Auto Mobile Initiating Coverage

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I n it ia t in g Cove r a ge on Au t o M obile Se ct or

Analyst: Vaishali Parkar
[email protected] Tel: +91 22 42122400, 9820454757

INDEX

Valuation Summary .................................................................... 2 Industry out Look ....................................................................... 3 Supply side concern .................................................................... 12 Demand Side Concern ................................................................. 14 Hero Honda Ltd. (HHL) ............................................................... 16 Bajaj Auto Ltd. (BAL) .................................................................. 23 TVS Motors Ltd. (TVS) ................................................................ 30 Maruti Suzuki Ltd........................................................................ 36 Mahindra & Mahindra Ltd............................................................ 44 TATA Motors Ltd. (TTMT) ............................................................ 51 Ashok Leyland Ltd. (ALL) ............................................................ 59

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+91 22 42122400, 9820454757

Valuation Summary
Financial Snapshot Company Blmbg Code Hero H onda Bajaj Auto TVS Motor Maruti M&M Tata Motors Ashok Leyland HH IN BJAUT IN TVSL IN MSIL IN MM IN TTMT IN AL IN CMP (Rs) 1573 1475 59.3 1496 972 581.7 53 Target (Rs) Reco. Mcap (Rs mn) 314128 213403 14084 432344 264987 299023 70508 Sales (Rs mn) FY09 135431 90497 40089 230851 142684 282926 60097 FY10 185742 122499 48107 334457 177116 323720 62801 FY11 204317 131871 5 2918 402539 198370 349618 82270 EBITDA (Rs mn) FY09 17097 13140 1890 24334 14518 26992 5191 FY10 26953 20492 2733 39996 27562 40346 6473 FY11 27883 23002 3093 46746 29064 43867 8501 FY09 12818 6545 311 12187 8265 10013 1900 PAT (Rs mn) FY10 20640 13290 857 21883 17344 17250 2534 FY11 22087 15175 1094 26465 18006 19472 3783 EPS (Rs/share) FY09 64.2 45.4 1.3 42.2 30.3 19.5 1.4 FY10 103.4 91.9 3.6 75.7 63.6 33.6 1.9 FY11 110.6 104.9 4.6 91.6 66.0 37.9 2.8

Key Ratio and Valuations EBITDA Margin (%) FY09 FY10 FY11 Hero Honda Bajaj Auto TVS Motor Maruti M&M Tata Motors Ashok Leyland 13% 15% 5% 11% 10% 10% 9% 15% 17% 6% 12% 16% 12% 10% 14% 1 7% 6% 12% 15% 13% 10% PAT Margin (%) FY09 FY10 FY11 279% 7% 1% 5% 6% 4% 3% 510% 11% 2% 7% 10% 5% 4% 466% 12% 2% 7% 9% 6% 5% FY09 34% 35% 4% 13% 16% 8% 5% ROE (%) FY10 42% 48% 10% 19% 26% 13% 7% FY11 38% 40% 12% 19% 22% 13% 10% FY09 28% 17% 6% 17% 8% 5% 5% ROCE (%) FY10 FY11 37% 25% 8% 24% 15% 8% 7% 33% 24% 9% 24% 14% 8% 8% EPS Growth (%) FY09 FY10 FY11 32% - 13% - 2% - 30% - 22% - 63% - 60% 61% 102% 176% 80% 110% 72% 33% 7% 14% 28% 21% 4% 13% 49%

Key Ratio and Valuations Asset Turnover (x) FY09 FY10 FY11 Hero Honda 2.2 2.6 2.4 Bajaj Auto 1.5 1.8 1.6 TVS Motor 1.6 1.8 1.9 Maruti 1.7 2.0 2.1 M&M 0.5 0.6 0.7 Tata Motors 0.7 0.8 0.8 Ashok Leyland 0.8 0.8 1.0

Adj. Debt/Equity (x) FY09 FY10 FY11 0.0 0.8 1.1 0.1 0.5 1.0 0.5 0.0 0.4 1.0 0.0 0.4 9 0.5 0.0 0.3 0.9 0.0 0.2 0.8 0.5

FY09 24.5 32.5 45.3 35.5 32.1 29.9 37.1

P/E (x) FY10 15.2 16.1 16.4 19.8 15.3 17.3 27.8

FY11 14.2 14.1 12.9 16.3 14.7 15.4 18.6

EV/EBITDA (x) FY09 FY10 FY11 18.3 17.0 11.6 17.3 20.0 15.5 17.2 11.6 10.7 8.1 10.5 10.5 10.5 13.5 11.2 9.6 7.0 9.0 9.7 9.4 10.6

FY09 8.3 11.2 1.6 4.6 1.17 2.4 2.0

P/BV(x) FY10 6.5 7.6 1.6 3.8 1.33 2.2 2.0

FY11 5.4 5.8 1.5 3.1 1.21 2.0 1.9

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Industry out Look
Indian Automobile sector has shown great comeback on sales in the last few months. Now with the optimistic changes in the world economic outlook, and in the domestic outlook, Indian automobile industry looks positive on account of India being the second fastest growing economy and low cost manufacturing. Automobile industry is divided in to three segments viz. two wheeler segment, Passenger car segment and Commercial vehicle segment. Out of the above, two wheeler segment and passenger car segment showed tremendous growth. Commercial vehicle segment is on the path of recovery and showing the improvement with changing focus from M&HVs to LCVs.

Au t o M obile Se gm e n t
Two Wheeler Passenger Vehicle Commercial Vehicle

Hero Honda Ltd. Bajaj Auto Ltd. TVS Ltd.

Maruti Suzuki Ltd Tata Motors Ltd M&M Ltd

Tata Motors Ltd Ashok Leyland Ltd

Due to the global financial crises where global Auto industry was undergoing tremendous pressure and companies like Ford filed bankruptcy. Global auto makers like Toyota, Volkswagen turned to India as a new destination for their cars. As compared to the global scenario, Indian automobile sector specially two wheeler and passenger car sector has suffered less. In last one year Indian Auto Industry grew at 3% YOY, and at 9% CAGR, from FY03 to FY09.

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In 2008-09, total market share of Two Wheelers was 76.49%, and Passenger Vehicles, Commercial Vehicles and Three Wheelers comprised 15.96%, 3.95% and 3.6% respectively.

Figure 1 : Domestic Market Share for 2008- 09
15.96%

3.95% 3.60%

76.49%

Passenger Vehicles Three Wheelers

Commercial Vehicles Two Wheelers

Source: SIAM

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Two Wheelers growth rate to Continue…
With 8.44 mn units, Two Wheelers segment is the largest selling segment in India. The domestic two wheeler market is dominated by three major players Hero Honda (HH), Bajaj Auto (BAL) and TVS, they together account for 89.5% of total Industry. In the recent years, many other players like Honda Motorcycles and Scooters India Limited (HMSI), Yamaha, Suzuki and other players have been able to keep their footprints. Their share has been increased to 10.2% in FY09 from 7.6% in FY07. Figure 2 : Market Share estimation of Two wheelers Companies
70 60 50 48.1 40 30 20 10 0 FY07 Hero Honda
Source: SIAM

In % 54.5 59.8 60.3

61

31.8

28.8 21.9 22 10.4 7.3 FY10 21.5 10.5 7 FY11 Others

12.9 7.2

8.7 8 FY08

10.5 7.8 FY09

Bajaj Auto

TVS Motor

Figure 3 : Two Wheelers Growth Trend
Mn. 12.00 10.00 8.00 6.00 4.00 2.00 0.00 FY-06 FY-07 FY-08 FY-09 FY-10E FY-11E Grow th % 20%

15% 12% 8.44 7.57 8.49 8.07 5% 9.03 7% 9.85 9%

15% 10% 5% 0%

-5%

-5% -10%

Tw o Wheelers
Source: SIAM

Y/Y Grow th

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Two Wheelers market Share is divided in to three segments viz. Economy, Executive and Premium. Economy Segment has a total market share of 28% with 1.9 mn bikes sold in FY09, and the 13% YOY drop in the sales. At the same time Executive segment grew at 13% YOY, 3.9 mn bike sold, with the market share of 57%, and premium segment grew at 14% YOY, 0.97 mn bike sold, comprising market share of 14%. This drop in economy segment clearly shows the shift of preferences from Economy segment to Executive and Premium segments. The main reason of this shift is the thinning price difference between Economy and Executive bikes as well as better looks, higher power and mileage.

Figure 4 : Two Wheelers Segment wise Market Share in FY 09

0.97 m n Prem ium , 14%

1.9 m n Econom y , 28%

3.9 m n Executive, 57%

Source: SIAM

Future Out look
Two Wheeler segment has shown positive growth of 5% in FY09. This growth, in our view will continue in coming years, on account of stable demand from rural India and new models launch. We estimate Two wheelers segment to grow at 7% in FY10 and 9% in FY11.

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Passenger Vehicles Segment Looks Attractive…
Passenger Vehicles segment grew at 13% CAGR from FY03 to FY09. In last few years we have seen tremendous growth in passenger vehicles especially in small and medium segment. This segment is mainly divided in to three segments viz. Small & Medium Segment, MUV (multi utility Vehicle) -SUV (Sports utility Vehicle) segment and executive - Premium segment. In recent past India has become a manufacturing hub for auto mobile companies due to its low manufacturing cost destination. Many foreign companies have shown their willingness to open manufacturing units in India, but due to sudden financial crises all over the world, these plans got delayed. Still Indian companies like Maruti Suzuki, Tata Motors, and M&M are on schedule with their expansion plans.

Passenger Vehicle Segment
Small & Medium Segment MUV & SUV Executive & Premium Segment

Maruti Suzuki Tata Motors Hyundai M&M

M&M Tata Motors Toyota

Honda Motors Hyundai Mercedes Others

In recent years many foreign auto companies like Hyundai, Toyota, Volkswagen launched their brands in India. Along with this, Indian Auto Major Maruti Suzuki Ltd. and Tata Motors Ltd launched various new cars on Indian roads. It helped to raise more choices and options in the hands of Indian car buyers. In our view, growth in passenger cars looks attractive on account of stable economic growth, new models & technology and mainly due to selling auto fuels on subsidized rates. India looks like a favorite market for foreign brands which will give stiff competition to the local players like, in A2 segment Maruti Suzuki is getting competition from the South Korean company Hyundai.

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In coming years, we could see the segment shift from entry level to A2 and A2 to A3 segments on account of growing income and infrastructural developments in the areas of roads, bridges and national highways. We estimate Passenger car segment to grow 9% and 13% in FY10 and FY11 respectively.

Figure 5 : Passenger Vehicles Growth Trend
Mn. Grow th % 2.70 2.40 2.10 1.80 1.50 1.20 0.90 0.60 0.30 0.00 FY-06 FY-07 FY-08 FY-09 FY-10E FY-11E 0% 1.32 1.58 1.77 1.89 2.06 25%

20%
2.31

20% 15% 10% 5%

12% 7% 9% 7%

13%

Passenger Vehicles

Y/Y Grow th

Figure 6 : Market Share expectation of Passenger Vehicles

50 45 40 35 30 25 20 15 10 5

46.1

46

45.9

45

44.5

37.50

39.3

39.4

39

38.8

16.4

14.7 8.4 FY08

14.7

15.6

16.4

6.5 FY07

7.9 FY09

8.3 FY10

8.4 FY11 M&M Others

Maruti Suzuki

Tata Motors

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Recovery in the Commercial Vehicle Sales…
Sudden contraction in the economy in FY 08 and FY 09 hit the commercial vehicles growth badly. Still due to high growth rates in previous years, commercial vehicles segment grew at CAGR of 11.2%. In FY 09 commercial vehicles registered 0.43 mn of sales, degrew by 22% YOY.

