CommericalVehicleIndustry InitiatingCoverage

Indian Commercial Vehicle Industry
Sector Report
Auto & Auto Ancillary
Outlook : BULLISH
Ashok Leyland - Buy

CMP: Rs69
Target price : Rs85
Upside: 23.1%
Atul Auto Buy
CMP: Rs583
Target price : Rs740
Upside: 26.9%
Eicher Motors Buy
CMP: Rs16938
Upside: 18.5%
Force Motors - Accumulate
CMP: Rs1413
Upside: 8.8%
The Indian Commercial Vehicle (CV) Industry is all set for a cyclical revival in demand going
forward. The green shoots are visible as the overall domestic CV volumes is likely to grow by
10% in FY15 as against de-growth of 20% and 2% during FY14 and FY13 respectively. The
recovery further looks promising as the volumes of Medium & Heavy Commercial Vehicle
(M&HCV) one of the leading indicator grew by 13.9% in 9MFY15 as against a de-growth of
more than 20% each in FY13 and FY14. Further the strong correlation between GDP and the
growth in CV Industry emphasis that overall revival in the economy is bound to have a
positive impact on the CV. The Governments policy actions like diesel deregulation, opening
up infrastructure and mining activity, plans to construct 30kms of road a day from FY16
onwards, faster project clearances is likely to result into higher industrial activities. The
health of fleet operators is also better, after the steep fall in crude prices has resulted in lower
fuel costs (which account for 40%-50% of operating cost), higher freight rates, improved
utilization and softening of interest rates is likely to lower the cost of borrowing. With overall
economic and industrial activity likely to improve we expect the demand for CVs to revive
from FY16E and expect a cyclical revival in the entire CV segment. The bigger growth
opportunities lies in the smaller companies and hence are positive on Ashok Leyland, Eicher
Motors, Atul Auto and SML Isuzu. We are also positive on Indag rubber, which is a leading
tyre re-treading company and would benefit directly from a revival in the CV cycle.
The new Central Government focuses on reforms --
SML Isuzu - Buy

CMP: Rs1005
Upside: 21.5%
Indag Rubber- Buy
CMP: Rs876
Upside: 24.7%
Acceleration in reforms The Government has undertaken various measures/steps

and initiatives like faster clearances of projects, opening up mining sector are likely
to boost Industrial activity. According to media reports, the Goa state government
has issued an order revoking its 2012 decision that had halted over 60-year-oldmining industry. The new order will pave the way for the resumption of mining
activities in the states. In addition government has taken various indirect measures
like 100% FDI allowance under the automatic route in the road and highways sector
and Standardized processes for PPP projects resulting into clear policy framework
relating to bidding and tolling. We believe the governments reformist actions is a key
positive for overall economic and the CV Industry growth going forward.
Focus on infrastructure development - The government has kept infrastructure
development as one of its key priority to revive the economic growth. At present
India has an extensive road network of 4.9 million kms and is the 2nd largest in the
world after US. Government is focusing on construction of roads, extension and
expansion of national highways (NH) (2 lanes to 4 lanes to 6 lanes) which is likely to
boost infrastructure in India. According to reports, Road Transport and Highways
minister has set the road construction target of 30 km per day from FY16 onwards.
The actual road construction during 8MFY15 (April to Nov 2014) was ~8.5 km/day as
against the targeted of 17 km/day. Of the total road network, NH accounts less than
2%, ~92,850 kms as of FY14 and is likely to touch 100,000 kms by FY17. Since ~40%
of the vehicle traffic is carried by NH, development of the same is likely positive for
the overall Auto industry and especially CV space.
Fleet operators in a much better state:

Vidrum Mehta
Research Analyst
vidrummehta@systematixshares.com
Arun Gopalan
VP Research & Investments
arungopalan@systematixshares.com
February 19, 2015
The fleet operating cost is likely to come down mainly after lower diesel prices and softening
of interest rates. Over the last 8 months, Brent Crude prices have declined ~46% to $62 per
barrel (at five and half year low) resulting into lower fuel cost. Even though the benefit is not
fully passed on, the prices of petrol and diesel are down ~20% each during the same period.
The operating cost of the fleet owners has also reduced as fuel accounts for 40%-50% of the
overall cost. Despite the fall in fuel cost, domestic freight rates in India have not fallen over
the last 6 to 8 months. We believe this is positive for the fleet owners which faced severe
headwinds in the past 3 years and are now likely to generate higher cash flows not only from
lower operating cost but also from steady realizations. RBI also lowered the interest rate
which is likely to reduce the cost of borrowing and aid profitability of the fleet-owners.
Green shoots visible:

