Description
It talks about Industry Trends of Indian commercial vehicle market, PEST Analysis of Industry, Competitor Analysis, SWOT analysis, Company Description, General Information about Eicher motors, it's Finance performance, SWOT analysis of Eicher motors and various Strategies employed.
Industry Analysis:
source ET report 25th april
The Indian commercial vehicle market will double to 1.6 million units in next five years thanks to the increase in infrastructure spend, rapid urbanisation and entry of major multinational players in the country said Ernst & in its latest report on 'Mega trends shaping the Indian commercial vehicle market. E&Y says the Indian market which has seen the entry of international majors like Daimler, Volvo will see a CAGR growth of 15% till 2016-17. The overall commercial vehicle sales in India grew by 18.20% in 2011-12 at 8,09,532 untis Vs 6,84,905 units in 2010-11. The sales of medium & heavy trucks posted a growth of 8.79% in 2011-12 at 2,99,309 vs 2,75,121 units in 2010-11 & light commercial vehicles grew faster at almost 30% with 4,11,460 units sold in the last fiscal.Tata Motors & Ashok Leyland continues to dominate the domestic truck scene in India with a combined market share of over 85-90% and rest of the players making up the rest of the pie.According to the report, the stakeholders across the Indian CV industry are likely to be impacted by rapidly changing events - right from the operating environment, fleet operator/ manager preferences, competition, distribution channel and also supply chain. Urging the need of road infrastructure development to facilitate OEMs, Rakesh Batra, partner & national leader, automotive practice, Ernst & Young, said, "By 2012, one expects to have sixlaning of 6,500 km and a development of 1000 km of expressways. Of the 66,590 km of National Highway, only 38% are single-lane, leading to logistics inefficiencies as trucks can cover only 250 km per day vs. 600 km globally. Moreover, the development of road infrastructure enables OEMs to introduce higher power vehicles. By 2012, the modernisation of roads under the NHDP ( National Highway Development Program) is expected to involve a total investment of US$47.2 billion." E&Y report say going ahead fleets will focus on capacity utilisation to reduce operating costs and diversify customer base. The fleet operators will opt for higher tonnage multi-axle trucks and rely on usage of telematics and will focus on the total cost of ownership The rapid urbanisation, improving road infrastructure and regulatory policies will influence CV buyers and OEMs.Global majors will redefine brand position in the market while domestic companies will build R&D competence and optimise costs through outsourcing and modularization.The key stake holders, suppliers will improve local capacity and invest in R&D while improving operational efficiency and developing an aftermarket proposition. After an excellent 2010 wherein the two wheeler industry grew by 31%, the growth rate in 2011 moderated to 17.5%. Within the two wheeler industry, the motorcycle industry grew by 16.6% in 2011, as compared to 28.4% in 2010. The motorcycle industry achieved a growth of 16.6% despite worse macro economic conditions as compared to 2010. It needs to be noted that the growth of the motorcycle industry was achieved despite weaker business and customers‘
sentiments in 2011 as compared to 2010.The growth of segments in 2011 over 2010 was as follows: - economy segment (less than 125cc) grew by 15% - executive segment (125 cc to 249 cc) grew by 20% - premium segment (250cc and above) grew by 71% These trends indicate the likelihood of higher growth in the higher cc (cubic capacity) segments. This endorses the emerging trend of leisure motorcycling that is fast catching up with the brand value conscious, upwardly mobile, discerning population that forms alarge part of the company‘s target customer base. Economic factors Growth of commercial vehicles industry is closely linked to the country‘s economic growth. The economic growth momentum in 2011 was lower than 2010 due to monetary tightening credit policies of the central bank to lower inflation that resulted in increased interest rates, inflation, commodity price increases, depreciating rupee and weak cues of global economic growth. This has resulted in moderation in CV growth in 2011 as compared to last year. The various segments in CV industry grew at vastly varying rates. 5T-12T segment grew by a healthy 18.8%. Among the heavy duty truck (16T and above) segments,the 16T and 25T segments witnessed negative growth in 2011 whereas the 31T segment has grown by an impressive 80.1% in 2011. Also, within the heavy duty segment, tippers grew by over 45% in 2011 whereas the haulage segment has grown by only 3.1%, indicating a slowdown in growth of goods movement. Social factors : With India having an increasing dominant young population looking for bikes as a status symbol the outlook for premium bike segment looks positive. Technological factors: Joint ventures and collaborations due to entry of international players is a positive leading to world class technology being used and shared in india with the domestic players also becoming competitive.
SWOT ANALYSIS Industry Strengths Indian Governmants Increased thrust on Infrastucture and Road development leading to better trandsportation.
Weakness Low ROE DecliningOperating Margins Low promotional activities Opportunities Increasing demand for fuel efficient vehicles Existing Distribution channel Teachnological advances Threats Competition from exixting and new global entrants Rising prices of raw materials Global meltdown and slowdown in Indian economy.
Competitors:
? Brand name of Ashok Leyland and Tata Motors are the most important features driving their sales and they account for more than 80-85 percent of the market share in commercial vehicle segment. ? They have a very positive brand recall amongst buyers and strong franchise distribution networks pushing sales. ? Existing Good Will amongst target customers. ? Excellent Servicing records.
Company Analysis: Source : Website: www.eicher.in Eicher Motors Limited, incorporated in 1982, is the flagship company of the Eicher Group in India and a leading player of the Indian automobile industry.
? The Eicher company has around 2500 employees located in four manufacturing facilities and 49 marketing and area offices around India. ? The group has around 600 suppliers of components and sub-assemblies. ? The group‘s products are supplied by a network of around 381 dealers distributed across India. ? Eicher is present in over 40 other countries. Operational since july 2008, Its 50-50 joint venture with the Volvo group, VE Commercial Vehicles Limited, designs, manufactures and markets reliable, fuel-efficient commercial vehicles of high quality and modern technology, engineering components and provides engineering design solutions. Eicher Motors manufactures and markets the iconic Royal Enfield motorcycles. Eicher Motors recorded revenue of over USD 1 billion in 2010.
Driving Modernization in the CV Industry, in India and the Developing World VECV comprises of five business verticals, namely
? ? ? ? ?
Eicher Trucks and Buses Volvo Trucks India Eicher engineering Components Eicher engineering solutions VE power train Each of its units business units is already established and backed by a sizeable customer base.
Registered Office is at 3rd Floor-Select Citywalk A-3 District Centre, Saket New Delhi 110 017
Shareholding Pattern(%)
8.5 13.8 Retail Investors
22.4
Promoters Group
Institutional Investors 55.3 Volvo A.B.
