48,466 59,343 65,194 71,399 76,928Capex India 25,419 26,149 26,614 26,815 26,924% Capex 25.00% 25.00% 25.00% 25.00% 25.00%

FCFF India 23,046 33,194 38,580 44,585 50,004% growth 44.03% 16.23% 15.56% 12.15%

Data and Charts


Data and Charts

Cash Flow Statement Europe and USEUROPE and US 2011 E 2012 E 2013 E 2014 E 2015 E2W volumes (units) 352,275 362,843 370,100 373,801 377,5392W ARPU (€) 2,573 2,599 2,625 2,651 2,678LCV volumes (units) 13,165 12,560 11,982 11,431 10,905LCV ARPU (€) 7,718 7,584 7,452 7,323 7,195Sales from Europe and US 1,008,187 1,038,362 1,060,882 1,074,822 1,089,504% tot sales 62.47% 59.56% 57.30% 55.11% 53.11%

% growth 4.66% 2.99% 2.17% 1.31% 1.37%

EBITDA from Europe and US 98,802 110,066 119,880 121,455 123,114EBITDA margin Europe and US 9.80% 10.60% 11.30% 11.30% 11.30%

D&A Europe and US 61,007 63,386 64,512 64,999 65,264% Capex Europe and US 100.00% 101.00% 101.00% 101.00% 101.00%

EBIT from Europe and US 37,796 46,680 55,368 56,456 57,850EBIT margin Europe and US 3.75% 4.50% 5.22% 5.25% 5.31%

Tax Rate Europe and US 30.00% 30.00% 30.00% 30.00% 30.00%

Op. Tax Europe and US 11,339 14,004 16,610 16,937 17,355Adj. Op. Tax Europe and US 15,754 18,849 22,471 22,976 23,532Adj. Tax Rate Europe and US 41.68% 40.38% 40.58% 40.70% 40.68%

D&A Europe and US 61,007 63,386 64,512 64,999 65,264Change in NWC Europe and US (3,265) (869) (811) (231) (20)Cash Flow From EU Operations 79,783 90,348 96,597 98,248 99,562Capex Europe 61,007 62,758 63,873 64,356 64,618% Capex 60.00% 60.00% 60.00% 60.00% 60.00%

FCFF Europe 18,777 27,590 32,725 33,892 34,943% growth 17.54% 12.71% 5.53% 1.42%

Data and Charts


Data and Charts

Cash Flow Statement ASEANASEAN 2011 E 2012 E 2013 E 2014 E 2015 E

2W volumes (units) 76,160 93,677 112,412 132,646 153,8702W ARPU (€) 2,059 1,894 1,781 1,692 1,624Sales from ASEAN 156,810 177,447 200,160 224,379 249,869% tot sales 9.72% 10.18% 10.81% 11.51% 12.18%

% growth 17.76% 13.16% 12.80% 12.10% 11.36%

EBITDA from ASEAN 31,676 35,667 40,232 44,651 49,224EBITDA margin ASEAN 20.20% 20.10% 20.10% 19.90% 19.70%

D&A ASEAN 11,896 13,336 14,371 14,480 14,539% Capex ASEAN 78.00% 85.00% 90.00% 90.00% 90.00%

EBIT from ASEAN 19,779 22,331 25,861 30,171 34,685EBIT margin ASEAN 12.61% 12.58% 12.92% 13.45% 13.88%

Tax Rate ASEAN 7.50% 7.50% 7.50% 7.50% 7.50%

Op. Tax ASEAN 1,483 1,675 1,940 2,263 2,601Adj. Op. Tax ASEAN 3,794 3,993 4,677 5,490 6,305Adj. Tax Rate ASEAN 19.18% 17.88% 18.08% 18.20% 18.18%

D&A ASEAN 11,896 13,336 14,371 14,480 14,539Change in NWC ASEAN (1,211) (504) (675) (335) (29)Cash Flow From ASEAN Operations 26,671 31,170 34,880 38,826 42,890Capex ASEAN 15,252 15,690 15,968 16,089 16,155% Capex 15.00% 15.00% 15.00% 15.00% 15.00%