Figure 7 : Commercial Vehicles Growth Trend
0.60 0.52 0.50 0.39 0.40 0.30 0.20 0.10 -22% 0.00 FY-06 FY-07 FY-08 FY-09 FY-10E Y/Y Grow th FY-11E 12% 6% 2% 5% 32% 0.43 40% 0.46 30% 20% 10% 0% -10% -20% -30%

0.55 0.44

Com m ercial Vehicles

Source: SIAM

Commercial vehicles include M&HCV and LCV which, mainly used in the transportation of goods and their growth is sensitive to the economic growth. In 2007, due to liquidity crunches, interest rates were shot up and consumers were reluctant to take loans on such high interest rates which hit the commercial vehicle segment. However the situation has changed at demand side with the softening of interest rates, changing economic outlook and inter vitiation by the government by reducing excise duty and providing depreciation benefits. As well as at supply side, the prices of raw material especially that of steel, aluminum, and rubber stabilized. This will help to sustain bottom line of auto makers.

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M&HCV Segment
Tata Motors and Ashok Leyland are the big players in the M&HCV business; both controlling 88% of market share in M&HCV in FY 09. In our view, Tata Motors will continue to be a market leader, although the share of M&HCV is taken by LCVs. In M&HCV segment, sales of Tata Motors dropped by 13.4% YoY to 122984 units and Ashok Leyland’s sales dropped by 11.3% YoY to 19745 units.

Figure 8 : Market Share expectation of M&HCV Vehicles
70 60 50 40 27.9 30 20 10 0 FY07 FY08 Tata Motors FY09 Ashok Leyland FY10 Others FY11 9.2 10.9 11.3 11.7 11.4 27.8 27.1 27.1 28.2

In %
62.9 61.3 61.6 61.2 60.4

Source: SIAM

LCV Segment
In the LCV business, Tata Motors and M&M shared 87.1% of market share in FY09. Tata Motors holding largest market share of 59.3%, however M&M also increased its market share over a period of time. There are few launches on the cards from M&M in near future, which will help to increase the market share of M&M. At present M&M is enjoying 27.8% market shares in LCV segment.

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Figure 9 : Market Share expectation of LCV Vehicles
70 60 50 40 30 20 10.2 10 0 FY07 FY08 Tata Motors FY09 M&M FY10 Others FY11 24.3 25.6 12.3 27.8 28.5 28.2

In %
65.4 62.2 59.3 59.8

60.2

12.9

11.3

12

Source: SIAM

In spite of bad economic conditions, LCV segment sales of Tata Motors dropped only by 2.9% YoY to 168,466 units, whereas M&M sales dropped by 14% YoY to 8994 units.

Future Out look
Passenger Vehicles have grown at CAGR of 11.2% since 2003 to 2009. Present situation of economy is getting better, which will help commercial vehicle segment to grow faster. Although in our view M&HCV will take long time to recover whereas, LCV segment looks good in current situation. With adequate credit facility available and recovery in IIP (Index of Industrial Production) the growth rates in M&HCV and LCV sales to continue. We estimate commercial vehicle sales to grow by 2% for FY 10; and at 5% for FY 11.

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Supply side concern
Input Cost & Margin Outlook
The margin of auto industry is mainly dependent on the raw material cost. Steel, aluminum, rubber, plastic are the main raw materials used in the car making; it comprises 70-75% of total cost. Therefore the bottom line of automobile company is directly dependent on the prices of these products and directly impacts the bottom lines. Going forward, increase in the raw material prices to previous higher levels is unlikely so that the margin looks positive.

Figure 10: Raw Material Cost as % of Sales Vs EBITDA Margin
75.5 75 74.5 74 73.5 73 72.5 72 71.5 71 FY05 FY06 FY07 FY08 FY09 FY10 FY11 6 5 73.2 72.7 8.34 10.7 74.1 10.8 75.2 74.9 10.4 11.1 74.2 9.68 11 10.6 10 9 72.7 8 7 12

RM Cost as % of Sales
Source: Company

EBITDA Margin

Although the prices of all commodities have fallen down from all time high, the profit margin will also be dependent on the interest rate scenario and liquidity flow in the system. After the steps taken by RBI the interest rates scenario has got better, but still many expansion plans are on hold due to vague future economic growth picture and availability of finance. In our view the situation should change by second half of FY 10. As passenger car and two wheelers segment has shown better performance in 1st half of FY 10, the commercial vehicle segment is slowly coming to positive growth rates. In spite of this there is a concern of growing inflation due to which RBI may increase base rates which could put pressure on the interest rate scenario.

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In mid of 2007 all commodity prices started rising, by Q1 of FY 09 prices of all the commodities were at an all time high. Now the prices have corrected sharply due to economic crises in all over the world. Steel & Aluminum prices have currently corrected by 65% and 55% from their peak in July 2008. Now all prices are trading at FY 06 levels, which will help to maintain the profit margins of Auto mobile industry. Although the prices have again shown the upward movement, in our view, it will not rise as much as previous levels.

Figure 11: Price Movement in CR Steel (USD/Tonne)
1200 1072.5 1000 750 800 600 400 200 663 687.5 700

Figure 12: Price Movement in Aluminum (USD/Tonne)
3500 3000 2500 2000 1500 1000 500 1573.73 2061.9 2631.5 2613.6

2077.5

0 Q 1 F Y06 Q 2 F Y06 Q 3 F Y06 Q 4 F Y06 Q 1 F Y07 Q 2 F Y07 Q 3 F Y07 Q 4 F Y07 Q 1 F Y08 Q 2 F Y08 Q 3 F Y08 Q 4 F Y08 Q 1 F Y09 Q 2 F Y09 Q 3 F Y09 Q 4 F Y09 Q 1 F Y10

0 F Y06 F Y06 F Y06 F Y06 F Y07 F Y07 F Y07 F Y07 F Y08 F Y08 F Y08 F Y08 F Y09 F Y09 F Y09 F Y09 F Y10
Source: Bloomberg

Source: Bloomberg

Figure 13: Price Movement in Crude (USD/bbl)

Figure 14: Price Movement in Rubber (USD/100 Kg)
350 225.11 300 246.76 175.85 200 217.55 174.63 250

160 140 120 100 85.44 80 60 40 20 0 FY06 FY06 FY06 FY06 FY07 FY07 FY07 FY07 FY08 FY08 FY08 FY08 FY09 FY09 FY09 FY09 FY10 59.96 64.52 59 81.25

150 100 50 0 Q 1 F Y06 Q 2 F Y06 Q 3 F Y06 Q 4 F Y06 Q 1 F Y07 Q 2 F Y07 Q 3 F Y07 Q 4 F Y07 Q 1 F Y08 Q 2 F Y08 Q 3 F Y08 Q 4 F Y08 Q 1 F Y09 Q 2 F Y09 Q 3 F Y09 Q 4 F Y09 Q 1 F Y10

Source: Bloomberg

Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

Source: Bloomberg

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Demand Side Concern
Lower than expected Monsoon concern for Rural Demand….
From last few years, Indian auto mobile sector especially Two wheelers and Passenger car segment were pledging on the rural demand, as the agricultural growth were steady in last few years. This year, due to lower than expected monsoon (29 % lesser rainfall) government has declared draught in 141 districts, it comes to about 46-47 per cent of total districts in the country, although the government is positive about the Rabi output. In the last seven months, automobile companies have shown tremendous positive growth in their numbers. September-October sales were revamped on account of festival mood. Two Wheelers grew by 10% and Passenger car grew by 6.2% MoM. Commercial vehicles are also showing positive growth which is a positive sign for commercial vehicle makers. In September and October commercial Vehicles grew by 23.8% and 3.8% respectively. In our view if the economic growth remains stable then it will be a positive to entire Auto sector. Although there could be some set back from rural demand.

Apr-09 2 - Wheelers Motorcycle Scooters & Mopeds Total 2-Wheelers MoM Growth % 3-Wheelers MoM Growth % Passenger Vehicle Car UV Total PV MoM Growth % Commercial Vehile LCV M&HCV Total CV MoM Growth % Total Volumes MoM Growth % 15,966 8,567 24,533 - 33.50% 785,083 - 1.80% 82,811 21,954 104,765 - 19.70% 573,543 60,403 633,946 4.30% 21,839 - 14.30%

May-09 579,727 69,926 649,653 2.50% 28,088 28.60% 89,513 21,658 111,171 6.10% 18,051 10,927 28,978 18.10% 817,890 5.40%

Jun-09 601,222 65,727 666,949 2.70% 22,347 - 20.40% 93,173 15,753 108,926 - 2.00% 15,834 9,471 25,305 - 12.70% 823,527 0.10%

Jul-09 577,969 78,564 656,533 - 1.60% 27,910 24.90% 93,306 20,147 113,453 4.20% 19,637 11,695 31,332 23.80% 829,228 0.60%

Aug-09 648,705 76,325 725,030 10.40% 33,673 20.60% 100,231 20,278 120,509 6.20% 20,254 12,266 32,520 3.80% 911,732 9.50%

Sep-09 673,891 164,259 838,150 15.60% 55,753 65.57% 129,683 37,841 167,524 39.01% 24,626 20,825 45,451 39.76% 1,106,878 21.40%

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

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Correlation between GDP and Auto Industry
Automobile industry is positively correlated with the economic growth rate of that country as auto consumption is related to the income of an individual. Indian GDP has grown to 7.1% CAGR since 2000-01 to 2008-09, and auto mobile sales grew at CAGR of 9% in 2002-03 to 2008-09. In last few years the private employment rate increased with the increase in salaries which led people with more money in their hand.

Figure 15: GDP vs. Vehicles sold growth
Mn. 12.00 9.5 10.00 8.5 8.00 6.00
7.29 8.53

Grow th % 12.0 9.7 9.0 6.7
9.71 11.14 10.89 11.25

10.0 8.0 6.0 4.0 2.0 -

7.5

4.00 2.00 0.00 FY-04 FY-05 FY-06 FY-07 FY-08 GDP FY-09

Total Vehicles Sold
Source: SIAM, RBI

Interest Rate Scenario
Availability of finance and interest rates is the important factor that drives the auto mobiles sales. After a financial bubble burst in the world economy, and due to the liquidity contraction, private banks were reluctant to provide auto loans, and those who were eligible to get the loan were charging very high interest rates in the range of 18-21%. That made willing auto consumers difficult to go for new vehicles, which contracted the sales growth. But now the scenario has changed with the liquidity situation improved and also interest rates have come down. Currently, banks charge 9.5-15% of interest to their customers depending on the credibility. Also private banks started disbursing auto loans. The change in the interest scenario and liquidity is a positive sign to entire auto segment. Although the rising inflation is a big concern, in current policy RBI has just increased SLR by 1 %. Further, if the inflation is not stabling RBI may increase the basic rates which may cause increase in the interest rates, which will be negative for auto sector.