Eicher Motors Limited BOARD 1) S Sandilya: Non-executive Chairman 2) Siddhartha Lal: Managing Director & CEO 3) RL Ravichandran: Executive Director 4) Priya Brat: Independent Director 5) MJ Subbiah: Independent Director
6) PrateekJalan: Independent Director Other important Management includes 1) Mr.Lalit Malik, CFO ,EML 2) Dr. Venki Padmanabhan,CEO,Royal Enfield 3) Company Secretary Vinit Kumar 4) Auditors Deloitte Haskins & Sells, Chartered Accountants 5) VECV BOARD 1) 2) 3) 4) 5) 6) Par Ostberg: Non-executive Chairman & Volvo nominated director BertilThoren: Volvo nominated director JoakimHjerpe: Volvo nominated director Siddhartha Lal: Managing Director & Eicher nominated director Raul Rai: Eicher nominated director PrateekJalan:Eicher nominated director
Financial performance of the company: Sales Volume: Commercial Vehicles (Nos.) 49042 units in CY2011 vs 39275 units in CY2010 Two Wheelers (Nos.) 74626 units in CY2011 vs 52576 units in CY2010 The Royal Enfield unit was able to produce and sell 42% more motorcycles in 2011 as compared to 2010. Total exports in 2011 were 3200 units, a growth of 21.7% over previous year.
Components (Including Inter Segment Sales - MINR)
2817.6 in 2011 vs 2038.2 in 2010
Net Sales of spare parts and services grew to 713.2 MINR in 2011 from 511.9 MINR in the previous year, registering a growth of 39.3% over previous year. (Rupees in millions) 2011 vs 2010 Sales Revenue (Excluding Inter Segment Sales) Other Income Total Income Profit before interest, depreciation, exceptional items & tax (PBIDT) Profit before exceptional items and tax (PBT) Profit after taxation (PAT ) 61234.1 vs 47016.3 1767.7 vs 1275.7 63001.8 vs 48292.0
7318.3 vs 4844.7 6602.0 vs 4176.7 4974.0 vs 3068.5
Consolidated Results Q1 2012 as compared to Q1 2011: Total Income from operations 1695.04cr vs 1392.68cr growth of 21.7% Operating Profit (EBIDTA) 180.22cr vs 162.14 cr growth of 11.2% Operating Margin (EBIDTA %) 10.6% vs 11.6% Profit After Tax (PAT) 163.43cr vs 122.57cr growth of 33.3% Eicher Motors Limited continues to perform exceedingly well to carrying forward the growth
momentum of the last year into Q1, 2012 registering the best ever quarterly total income from operations at Rs 1695.04 crores in Q1 2012, an increase of 21.7% over the same period last year. ? VECV‘s Eicher Trucks and Buses Division (ETB) has been progressively improving its volume and sales numbers, selling 14195 units in Q1 2012 as compared to 12505 units in the corresponding period last year. ETB has been consistent in maintaining its market share in the 5 to 12 T segment at around 30%. ? In the bus segment ETB has maintained its strong momentum with 2043 units being sold in Q1 2012, a growth of 60.4% over the corresponding period last year. Market share for the same period has also gone up to 9.3% from 7.2%. ? In the Heavy Duty segment, ETB bettered its Q1 2011performance by 19.1% at 2291 units sold in Q1 2012, thereby, improving its market share from 2.7%in Q1 2011 to 3.3% in Q1 2012. Eicher Trucks and Buses (ETB) has successfully continued to outpace the industry with the unit volume growth of 13.5% as compared to the industry growth of 5.2% for Q1 2012. In the Heavy Duty segment, it continued with focussed product and market strategy that reflected in improved market share of 4.2% in the month of March 2012 with the highest ever monthly sales of 1100 plus units. ETB also recorded the highest ever monthly sales of 6051 units in the month of March 2012. ?In the month of April this year, VECV‘s Eicher Trucks and Buses (ETB) launched Eicher 11.14, a highly fuel efficient 14.5T GVW truck. With its modern look, style and a host of value features, this product will redefine the image of the 9- 9.5 ton payload segment. We have already started seeing encouraging volumes for this product. Elucidating on the numbers posted by Royal Enfield, Mr Siddhartha Lal said, ?At Royal Enfield we continue to maximise our production capacity from the existing plant, to meet the growing demand of our motorcycles. In March 2012, Royal Enfield produced and sold a record number of 9000 plus motorcycles in a month. For Q1 2012, our sales volume was up by 41% over Q1 2011, with 23899 units being sold.? Concluding his remarks on the Q1 2012 financial results, Mr Siddhartha Lal said, ?At Eicher we continue to focus on strategic initiatives that have resulted in effective cost management, improved operational parameters and a differentiated pipeline of products. This has helped us in improving our financial performance every quarter in the last few years. This is also reflected in the highest ever quarterly Profit after Tax (PAT) in Q1 2012, recorded at Rs 163.43 crores, an increase of 33.3% over Q1 2011. ? ?We will continue with our thrust on long term growth. We are on track with our capacity expansion projects in both the divisions of EML. Royal Enfield‘s new plant in Oragadam, near Chennai is shaping up well and the start of operation is as per schedule in Q1 2013. Work in VECV‘s Medium Duty Engine plant is also progressing as planned. The plant will go on stream in July 2013 and capacity will be increased to 100,000 units per annum, in a phased
manner over the next 3-4 years. This will becomea hub for the medium-duty automotive engine requirements of Volvo globally for five and eight litre engines. The domestic requirements will be met from this capacity. The Euro 6 compliant diesel enginesto Volvo Europe will also be adapted to Euro 3 and 4 engine technologies for Eicher Trucks and Buses Heavy Duty range. At VECV, we are also steadily working towards increasing our truck production capacity to 6000 units per month by the end of the current financial year?, he further added.
This year the company launched new variants of its Classic 500cc model namely Classic Chrome and Classic Desert Storm..These were received by customers with great enthusiasm. Your company continued to expand its sales, distribution and Royal Enfield products are now sold through 190 outlets in India and exported to 36 countries. MARKET AND FUTURE PROSPECTS Both urban and rural markets continue to grow. Continuing urbanisation and expanding service sector continue to create higher incomes and more jobs in urban markets. Rural incomes, aided by various Government projects continue to increase. This has created a long lasting momentum for the growth of motorcycles‘ sales. The company is carrying a very healthy order book for execution in 2012 as well. In order to augment the production for growing market demand,the company has acquired 50 acres of land for construction of its new manufacturing facility at Oragadam, Chennai, Tamil Nadu. This will enhance Royal Enfield‘s annual production capacity to 150,000 units.The new facility is expected to commence production in first half of 2013.