FCFF ASEAN 11,419 15,480 18,912 22,737 26,735% growth

35.56% 22.17% 20.22% 17.59%

Data and Charts

Source: Company data, Politecnico Estimates

Ratios Key Financial Ratios 2009 2010 2011E 2012E 2013E 2009 2010 2011E 2012E 2013EProfitability ratios EBITDA margin 13.50% 13.27% 13.50% 14.30% 14.90% ROI 6.67% 7.18% 7.85% 9.19% 10.49%

EBIT margin 7.02% 7.48% 7.64% 8.48% 9.32% ROA 3.03% 2.77% 3.34% 4.19% 4.99%

EBT margin 4.98% 5.64% 5.80% 6.79% 7.78% ROE 11.19% 9.66% 11.22% 13.52% 15.28%

Cost structure Du Pont Analysis Labor Cost / Sales 16.34% 16.17% 15.60% 14.70% 14.20% Profit Margin 3.19% 2.88% 3.25% 3.87% 4.43%

Materials Cost / Sales 58.62% 59.32% 59.70% 59.70% 59.80% Asset Turnover 0.95x 0.96x 1.03x 1.08x 1.13x

Services Cost / Sales 18.30% 17.39% 17.30% 16.90% 16.60% Total Assets/Equity 3.69x 3.49x 3.36x 3.22x 3.06x

Gearing ratios Debt ratios

Net Debt to Equity 0.83x 0.79x 0.73x 0.64x 0.54x Interest coverage ratio 3.44x 4.07x 4.15x 5.00x 6.04x Total Debt to Equity 1.31x 1.19x 1.07x 0.94x 0.82x Net Debt / EBITDA 0.57x 0.56x 0.64x 0.78x 0.96xLiquidity ratios Cash flow ratios Current ratio 1.05x 0.93x 0.94x 0.99x 1.02x OCF / Sales 10.93% 10.28% 9.60% 10.37% 10.62%

Solvency ratio 0.26x 0.24x 0.29x 0.36x 0.42x OCF / Earnings 3.43x 3.57x 2.96x 2.68x 2.40x

Market Ratios Capex

EPS €0.116 €0.115 €0.141 €0.181 €0.221 Capex / Sales 6.31% 6.30% 6.00% 5.85% 5.75% DPS €0.07 €0.07 €0.08 €0.10 €0.12 D&A / Capex 6.48% 5.79% 5.86% 5.82% 5.58%

Data and Charts

Source: Starmine Smart Income Statements, Politecnico Estimates

ROE Piaggio and its competitors

Expectations and Du Pont analysis

Yamaha Suzuki Honda Piaggio Harley Mahindra Tata Bajaj Hero

2010 (2.0%) 3.6% 6.4% 9.7% 12% 31.9% 35.6% N.A. 61.4%

2011E 2.4% 5.4% 12.1% 11.2% 22.9% 28.2% 57.2% 66.8% 48.8%

ROE Earnings / EBT EBT / EBIT EBIT / Sales Sales / Assets Assets/ Equity

2010 9.66% 0.51 0.75 0.075 0.96 3.49

2011E 11.22% 0.56 0.76 0.076 1.03 3.36

2012E 13.52% 0.57 0.80 0.085 1.08 3.22

2013E 15.28% 0.57 0.83 0.093 1.13 3.06


Tax Burden

Interest Burden

Ebit Margin

Asset Turnover

Leverage (Proxy)

Data and Charts

Debt Structure

Maturity

Data and Charts

Altman Z-Score

Time series of Piaggio’s Z-Score Competitors’ Z-score (2010)

Source: Bloomberg

Automotive players Indian PlayersExpectation

Data and Charts

Assumptions on Macro Scenario

Raising interest rates Raising Cost of DebtRaising commodities’prices Raising Cost of Materials