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Hero Honda Ltd. (HHL)
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs) HROH.IN HH.BO 199.7 199.7 332.56 1780/663 2

CMP: Rs.1668 Target Price: Potential Downside:

Continue to be a Market Leader…
Hero Honda Motors Ltd. is the world’s largest two wheeler makers, with the installed capacity of 4.2 million two wheelers. It is holding around 60% of market share in Indian Auto segment and has shown tremendous sales growth and profitability growth in the gloomy environment.

Shareholding Pattern in %

MF, FIs & Banks, 8.18

Others, 8.3

Foreign Promoter, 26

St e a dy growth in sa le s: Market share of Hero Honda was 59.8 % in FY09. In our view with the well diversified portfolio across the segment, its rural reach, and mainly less dependence on financing will help Hero Honda to continue as a market leader with steady growth.

FII, 28.56 Indian Promoter, 28.96

Strong bottom- line growth: Hero Honda to get benefit of its Tax exempt plant in Haridwar, Uttarakhand and softening of the raw material prices. As well as over a period of time Hero Honda has successively reduce its Debt which will help to improve the bottom line.

As on 30th June 2009

Lim it e d Ex por t Oppor t u n it y: Hero Honda’s revenue is domestic sales
300

driven, due to signing a non-compete agreement with HMC. Currently Hero Honda’s total export consists of only 2.2% of motor cycle.

200

Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for
100

FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to trade at near to its past average valuations. We are initating coverage on this
Oct-08 Nov-08 Oct-09 Dec-08 Jan-09 Feb-09 Jun-09 Jul-09 Aug-09 Apr-09 May-09 Sep-09 Mar-09

-

stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

SENSEX

Hero Honda

Financial Summary
Year- end March FY08 FY09 FY10E FY11E Sales (Rs. Mn) 120385 135431 185742 204317 YoY (%) 4% 12% 37% 10% EBITDA (Rs. Mn) 13298 17097 26953 27883 YoY (%) 15% 29% 58% 3% PAT (Rs. Mn) 9679 12818 20640 22087 YoY (%) 13% 32% 61% 7% EPS (Rs.) 48 64 103 111 YoY (%) 13% 32% 61% 7% PE (x) 32 25 15 14 EV/EBITDA (x) 24 18 12 11 RoE (%) 32% 34% 42% 38% RoCE (%) 26% 28% 37% 33%

Investment Rational 16 of 66

Steady Sales Growth:
Hero Honda is a world’s largest two wheeler manufacturing company, with the total capacity of 4.2 million two wheelers. In FY09 Hero Honda was a market leader in terms of sales with 59.8%. In our view Hero Honda will continue to be market leader with their growing distribution network, and various launches across the sector.

Figure 16: Market share of Hero Honda
In % 70
60 50 40 30 20 10 0 FY07 Hero Honda FY08 FY09 Bajaj Auto FY10 FY11 12.9 8.7 31.8 28.8 21.9 22 21.5 48.1 59.8 54.5 60.3 61

Figure 17: Sales Growth of Hero Honda
No of Sale 4000000 3500000 3000000 2500000 2000000 1500000 0.01% 20% 15% 10% 5% 0% FY05 FY06 FY07 FY08 FY09 26.60% 14.47% 11.20% 11.53% In % 30% 25%

7.8

7.3

7

1000000 500000 0

TVS Motor

Source: SIAM

Source: SIAM

SWOT Analysis Strengths Weakness

Market Leader in Motorcycle Business with the market share of 60% and strong portfolio Contribution in bottom line through Tax-Exempt Plant in Haridwar Growing Distribution network & lest dependent on financing

Limited Export Opportunities due to non-compete Agreement with HMC Dependent only on Two Wheeler Business

Opportunities

Un reached Rural Market

Threats

Competition from BAL in economy, executive segment Increasing Royalty

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Well diversified Portfolio:
Hero Honda is making bikes in three segments economy, executive and premium. It has a well diversified portfolio with large number of bikes in all segments. Hero Honda launched 7 bikes in 2008-09; their main concentration is in executive and premium segment to target youth.

Product Portfolio of Hero Honda
Hero Honda Models Economy CD Dawn CD Deluxe Executive Splendor+ Splendor NXG Passion Pro Passion Plus Super Splendor Glamour Glamour PGM FI Premium Achiever CBZ X-Treme Hunk Karizma 62900-85000 42000-56000 40000 Price Range

Source: Company dealer

Reduction in Total Debt:
Hero Honda with its relatively lower dependence on financing is a cash rich company. Hero Honda has successfully reduced its debt burden over a period of time, which has helped the company to strengthen net profit margin.

Figure 18: Debt contribution of Hero Honda
250 200 150 186 100 165 50 0 FY05 FY06 Total Debt FY07 FY08 FY09 Debt to Equity Ratio 132 78 4% 2% 2% 0% 12% 202 14% 12% 10% 8% 6% 8% 6% 4%

Source: Company, MSSBL

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Strong Bottom Line Growth:
In recent period, commodities prices has come down to its 2006 levels, which will help Hero Honda to reduce the raw material cost as the aluminum, steel, rubber is the main raw material used in the manufacturing. Along with the softness in commodity prices Hero Honda’s Haridwar plant is operational from FY09, which is enjoying the tax incentive for both excise and income tax. In FY09 its contribution was 18% at around 620000 units, which will increase eventually in FY10 and FY11 by 28% and 32% respectively. In our view, Hero Honda will give better performance in terms of net margins than the industry; we estimate FY10E PAT of Rs. 16.8bn and FY11E PAT of Rs. 20.43bn.

Figure 19: Revenue and Net margin
Rs. Mn 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 FY 2008 FY 2009 Revenues FY 2010 FY 2011 9% 10% 12% 13% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% %

Figure 20: Revenue and EBITDA margin
Rs. Mn. 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 FY 2008 FY 2009 Revenues FY 2010 FY 2011 13% 14% 16% 16% 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10%

%

Net Margin

EBITDA Margin

Source: Company, MSSBL

Source: Company, MSSBL

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2000 1800 1600

1400 1200 1000 800 600

400 200 0

Valuation:

At CMP of Rs. 1558

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15x 14x 12x 10x

Apr-03 Jun-03 Sep-03 Nov-03 Feb-04 May-04 Jul-04 Oct-04 Dec-04 Mar-05 Jun-05 Aug-05 Nov-05 Feb-06 Apr-06 Jul-06 Oct-06 Dec-06 Mar-07 May-07 Aug-07 Nov-07 Jan-08 Apr-08 Jul-08 Sep-08 Dec-08 Feb-09 May-09 Aug-09 Oct-09

Financial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 120385 4% -78652 13298 15% -1603 11695 15% -20 2428 14103 -4424 9679 8.0% 48.5 12.8% 199.70 135431 12% -94056 17097 29% -1807 15291 31% -25 2549 17815 -4997 12818 9.5% 64.2 32.4% 199.70 185742 37% -117167 26953 58% -2247 24706 62% -24 3210 27892 -7252 20640 11.1% 103.4 61.0% 199.70 204317 10% -130649 27883 3% -2471 25412 3% -23 4060 29449 -7362 22087 10.8% 110.6 7.0% 199.70 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

14103 1603 2612 -4420

17815 1807 985 -5016 -

27892 2247 -1203 -7252 21708 -7222 -3000 0 -10222 11486

29449 2471 1098 -7362 25679 -8826 -5000 0 -13826 11853

12118 -3739 -6526 555 - 7810 4308

13590 -3135 -11647 715 -8612 4978

-332 -3972 -20 - 4323 167 - 16 151

-535 -4439 -25 -4999 152 -21 131

0 -9907 -24 -9931 2196 1555 3751

0 -12369 -23 -12391 3751 -539 3212

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets Current Liabilities Total Debt Other non-current liabilities Total Liabilities

2008

2009

2010E

2011E

1,311 8,057 25,668 15,648 52 50,736 18,247 1,320 1,306 20,873

2,196 7,939 33,688 16,943 87 60,851 20,528 785 1,531 22,844

3,751 9,613 36,688 21,917 87 72,055 20,999 785 1,531 23,315

3,212 10,325 41,688 28,272 87 83,583 22,809 785 1,531 25,125

Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds

399 29,463 29,862

399 37,608 38,008

399 48,341 48,740

399 58,059 58,459

Total Equites & Liabilities Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%) Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) Yr end March Du Pont Analysis - ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

50,736 2008

60,851 2009

72,055 2010E

83,583 2011E

48.5 12.8% 11.0% 9.7% 26% 0% 2008

64.2 32.4% 12.6% 11.3% 28% -4% 2009

103.4 61.0% 14.5% 13.3% 37% -6% 2010E

110.6 7.0% 13.6% 12.4% 33% -4% 2011E

32.5 10.53 1% 2.61 23.64 2008

24.5 8.27 1% 2.31 18.31 2009

15.2 6.45 3% 1.68 11.56 2010E

14.2 5.38 4% 1.53 11.19 2011E

8.0% 2.4 1.7 32.4%

9.5% 2.2 1.6 33.7%

11.1% 2.6 1.5 42.3%

10.8% 2.4 1.4 37.8%

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Bajaj Auto Ltd. (BAL)
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs) BJAUT IN BAJA.BO 144.7 144.7 178.14 1356/294 10

CMP: Rs.1668 Target Price: Potential Downside:

Pledging on new launches…
Bajaj Auto Ltd. is the second largest two wheeler makers in India, with the installed capacity of 3.96 Mn; 3.6 Mn for two wheelers and 0.36 Mn for three wheelers.

Shareholding Pattern

Others, 17.14

FII, 16.95 MF,Fis & Banks, 7.37

New Launches in economy and executive segments: Bajaj Auto launched new bikes like Discover DTS-Si 100 and XCD- DTS-Si 135 in economy and executive segments. It also launched upgraded Pulsar models in last one year. According to the management, Bajaj Auto expected to launch new models in executive segment in 2nd H FY10.
Non Prom oter Corporate Holding, 8.92

Prom oters , 49.62

Strong hold on exports: Bajaj Auto has shown tremendous strength in the exports. In FY 09, total export grew by 25% YoY out of which, two wheelers growth was 31% YoY with 633463 units. Going forward, in our view, two wheeler exports to continue to grow by 25%, but three wheelers export could see set back on growth.

As on 30th June 2009

400 300

Improvement in Margins:
200 100 0 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Jun-09 Aug-09 Apr-09 May-09 Sep-09 Mar-09 Oct-09 Jul-09

In our view, Bajaj Auto to improve its margin on account of better product mix, lower input costs and shifting its profitable products in Pantnagar plant (Uttarakhand) where it enjoys the tax exemption. Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for
SENSEX Bajaj Auto

FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to trade at near to its past average valuations. We are initating coverage on this stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

Financial Summary
Year- end March FY08 FY09 FY10E FY11E Sales (Rs. Mn) 96900 90497 122499 131871 YoY (%) -9% -7% 35% 8% EBITDA (Rs. Mn) 13131 13140 20492 23002 YoY (%) -35% 0.1% 56% 12% PAT (Rs. Mn) 8087 6545 13290 15175 YoY (%) 8% 7% 11% 12% EPS (Rs.) 52 45 92 105 YoY (%) -28% -13% 102% 14% PE (x) 6 7 4 3 EV/EBITDA (x) 16.9 17.0 10.7 9.6 RoE (%) 51% 35% 48% 40% RoCE (%) 21% 17% 25% 24%

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Investment Rational Strong Hold on Exports:
In FY09, when all the economy were struggling with the depression in the growth rate, Bajaj Auto showed relatively good performance on export side by exporting 772519 units with the 25% YoY growth. Along with the sales Bajaj Auto got the benefit of rupee depreciation against US dollar as their most of the sales is US dollar dominated. In our view Bajaj Auto to continue the export growth going forward. We expect export to grow 25% in FY10 and 21% in FY11.