CONSERVATIO N OF ENERGY The following new initiatives were taken to conserve energy during the year 2011: 1. Reduction of paint booth blower motor capacity from 10 KW to 7 KW that resulted in a saving of 35000 KWH per annum. 2. Reduction of running time of hydraulic power pack for fixture clamping from 8 hours per shift to 1.5 hours per shift by modifying electrical circuit that resulted in saving of 18000
KWH per annum. 3. Centralisation of control panel to switch off main coolers and lights, during lunch time resulted in saving of 4300 KWH per annum. 4. Replacement of electrical operated chip conveyor with manual operated conveyor has resulted in saving of 1000 KWH per annum. TECHNOLOG Y ABSORPTION, ADAPTATIO N AND INNOVATIO N A rear disc brake system has been designed for providing effective stopping power. This technology is developed in such a manner that it can be deployed in all existing modules.
RESEARCH AND DEVELO PMENT The focus on Research and Development accelerated in 2011. There are many projects being executed. These include development of new products, improvement in existing products and value engineering projects. Your Company continues to invest in infrastructure and talent for conducting research and development activities, as a result of which 55.5 MINR was incurred on capital account and 104.5 MINR was spent on revenue account of Research and Development. Please also refer Note No. 3 of Schedule 12 of Notes to Accounts forming part of Annual Report for further details of Research and Development.
Equity Research Reoprt by Nirmal Bang throws some more light on the current performance. Yet another quarter of strong performance !!! Standalone business benefitted from strong demand and price hikes. Despite tough operating environment, the company benefited from strong demand for light and intermediate commercial vehicles, while it gained market share in heavy commercial vehicles. Outlook continues to remain positive. Key Highlights Eicher Motors‘s consolidated revenues increased 21.6% YoY in Q1CY12 due to 12.5% YoY volume growth in the CV business to 14,289 units and 40.8% YoY volume growth in the Royal Enfield business to 23,899 units. On consolidated basis, EBITDA margin declined 100 bps YoY due to higher cost of sales. EBITDA margin of the two-wheeler business improved tremendously by 467 bps QoQ and 83 bps YoY to 13.9% in Q1CY12. PAT grew 28.2% YoY and 49.5% QoQ to Rs 110 crs in Q1CY12. This was led by 22.9% YoY and 111.9% increase in other income and lower tax rate which was at 24.3% in the current quarter as compared to 28.3% in Q1CY11. Key positive Eicher Motors is doubling the installed capacity of Royal Enfield to 150,000 units p.a. by setting up a new plant in Chennai by early CY13 to meet increasing demand. The capex plan is on track which will enable the company to reach a run rate of 12,00013,000 units per month from current 9,000 units per month. Moreover, Volvo Eicher Commercial Vehicles (VECV) will produce medium-duty engines for the Volvo group globally. The company is setting up an engine plant with a capacity of 85,000 units p.a, which will commence in early 2013. It will manufacture Euro 3 and 4 compliant engines and the Euro 5 & 6 base engines. This project will give VECV a huge technological edge along with additional revenue stream from CY13E. Valuation & Recommendation Eicher Motors has constantly focused on improving its volumes and market share by expanding its distribution and production capabilities along with effective cost management. Strong balance sheet and credible management continues to remain positives for the company. The company enjoys strong
financial health and cash position which has helped the company to maintain debt at comfortable zone. On consolidated basis the cash per share stood at Rs 633.5 in CY11. At CMP, the stock is trading at P/E of 14.5x CY12E and 11.8x CY13E. We arrive at a target price of Rs 2,578 based on P/E multiple of 15x on CY13E EPS of Rs 172 indicating a potential upside of 27% from current levels. We maintain our BUY rating on the stock from a long term perspective.
VECV was established in 2008 with strong parentage Eicher strengths ? Cost effective operations ? ? Specialist skills and experience in developing low cost, better performance products ? After sales infrastructure for LD / MD
VECV vision ?To be recognised as the industry leader driving modernisation in commercial transportation in India and the developing world?
Eicher transferred its CV, components and engineering solutions businesses into VECV Volvo strengths ? Leadership in product technology ? Good infrastructure facilities ? Well-defined processes and controls ? Brand image and customer relationships ? Volvo demerged Volvo Truck India’s sales & distribution business from Volvo India Pvt Ltd.
Joint venture had the following list of events: Signing of Letter of intent Signing of definitive agreements – Aug 2008: Commencement of JV Volvo Board Visit Launch of Quality Improvement CSI-1 Initiative Inauguration of the new gear plant at Dewas Launch of VE-series of Eicher HD trucks Launch of MDE Project ctober 2010: Groundbreaking ceremony of MDEP plant site Groundbreaking ceremony of Eicher Bus manufacturing plant site at Dhar, Madhya Pradesh VECV milestones
Community initiatives:
GOODEARTH EDUCATION FOUNDATION DR. SHROFF’S CHARITABLE EYE HOSPITAL
VE COMMERCIAL VEHICLES LIMITED (VECV) – A SUBSIDARY COMPANY OF EICHER MOTORS LIMITED VECV posted impressive all time high top line during the financial year 2011 with total operating income at 49999.8 MINR as against 39398.5 MINR during the previous financial year ended December 31, 2010, a phenomenal growth of 26.90%. The operating profit before depreciation and interest amounted to 5117.4 MINR at 10.31% of Net Sales as against operating profit before depreciation and interest of 3348.1 MINR during the previous year at 8.55% of Net Sales, a growth of 52.84%. After accounting for interest income of 1032.2 MINR (previous year 764.1 MINR), interest expense of 52.2 MINR (previous year 63.0 MINR) and depreciation of 501.5 MINR (previous year 457.3 MINR), profit before tax amounts to 5595.9 MINR (previous year 3591.9 MINR). After providing for tax of 1454.8 MINR, profit after tax amounts to 4141.1 MINR (previous year 2595.4 MINR).