Global recovery stronger in EMs than in DMs Increasing revenues from EMs

∆=5.5%∆=4.5%

Source: Politecnico Estimates, www.economywatch.com Source: Bank or America Estimates , Politecnico Estimates

Data and Charts

Assumptions on Cost Inflation

• Decreasing cost of labour

• Increasing cost of materials

• Decreasing G&A Costs

• Cost structure:

• Increasing Ebitda Margin:

Data and Charts

Terminal Value

Two-Stage model Three-Stage model Analytical Period + Perpetuity

Ability of the company to generate cash flow

• Convergence Stage: Exponential Decay of FCFF Growth Rates

• Perpetuity: Long Term FCFF Growth Rate = 0.5%

• Sum-of-the-Parts Approach:

High Medium Low

Strongly developing 3-5% 2-3% 0-1%

Moderately developing 1.5 - 2.5% 1-2% 0%

Stable 0-1% 0% 0%

Decadent 0% 0% 0%

Industry

Source: Guatri (1998)

Analytical Period + Convergence Stage + Perpetuity

+


Data and Charts

XXX

Source: Company’s financial statements, Bloomberg, (1) Damodaran, Politecnico Estimates

• NWC Historical evolution

EU & US

INDIA Asean Notes:

7.63% 9.31% 10.72%

Gearing Ratio (D/E) 0.7 Target declared by the company

Cost of Debt 5.58%

Marginal tax rate 43% Corporate tax rate

Gross cost of debt 9.79% 1/3 of debt is indexed to Euribor

Cost of Equity 10.76% 13.61% 16.01%

Beta ß 1.00 Measured on 5Y of weekly returns

Risk free rate 4.81% Yield on Italian Gov. Debt (21.01.11)

Equity market premium 5.20% Implied market premium (1) (01.01.11)

Country risk premium 0.75% 3.60% 6.00% Country’s default spread adjusted by 1.5 times (1)

WACC

Data and Charts

Basic Assumptions:• EBITDA margin is 50% higher in EMs• Markets’ exposure is equal to the percentage of

Sales in EMs

EV/EBITDA multiple for the whole Company:

EMs multiple:• Equal to the Indian peers’ multiple = 9.3 x

DMs multiple:• Mkt_Multiple = (EBITDA_DMs x Multiple_DMs) + (EBITDA_EMs x Multiple_EMs)

known estimated estimated 9.3 x4.4 x

EMs and DMs Multiples.

Data and Charts

Data and Charts

Piaggio's current market multiple Median Hero

HondaMahindra &

MahindraBajaj Auto

Tata Motors

Yamaha Motor

Harley-Davidson

Ktm AG

Honda Motor Suzuki Peugeot

CitroenEV/EBITDA 2011E median = 9.3 2011E median = 7.2

2011E 5.75 8.31 10.6 8.1 11.1 5.5 5.5 13.2 9.4 8.5 3.5 5.82012E 5.10 6.51 9.5 N/A 10.3 4.7 4.8 10.7 N/A 7.8 3.1 5.3

Price/Earnings 2011E median = 12.9 2011E median = 16.12011E 16.7 13.04 12.8 13.1 14.8 8.0 13.0 19.2 35.3 11.6 18.7 5.92011E (1) 13.92 12.8 13.1 14.8 - 13.0 19.2 35.3 - - -2012E 13.3 10.89 11.5 11.4 12.9 6.6 10.2 15.3 24.5 10.2 15.8 4.3

Price/Book Value 2011E 1.93 2.65 4.9 2.9 7.1 2.9 1.5 3.9 2.4 1.3 1.1 0.52011E (1) 3.39 4.9 2.9 7.1 - 1.5 3.9 2.4 - - -2012E 1.81 2.10 4.0 N/A 5.1 2.1 1.3 4.3 2.1 1.1 1.0 0.4