Figure 21: Export trend of Bajaj Auto Ltd.

1200000 1000000 800000 600000 400000 200000 0 FY07 FY08 FY09 FY10E FY11E 301766 140645 136315 482026 40% 25% 139056 77% 836171 633463 26% 134884 21% 129489 1045214

90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Total two-wheelers
Source: Company

Three –wheelers

Growth Rate

SWOT Analysis Strengths Weakness

Strong Export Market Share Improvement in Premium Segment

Less Models in the portfolio to rely up on Concentrating on Urban Consumers

Opportunities

Growing Rural Market New Launches in Premium Segment Foray in to LCV(Light Commercial Vehicle) BAL – Renault – Nissan alliance for small car

Threats

Competition from HH in economy, executive segment

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New Launches in Economy & Executive Segment:
In recent years, Bajaj Auto’s growth in the economy and executive segments were eaten up by market leaders, due to limited models in the segment and no new product launch in these segments. To compete with the market leaders and new entrant Bajaj Auto has come up with two models namely Discover-100-DTS-Si in economy segment and XCD DTS-Si in executive segment, company plans to launch couple of models in executive segment by second half of FY10. Bajaj Discover has got good response from the customers. In our view, right product mix from the company will help to increase its market share. We expect, the total market share of Bajaj will increase to 22% in FY10.

Figure 22: Segment wise growth of Bajaj Auto

Segment Economy YoY Growth Executive YoY Growth Premium YoY Growth

FY06 78135 5% 35969 180% 31465 36%

FY07 81245 4% 56131 56% 35865 14%

FY08 57065 -30% 48148 -14% 32373 -10%

FY09 45169 -21% 32375 -33% 28825 -11% Source: Company

Product Portfolio

Figure 23: Segment wise market share of Bajaj Auto

Bajaj Auto Models Economy Platina 100 Platina 125 DTS-Si Discover 100 DTS-Si* Exicutive XCD DTS-Si* Discover 135 DTS-Si Premium Pulsar DTS-i* Super Premium Pulsar 180 DTS-Si Pulsar 220 DTS-Si Avenger DTS-Si 72000-81000 69000 53000-58500 Price Range 40000-48000

80% 70% 60% 50% 40% 30% 20% 10% 0% FY06 Economy
Source: Company

72%

65% 54% 47%

38%

39%

38%

38%

15%

20%

18%

11% FY09

FY07 Executive

FY08 Premium

*New Launch Source: Company Dealer

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Commercial Vehicle Segment Scenario M arket Leader in Three wheeler passenger vehicles:
Bajaj Auto is the market leaders in the three wheelers segment. The three wheeler segment is divided in to two sub segment, passenger vehicles and goods carriers. In recent years, passenger vehicles market share has dropped from 76.8% in FY06 to 63.6% in FY09, though Bajaj auto is the dominant player in the three wheeler passenger vehicles, and it will retain its market share at these levels.

Competition from small four wheelers:
Bajaj Auto has lost big share in the three wheeler goods carrier market. The company has seen the drop from 26% in FY06 to 12.4% in FY09. The main reason was stiff competition from the introduction of small four wheelers like TATA ACE. In our view, Bajaj Auto to lose more market share, due to preferences of small four wheelers over three wheelers vehicles for goods carrier.

Bajaj Auto’s Commercial Vehicles Market Share Figure 24: Market Share of commercial Vehicles
90%
FY06 Passenger vehicle sales Industry sales Bajaj Auto sales Bajaj Auto market share Goods carriers Industry sales Bajaj Auto sales Bajaj Auto market share Total 3- wheelers Industry sales Bajaj Auto sales Bajaj Auto market share 419,855 252,054 60.00% 528,797 321,828 60.90% 506,006 290,312 57.40% 497,793 274,529 55.10% 138,688 36,061 26.00% 159,417 42,487 26.70% 130,826 26,714 20.40% 82,382 10,197 12.40% 281,167 215,993 76.80% 369,380 279,341 75.60% 375,180 263,598 70.30% 415,411 264,332 63.60% FY07 FY08 FY09

80% 70% 60% 50% 40% 30% 20% 10% 0%

77%

76% 61%

70% 57% 64% 55%

60%

26%

27% 20% 12%

FY06

FY07

FY08 Goods carriers

FY09

Passenger vehicle sales Total 3-w heelers
Source: Company

26 of 66

Source: Company

1000

1200

1400

1600

1800

200

400

600

800

0 Date 12/11/2008 4/12/2008 26/12/2008 16/01/2009 6/2/2009 27/02/2009 23/03/2009 16/04/2009 8/5/2009 28/05/2009 17/06/2009 7/7/2009 27/07/2009 14/08/2009 3/9/2009 24/09/2009 17/10/2009

Valuation

27 of 66

6x

8x

14x 12x

Finan cial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 96900 - 9% -73227 13131 - 35% -1740 11391 - 57% -52 5072 11340 -3780 8087 8.3% 52.2 - 27.8% 144.68 90497 - 7% -69738 13140 0% -1298 11842 4% -210 4953 9581 -3016 6545 7.2% 45.4 - 13.2% 144.68 122499 35% -87464 20492 56% -1410 19082 61% -96 5775 18986 -5696 13290 10.8% 91.9 102.4% 144.68 131871 8% -94746 23002 12% -1526 21475 13% -102 8103 21373 -6198 15175 11.5% 104.9 14.2% 144.68 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

11340 1740 16858 -3780

9581 1298 -2650 -3213 -

18986 1410 -469 -5696 14327 -2873.78 -3000 -5874 8453

21373 1526 824 -6198 17627 -2995.244 -8500 -11495 6132

26157 -20730 - 20730 5427

4115 -3860.8 1784 -2077 2038

-2756 -2894 -52 - 5701 835 - 274 561

2416 -3377 -269 -1230 561 808 1369

-2000 -4253 -96 -6349 1369 2104 3473

0 -4856 -102 -4958 3473 1174 4647

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets

2008 561 15,936 18,571 13,034 1,310 49,412

2009 1,369 21,884 18,085 15,644 3,439 60,420

2010E 3,473 23,638 21,085 17,108 3,439 68,743

2011E 4,647 23,932 29,585 18,576 3,439 80,179

Current Liabilities Total Debt Other non-current liabilities Total Liabilities Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds Total Equites & Liabilities Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%) Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) Yr end March Du Pont Analysis – ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

18,773 13,343 1,419 33,536 1,447 14,429 15,876 49,412 2008

24,376 15,700 1,648 41,724 1,447 17,250 18,697 60,420 2009

25,661 13,700 1,648 41,009 1,447 26,288 27,734 68,743 2010E

26,778 15,700 1,648 44,126 1,447 36,607 38,053 82,179 2011E

52.2 -27.8% 13.6% 11.8% 21% 81% 2008 6.2 13.21 1% 2.30 16.94 2008 8.3% 2.0 3.1 50.9%

45.4 -13.2% 14.5% 13.1% 17% 77% 2009 7.1 11.21 2% 2.47 17.05 2009 7.2% 1.5 3.2 35.0%

91.9 102.4% 16.7% 15.6% 25% 37% 2010E 3.5 7.56 2% 1.79 10.73 2010E 10.8% 1.8 2.5 47.9%

104.9 14.2% 17.4% 16.3% 24% 29% 2011E 3.1 5.81 2% 1.67 9.59 2011E 11.5% 1.6 2.1 39.9%

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TVS Motors Ltd. (TVS)
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs) BJAUT IN BAJA.BO 144.7 144.7 178.14 1356/294 10

CMP: Rs.1668 Target Price: Potential Downside:

Weak amongst the players…
TVS Motors is the third largest motorcycle makers and second largest scooter manufacturer in India, with the market share of 7.8% and 21% respectively.

Shareholding Pattern Losing market share on account of Unfavorable product mix:
Others, 17.68 FII, 5.06 MF,Fis & Banks, 11.57

TVS Motors continuously losing its market share on account of unfavorable product mix. In our view it will continue to lose its market share from 7.8% in FY09 to 7.3% in FY10 and 7% in FY11.

Non Prom oter Corporate Holding, 5.25 Prom oters , 60.45

Steady exports: In recent years, company has shown steady growth in their exports. In FY09, Company’s export stood for 1.96 lakh, 44% increase from 1.36 lakh in FY08. Indonesian venture will help the company to maintain its growth in export segment.

As on 30th June 2009

High debt structure compared to peers:
300

TVS Motors has highest debt structure as compared to its peers in the industry. Currently debt /equity ratio is 1.12 which is highest in the industry and keeping pressure on bottom line. Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to trade at near to its past average valuations. We are initiating coverage on this stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

200

100

0 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Jun-09 Aug-09 Apr-09 May-09 Sep-09 Mar-09 Oct-09 Jul-09

SENSEX

TVS Motors

Financial Summary
Year- end March FY08 FY09 FY10E FY11E Sales (Rs. Mn) 36835 40089 48107 52918 YoY (%) -18% 9% 20% 10% EBITDA (Rs. Mn) 1322 1890 2733 3093 YoY (%) -35% 43% 45% 13% PAT (Rs. Mn) 318 311 857 1094 YoY (%) -52% -2% 175% 27% EPS (Rs.) 1.3 1.3 3.6 4.6 YoY (%) -52% -2% 175% 27% PE (x) 41.7 42.6 15.4 12.1 EV/EBITDA (x) 15 12 8 7 RoE (%) 3% 3% 10% 12% RoCE (%) 4% 5% 7% 8%

30 of 66

Investment Rationale SWOT Analysis Strengths Weakness

Second Largest Manufacturer of Scooters in India. Handsome Export Growth in recent past.

Weak Portfolio in the Motorcycle market High Cost Structure due to low capacity utilization High Debt company as compared to BAL and HH

Opportunities

Expand the portfolio through entry in Three Wheelers

Threats

Stiff Competition from HH and BAL

Unfavorable product mix:
TVS Motors is a third largest manufacturer of motorcycle. Due to its unfavorable product mix TVS has lost the market share over a period of time. In India, economy and executive segments is the dominant segment where, industry majors both Hero Honda and Bajaj are well placed with their well diversified product portfolio and competitive pricing. Where as, in case of TVS Motors, the product portfolio is not well diversified. They have fewer products with less competitive pricing as compared to their peers.

Product portfolio

Figure 25: TVS Growth Trend
Mn
7.4 17% 7.2 15% 13% 7 6.8 4% 2% 10% 4% 5% 0% -5% -9% -10% -15% FY06 FY07 FY08 FY09 FY10E FY11E 20%

TVS Motors Models Economy StaR City Executive Flame SR 125 Premium Apache RTR 180 Apache RTR FI 160 Moped/Scooters Scooty Pep+ Scooty Streak 41000 43000 76500 55000 47900 Price Range

6.6 6.4 6.2 6

Motercycle

YoY Grow th

Source: Company Dealer

Source: Company

31 of 66

TVS Motors is second largest manufacturer of scooter and only manufacturer of mopeds in India. Scooters accounted for 14% share in total category of TVS. Currently TVS Motor’s total market share in scooters is 21% which has decreased by 344bps to Hero Honda and Suzuki. In FY 09 TVS launched Scooty streak, which has got a good response. Also company plans to launch scooter by second half of FY10. We expect the success of Scooty streak and new launch will help the company to maintain its market share.