MARKET AND FUTURE PROSPECTS OF SUBSIDIARY COMPANY’S BUSINESSES Growth of commercial vehicles industry is closely linked to the country‘s economic growth. The economic growth momentum in 2011 was lower than 2010 due to monetary tightening credit policies of the central bank to lower inflation that resulted in increased interest rates, inflation, commodity price increases, depreciating rupee and weak cues of global economic growth. This has resulted in moderation in CV growth in 2011 as compared to last year. The various segments in CV industry grew at vastly varying rates. 5T-12T segment grew by a healthy 18.8%. Among the heavy duty truck (16T and above) segments, the 16T and 25T segments witnessed negative growth in 2011 whereas the 31T segment has grown by an impressive 80.1% in 2011. Also, within the heavy duty segment, tippers grew by over 45% in 2011 whereas the haulage segment has grown by only 3.1%, indicating a slowdown in growth of goods movement. Some of the macroeconomic challenges faced in 2011 are expected to continue in 2012 as well, thus further weakening the business sentiment and growth outlook. However, lower inflation, favourable currency and lower interest rate regime can improve the economic growth climate in 2012. Regulatory actions that facilitate improvement in infrastructure development and mining sector can further provide further impetus to growth.
Eicher Trucks and Buses (ETB) ETB recorded an excellent overall performance in 2011. While light and medium duty vehicles - both trucks and buses - are expected to continue their strong contribution, the continued acceptability and positive customer response to the ?VE? series of heavy duty trucks in 2011 provide strong evidence of success of ETB‘s long term strategy to be a significant player in the heavyduty truck market by 2015. ETB is executing many projects to achieve its long term objectives. These include developing a new range of differentiated products that will drive its future growth. Volvo Trucks India (VTI) Growth in mining sector will be greatly aided by legislative/ regulatory actions and greater investment in infrastructure development will enable growth of the segment in which VTI operates. VTI is well positioned to capitalise on the growth in its segment through proven product technology and superior customer value. VTI plans to expand its product offering in 2012 to further consolidate its dominant market position. Eicher Engineering Components (EEC) The performance of EEC will be corelated to the growth of OEMs. EEC is targeting higher share of business with OEMs. It has extensive plans for development of new products and upgradation of technology. Also, with improvement in certain international markets like US, exports are likely to improve. New Volvo FMX 440—Experience the X Factor 18 Annua l Repo r t 2 0 1 1 Over longer term, EEC expects to grow in all segments especially in aggregate assembly and outsourcing business. EEC‘s ability to offer design and build services will add to its ability to attract business. All required investments to achieve its goals are being made. Eicher Engineering Solutions (EES) There has been a steady improvement in the performance of EES in 2011 and this is likely to accelerate in 2012. Major initiatives are planned to enhance EES‘s customer acquisition capability from all its global locations. This will enable EES to capitalise on the immense opportunities in the global engineering services industry.
VE Powertrain (VEPT) Project The VEPT project, announced in 2010, is on track for scheduled commencement of operations by end of 2012. Once operational, it will be able to meet most of Volvo Group‘s medium duty engine requirement and also provide significant technological edge to ETB‘s heavy duty products. Hence, it has immense strategic importance for VECV and Volvo Group. The plant is being built with state of art technology in terms of equipment, processes and systems and amalgamates the best of Volvo technologies and the frugal standards of manufacturing set-up of VECV. Eicher Motors Strengths: Royal Enfield unit has extremely rich global heritage of practical leisure motorcycling of over a hundred years. As greater number of bike enthusiasts catch on to the leisure riding, it will provide further impetus to your Company‘s future prospects. Weakness: Higher amount of discounts that are given to push sales. Opportunities :The mega trends of India‘s economic growth will present tremendous opportunities for growth in motorcycle segment and in leisure biking Company‘s healthy customer order book provides a clear indication of future growth. Company has been strenuously working to ensure that this opportunity is converted into profitable growth. A critical element in this strategy is to continually expand the customer offering. At the 2012 Auto Expo, Royal Enfield previewed - its new motorcycle—Thunderbird 500. It is fitted with UCE (Unit Construction Engine) and a host of design enhancements. - its all-new Café Racer model which will launched in 2013 - a range of purpose built motorcycle gear. The collection included biker apparel, bike and riding accessories. Threats Key risks identified: 1. Inability of suppliers and plant‘s production capacity to meet demand 2. Loss of customer satisfaction and brand image due to quality issues 3. Significant rise in cost of input materials like steel and aluminum The management has put in place a comprehensive ?Risk Management Mechanism? to manage these risks. To manage and mitigate the same, these risks are embedded in the various initiatives that the management will execute in 2012 and beyond. These plans are reviewed periodically
with the Board of Directors of the Company. The Company has a comprehensive system of internal control to safeguard the Company‘s assets against the loss from unauthorised use and ensure proper authorization of financial transactions. The Company has internal control systems commensurate with the size and nature of the business and has experienced personnel positioned adequately in the organisation to ensure internal control process and compliances. Thecompany takes abundant care in designing, reviewing and monitoring regularly the working of inter control systemsand internal control compliances for all important financial internal control processes. The Audit findings are reported on quarterly basis to the Audit Committee of the Boardheaded by a Non-executive Independent Director.The Company has robust ERP systems based on SAP platform. This ensures high degree of systems basedchecks and control.
Finally would like to end the Report with Eicher Motors Conference Call details and Brokerage report with outlook as follows: Waiting period for Royal Enfiehld motorcycle continues, with the company not being able to meet demand. Thunderbird 500 launch is due in Q3CY12. Additional capacity is coming on stream in Q1CY13. On the truck side, the company is still gaining market share, although demand has slowed down. Increase in discounts could pose margin risk in near term. Maintain ‘BUY’ with TP of INR2,807. Motorcycle business intact Royal Enfield demand has not been affected by the ongoing economic downturn. Waiting period ranges from 2-9 months on different models. Also, new Thunderbird 500cc is likely to be launched in Q3CY12 and could act as a positive trigger. Additional capacity is likely to come on stream in Q1CY13 (we have built in Q2CY13). Truck business a mixed bag The company has been gaining market share in the heavy-duty truck business even though demand is shrinking. The concern is increasing discounts. Intermediate commercial vehicles and bus demand still exists. Bank funding is available in abundance. Delinquencies remain very low. Commercial production is likely to start from Q2CY13. Further, trucks with new platforms and engines are likely to be launched by Q4 CY13. Outlook and valuations: Favourable; maintain ‘BUY’ A diversified business model, strong balance sheet, robust demand for motorcycle and strengthening CV business make outlook favourable. We maintain ?BUY‘ with SoTP based target price of INR2,807. Key risks include increasing discounts in truck business and weak economic growth affecting truck demand.
doc_347805528.docx
It talks about Industry Trends of Indian commercial vehicle market, PEST Analysis of Industry, Competitor Analysis, SWOT analysis, Company Description, General Information about Eicher motors, it's Finance performance, SWOT analysis of Eicher motors and various Strategies employed.