The overall CV volumes are likely to grow ~ 10% for FY15 as compared to de-growth of 20% in
FY14 and 2% in FY13. We believe strong revival in demand coupled with governments focus
towards infrastructure development and favorable industry dynamics like lower fuel cost and
softening of interest rates would further revive the CV demand going forward and hence we
are positive of the CV Industry.
Governments strong policy initiatives
The government is aggressive with its reformist actions and has kept infrastructure
development as one of its key priority to revive the economic growth. According to a CRISIL
report, the transport sector constitutes ~6% of the GDP with the road sector contributing
~70% of this share. More than 60% of freight and 85% of passenger traffic in the country is
handled by road. At present India has an extensive road network of 4.9 million kms and is
the second largest in the world after US which has network of more than 6.6 million kms.
Government thus is focusing on construction of roads, extension and expansion of
highways (2 lanes to 4 lanes to 6 lanes) which is likely to boost infrastructure space in the
country. According to media reports, The Road Transport and Highways minister has set
the road construction target of 30 km per day from FY16 onwards. The actual construction
during 8MFY15 (April to November 2014) was only 8.5 km per day as against the targeted
of 17 km per day. Of the total road network in India, National Highways account less than
2%, around 92,850 kms as of FY14 and is likely to touch 100,000 kms by FY17. The value
of total roads and bridges infrastructure in India is expected to grow at a CAGR of 17.4%
during 2012-17 to reach US$ 19 billion.
It has also in the recent past taken various measures / steps like faster clearances of
projects, opening up mining sector which is likely to boost Industrial activity going forward.
According to media reports, the Goa state government recently issued an order revoking its
2012 decision that had halted over 60-year-old-mining industry. The new order will pave the
way for the resumption of mining activities in the states going forward. In addition
government has taken various indirect measures like 100% FDI allowance under the
automatic route in the road and highways sector and Standardized processes for PPP
projects resulting into clear policy framework relating to bidding and tolling benefitting the
road sector. We believe the governments focus on infrastructure development is one of the
key positive for the Commercial Vehicle Industry going forward.
Exhibit 1: National Highway network in India (kms)
Plan wise addition of National Highway network in India

Period
Length added (kms)
Total Length (kms)
As on 1/4/1947
0
21378
Pre first plan
815
22193
1st five year plan
0
22193
2nd five year plan
1514
23707
3rd five year plan
179
23886
Interregnum Period
52
23938
4th five year plan
4819
28757
5th five year plan
220
28977
Interregnum Period
46
29023
6th five year plan
2957
31980
7th five year plan
1632
33612
Interregnum Period
77
33689
8th five year plan
609
34298
9th five year plan
23814
58112
10th five year plan
9008
67120
11th five year plan
10228
77348
12th five year plan
22652
100000
Source: NHDP, Systematix Research
Strong Correlation with GDP growth

Indian CV Industry has very strong correlation with the GDP growth of the country. This is evident
from the fact that CV volumes have posted higher growth rates as and when the economy has
expanded and vice-versa. From the below chart we can see that the growth in the CV volumes
slowed down and further went negative during the period FY11 to FY13 when the GDP growth also
moderated. With the Indian GDP likely to improve, CV volumes have shown demand recovery and
are likely to post growth of ~10% in FY15.
Within the CV Industry, M&HCV sales are the leading indicators and the growth or recovery is faster
when compared to GDP growth. The increase and growth in M&HCV volumes is at a much faster
pace than the overall GDP growth and hence they are considered as the leading indicator of the
overall recovery and vice-versa. While in the case of LCVs volumes growth follow a lag effect to that
of GDP. Economic growth recovers first and then follows the LCV growth and vice-versa.
Exhibit 2: GDP growth Vs Domestic CV volumes growth (%)
50
Exhibit 3: GDP growth Vs M&HCV volumes growth (%)
10
40
8
20
10.0
6
FY14
FY13
FY12
FY11
FY10
FY09
FY15E
FY15E
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
-10.0
FY08
FY07
0.0
-20.0
2
-20
2
-30.0
-30
0
Growth in domestic CV volumes (%)
-10.0
FY15E
FY14
0.0
FY13
FY15E
FY14
FY12
FY11
FY10
FY09
FY13
GDP growth
0.0
2
0
Growth in LCV volumes (%)
10.0
-10.0
-20.0
-30.0
10.0
FY12
0.0
20.0
20.0
FY11
10.0
30.0
30.0
FY10
40.0
FY09
20.0
40.0
FY08
30.0
50.0
FY07
40.0
FY08
GDP growth
50.0
FY06
10
FY07
Growth in M&HCV volumes (%)
Exhibit 5: M&HCV and LCV volume growth (%)
50.0
FY06
Source: SIAM, RBI, Systematix Research
Exhibit 4: GDP growth Vs LCV volumes growth (%)
-40.0
GDP growth
20.0
FY06
10
-10.0
10
30.0
30
-10
40.0
-20.0
-30.0
-20.0
-40.0
-30.0
-50.0
Growth in LCV volumes (%)
Growth in M&HCV volumes (%)
Mining activity improves over the last 12 months.