Piaggio Median Hero Honda

Mahindra & Mahindra

Bajaj Auto

Tata Motors

Yamaha Motor

Harley-Davidson

Ktm AG

Honda Motor Suzuki Peugeot

CitroenSales’ CAGR 2008-11E 4.1% -1% 14% 17% 21% 20% -3% -6% -4% -3% -3% 1%EBITDA margin (2) 13.5% 12% 15% 18% 20% 13% 8% 23% 12% 11% 9% 9%EBITDA growth (3) 10.0% 11% 9.5% 12.1% 16.7% 26.4% 18.6% 32.2% 8.2% 7.7% 9.7% 3.5%EBIT margin (2) 8.0% 8% 14% 15% 20% 10% 5% 17% 5% 6% 4% 3%Profit margin (2) 3.2% 6% 12.1% 8.9% 15.0% 6.5% 2.5% 8.8% 2.1% 5.5% 1.9% 1.9%

EPS growth (3)15.2 % 21% 9.7% 13.0% 21.8% 32.9% 20.4% 119.4%

-11.5% 11.5% 25.7% 24.4%

Leverage (D/E) 0.4 0.3 0.0 0.2 0.0 0.4 0.2 0.5 0.3 0.5 0.0 3.5

(1) no automotive peers(2) 2010-11E Average(3) 2011E

Piaggio and its peers (CY 2011E):Global playersIndian based players

Source: Bloomberg, Politecnico Estimates (03.25.2011)

Data and Charts

7/11/0

6

8/22/0

6

10/3/0

6

11/14/0

6

12/26/0

6

2/6/0

7

3/20/0

7

5/1/0

7

6/12/0

7

7/24/0

7

9/4/0

7

10/16/0

7

11/27/0

7

1/8/0

8

2/19/0

8

4/1/0

8

5/13/0

8

6/24/0

8

8/5/0

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9/16/0

8

10/28/0

8

12/9/0

8

1/20/0

9

3/3/0

9

4/14/0

9

5/26/0

9

7/7/0

9

8/18/0

9

9/29/0

9

11/10/0

9

12/22/0

9

2/2/1

0

3/16/1

0

4/27/1

0

6/8/1

0

7/20/1

0

8/31/1

0

10/12/1

0

11/23/1

0

1/4/1

1

2/15/1

10.0

5.0

10.0

15.0

20.0

25.0

30.0

25.8

8.5

7.1

19.2

16.7

19.2

forward P/E ratio

Historical P/E:

Average: 15.7

Source: Bloomberg, Politecnico Estimates (03.25.2011)

Data and Charts

2006 2007 2008 2009 2010 2011 E 2012 E 2013 E 2014 E 2015 E

0.18

0.15

0.11 0.12 0.12

0.14

0.18

0.22

0.25

0.27

0.03

0.06 0.06 0.07 0.07 0.08

0.10

0.12 0.13

0.14

Earnings per share (figures in €)

Dividend per share (figures in €)

XXXSource: Bloomberg, Politecnico Estimates (03.25.2011)

(1) FTM P/E ratio

EPS P/E (1)

2010 € 0.12 20.1

2011 E € 0.14 16.7

2012 E € 0.18 13.3

2013 E € 0.22 11.0

2014 E € 0.25 9.8

2015 E € 0.27 9.3

P/E future evolution: CAGR EPS

PEG ratio

2010-13E 24.5% 0.68

2010-15E 18.3% 0.91

2006-10 -14.4%

Data and Charts

Piaggio’s Hedging PolicyRisk area Risk Hedging Policy

Strategic risks

Unsuccessful product launches Local R&D departments, continuous investment, frequent introduction of innovative products.

Stronger competition Focus on premiumisation and differentiation; frequent introduction of innovative products.

GDP growth rates Flexible structure, fixed term employment contracts and CIGO funds to align production capacity with demand.

Operative risks

Increase in energy, row mat. and components costs

Multi-year supply contracts, premiumisation strategy, bargain power.