Industry Analysis:
source ET report 25th april
The Indian commercial vehicle market will double to 1.6 million units in next five years thanks to the increase in infrastructure spend, rapid urbanisation and entry of major multinational players in the country said Ernst & in its latest report on 'Mega trends shaping the Indian commercial vehicle market. E&Y says the Indian market which has seen the entry of international majors like Daimler, Volvo will see a CAGR growth of 15% till 2016-17. The overall commercial vehicle sales in India grew by 18.20% in 2011-12 at 8,09,532 untis Vs 6,84,905 units in 2010-11. The sales of medium & heavy trucks posted a growth of 8.79% in 2011-12 at 2,99,309 vs 2,75,121 units in 2010-11 & light commercial vehicles grew faster at almost 30% with 4,11,460 units sold in the last fiscal.Tata Motors & Ashok Leyland continues to dominate the domestic truck scene in India with a combined market share of over 85-90% and rest of the players making up the rest of the pie.According to the report, the stakeholders across the Indian CV industry are likely to be impacted by rapidly changing events - right from the operating environment, fleet operator/ manager preferences, competition, distribution channel and also supply chain. Urging the need of road infrastructure development to facilitate OEMs, Rakesh Batra, partner & national leader, automotive practice, Ernst & Young, said, "By 2012, one expects to have sixlaning of 6,500 km and a development of 1000 km of expressways. Of the 66,590 km of National Highway, only 38% are single-lane, leading to logistics inefficiencies as trucks can cover only 250 km per day vs. 600 km globally. Moreover, the development of road infrastructure enables OEMs to introduce higher power vehicles. By 2012, the modernisation of roads under the NHDP ( National Highway Development Program) is expected to involve a total investment of US$47.2 billion." E&Y report say going ahead fleets will focus on capacity utilisation to reduce operating costs and diversify customer base. The fleet operators will opt for higher tonnage multi-axle trucks and rely on usage of telematics and will focus on the total cost of ownership The rapid urbanisation, improving road infrastructure and regulatory policies will influence CV buyers and OEMs.Global majors will redefine brand position in the market while domestic companies will build R&D competence and optimise costs through outsourcing and modularization.The key stake holders, suppliers will improve local capacity and invest in R&D while improving operational efficiency and developing an aftermarket proposition. After an excellent 2010 wherein the two wheeler industry grew by 31%, the growth rate in 2011 moderated to 17.5%. Within the two wheeler industry, the motorcycle industry grew by 16.6% in 2011, as compared to 28.4% in 2010. The motorcycle industry achieved a growth of 16.6% despite worse macro economic conditions as compared to 2010. It needs to be noted that the growth of the motorcycle industry was achieved despite weaker business and customers‘
sentiments in 2011 as compared to 2010.The growth of segments in 2011 over 2010 was as follows: - economy segment (less than 125cc) grew by 15% - executive segment (125 cc to 249 cc) grew by 20% - premium segment (250cc and above) grew by 71% These trends indicate the likelihood of higher growth in the higher cc (cubic capacity) segments. This endorses the emerging trend of leisure motorcycling that is fast catching up with the brand value conscious, upwardly mobile, discerning population that forms alarge part of the company‘s target customer base. Economic factors Growth of commercial vehicles industry is closely linked to the country‘s economic growth. The economic growth momentum in 2011 was lower than 2010 due to monetary tightening credit policies of the central bank to lower inflation that resulted in increased interest rates, inflation, commodity price increases, depreciating rupee and weak cues of global economic growth. This has resulted in moderation in CV growth in 2011 as compared to last year. The various segments in CV industry grew at vastly varying rates. 5T-12T segment grew by a healthy 18.8%. Among the heavy duty truck (16T and above) segments,the 16T and 25T segments witnessed negative growth in 2011 whereas the 31T segment has grown by an impressive 80.1% in 2011. Also, within the heavy duty segment, tippers grew by over 45% in 2011 whereas the haulage segment has grown by only 3.1%, indicating a slowdown in growth of goods movement. Social factors : With India having an increasing dominant young population looking for bikes as a status symbol the outlook for premium bike segment looks positive. Technological factors: Joint ventures and collaborations due to entry of international players is a positive leading to world class technology being used and shared in india with the domestic players also becoming competitive.
SWOT ANALYSIS Industry Strengths Indian Governmants Increased thrust on Infrastucture and Road development leading to better trandsportation.
Weakness Low ROE DecliningOperating Margins Low promotional activities Opportunities Increasing demand for fuel efficient vehicles Existing Distribution channel Teachnological advances Threats Competition from exixting and new global entrants Rising prices of raw materials Global meltdown and slowdown in Indian economy.
Competitors:
? Brand name of Ashok Leyland and Tata Motors are the most important features driving their sales and they account for more than 80-85 percent of the market share in commercial vehicle segment. ? They have a very positive brand recall amongst buyers and strong franchise distribution networks pushing sales. ? Existing Good Will amongst target customers. ? Excellent Servicing records.
Company Analysis: Source : Website: www.eicher.in Eicher Motors Limited, incorporated in 1982, is the flagship company of the Eicher Group in India and a leading player of the Indian automobile industry.
? The Eicher company has around 2500 employees located in four manufacturing facilities and 49 marketing and area offices around India. ? The group has around 600 suppliers of components and sub-assemblies. ? The group‘s products are supplied by a network of around 381 dealers distributed across India. ? Eicher is present in over 40 other countries. Operational since july 2008, Its 50-50 joint venture with the Volvo group, VE Commercial Vehicles Limited, designs, manufactures and markets reliable, fuel-efficient commercial vehicles of high quality and modern technology, engineering components and provides engineering design solutions. Eicher Motors manufactures and markets the iconic Royal Enfield motorcycles. Eicher Motors recorded revenue of over USD 1 billion in 2010.
Driving Modernization in the CV Industry, in India and the Developing World VECV comprises of five business verticals, namely
? ? ? ? ?
Eicher Trucks and Buses Volvo Trucks India Eicher engineering Components Eicher engineering solutions VE power train Each of its units business units is already established and backed by a sizeable customer base.