Figure 26: Growth Trend of Ungeared Scooter
Mn
1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 FY06 FY07 FY08 FY09 FY10E YoY Grow th FY11E 7% 10% 16% 14% 15% 18% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Figure 27: Growth trend of Mopeds
Mn
0.6 0.5 0.4 7% 0.3 5% 0.2 0.1 0 FY06 FY07 FY08 FY09 FY10E FY11E 3% 2% 0% 4% 6% 4% 2% 10% 12% 10% 8%

ungeared Scooter

Mopeds

YoY Grow th

Source: Company, SIAM,MSSBL

Source: Company, SIAM,MSSBL

Steady Export:
TVS Motors has shown tremendous growth in its exports. In FY09 export grew at 1.95 lakh by 44% YoY as compared to 1.36 lakh in FY08.In our view, the export will continue to rise on account of high end models in the exports markets and the reach of the company with the various ventures. We expect export to grow 25% and 28% in FY10E and FY11E respectively.

Figure 28: TVS Motors export volume trend
Lakh
3.5 3 2.5 2 1.5 1 0.5 0 FY06 FY07 FY08 FY09 FY10E FY11E 0% 10% 12% 17% 10% 25% 23% 28% 20% 30%

Exports

% of total Volum e

Source: Company

32 of 66

TVS Motors Indonesian ventures TVS Motors developed TVS NEO, a bebek exclusively for Indonesian market through its 100% subsidiary PT TVS Motor Company Indonesia. The plant is located at karawang near Jakarta and has a manufacturing capacity of 300,000 units. PT TVS, Indonesia expanded its dealer network from 25 to 104 during 2008-09. This in our view will help in increasing sales in Indonesia.

Valuation

33 of 66

Finan cial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 36835 - 18% -31782 1322 - 35% -946 376 - 68% -22 909 354 -36 318 0.9% 1.3 - 52.3% 237.50 40089 9% -35522 1890 43% -1029 861 129% -550 703 311 -0.20 311 0.8% 1.3 - 2.2% 237.50 48107 20% -41891 2733 45% -1139 1595 85% -498 573 1096 -239 857 1.8% 3.6 175.9% 237.50 52918 10% -46080 3093 13% -1286 1807 13% -408 717 1399 -305 1094 2.1% 4.6 27.6% 237.50 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

354 886 -1014 -168

311 958 -139 -68 -

1096 1139 -403 -239 2091 -1322 0

1399 1286 8 -305 2795 -1454 0

63 -3425 58

1616 -446 -1388

- 1063 -1000

-2043 -427

-1322 770

-1454 1342

328 -42 -115 171 866 - 828 37

1651 -195 -646 811 37 383 421

0 -429 -498 -927 421 -157 263

0 -547 -408 -955 263 387 650

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets Current Liabilities Total Debt Other non-current liabilities Total Liabilities Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds Total Equites & Liabilities Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%) Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) Yr end March Du Pont Analysis - ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

2008

2009

2010E

2011E

37 7,711 3,390 10,431 528 22,096 5,668 6,663 1,549 13,880 238 7,978 8,216 22,096 2008

421 8,516 4,777 10,364 753 24,831 6,158 9,060 1,511 16,729 238 7,864 8,102 24,831 2009

263 9,779 4,777 10,547 753 26,120 7,019 9,060 1,511 17,590 238 8,293 8,530 26,120 2010E

650 10,408 4,777 10,715 753 27,303 7,655 9,060 1,511 18,226 238 8,840 9,077 27,303 2011E

1.3 -52.3% 3.6% 1.0% 5% 81% 2008

1.3 -2.2% 4.7% 2.1% 6% 107% 2009

3.6 175.9% 5.7% 3.3% 8% 103% 2010E

4.6 27.6% 5.8% 3.4% 9% 93% 2011E

41.7 1.61 0% 0.54 15.03 2008

42.6 1.63 1% 0.55 11.58 2009

15.4 1.55 3% 0.46 8.06 2010E

12.1 1.46 4% 0.41 7.00 2011E

0.9% 1.7 2.7 3.9%

0.8% 1.6 3.1 3.8%

1.8% 1.8 3.1 10.1%

2.1% 1.9 3.0 12.1%

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Maruti Suzuki Ltd.
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs)

CMP: Rs.1668 Target Price: Potential Downside:

BJAUT IN BAJA.BO 144.7 144.7 178.14 1356/294 10

True leader in passenger segment…
Maruti Suzuki is the market leader in small passenger cars, with the market share of 46.5% in passenger vehicles.

Maintaining market share on account of wide product range: Maruti Suzuki, with its large number of cars across the segment is a market leader in the small and medium segment. In FY09, market share in passenger vehicles went up to 46.5% from 45.9% in FY08.

Shareholding Pattern

Others, 2.03

FII, 20.76

Steady exports: In FY09, Maruti Suzuki exported 70023 units; the highest ever export with
MF, Fis & Banks, 18.58 Non Promoter Corporate Holding, 4.41

the growth of 32.1% over last year. In current year, from April to October the export has shown tremendous growth, on account of global slow down and increase in the preference for small and medium cars. In our view, export will be strong in coming years as there is demand for new models like A-star.

Promoters, 54.21

As on 30th June 2009

400

Strong financials With the reduction in the raw material prices, increase in export and domestic demand, Maruti Suzuki looks good on financial front. It has a debt equity of 0.07x which will help to improve bottom line. Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to
Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Jun-09 Aug-09 Apr-09 May-09 Sep-09 Oct-09 Jul-09 Mar-09

300

200

100

0

trade at near to its past average valuations. We are initating coverage on this stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

SENSEX

Maruti Suzuki

Financial Summary
Year- end March FY08 FY09 FY10E FY11E Sales (Rs. Mn) 210252 230851 334457 402539 YoY (%) 22% 10% 45% 20% EBITDA (Rs. Mn) 31308 24334 2733.25 39996 YoY (%) 21% -22% 64% 17% PAT (Rs. Mn) 17308 12187 21883 26465 YoY (%) 11% -30% 80% 21% EPS (Rs.) 60 42 76 92 YoY (%) 11% -30% 80% 21% PE (x) 25 35 20 16 EV/EBITDA (x) 14 17 10 9 RoE (%) 21% 13% 19% 12% RoCE (%) 24% 17% 24% 24%

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Investment Rational
Maruti Suzuki Ltd. is a market leader in the small and medium segment cars with the thirteen different models across the segment and the market share of 46.5%. Maruti Suzuki has two manufacturing plants; Gurgaon plant with the capacity of 7, 00,000 per annum and Manesar plant with the capacity of 3, 00,000 per annum. Maruti Suzuki enjoys preference over other manufacturer due to its strong sales network in 454 cities with 681 sales points and service network in 1314 cities with 2767 service outlets.

SWOT Analysis Strengths Weakness

Market Leader in Small and Medium segment Better Rural penetration and highest Service centers across the Nation. Japanese Technology Wide Product Portfolio in A2 and A3 Segment

Dependent only on the Passenger Car Segment.

Opportunities

Rural Market Penetration Export growth in A2 & A3 Segment

Threats

Competition from Tata Motors, Hyundai, Nissan, Honda, Toyota Any further contraction in economic growth

Figure 29: Sales Growth Trend
900000 800000 700000 600000 500000 400000 300000 200000 100000 0 FY05 FY06 FY07 FY08 FY09 Total Sales YoY Grow th 5% 4% 14% 13% 20%

Figure 30: Share of Segment in the Industry
25% 20% 15% 10% 5% 0%
100 78 80 60 40 20 0 FY04 FY05 A1,A2,C FY06 A3 FY07 A4-A6 17 3 19 4 20 3 17 4 18 4 FY08 76 77 79 78

Source: Company

Source: Company

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Wide product range:
Maruti Suzuki is the key player in the Indian small and medium auto segments with the wide range of cars in 5 different segments. A2 segment is the largest selling segment followed by C and A3 segments. In last two years Maruti Suzuki has launched five new cars in A2 and A3 segments.

Product Portfolio

Segments A1 A2 A3 C MUV Maruti 800 Alto, Estilo*, Swift, A-star*, Ritz*, WagonR, Swift D-zire*, SX4* Omni, Versa Gypsy, Grand vitara

* New Launches Source: Company

In FY09, A2 and A3 segment sales were up than the FY08 sales. Maruti Suzuki concentrated on these two segments with new launches like Sx4, Swift D-zire, A-Star, and Ritz. We expect A2 and A3 segment to grow by 35% and 18% respectively, and A1 and C segment to reduce by 15% and 20% respectively, although company has come up with the LPG version of Maruti 800.

Figure 31: Segment sales contribution in 2008
MUV 1% A1 10%

Figure 32: Segment sales contribution in 2009
MUV 1% A1 7%

A3 7%

A3 11% C 13%

C 11%

A2 69%
Source: Company

A2 70%
Source: Company

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Steady Export:
In all over the world due to economic depression sales of large auto mobiles impacted. Maruti Suzuki exports entry-level models across the globe to over 100 countries. It has posted ever strong export of 70,023 in FY09, on account of launch of A-star as the new Alto in Europe. With a CO2 emission as low as 103 g/km, a fuel consumption of 4.4litres /100km, conformance to Euro V emission norms that are expected in 2010, sporty features and affordable prices. The company has got the contract from Nissan in Europe, where Nissan is planning to buy further 30,000 cars from Maruti Suzuki and retail it in Europe under its brand name ‘Pixo”. Europe will be the important destination for the Maruti Suzuki cars, and we expect Maruti Suzuki’s export to grow by 25% in FY10 and 20% in FY11.

Figure 33: Maruti Suzuki’s Export Trend
120000 100000 80000 60000 40000 20000 0 FY05 FY06 FY07 Export FY08 FY09 FY10E FY11E YoY Grow th -4.4% 20% 13.0% 34.9% 32.1% 25% 40% 30% 20% 10% 0% -10% -20% -28.9% -30% -40%

Source: Company

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Margins to improve:
Maruti Suzuki is the cash rich company with debt-equity of 0.07x. it has always enjoyed a benefit of low manufacturing expenses, better branding, as well as recently commodity prices has gone down significantly which will help the company to improve the bottom line margins. In the gloomy economic condition Maruti Suzuki has shown tremendous growth in its sales. In FY10, so far the sales were steady and company has shown remarkable growth in their sales. Although going forward, Maruti Suzuki have to face many challenges like stiff competition from established players like Tata Motors, Hyundai as well as large car manufacturer like Toyota, Honda coming in small car segment. On the other hand bad monsoon is a concern for rural demand for small cars. In our view, Maruti Suzuki will get stiff competition, but with its on scheduled plant expansion and large number of product portfolio Maruti Suzuki will improve its margin.