IP and brand plagiarism risk Legal protection (patents), with exception to India, where laws are not strict enough.

Vehicles defects Strict quality controls both on finished products and on inbound components.

Financial risks

Exchange rate risk Derivatives purchase and sell operations on 100% of the transaction risk and on 66% of the translation risk. Fluctuations are also mitigated with natural hedging.

Liquidity risk Strong cash generation and committed lines available (€150 mln unrevocable, €125 mln revocable).

Interest rate risk Half debt is fixed rate. Derivatives for variable rate debt.

Credit risk Low concentration (17,500 dealers); agreements for the transfer of trade recievables without recourse.

Complian. Tighter regulations CSR policy, R&D investments, auditing by indep. auditors.

Data and ChartsSource: Company annual report

42.5%

32.4%

12.0%

6.7%6.4%

RubberSteelCrude oilAluminiumOthers

Data and Charts

Costs breakdown

59.3%

17.4%

16.2%

2.0%

Materials and energy

Central costs

Employees

Others

Data and Charts

Source: Company data, Politecnico estimates

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

0.020.040.060.080.0

100.0120.0140.0160.0180.0

USD/bbl USD/tonCrude oil Aluminium

4000

3500

3000

2500

2000

1500

Data and Charts

Oil price impact on Rubber and Alluminium

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

0.020.040.060.080.0

100.0120.0140.0160.0180.0

USD/bbl USD/kgCrude oil Rubber

Crude oil and Rubber price RUBBER ALLUM.

Actual price 5,5 USD/kg 2.600 USD/ton

Correlation index with oil price

91% (strong) 83% (strong)

Rationale More than 75% of syntetic rubber raw materials are derived on petroleum.

Alluminium production is energy intensive

Price increse estimation

+0.5 $/kg for each +10 $/bbl oil increase

+300 $/ton for each +10 $/bbl oil increase

Source: World Bank Community price data

Crude oil and Aluminium price

Data and Charts

Sensitivity on Oil PriceRESULTS: KEY DRIVERS TO PROTECT EPS:

EPS

2011 E 2012 E

CRUDE OIL PRICE

($/BBL)

70.0 €0.186 €0.192

80.0 €0.171 €0.181

90.0 €0.156 €0.163

100.0 (base case)

€0.141 €0.141

110.0 €0.141 €0.136

120.0 €0.135 €0.129

130.0 €0.130 €0.119

140.0 €0.125 €0.109

Oil Oil , Rubber, Alluminium

Data and Charts

Bargaining power: Improving Global Sourcing

Pricing power:Premiumization

SUPPLIERS CUSTOMERS

Source: Politecnico estimates

Sensitivity on Indian Business

16.9% 17.4% 17.9% 18.4% 18.9% 19.4% 19.9% 20.4% 20.9%4.4% €2.52 €2.55 €2.58 €2.61 €2.65 €2.68 €2.72 €2.75 €2.794.8% €2.54 €2.57 €2.61 €2.64 €2.68 €2.71 €2.75 €2.78 €2.825.2% €2.57 €2.60 €2.64 €2.67 €2.71 €2.74 €2.78 €2.82 €2.855.6% €2.59 €2.63 €2.66 €2.70 €2.74 €2.77 €2.81 €2.85 €2.896.0% €2.62 €2.66 €2.69 €2.73 €2.77 €2.80 €2.84 €2.88 €2.926.4% €2.65 €2.68 €2.72 €2.76 €2.80 €2.84 €2.88 €2.92 €2.966.8% €2.68 €2.71 €2.75 €2.79 €2.83 €2.87 €2.91 €2.95 €2.997.2% €2.70 €2.74 €2.78 €2.82 €2.86 €2.90 €2.94 €2.99 €3.037.6% €2.73 €2.77 €2.81 €2.85 €2.89 €2.94 €2.98 €3.02 €3.068.0% €2.76 €2.80 €2.85 €2.89 €2.93 €2.97 €3.01 €3.06 €3.108.4% €2.79 €2.84 €2.88 €2.92 €2.96 €3.01 €3.05 €3.10 €3.14