The cumulative Index of Industrial Production (IIP) growth for the period April to December 2014
stands at 2.1% YoY.. In terms of three sectors, the cumulative growth for Mining, Manufacturing and
Electricity during April to December 2014 has witnessed a YoY growth of 1.7%, 1.2% and 10%
respectively. IIP growth was robust during the period April 2011 to February 2013, however then it
showed contraction for around 13 months and then showing some signs of recovery from April 2014
onwards. We believe governments strong initiatives like Make In India is likely to boost
manufacturing sector, Power for all by 2022, higher investments and other developments is likely to
boost Electricity sector and its focus on infrastructure and opening up the mining activity is the
recent past is likely to result into higher mining output going forward.
According to media reports, the Goa state government recently issued an order revoking its 2012
decision that had halted over 60-year-old-mining industry. The new order will pave the way for the
resumption of mining activities in the states going forward. We believe the overall improvement is
IIP growth and especially in the Mining space is likely to have a positive impact on the CV Industry.
Further CV industry is also highly correlated with the Mining Industry. The domestic CV volumes
declined by 2% and 20% respectively in FY13 and FY14 when the mining activity was lower. From
the below chart one can see that Mining Industry on an average declined by 1.4% over the period
April 2012 to March 2014. We believe the overall revival in the Industrial activity and especially of
the mining is likely to spur the CV demand going forward.
. Exhibit 6: Monthly trend of Index of Industrial production (IIP) of India
15.0
10.0
5.0
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
-5.0
Apr-11
0.0
-10.0
Monthly IIP Growth (YoY) %
Source: RBI, Systematix Research
. Exhibit 7: Monthly trend of Mining & Quarrying Industry
6.0
4.0
2.0
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
-4.0
Jun-11
-2.0
Apr-11
0.0
-6.0
-8.0
-10.0
Mining & Quarrying Industry Growth (YoY) %

Paved Road network to improve

Road density (km / sq km) in India is much higher compared to worlds largest economies like USA
and China. Road density is the ratio of the length of the country's total road network to the country's
land area. Road density for India stands at 1.4 as against USA and China ratio standing at 0.7 and
0.4. However the ratio is lower when compared to compare to European Countries like UK and
France where it stands at 1.7 each and Japan where the road density is as high as 3.2. Further the
share of paved road as a percentage of total road stands at 54% compared to 100% in countries like
USA, France and UK. We believe with government focusing on national and state highways and
other expressways is likely to improve the road density and paved road going forward benefiting the
overall commercial vehicle Industry.
Exhibit 8: Road density of India Vs World (km/sq km)
3.5
Exhibit 9: Paved road comparison (%)
3.2
3.0
100
100
100
100
80
2.5
80
2.0
1.7
1.7
60
1.4
1.5
53.8
53.5
India
China
40
1.0
0.5
120
0.7
0.4
20
0.0
0
China
USA
India
UK
France
Road Density (km / sq km)

Source: MORTH, Systematix Research
Japan
UK
France
USA
Japan
Share of paved road (%)

Source: MORTH, Systematix Research
Fleet operators in a much better state:

The fleet operating cost and rentals is also likely to come down mainly because of lower diesel
prices and softening of interest rates going forward. Over the last 8 months, Brent Crude prices have
declined ~46% to $62 per barrel (at five and half year low) resulting into lower fuel cost. Even though
the benefit is not fully passed on the prices of petrol and diesel are down nearly 20% each. In
addition to falling crude prices, the timings of government deregulating the diesel prices, has further
reduced the operating cost for the fleet owners, because fuel accounts for nearly 40%-50% of the
operating cost. Further despite the fall in diesel prices, domestic freight rates across the country
have not fallen over the last 6-8 months. As per media reports, freight rates from Delhi to
Chandigarh (North India), Mumbai (West India) and Kolkata (East India) has increased by 3%, 14%
and 2% respectively while the rates have remained unchanged for Chennai (South India). We
believe this is positive for the fleet owners which are likely to generate higher cash flows not only
from lower cost but also from steady realizations. In the past 24-36 months fleet operators had faced
severe headwinds in terms of lower demand resulting into lower utilization, rising operating cost
(diesel price), higher interest cost (vehicles bought under finance). Further Reserve Bank of India
(RBI) also lowered the interest rate in January 2015 and further stated that subsequent monetary
policy actions will be consistent with this stance. This would add profitability and cash flows for fleets
operates as they would be in better position for repayments and servicing of their loans.
Exhibit 10: Trend of Petrol & Diesel price in Mumbai
Exhibit 11: Trend of Brent Crude ($/barrel)
115.0
140
120
105.0
100
80
95.0
60
40
85.0
20
Source: Media reports, mypetrolprice, Systematix Research
Exhibit 13: Trend in Freight rates in India
250
200
150
100
50
Chandigarh
Mumbai
Chennai
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
0
May-13
Kolkata
44,000
43,500
43,500
43,500
43,500
44,000
44,000
45,000
46,000
46,500
46,500
46,500
47,000
47,000
47,000
47,000
Mar-13
Freight Rate from Delhi of Truck (Rs./9 Tonne)