Figure 34: Sales Growth Trend
90000 85000 33% 80000 75000 70000 65000 Apr-09 May-09 Jun-09 Jul-09 Aug-09 15% 16% 23% 42% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Figure 35: EBITDA Growth Trend
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 20% 11.4% 17.6% 17.5% 11.7% 15% 10% 5% 0% FY07 FY08 EBIDTA
Source: Company

12.3%

FY09

FY10E

FY11E

Total Sales

YoY Grow th %

EBITDA Margin

Source: Company

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1800 1600 1400 1200 1000 800 600 400 200 0 Date 10/8/2004 21/12/2004 4/5/2005 13/09/2005 25/01/2006 12/6/2006 19/10/2006 6/3/2007 18/07/2007 27/11/2007 10/4/2008 25/08/2008 13/01/2009 4/6/2009 16/10/2009

Valuation:

16x 14x 12x 10x
100000 0 Date 27/08/2004 28/01/2005 27/06/2005 29/11/2005 04/05/2006 28/09/2006 05/03/2007 03/08/2007 03/01/2008 09/06/2008 10/11/2008 23/04/2009 22/09/2009 200000 300000 400000 500000 600000

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11x 10x 8x 6x

Finan cial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 210252 22% -144834 31308 21% -5682 25626 11% -596 8876 25030 -7722 17308 8.2% 59.9 10.8% 289.00 230851 10% -187386 24334 - 22% -7065 18894 - 26% -510 6013 16759 -4571 12187 5.3% 42.2 - 29.6% 289.00 334457 45% -227688 39996 64% -7982 28570 51% -299 6981 31715 -9832 21883 6.5% 75.7 79.6% 289.00 402539 20% -274378 46746 17% -8196 32819 15% -194 10779 38356 -11890 26465 6.6% 91.6 20.9% 289.00 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

25030 5682 -71 -8647 (3,766) 18228 -16789 -16843 3158 - 30474 -12246

16758 7065 -999 -4524 (6,367) 11933 -16136 22181 3469 9514 21447

31715 7982 -1120 -9832 299 29045 -26817 0 0 -26817 2228

38356 8196 2239 -11890 194 37095 -12076 -25000 0 -37076 19

3365 -1299 -743 1323 14228 - 10923 3305

-3339 -1444 -579 -5362 3305 16085 19390

-2000 -1667 -299 -3967 19390 -1739 17651

-2000 -2016 -194 -4211 17651 -4192 13459

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets

2008

2009

2010E

2011E

3,305 27,674 51,807 40,328 996 124,110

19,390 35,521 31,733 49,321 789 136,754

17,651 45,148 31,733 68,156 789 163,477

13,459 50,840 56,733 72,036 789 193,857

Current Liabilities Total Debt Other non-current liabilities Total Liabilities Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds Total Equites & Liabilities Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%) Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) Yr end March Du Pont Analysis – ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

28,257 9,002 2,697 39,956 1,445 82,709 84,154 124,110 2008

33,976 6,989 2,340 43,305 1,445 92,004 93,449 136,754 2009

42,483 4,989 2,340 49,812 1,445 112,220 113,665 163,477 2010E

50,414 2,989 2,340 55,743 1,445 136,669 138,114 193,857 2011E

59.9 10.8% 14.9% 12.2% 24% 11% 2008

42.2 -29.6% 10.5% 8.2% 17% 7% 2009

75.7 79.6% 12.0% 8.5% 24% 4% 2010E

91.6 20.9% 11.6% 8.2% 24% 2% 2011E

25.0 5.14 0% 2.08 13.99 2008

35.5 4.63 0% 1.82 17.26 2009

19.8 3.80 0% 1.25 10.49 2010E

16.3 3.13 0% 1.05 9.02 2011E

8.2% 1.7 1.5 20.6%

5.3% 1.7 1.5 13.0%

6.5% 2.0 1.4 19.3%

6.6% 2.1 1.4 19.2%

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Mahindra & Mahindra Ltd.
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs) BJAUT IN BAJA.BO 144.7 144.7 178.14 1356/294 10

CMP: Rs.1668 Target Price: Potential Downside:

Strong Come Back….
Mahindra & Mahindra is a largest utility vehicles (UV) and tractor manufacturing company in India. In FY09, UV market share of M&M was

57.2% as compared to 51.5% in FY08, and a market share of tractor was 40.8% as compared to 38.9% in FY08.

Shareholding Pattern

Despite of Monsoon deficit tractors sales has improved:
Others, 2.03 FII, 20.76

In FY09, farm equipment was accounting 43.2% in net segment revenue. In current year, due to shortfall in monsoon M&M was expected to get a direct hit on its tractor sales numbers but it has shown good sales in tractor
MF, Fis & Banks, 18.58

segments and surprised the market.

Promoters, 54.21

Non Promoter Corporate Holding, 4.41

Foray in to two wheelers business: M&M after acquiring Kinetic Motors Company Ltd. (KMCL), is foray in to two wheelers business with the launch of Mahindra Radeo, Mahindra Duro, and Mahindra Flyte.

As on 30th June 2009

300

200

Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to trade at near to its past average valuations. We are initating coverage on this stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

100

0 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Jun-09 Aug-09 Apr-09 May-09 Sep-09 Mar-09 Oct-09 Jul-09

SENSEX

M&M

Financial Summary
Year- end March FY08 FY09 FY10E FY11E Sales (Rs. Mn) 123710 142684 177116 198370 YoY (%) 11% 15% 24% 12% EBITDA (Rs. Mn) 15603 14518 27562 29064 YoY (%) -5% -7% 90% 5% PAT (Rs. Mn) 9306 8265 17344 18006 YoY (%) -13% -22% 110% 4% EPS (Rs.) 39 30 64 66 YoY (%) -13% -22% 110% 4% PE (x) 25 32 15 15 EV/EBITDA (x) 16 20 11 10 RoE (%) 21% 16% 26% 22% RoCE (%) 12% 8% 15% 14%

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Investment Rational
M&M is a market leader in UV segment with the market share of 57.2% and in farm equipment segment with 40.8%. M&M has total installed capacity of 250000 units for four wheelers, 72000 units for three wheelers and 233000 units for tractors. M&M has presence in UV segment, farms equipment, three wheelers, commercial vehicles and passenger vehicles.

Figure 36: FY09 sales composite of M&M
Logan 13423 4% Tractor 95329 30%

Three Wheelers 44533 14%

LCV 8604 3% UV 160963 49%

Source: Company

SWOT Analysis Strengths Weakness

Market Leader in Tractors Business and UV segment Well Diversified Portfolio includes (PV, MUV, LCV, Tractors) Strong Hold on MUV Segment

Only one Model (Logan) in Passenger Vehicle Segment Likely to see Margin pressure on account of aggressive pricing.

Opportunities

New Launches in Light Commercial Vehicles (LCV) i.e. (Mahindra Max Truck) Foray into the Two-Wheeler Segment by acquiring kinetic Motor Company Ltd. (KMCL)

Threats

Competition from Tata Motors in LCV segment Uncertain Monsoon could affect the tractor Business

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Despite of Monsoon deficit tractors sales has improved:
M&M is a major player in farm equipment business in India with the market share of 40.8% in FY09. In India, farm activity is mainly dependent on the monsoon, therefore the tractors sales is also dependent on the monsoon. In spite of monsoon deficit in all over the country, M&M reported 19 % YOY growth in 1H in tractor’s sales. The low base of 2H FY09 will lead to strong volume growth momentum in 2H FY10 as well. We expect tractor growth to continue on account of new launches and the benefit from the PTL merger.

M&M Tractor’s sales trend

Figure 37: M&M’s tractor sales growth trend
(000'units) 180 25% 21% 21% 18% 20% 20% 15% 10% 5% 0% -3% FY07 FY08 Tractor FY09 FY10 FY11 -5%

FY07 Domestic YoY % growth Export YoY % growth Tractor YoY % growth 95006 22% 7525 8% 102531 21%

FY08 90509 -5% 8533 13% 99042 -3%

FY09 113269 25% 6933 -19% 120202 21%

FY10 134790 19% 7626 10% 142416 18%

FY11 161748 20% 8770 15% 170518 10%

160 140 120 100 80 60 40 20 0

YoY % grow th

Source: Company

Figure 38: Domestic market share of tractor business
20000
M&M 29.7 39 PTL 11.7 23.5 38.9 40.8

M&M’s monthly Tractor sales growth trend
45% 16986 13500 13567 10594 8285 9022 24% 16% 9% 1% Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 22% 10% 18772 40% 40% 35% 30% 25% 20% 15% 10% 5% 0%

18000 16000 14000 12000 10000
22.3 23.4

EICHER 23.7

8000 6000 4000 2000 0

Escorts 9.3 Sonalika 11.6 FNH 4.4 JD 3.5 Others 6.1 FY06

13.9 10.3 4.4 3.7 4.5 FY07

14.7 9.8 5.3 4.4 3.6 FY08

13.5 8.9 5.3 6 3.1 FY09

Total Tractor Sales

YoY grow th

Source: Company *PTL merged with M&M in 2007

Source: Company

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UV business looks better
M&M is a market leader in utility vehicles business with the market share of 57.2% in FY09 as compared to 51.5% in FY08. UV segment contributed 49% of the product portfolio in FY2009. M&M launches Xylo in 2009 and got a good response from the customers. In the 1H of the FY10, UV segment have done well in terms of sales and market share has gone up at 63-64%. Management is confident to maintain market share going forward.

Figure 39: UV sales Trend
25000 20000 33% 15000 10000 -3% 5000 0 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Utility Vehicles
Source: Company

56% 56%

60% 50% 40% 42% 33% 36% 30% 20% 10% 0% -10% YoY grow th

Foray in to two wheelers business:
M&M acquired Kinetic Motors Company Ltd. (KMCL) in 2008, and foray in to two wheelers business with the launch of Mahindra Radeo, Mahindra Duro, and Mahindra Flyte. M&M has a plan to design and market a full range of scooters and motorcycles for Indian and global market. M&M will get stiff competition from domestic two wheeler makers like Hero Honda, Bajaj Auto, TVS, as well as foreign two wheeler makers. In our view, it is too early to talk about the success of M&M in two wheeler segment as this segment is dominated by the big domestic players.

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Valuation:

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Finan cial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 123710 11% -103621 15603 - 5% -2387 13216 - 8% -876 1937 12340 -3034 9306 7.5% 38.9 - 13.3% 239.07 142684 15% -119199 14518 - 7% -2915 11603 - 12% -1341 3592 10262 -1997 8265 5.8% 30.3 - 22.1% 272.62 177116 24% -138449 27562 90% -3468 24094 108% -1096 4835 22998 -5654 17344 9.8% 63.6 109.8% 272.62 198370 12% -156868 29064 5% -4118 24946 4% -1070 5415 23876 -5870 18006 9.1% 66.0 3.8% 272.62 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

12416 2387 -2503 -2777 -1264.20 8258 -7171 -16039 2459 - 20751 -12493

10262 2915 5800 -1003 -2079.00 16313 -9152 -9229 -1030 -19410 -3097

22998 3468 -9575 -5654 1095.83 12333 -8865 0 0 -8865 3468

23876 4118 815 -5870 1070.36 24009 -10831 0 0 -10831 13178

10095 -1180 -801 8113 12991 - 4379 8612

11123 -3203 -952 6969 11872 3872 15744

-4000 -2199 -1096 -7295 15744 -3827 11917

-2000 -2283 -1070 -5354 11917 7824 19742

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets

2008

2009

2010E

2011E

8,612 27,941 42,151 23,609 135 102,449

15,744 208,921 57,864 32,143 489 315,162

11,917 173,826 57,864 37,540 489 281,636

19,742 180,164 57,864 44,253 489 302,512

Current Liabilities Total Debt Other non-current liabilities Total Liabilities Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds Total Equites & Liabilities Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%) Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) Yr end March Du Pont Analysis - ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

32,510 25,871 567 58,948 2,391 41,110 43,501 102,449 2008

47,978 40,528 88,505 2,726 49,895 52,621 141,126 2009

44,703 36,528 81,231 2,726 65,039 67,765 148,996 2010E

48,997 34,528 83,525 2,726 80,762 83,488 167,012 2011E

38.9 -13.3% 12.6% 10.7% 12% 40% 2008

30.3 -22.1% 10.2% 8.1% 8% 47% 2009

63.6 109.8% 15.6% 13.6% 15% 36% 2010E

66.0 3.8% 14.7% 12.6% 14% 18% 2011E

25.0 5.36 1% 2.02 16.05 2008

32.2 1.17 1% 2.04 20.02 2009

15.3 1.33 1% 1.64 10.54 2010E

14.8 1.21 1% 1.41 9.65 2011E

7.5% 1.2 2.4 21.4%

5.8% 0.5 6.0 15.7%

9.8% 0.6 4.2 25.6%

9.1% 0.7 3.6 21.6%

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TATA Motors Ltd. (TTMT)
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs) BJAUT IN

CMP: Rs.1668 Target Price: Potential Downside:

Signs of revival…
BAJA.BO 144.7 144.7 178.14 1356/294 10

Tata Motors is a major player in commercial vehicles segment, with the market share of 63.8% in FY09 as compared to 62.2% in FY08. Being a major player in commercial vehicle’s segment, TTMT got huge setback in FY09.