Indian 2015 Ebitda Margin

Indian LCV Volume CAGR 10-15

According to our DCF, Indian business is worth €1.3

Data and Charts

Data and Charts

Sensitivity on ASEAN BusinessAccording to our DCF, ASEAN business is worth €0.65

18.9% 19.1% 19.3% 19.5% 19.7% 19.9% 20.1% 20.3% 20.5%18.9% €2.71 €2.71 €2.72 €2.72 €2.73 €2.73 €2.74 €2.74 €2.7519.3% €2.72 €2.73 €2.73 €2.74 €2.74 €2.75 €2.75 €2.76 €2.7619.7% €2.73 €2.74 €2.74 €2.75 €2.75 €2.76 €2.76 €2.77 €2.7720.1% €2.75 €2.75 €2.76 €2.76 €2.77 €2.77 €2.78 €2.78 €2.7920.5% €2.76 €2.77 €2.77 €2.78 €2.78 €2.79 €2.79 €2.80 €2.8020.9% €2.77 €2.78 €2.78 €2.79 €2.80 €2.80 €2.81 €2.81 €2.8221.3% €2.79 €2.79 €2.80 €2.80 €2.81 €2.82 €2.82 €2.83 €2.8321.7% €2.80 €2.81 €2.81 €2.82 €2.82 €2.83 €2.84 €2.84 €2.8522.1% €2.82 €2.82 €2.83 €2.83 €2.84 €2.84 €2.85 €2.85 €2.8522.5% €2.83 €2.84 €2.84 €2.85 €2.85 €2.86 €2.87 €2.87 €2.8822.9% €2.84 €2.85 €2.86 €2.86 €2.87 €2.87 €2.88 €2.89 €2.89

ASEAN 2015 Ebitda Margin

ASEAN 2W Volume CAGR 10-15

Data and Charts

Data and Charts

Sensitivity on European BusinessAccording to our DCF, European business is worth €0.95

10.5% 10.7% 10.9% 11.1% 11.3% 11.5% 11.7% 11.9% 12.1%0.4% €2.63 €2.65 €2.67 €2.69 €2.71 €2.73 €2.74 €2.76 €2.780.8% €2.65 €2.67 €2.69 €2.71 €2.72 €2.74 €2.76 €2.78 €2.801.2% €2.67 €2.68 €2.70 €2.72 €2.74 €2.76 €2.78 €2.80 €2.821.6% €2.68 €2.70 €2.72 €2.74 €2.76 €2.78 €2.80 €2.82 €2.842.0% €2.70 €2.72 €2.74 €2.76 €2.78 €2.80 €2.82 €2.84 €2.862.4% €2.72 €2.74 €2.76 €2.78 €2.80 €2.82 €2.84 €2.86 €2.882.8% €2.73 €2.75 €2.78 €2.80 €2.82 €2.84 €2.86 €2.88 €2.903.2% €2.75 €2.77 €2.79 €2.82 €2.84 €2.86 €2.88 €2.90 €2.933.6% €2.77 €2.79 €2.81 €2.84 €2.86 €2.88 €2.90 €2.92 €2.954.0% €2.79 €2.81 €2.83 €2.86 €2.88 €2.90 €2.92 €2.95 €2.974.4% €2.81 €2.83 €2.85 €2.88 €2.90 €2.92 €2.95 €2.97 €2.99

European 2015 Ebitda Margin

European 2W Volume CAGR 10-15

Data and Charts

Independence: 15 August 1947

Republic: 26 January 1950

World’s most populous democracy Federal parliamentary democratic republic:

- INC (India National Congress), center left: liberal

- BJP (Bhartiya Janata Party), center right:

conservative

Current Government: the INC party won the general elections both in 2004 and 2009, forming the government with the UPA coalition and Manmohan Singh as prime minister.