Registered Office is at 3rd Floor-Select Citywalk A-3 District Centre, Saket New Delhi 110 017
Shareholding Pattern(%)
8.5 13.8 Retail Investors
22.4
Promoters Group
Institutional Investors 55.3 Volvo A.B.
Eicher Motors Limited BOARD 1) S Sandilya: Non-executive Chairman 2) Siddhartha Lal: Managing Director & CEO 3) RL Ravichandran: Executive Director 4) Priya Brat: Independent Director 5) MJ Subbiah: Independent Director
6) PrateekJalan: Independent Director Other important Management includes 1) Mr.Lalit Malik, CFO ,EML 2) Dr. Venki Padmanabhan,CEO,Royal Enfield 3) Company Secretary Vinit Kumar 4) Auditors Deloitte Haskins & Sells, Chartered Accountants 5) VECV BOARD 1) 2) 3) 4) 5) 6) Par Ostberg: Non-executive Chairman & Volvo nominated director BertilThoren: Volvo nominated director JoakimHjerpe: Volvo nominated director Siddhartha Lal: Managing Director & Eicher nominated director Raul Rai: Eicher nominated director PrateekJalan:Eicher nominated director
Financial performance of the company: Sales Volume: Commercial Vehicles (Nos.) 49042 units in CY2011 vs 39275 units in CY2010 Two Wheelers (Nos.) 74626 units in CY2011 vs 52576 units in CY2010 The Royal Enfield unit was able to produce and sell 42% more motorcycles in 2011 as compared to 2010. Total exports in 2011 were 3200 units, a growth of 21.7% over previous year.
Components (Including Inter Segment Sales - MINR)
2817.6 in 2011 vs 2038.2 in 2010
Net Sales of spare parts and services grew to 713.2 MINR in 2011 from 511.9 MINR in the previous year, registering a growth of 39.3% over previous year. (Rupees in millions) 2011 vs 2010 Sales Revenue (Excluding Inter Segment Sales) Other Income Total Income Profit before interest, depreciation, exceptional items & tax (PBIDT) Profit before exceptional items and tax (PBT) Profit after taxation (PAT ) 61234.1 vs 47016.3 1767.7 vs 1275.7 63001.8 vs 48292.0
7318.3 vs 4844.7 6602.0 vs 4176.7 4974.0 vs 3068.5
Consolidated Results Q1 2012 as compared to Q1 2011: Total Income from operations 1695.04cr vs 1392.68cr growth of 21.7% Operating Profit (EBIDTA) 180.22cr vs 162.14 cr growth of 11.2% Operating Margin (EBIDTA %) 10.6% vs 11.6% Profit After Tax (PAT) 163.43cr vs 122.57cr growth of 33.3% Eicher Motors Limited continues to perform exceedingly well to carrying forward the growth
momentum of the last year into Q1, 2012 registering the best ever quarterly total income from operations at Rs 1695.04 crores in Q1 2012, an increase of 21.7% over the same period last year. ? VECV‘s Eicher Trucks and Buses Division (ETB) has been progressively improving its volume and sales numbers, selling 14195 units in Q1 2012 as compared to 12505 units in the corresponding period last year. ETB has been consistent in maintaining its market share in the 5 to 12 T segment at around 30%. ? In the bus segment ETB has maintained its strong momentum with 2043 units being sold in Q1 2012, a growth of 60.4% over the corresponding period last year. Market share for the same period has also gone up to 9.3% from 7.2%. ? In the Heavy Duty segment, ETB bettered its Q1 2011performance by 19.1% at 2291 units sold in Q1 2012, thereby, improving its market share from 2.7%in Q1 2011 to 3.3% in Q1 2012. Eicher Trucks and Buses (ETB) has successfully continued to outpace the industry with the unit volume growth of 13.5% as compared to the industry growth of 5.2% for Q1 2012. In the Heavy Duty segment, it continued with focussed product and market strategy that reflected in improved market share of 4.2% in the month of March 2012 with the highest ever monthly sales of 1100 plus units. ETB also recorded the highest ever monthly sales of 6051 units in the month of March 2012. ?In the month of April this year, VECV‘s Eicher Trucks and Buses (ETB) launched Eicher 11.14, a highly fuel efficient 14.5T GVW truck. With its modern look, style and a host of value features, this product will redefine the image of the 9- 9.5 ton payload segment. We have already started seeing encouraging volumes for this product. Elucidating on the numbers posted by Royal Enfield, Mr Siddhartha Lal said, ?At Royal Enfield we continue to maximise our production capacity from the existing plant, to meet the growing demand of our motorcycles. In March 2012, Royal Enfield produced and sold a record number of 9000 plus motorcycles in a month. For Q1 2012, our sales volume was up by 41% over Q1 2011, with 23899 units being sold.? Concluding his remarks on the Q1 2012 financial results, Mr Siddhartha Lal said, ?At Eicher we continue to focus on strategic initiatives that have resulted in effective cost management, improved operational parameters and a differentiated pipeline of products. This has helped us in improving our financial performance every quarter in the last few years. This is also reflected in the highest ever quarterly Profit after Tax (PAT) in Q1 2012, recorded at Rs 163.43 crores, an increase of 33.3% over Q1 2011. ? ?We will continue with our thrust on long term growth. We are on track with our capacity expansion projects in both the divisions of EML. Royal Enfield‘s new plant in Oragadam, near Chennai is shaping up well and the start of operation is as per schedule in Q1 2013. Work in VECV‘s Medium Duty Engine plant is also progressing as planned. The plant will go on stream in July 2013 and capacity will be increased to 100,000 units per annum, in a phased
manner over the next 3-4 years. This will becomea hub for the medium-duty automotive engine requirements of Volvo globally for five and eight litre engines. The domestic requirements will be met from this capacity. The Euro 6 compliant diesel enginesto Volvo Europe will also be adapted to Euro 3 and 4 engine technologies for Eicher Trucks and Buses Heavy Duty range. At VECV, we are also steadily working towards increasing our truck production capacity to 6000 units per month by the end of the current financial year?, he further added.
This year the company launched new variants of its Classic 500cc model namely Classic Chrome and Classic Desert Storm..These were received by customers with great enthusiasm. Your company continued to expand its sales, distribution and Royal Enfield products are now sold through 190 outlets in India and exported to 36 countries. MARKET AND FUTURE PROSPECTS Both urban and rural markets continue to grow. Continuing urbanisation and expanding service sector continue to create higher incomes and more jobs in urban markets. Rural incomes, aided by various Government projects continue to increase. This has created a long lasting momentum for the growth of motorcycles‘ sales. The company is carrying a very healthy order book for execution in 2012 as well. In order to augment the production for growing market demand,the company has acquired 50 acres of land for construction of its new manufacturing facility at Oragadam, Chennai, Tamil Nadu. This will enhance Royal Enfield‘s annual production capacity to 150,000 units.The new facility is expected to commence production in first half of 2013.