Shareholding Pattern Recovery in sales numbers: After a tremendous reduction in sales numbers in all segments in FY 09, Tata
Others, 2.03 FII, 20.76

Motors have shown good come back in FY10 April to October’s sales numbers were good on account of recovery in economic condition, changing focus from M&HCV segment to LCV segment with new launches and new launch by
MF, Fis & Banks, 18.58

Fiat in passenger vehicles segment which has strategic JV with the company.

Promoters, 54.21

Non Promoter Corporate Holding, 4.41

Utility Vehicles segment sales continuously falling: Tata Motors witnessing continuous fall in to the utility vehicles (UV) segment. In FY 09 Tata launch TATA Sumo Grande but it was not a big successful launch.

As on 30th June 2009

400

JLR fund raising on track:
300

In October 2009, Tata Motors raised total US$750 million via foreign currency convertible notes (US$375 million) and Global Depository Receipts (US$375 millions). As well as company successfully raised Rs. 42bn through issuance of non convertible Debenture in the local market. The company is planning to raise remaining amount via internal accruals.

200

100

0 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Jun-09 Aug-09 Apr-09 May-09 Sep-09 Mar-09 Oct-09 Jul-09

Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to trade at near to its past average valuations. We are initating coverage on this stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

SENSEX

Tata Motors

Financial Summary
Year- end March FY08 FY09 FY10E FY11E Sales (Rs. Mn) 328850 282926 323720 349618 YoY (%) 4% -14% 14% 8% EBITDA (Rs. Mn) 36544 26992 40346 43867 YoY (%) 4% -26% 49% 9% PAT (Rs. Mn) 20289 10013 17250 19472 YoY (%) 6% 63% 72% 13% EPS (Rs.) 53 19 34 38 YoY (%) 6% -63% 72% 13% PE (x) 11 30 17 15 EV/EBITDA (x) 7.20 15.53 10.52 9.41 RoE (%) 26% 8% 13% 13% RoCE (%) 11% 5% 8% 8%

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Investment Rational
Tata Motors is India’s largest automobile company. After acquiring Jaguar and Land rover it is a complete car maker providing large range of small to premium passenger cars as well as commercial vehicles. It is world’s third largest truck makers and second largest bus makers. In India Tata Motors is a market leader in commercial vehicles segment with the market share of 63.8% in FY09 as compared to 62.2% in FY08.

Figure 40: Product share of Tata Motors in FY09
M & HCV, 113674, 24%

PV, 167673, 36%

UV, 39329, 8%

LCV, 151338, 32%

Source: Company

SWOT Analysis Strengths Weakness

Leadership in Commercial Vehicles business (M&HCV, LCV) Truly a complete car maker including all segment in the four –wheelers (from Premium to small segment cars)

Utility Vehicles segment hits due to less innovative and new models.

Opportunities

Penetration Opportunities in Europe and America for other products in portfolio than JLR.

Threats

Debt-servicing burden to increase Exports to hit due to main concentration on commercial Vehicles. Further de-growth in the economy could hit the business.

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Recovery in sales numbers:
Tata Motors has a vast range of segments in its portfolio. After a degrowth in sales numbers by 8% in FY09 to 533806 units, Tata Motors have shown the signs of recovery in FY 10 on account of economic recovery signs, better liquidity and reduction in interest rates. In commercial segment M&HCV segment have shown positive YoY growth from July to October months. In LCV Segment, Company has shown tremendous growth on account of new launches like Tata Ace EX, Tata Super Ace, Tata 407 Pickup, and Tata Magic. In passenger vehicles segment Tata has a joint venture with Fiat. This year fiat launches two models in the market Fiat Linea in January 09 and Fiat Grande Punto in June 09, Fiat Linea has been well accepted by the market as well as Tata Motors launched new Indigo Manza in October, which will help to increase the sales numbers of passenger vehicles segments. In our view, Tata Motors will post 6% growth in FY 10 and 15% growth in FY 11 on account of economic stability.

Figure 41: Segment wise Sales Trend of Tata Motors
Nos.(000) 250 196 200 145 150 129 100 61 50 0 FY05 FY06 FY07 M & HCV LCV UV FY08 PV FY09 34 38 129 86 48 48 39 151 126 173 179 166 147 167 151 114

Source: Company

Figure 42: YoY Sales Trend of Tata Motors
Nos 700000 600000 500000 400000 300000 200000 100000 0 FY06 FY07 FY08 FY09 FY10E FY11E -8% 14% 1% 6% 15% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15%

Figure 43: MoM sales Trend of Tata Motors
Nos. 60000 50000 40000 30000 20000 10000 0 Apr-09 May- Jun-09Jul-09 Aug09 09 Total Sales Sep- Oct-09 09 0% -4% -13% -12% -6% -2% 25% 19% 20% 15% 10% 5% 0% -5% -10% -15%

28%

Total Sales

YoY Change

YoY % Grow th

Source: Company

Source: Company

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Utility Vehicles segment sales continuously falling
Tata Motors have shown continuous reduction in the Utility Vehicles segment. In FY 09, UV segment degrew by 17.5% to 39329 units as compared to 47491 units in FY 08. Along with the economic depression the main reasons were unable to launch successful new models and stiff competition from other players like M&M, Ford, and Chevrolet. Tata Motors launched Sumo Grande in 2008 and Safari GX in February 2009, but it didn’t succeed in improving the sales growth.

Figure 44: YoY UV’s sales trend for Tata Motors
Nos (in 000) 60 50 40 30 20 10 0 FY05 FY06 UV FY07 FY08 FY09 34 7.5% 38 10.7% 48 48 39 -0.4% -17.5% 0.0% -10.0% -20.0%

Figure 45: MoM UV’s sales trend for Tata Motors
Nos. 3500 3000 2500 2208 0% 3307 2638 2550 2609 2455 2475 10% 0% -10% -22% -15% 1500 1000 -40% 500 0 Apr-09May-09Jun-09 Jul-09 Aug-09Sep-09Oct-09 UV
Source: Company

26.4%

30.0% 20.0% 10.0%

2000 -11% -49%

-20% -30% -40% -50% -60%

-26%

YoY % Grow th

YoY % Grow th

Source: Company

Reduction in the input cost is a big relief:
Profitability of the auto industry is highly dependent up on the raw material prices as the main raw material used by this sector is steel, aluminum, rubber and plastic. Crash in the commodity prices is a big relief for the auto maker companies. Tata Motors also benefited from the reduction of the raw material prices to improve their margins. Recently raw material prices has shown up ward movement, which may put pressure on the profit margins but in our view, prices will not rise as much as previous high.

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JLR fund raising on track:
Tata Motors acquired two UK based Auto brands namely Jaguar and Land Rover in June 2008 for net consideration of $2.3 bn. The Jaguar Land Rover acquisition was routed through the Company’s 100% subsidiary, Jaguar Land Rover Limited, U.K., which had availed a short term bridge loan facility of US$ 3 billion from a syndication of banks and guaranteed by the Company. The Company prepaid part of the said facility out of proceeds of a Rights Issue and certain divestments and the balance outstanding as on March 31, 2009 was US$ 2.02 billion. For repayment of the said amount, the Company in May 2009 issued 7 years Non-Convertible Debentures aggregating Rs.42 bn on a private placement basis. In October 2009 Tata Motors also raised total US$750 million via foreign currency convertible notes (US$375 million) and Global Depository Receipts (US$375 millions). The company is planning to raise remaining amount via internal accruals. In Q1 FY10, JLR posted loss of £64 million. Further, JLR expected to post good sales numbers in coming years on account of lower operating costs (manpower realization, RM outsourcing), stabilizing the economic condition all over the world and good demand from developing countries like Russia and China. Therefore in our view, further, JLR will be efficient to meet its working capital requirement. Also, Tata Motor’s debt repayment schedule provides company with flexibility in medium term. Issuance of Rs 42 bn of debentures and US$ 375 million FCCB can considerably change the debt repayment schedule of the Tata Motors. In our view, Tata Motors expects to register good performance on domestic front which will help to pay down long term debt in FY10E.

Figure 46: Repayment schedule for long term Debt
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY10 FY11 FY12 FY13 FY14 FY15 FY16 0% 11% 12% 19% 11% 39%

8%

% of Long Term Debt Repayment

Source: Company

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Valuation

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Finan cial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 328850 4% -238972 36544 4% -6523 30021 2% -4256 9729 25765 -5476 20289 6.2% 52.6 6.0% 385.54 282926 - 14% -215434 26992 - 26% -8745 18247 - 39% -8109 13699 10138 -125 10013 3.5% 19.5 - 63.0% 514.05 323720 14% -239009 40346 49% -9225 31121 71% -9216 15562 21905 -4655 17250 5.3% 33.6 72.3% 514.05 349618 8% -256592 43867 9% -9925 33942 9% -9216 15562 24726 -5255 19472 5.6% 37.9 12.9% 514.05 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

20289 6478 37114 2505 -4641.40 61600 -43719 -8150 -5350 - 57219 4381

10013 8701 -950 -1542 -3271.10 12845 -40113 16645 -82979 -106447 -93602

21905 9225 -3653 -4655 9215.89 32037 -22790 0 0 -22790 9247

24726 9925 3577 -5255 9215.89 42189 -15383 0 0 -15383 26806

4019 -6749 14054 11325 8268 15706 23973

98583 -6424 -11112 81047 23973 -12555 11418

0 -5175 -9216 -14391 11418 -5144 6275

0 -5841 -9216 -15057 6275 11749 18023

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets Current Liabilities Total Debt Other non-current liabilities Total Liabilities Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds Total Equites & Liabilities

2008

2009

2010E

2011E

23,973 79,865 49,103 104,523 3,975 261,438 106,566 62,805 13,732 183,103 3,855 74,540 61 78,335 261,438

11,418 85,499 129,681 145,993 11,449 384,040 109,996 131,656 20,107 261,759 5,141 117,161 20 122,281 384,040

6,275 86,329 129,681 159,558 11,449 393,292 107,173 131,656 20,107 258,936 5,141 129,236 20 134,356 393,292

18,023 89,255 129,681 165,017 11,449 413,425 113,676 131,656 20,107 265,439 5,141 142,866 20 147,986 413,425

Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%)

2008

2009

2010E

2011E

52.6 6.0% 11.1% 9.1% 11% 50%

19.5 -63.0% 9.5% 6.4% 5% 98%

33.6 72.3% 12.5% 9.6% 8% 93%

37.9 12.9% 12.5% 9.7% 8% 77%

Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x)

2008

2009

2010E

2011E

11.1 2.86 3% 0.80 7.20

29.9 2.45 2% 1.48 15.53

17.3 2.23 2% 1.31 10.52

15.4 2.02 2% 1.18 9.41

Yr end March Du Pont Analysis - ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

2008

2009

2010E

2011E

6.2% 1.3 3.3 25.9%

3.5% 0.7 3.1 8.2%

5.3% 0.8 2.9 12.8%

5.6% 0.8 2.8 13.2%

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Ashok Leyland Ltd. (ALL)
Bloomberg Code Reuters Code Current Shares O/S (mn) Diluted Shares O/S (mn) Mkt Cap (Rs bn) 52 Wk H/L (Rs) Face Value (Rs) BJAUT IN BAJA.BO 144.7 144.7 178.14 1356/294 10

CMP: Rs.1668 Target Price: Potential Downside:

Struggling with time…
Ashok Leyland is the big player in the M&HCV segment with the market share of 47% in FY09 as compared to the 46% in FY08. ALL is mainly concentrated on M&HCV passenger carriers segment and has got a big hit due to economic crises.