XXX

Not a major threat for Piaggio’s business

Data and Charts

Political risk - India

Source: Reuters, Politecnico Estimates

Key Political Risks:

- Inflation

- Corruption

Data and Charts

Euromoney Country Risk Score (March 2011):

XXXData and Charts

Political risk - India

Source: Reuters, Politecnico Estimates

Data and Charts

2/1/1

1

2/3/1

1

2/5/1

1

2/7/1

1

2/9/1

1

2/11/1

1

2/13/1

1

2/15/1

1

2/17/1

1

2/19/1

1

2/21/1

1

2/23/1

1

2/25/1

1

2/27/1

1

3/1/1

1

3/3/1

1

3/5/1

1

3/7/1

1

3/9/1

1

3/11/1

1

3/13/1

1

3/15/1

1

3/17/1

1

3/19/1

1

3/21/1

1

3/23/1

1

3/25/1

180

85

90

95

100

105

110 PiaggioS&P500NIKKEI 225Earthquake

4Q 2010 data release

Middle East turmoil

Data and Charts

The Japan’s earthquake:

: Peak of S&P500 02.18.2011

Bottom of Nikkei 03.15.2011

10 days later03.25.2011

Piaggio 2.31 2.41 ( + 4.3%) 2.51 ( + 8.7%)S&P500 1,343.01 1,281.87 ( - 4.6%) 1,316.11 ( - 2.0%)Nikkei225 10,857.53 8,605.15 ( - 20.7%) 9,536.13 ( - 12.2%)


Data and Charts

XXXData and ChartsSource: krugman.blogs.nytimes.com

How rising interest rates affect share prices:

“If fears of default were driving rates, a rise in

interest rates should be associated with a fall in stock prices. If, on the other hand, rates rise

because people think the US will emerge from the

liquidity trap sooner, stocks and rates should move in the same direction. And here’s what it looks like: It’s all about economic

optimism.”

Data and Charts

Data and Charts

Montecarlo Simulation ASSUMPTIONS: Risk Business Unit Drawn Variable Distribution Std. Dev. CommentGDP growth rate India LCV YoY volumes growth (%) Inverted Lognormal 1% Unexpected Indian slowdown

India 2W “ Inverted Lognormal 5% “

Europe 2W “ Lognormal 1% Unexpected European recovery

Europe LCV “ Normal 0.5% Structural decline

ASEAN 2W “ Inverted Lognormal 2% Unexpected ASEAN slowdown

Success of new models India LCV Volumes (units) Normal 6000 units

India 2W “ Normal 4000 units

ASEAN 2W “ Normal 5000 units

Stronger Competition India EBITDA Margin (%) Inverted Lognormal 1%

Europe “ Inverted Lognormal 0.5%

ASEAN “ Inverted Lognormal 1%

Exchange Rate Volatility India EBIT (€) Normal 3.5% EBIT 3.5% is the avg yearly INR std dev

ASEAN “ Normal 4.5% EBIT 4.5% is the avg yearly VND std dev

Legend:

Upside risk Lognormal

Downside risk Inverted Lognormal

Data and Charts

Data and Charts

Montecarlo Simulation IMPACT ON CASH FLOW STATEMENT:

INDIA 2011 E 2012 E 2013 E 2014 E 2015 ELCV volumes (units) 250,000 265,000 280,000 295,000 310,000% growth 25% 18% 15% 12% 8%

LCV ARPU (€) 50,000 75,000 95,000 110,000

… 680 707 735 765

Sales from India 439,895 526,074 601,840 671,067 736,122% growth 19.92% 19.59% 14.40% 11.50% 9.69%

EBITDA from India 89,739 107,319 122,174 134,213 144,280EBITDA margin India 20.40% 20.40% 20.30% 20.00% 19.60%

D&A India 24,867 25,244 25,745 26,454 27,266EBIT from India 64,871 82,075 96,429 107,759 117,013EBIT margin India 14.75% 15.60% 16.02% 16.06% 15.90%