CONSERVATIO N OF ENERGY The following new initiatives were taken to conserve energy during the year 2011: 1. Reduction of paint booth blower motor capacity from 10 KW to 7 KW that resulted in a saving of 35000 KWH per annum. 2. Reduction of running time of hydraulic power pack for fixture clamping from 8 hours per shift to 1.5 hours per shift by modifying electrical circuit that resulted in saving of 18000
KWH per annum. 3. Centralisation of control panel to switch off main coolers and lights, during lunch time resulted in saving of 4300 KWH per annum. 4. Replacement of electrical operated chip conveyor with manual operated conveyor has resulted in saving of 1000 KWH per annum. TECHNOLOG Y ABSORPTION, ADAPTATIO N AND INNOVATIO N A rear disc brake system has been designed for providing effective stopping power. This technology is developed in such a manner that it can be deployed in all existing modules.
RESEARCH AND DEVELO PMENT The focus on Research and Development accelerated in 2011. There are many projects being executed. These include development of new products, improvement in existing products and value engineering projects. Your Company continues to invest in infrastructure and talent for conducting research and development activities, as a result of which 55.5 MINR was incurred on capital account and 104.5 MINR was spent on revenue account of Research and Development. Please also refer Note No. 3 of Schedule 12 of Notes to Accounts forming part of Annual Report for further details of Research and Development.
Equity Research Reoprt by Nirmal Bang throws some more light on the current performance. Yet another quarter of strong performance !!! Standalone business benefitted from strong demand and price hikes. Despite tough operating environment, the company benefited from strong demand for light and intermediate commercial vehicles, while it gained market share in heavy commercial vehicles. Outlook continues to remain positive. Key Highlights Eicher Motors‘s consolidated revenues increased 21.6% YoY in Q1CY12 due to 12.5% YoY volume growth in the CV business to 14,289 units and 40.8% YoY volume growth in the Royal Enfield business to 23,899 units. On consolidated basis, EBITDA margin declined 100 bps YoY due to higher cost of sales. EBITDA margin of the two-wheeler business improved tremendously by 467 bps QoQ and 83 bps YoY to 13.9% in Q1CY12. PAT grew 28.2% YoY and 49.5% QoQ to Rs 110 crs in Q1CY12. This was led by 22.9% YoY and 111.9% increase in other income and lower tax rate which was at 24.3% in the current quarter as compared to 28.3% in Q1CY11. Key positive Eicher Motors is doubling the installed capacity of Royal Enfield to 150,000 units p.a. by setting up a new plant in Chennai by early CY13 to meet increasing demand. The capex plan is on track which will enable the company to reach a run rate of 12,00013,000 units per month from current 9,000 units per month. Moreover, Volvo Eicher Commercial Vehicles (VECV) will produce medium-duty engines for the Volvo group globally. The company is setting up an engine plant with a capacity of 85,000 units p.a, which will commence in early 2013. It will manufacture Euro 3 and 4 compliant engines and the Euro 5 & 6 base engines. This project will give VECV a huge technological edge along with additional revenue stream from CY13E. Valuation & Recommendation Eicher Motors has constantly focused on improving its volumes and market share by expanding its distribution and production capabilities along with effective cost management. Strong balance sheet and credible management continues to remain positives for the company. The company enjoys strong
financial health and cash position which has helped the company to maintain debt at comfortable zone. On consolidated basis the cash per share stood at Rs 633.5 in CY11. At CMP, the stock is trading at P/E of 14.5x CY12E and 11.8x CY13E. We arrive at a target price of Rs 2,578 based on P/E multiple of 15x on CY13E EPS of Rs 172 indicating a potential upside of 27% from current levels. We maintain our BUY rating on the stock from a long term perspective.
VECV was established in 2008 with strong parentage Eicher strengths ? Cost effective operations ? ? Specialist skills and experience in developing low cost, better performance products ? After sales infrastructure for LD / MD
VECV vision ?To be recognised as the industry leader driving modernisation in commercial transportation in India and the developing world?
Eicher transferred its CV, components and engineering solutions businesses into VECV Volvo strengths ? Leadership in product technology ? Good infrastructure facilities ? Well-defined processes and controls ? Brand image and customer relationships ? Volvo demerged Volvo Truck India’s sales & distribution business from Volvo India Pvt Ltd.
Joint venture had the following list of events: Signing of Letter of intent Signing of definitive agreements – Aug 2008: Commencement of JV Volvo Board Visit Launch of Quality Improvement CSI-1 Initiative Inauguration of the new gear plant at Dewas Launch of VE-series of Eicher HD trucks Launch of MDE Project ctober 2010: Groundbreaking ceremony of MDEP plant site Groundbreaking ceremony of Eicher Bus manufacturing plant site at Dhar, Madhya Pradesh VECV milestones
Community initiatives:
GOODEARTH EDUCATION FOUNDATION DR. SHROFF’S CHARITABLE EYE HOSPITAL
VE COMMERCIAL VEHICLES LIMITED (VECV) – A SUBSIDARY COMPANY OF EICHER MOTORS LIMITED VECV posted impressive all time high top line during the financial year 2011 with total operating income at 49999.8 MINR as against 39398.5 MINR during the previous financial year ended December 31, 2010, a phenomenal growth of 26.90%. The operating profit before depreciation and interest amounted to 5117.4 MINR at 10.31% of Net Sales as against operating profit before depreciation and interest of 3348.1 MINR during the previous year at 8.55% of Net Sales, a growth of 52.84%. After accounting for interest income of 1032.2 MINR (previous year 764.1 MINR), interest expense of 52.2 MINR (previous year 63.0 MINR) and depreciation of 501.5 MINR (previous year 457.3 MINR), profit before tax amounts to 5595.9 MINR (previous year 3591.9 MINR). After providing for tax of 1454.8 MINR, profit after tax amounts to 4141.1 MINR (previous year 2595.4 MINR).