Shareholding Pattern

Sales numbers are improving:
Others, 2.03 FII, 20.76

In FY10, ALL has shown improvement in sales numbers on MoM basis, although YoY basis sales numbers are still depressed, and unlike other auto makers ALL has not diversified its portfolio with other segments there fore it
MF, Fis & Banks, 18.58

will take time to improve the sales scenario.

Promoters, 54.21

Non Promoter Corporate Holding, 4.41

LCV segment is some what ignored for long: In FY09, when other players were concentrating on the LCV market with the several launches, being a player in M&HCV ALL got big hit on sales numbers. ALL has only 4% market share in LCV market.

As on 30th June 2009

300

Reduction in the input cost is a big relief:
200

After a fall in commodity prices of steel, aluminum, rubber and plastic automobile company have got big relief. ALL will also get the benefit of decreasing raw material cost; it will help to improve profit margins. Valuation: At CMP of Rs1,367, HH trades at 17.0x Core EPS of Rs76.0 for

100

0 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Jun-09 Aug-09 Apr-09 May-09 Sep-09 Mar-09 Oct-09 Jul-09

FY10E and 13.6x Core EPS of Rs92.9 for FY11E. We expect HH to continue to trade at near to its past average valuations. We are initating coverage on this stock with Hold rating with a target price of Rs1,402 (based on 14x FY11E Core EPS + FY10E Cash/ investments of Rs102 per share).

SENSEX

Ashok Leyland

Year- end March FY08 FY09 FY10E FY11E

Sales (Rs. Mn) 78249 60097 62801 82270

YoY (%) 8% -23% 4% 31%

EBITDA (Rs. Mn) 8780 5191 6473 8501

YoY (%) 14% -41% 25% 31%

PAT (Rs. Mn) 4693 1900 2534 3783

YoY (%) 6% -60% 33% 49%

EPS (Rs.) 3 1 1 2

YoY (%) 6% -60% 33% 49%

PE (x) 15 37 28 19

EV/EBITDA (x) 8.53 17.19 13.55 10.61

RoE (%) 22% 5% 7% 10%

RoCE (%) 14% 5% 7% 8%

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Investment Rational
Ashok Leyland Ltd. (ALL) is an auto maker in the commercial vehicles segment. ALL dealing in to buses, trucks, defense special vehicles and engines. In FY09, ALL got a big hit on account of economic slow down, as commercial vehicles business is directly related to the economic growth. ALL has a market share of 33% in M&HCV passenger carriers in FY10 so far as compared to the 47% in FY09.

Figure 47: Product share of ALL in FY09
LCV 1350 2% MDV Passenger 19734 36%

MDV Goods 33347 62%

Source: Company

SWOT Analysis Strengths Weakness

Leadership in the Bus Segment with 46% Market Share. Sales for Defense increased by 1.4% in FY09

Higher Fixed Cost due to Unutilized capacity Concentrating only on M&HCV

Opportunities

Could see some opportunities in defense orders.

Threats

Further de-growth in the economy could hit the business. High Debt for expansion could hit the bottom line

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Sales numbers are improving:
ALL is in manufacturing of M&HCV in commercial vehicles segment. In FY 09, due to economic slowdown, ALL’s business was down by 34.7% YoY basis as the consumption of commercial vehicles are directly related to the growth of the economy. In FY10, after various stimulation packages announced by the government and revival signs of economic growth better IIP data, ALL’s sales numbers have improved on MoM basis, still YoY basis they are in negative territory. In our view, although the economy have shown the sign of recovery, the bad monsoon is the worry, and further ALL will get tough competition from other players like TATA Motors where, there is a close competition between TATA Motors and ALL in M&HCV passenger vehicles.

Figure 48: Market share of M&HCV passenger vehicles
60% 50% 40% 30% 20% 10% 0% FY06 FY07 FY08 FY09 Tata Motors FY10 Apr - Aug 47% 45% 41% 33% 49% 46% 45% 47% 45%

54%

Ashok Leyland

Source: SIAM

Figure 49: FY10 sales trend of ALL
120% 101% 100% 80% 60% 40% 20% 0% Apr-09 -20% -40% 1750 -60% -80% -69% -65% 0 MoM Grow th % Total Sales Nos. -66% 1977 -44% -34% May-09 Jun-09 Jul-09 Aug-09 Sep-09 -12% 2000 13% 2% 3966 18% -1% 4065 4784 5000 5452 6000

Figure 50: Yearly sales trend of ALL
Nos. 90000 80000 70000 61655 35% 40% 30% 20% 83094 13% 50000 83307 10% 0.3% 40000 -10% 30000 20000 -34.7% -20% -30% -40% FY06 FY07 Total Sales Nos. FY08 FY09 54431 0%

4000

60000

14%

3000

1000

10000 0

YoY Grow th %

YoY Grow th %

Source: Company

Source: Company

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LCV segment is some what ignored for long:
ALL has only 2% of LCV (light commercial vehicles) in their portfolio with the total market share of LCV passenger carriers of 4% in FY09 as compared to 2% in FY 08 and do not have presence in LCV goods carriers. Although the market share has increased in LCV passenger carriers, being the commercial auto maker ALL should have different segments of products in their portfolio but ALL is concentrating only on M&HCV segment. In FY 09, M&HCV segment degrew by 34% where as LCV segment registered 10% de-growth. New launches in LCV would have supported their bottom line. ALL planning to come up with the joint venture with Nissan for LCV trucks but it has postponed to 2011 due to market conditions and land acquisition problem. It means when other industry players like TATA Motors and M&M launching new products in this segment ALL will not be able to launch their product in the market.

Reduction in the input cost is a big relief:
The big impact on the bottom line was due to two reasons. One is due to fall in sales as compared to the previous year and second was sky touching prices of raw material like steel, aluminum, rubber and plastic. Companies were unable to pass on the increase in raw material prices on the customers. Now the prices of the commodity have come down sharply as compared to the 2008 prices, which will help ALL to improve its bottom line margin. Although, the upward price movement in raw material prices is a worry.

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Valuation:

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Finan cial and Valuation Summary
Yr end March Income Statement (In Mn.) Revenue Growth % Operating Cost EBITDA Growth Depreciation EBIT Growth % Interest Other Income Earning Before Tax Tax Earning After Tax Earning Margins EPS Growth % No of Shares 78249 8% -70209 8780 14% -1774 7006 12% -497 740 6382 -1688 4693 6.0% 3.5 5.8% 1,330.34 60097 - 23% -55403 5191 - 41% -1784 3406 - 51% -1187 496 2084 -185 1900 3.2% 1.4 - 59.5% 1,330.34 62801 4% -56539 6473 25% -1890 4583 35% -1205 211 3378 -845 2534 4.0% 1.9 33.4% 1,330.34 82270 31% -73980 8501 31% -2292 6208 35% -1164 211 5044 -1261 3783 4.6% 2.8 49.3% 1,330.34 2008 2009 2010E 2011E

Yr end March Cash Flow (In Mn.) Pre-tax profit Depreciation Chg in working capital Total tax paid Other operating activities Cash Flow From Operations (A) Capital expenditure Chg in investments Other investing activities Cash Flow From Investing (B) Free cash flow (A+B) Chg in minorities Debt raised/(repaid) Dividend (incl. tax) Other financing activities Cash Flow From Financing (C) Cash At The Beginning of the Year Net Chg in Cash (A+B+C) Cash At The End of The Year

2008

2009

2010E

2011E

6382 1774 11986 -1281 10,657 10657 -6095 101 -2209 - 8097 2560

2084 1784 -4643 -596 (5,256) -5256 -7579 -171 1046 -6642 -11898

3378 1890 9711 -845 8,867 8867 -4869 0 0 -4869 3997

5044 2292 8198 -1261 6,937 6937 -6379 0 0 -6379 558

4261 0 -547 3645 1952 6205 8157

58650 -2335 -939 4621 8157 -7276 881

-27000 -1267 -1205 -1972 881 2026 2907

-8000 -1892 -1164 -2355 2907 -1798 1109

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Yr end March Balance Sheet (In Mn.) Cash Current Assets Investments Net fixed assets Other non-current assets Total Assets Current Liabilities Total Debt Other non-current liabilities Total Liabilities Share capital Reserves & surplus Less: Misc. expenditure Share Holders' Funds Total Equites & Liabilities

2008

2009

2010E

2011E

4,514 24,239 6,099 20,548 223 55,622 22,719 8,875 2,538 34,133 1,330 20,159 21,490 55,622

881 30,775 2,636 43,974 97 78,363 21,369 19,581 2,673 43,624 1,330 33,409 34,739 78,363

2,907 24,134 2,636 46,953 97 76,727 17,967 20,081 2,673 40,721 1,330 34,676 36,006 76,727

1,109 29,152 2,636 51,040 97 84,034 22,682 20,781 2,673 46,136 1,330 36,567 37,897 84,034

Yr end March Key ratios EPS (Rs) EPS growth (%) EBITDA margin (%) EBIT margin (%) ROCE (%) Net debt/Equity (%)

2008

2009

2010E

2011E

3.5 5.8% 11.2% 9.0% 14% 20%

1.4 -59.5% 8.6% 5.7% 5% 54%

1.9 33.4% 10.3% 7.3% 7% 48%

2.8 49.3% 10.3% 7.5% 8% 52%

Yr end March Valuations PER (x) Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x)

2008

2009

2010E

2011E

15.0 3.28 0% 0.96 8.53

37.1 2.03 3% 1.48 17.19

27.8 1.96 2% 1.40 13.55

18.6 1.86 3% 1.10 10.61

Yr end March Du Pont Analysis - ROE Net margin (%) Asset turnover (x) Leverage factor (x) Return on equity (%)

2008

2009

2010E

2011E

6.0% 1.4 2.6 21.8%

3.2% 0.8 2.3 5.5%

4.0% 0.8 2.1 7.0%

4.6% 1.0 2.2 10.0%

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NOTES:

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