Tax Rate India 42.00% 42.00% 42.00% 42.00% 42.00%

… 27,246 34,471 40,500 45,259 49,146D&A India 24,867 25,244 25,745 26,454 27,266Change in NWC India (12,172) (12,670) (11,150) (10,914) (9,855)Cash Flow From India 43,484 52,228 60,098 68,774 74,963Capex India 26,454 26,856 27,388 28,143 29,007

RISKS:

• Success of new models

• GDP / Industry growth rate


• Exchange rate volatility

Data and Charts

Data and Charts

Montecarlo Simulation RESULTS: • Target price volatility:

• Geographical breakdown:

ASEAN EUROPE + US INDIA

Piaggio India Europe ASEAN

TP DCF €2.90 €1.30 €0.95 €0.65

Std. Dev. €0.055 €0.029 €0.019 €0.025

CV 1.9% 2.26% 2% 3.67%

Data and Charts

Data and Charts

Comply Does not complyIndependence of the board of directors: 4 of 11 members are independent.Internal Control Committee: Composed of independent directors, convenes at least 5 times per year.Appointment Proposals Committee: The majority of members are non executives, and there is a transparent procedure for the presentation of candidate lists.Financial disclosure and transparency: Piaggio follows COSO Reporting guidelines.

Internal Control Supervisor: Tight relationship between the Company and Immsi Audit S.c.ar.l. CEO undermines auditors’ autonomy.Independence of Chairman: Chairman and CEO are not separate.Board of Directors members’ maximum offices in other companies: Board has not established a limit to the number of offices directors can cover in other companies.Remuneration Committee: The attendance of the CEO by invitation creates a conflict of interest.


Corporate Governance Snapshot

Data and Charts

Data and Charts

Name Position In office from

Indep. % attendance

Other offices

Roberto Colaninno ChairmanCEO

04/16/2009 100 7

Matteo Colaninno Deputy Chairman

04/16/2009 100 3

Michele Colaninno Director 04/16/2009 100 9Livio Corghi Director 04/16/2009 100 5Franco Debenedetti Director 04/16/2009 X 91 5Daniele Discepolo Director 04/16/2009 X 100 9

Andrea Paroli Director 22/09/2010 - -Giorgio Magnoni Director 04/16/2009 73 1Luca Crespi Director 04/16/2009 X 91 5Riccardo Varaldo Director 04/16/2009 X 82 2Vito Varvaro Director 04/16/2009 90 2

Source: Piaggio’s 2009 CG Report

Composition of the Board of Directors

Data and Charts

Data and Charts

CG and CSR Valuation

Piaggio’s CG and CSR are under control, with improvement margins

Data and Charts

Data and Charts

Steel impact on EPS

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

1.2

1.0

0.8

0.6

0.4

0.2

Steel price chart (USD/kg)

Source: World Bank Community price data

Data and Charts

DRIVERS Weight Why increasing?

Coking Coal

Accounts for 50% of steel price fluctuations

Economic recovery

Iron Ore Accounts for 30% of steel price fluctuations

Increase in demand form EMs, mainly China and India

Source: Company’s data

Worst case scenario:

-0.3% EBITDA margin

Data and ChartsData and Charts

India and Vietnam nominal GDP growth rates

2009 2010 2011 2012 20150.00%

5.00%

10.00%

15.00%

20.00%

25.00%

India Nominal GDP growth (%) Vietnam Nominal GDP growth (%)

Source: IMF, World Economic Outlook Database

India Vietnam

EMs nominal GDP growth rates (2011-2015)

12.29% CAGR

14.00% CAGR

Piaggio’s top line growth rate (‘11-’15)

12.86% CAGR*

13.41% CAGR*

(ASEAN)

*Source: Politecnico estimates

GDP growth rates in EMs

Documents

PIAGGIO S.p.A. Politecnico Student Research Global Investment Research Challenge 2011 Automobiles & Parts