MARKET AND FUTURE PROSPECTS OF SUBSIDIARY COMPANY’S BUSINESSES Growth of commercial vehicles industry is closely linked to the country‘s economic growth. The economic growth momentum in 2011 was lower than 2010 due to monetary tightening credit policies of the central bank to lower inflation that resulted in increased interest rates, inflation, commodity price increases, depreciating rupee and weak cues of global economic growth. This has resulted in moderation in CV growth in 2011 as compared to last year. The various segments in CV industry grew at vastly varying rates. 5T-12T segment grew by a healthy 18.8%. Among the heavy duty truck (16T and above) segments, the 16T and 25T segments witnessed negative growth in 2011 whereas the 31T segment has grown by an impressive 80.1% in 2011. Also, within the heavy duty segment, tippers grew by over 45% in 2011 whereas the haulage segment has grown by only 3.1%, indicating a slowdown in growth of goods movement. Some of the macroeconomic challenges faced in 2011 are expected to continue in 2012 as well, thus further weakening the business sentiment and growth outlook. However, lower inflation, favourable currency and lower interest rate regime can improve the economic growth climate in 2012. Regulatory actions that facilitate improvement in infrastructure development and mining sector can further provide further impetus to growth.
Eicher Trucks and Buses (ETB) ETB recorded an excellent overall performance in 2011. While light and medium duty vehicles - both trucks and buses - are expected to continue their strong contribution, the continued acceptability and positive customer response to the ?VE? series of heavy duty trucks in 2011 provide strong evidence of success of ETB‘s long term strategy to be a significant player in the heavyduty truck market by 2015. ETB is executing many projects to achieve its long term objectives. These include developing a new range of differentiated products that will drive its future growth. Volvo Trucks India (VTI) Growth in mining sector will be greatly aided by legislative/ regulatory actions and greater investment in infrastructure development will enable growth of the segment in which VTI operates. VTI is well positioned to capitalise on the growth in its segment through proven product technology and superior customer value. VTI plans to expand its product offering in 2012 to further consolidate its dominant market position. Eicher Engineering Components (EEC) The performance of EEC will be corelated to the growth of OEMs. EEC is targeting higher share of business with OEMs. It has extensive plans for development of new products and upgradation of technology. Also, with improvement in certain international markets like US, exports are likely to improve. New Volvo FMX 440—Experience the X Factor 18 Annua l Repo r t 2 0 1 1 Over longer term, EEC expects to grow in all segments especially in aggregate assembly and outsourcing business. EEC‘s ability to offer design and build services will add to its ability to attract business. All required investments to achieve its goals are being made. Eicher Engineering Solutions (EES) There has been a steady improvement in the performance of EES in 2011 and this is likely to accelerate in 2012. Major initiatives are planned to enhance EES‘s customer acquisition capability from all its global locations. This will enable EES to capitalise on the immense opportunities in the global engineering services industry.
VE Powertrain (VEPT) Project The VEPT project, announced in 2010, is on track for scheduled commencement of operations by end of 2012. Once operational, it will be able to meet most of Volvo Group‘s medium duty engine requirement and also provide significant technological edge to ETB‘s heavy duty products. Hence, it has immense strategic importance for VECV and Volvo Group. The plant is being built with state of art technology in terms of equipment, processes and systems and amalgamates the best of Volvo technologies and the frugal standards of manufacturing set-up of VECV. Eicher Motors Strengths: Royal Enfield unit has extremely rich global heritage of practical leisure motorcycling of over a hundred years. As greater number of bike enthusiasts catch on to the leisure riding, it will provide further impetus to your Company‘s future prospects. Weakness: Higher amount of discounts that are given to push sales. Opportunities :The mega trends of India‘s economic growth will present tremendous opportunities for growth in motorcycle segment and in leisure biking Company‘s healthy customer order book provides a clear indication of future growth. Company has been strenuously working to ensure that this opportunity is converted into profitable growth. A critical element in this strategy is to continually expand the customer offering. At the 2012 Auto Expo, Royal Enfield previewed - its new motorcycle—Thunderbird 500. It is fitted with UCE (Unit Construction Engine) and a host of design enhancements. - its all-new Café Racer model which will launched in 2013 - a range of purpose built motorcycle gear. The collection included biker apparel, bike and riding accessories. Threats Key risks identified: 1. Inability of suppliers and plant‘s production capacity to meet demand 2. Loss of customer satisfaction and brand image due to quality issues 3. Significant rise in cost of input materials like steel and aluminum The management has put in place a comprehensive ?Risk Management Mechanism? to manage these risks. To manage and mitigate the same, these risks are embedded in the various initiatives that the management will execute in 2012 and beyond. These plans are reviewed periodically
with the Board of Directors of the Company. The Company has a comprehensive system of internal control to safeguard the Company‘s assets against the loss from unauthorised use and ensure proper authorization of financial transactions. The Company has internal control systems commensurate with the size and nature of the business and has experienced personnel positioned adequately in the organisation to ensure internal control process and compliances. Thecompany takes abundant care in designing, reviewing and monitoring regularly the working of inter control systemsand internal control compliances for all important financial internal control processes. The Audit findings are reported on quarterly basis to the Audit Committee of the Boardheaded by a Non-executive Independent Director.The Company has robust ERP systems based on SAP platform. This ensures high degree of systems basedchecks and control.
Finally would like to end the Report with Eicher Motors Conference Call details and Brokerage report with outlook as follows: Waiting period for Royal Enfiehld motorcycle continues, with the company not being able to meet demand. Thunderbird 500 launch is due in Q3CY12. Additional capacity is coming on stream in Q1CY13. On the truck side, the company is still gaining market share, although demand has slowed down. Increase in discounts could pose margin risk in near term. Maintain ‘BUY’ with TP of INR2,807. Motorcycle business intact Royal Enfield demand has not been affected by the ongoing economic downturn. Waiting period ranges from 2-9 months on different models. Also, new Thunderbird 500cc is likely to be launched in Q3CY12 and could act as a positive trigger. Additional capacity is likely to come on stream in Q1CY13 (we have built in Q2CY13). Truck business a mixed bag The company has been gaining market share in the heavy-duty truck business even though demand is shrinking. The concern is increasing discounts. Intermediate commercial vehicles and bus demand still exists. Bank funding is available in abundance. Delinquencies remain very low. Commercial production is likely to start from Q2CY13. Further, trucks with new platforms and engines are likely to be launched by Q4 CY13. Outlook and valuations: Favourable; maintain ‘BUY’ A diversified business model, strong balance sheet, robust demand for motorcycle and strengthening CV business make outlook favourable. We maintain ?BUY‘ with SoTP based target price of INR2,807. Key risks include increasing discounts in truck business and weak economic growth affecting truck demand.
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