Month & Year Chandigarh Mumbai
Chennai
Nov-13
13,000
35,000
81,000
Dec-13
13,500
35,000
81,500
Jan-14
13,500
35,000
81,000
Feb-14
13,500
36,000
81,000
Mar-14
14,000
37,000
81,000
Apr-14
14,500
37,000
81,000
May-14
14,500
37,500
81,000
Jun-14
15,000
38,000
81,500
Jul-14
15,000
40,000
81,500
Aug-14
15,000
41,000
81,500
Sep-14
15,000
41,500
81,500
Oct-14
15,000
42,000
81,500
Nov-14
15,000
44,000
82,000
Dec-14
15,500
45,000
82,000
Jan-15
15,500
45,500
82,000
Feb-15
15,500
45,500
81,500
Brent Crude Prices ($/ barrel)

Source: Bloomberg, Systematix Research
Exhibit 12: Freight Rates in India
Source: Financial express, Systematix Research
2-Jan-14
23-Jan-14
13-Feb-14
6-Mar-14
27-Mar-14
17-Apr-14
9-May-14
30-May-14
20-Jun-14
11-Jul-14
1-Aug-14
22-Aug-14
12-Sep-14
3-Oct-14
24-Oct-14
14-Nov-14
5-Dec-14
29-Dec-14
20-Jan-15
15-Feb-15
15-Jan-15
15-Dec-14
15-Nov-14
15-Oct-14
Fall in Diesel price (%)
Jan-13
Fall in Petrol Price (%)
15-Sep-14
15-Aug-14
15-Jul-14
15-Jun-14
15-May-14
15-Apr-14
15-Mar-14
15-Feb-14
15-Jan-14
0
15-Dec-13
75.0
Kolkata
Source: Financial express, Systematix Research
Greater likelihood of cheap CV loans:

On January 15, 2015, Reserve Bank of India (RBI) lowered the repo rate by 25 bps to 7.75%.
Inflation levels have also eased substantially over the past 6-8 months, with WPI coming down from
more than 6% in May 2014 to nearly 0% in January 2015, giving more headroom for the apex for
further rate cut. The governor also stated that once the monetary policy stance shifts, subsequent
policy actions will be consistent with this stance. Hence this indicates that going ahead the interest
rate cycle is likely to move downwards. The expectation of lower interest rate is likely to bring down
the overall cost of borrowing for the fleet operators. We expect RBI to soften the interest rate by upto 100-150 bps over the next 12 to 18 months which is likely to positive for the CV industry.
Usually banks provide CV loan 300-500 bps above the base, however is different in each cases.
The gap between the base rate and repo rate (key indicator for interest rate reversal) was around
150-170 bps in the past; however over the past two years the gap has widened to 220-230 bps. We
believe the wide gap indicates comfortable headroom for reduction in base rate by banks which is
likely to make CV loan cheaper going forward.
Exhibit 14: Trend in Repo rate and SBIs base rate
Repo rate
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
11
10.5
10
9.5
9
8.5
8
7.5
7
6.5
6
5.5
5
Jul-10
10
9.5
9
8.5
8
7.5
7
6.5
6
5.5
5
SBI base rate
Source: RBI, SBI, Systematix Research
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
10.0
8.5
7.0
5.5
4.0
2.5
1.0
-0.5
-2.0
Apr-12
Exhibit 15: Monthly WPI (Inflation) trend
Monthly WPI Growth YoY (%)

Green shoots visible:

Sales of M&HCV which is one of the leading indicators in the CV industry has come out from the
deep grass root and is visible from the Industry growth. For 9MFY15, M&HCV sales grew by 13.9%
in 9MFY15 as against de-growth of more than 20% each in FY13 and FY14. We believe the growth
momentum is likely to continue going forward. Even though the LCV sales are not encouraging, the
segment generally has a lag effect and is likely to pick up going forward. The overall CV volumes are
likely to grow ~10% for FY15 as compared to de-growth of 20% in FY14 and 2% in FY13. We
believe strong revival in demand in addition with the governments focus towards infrastructure
development and favorable industry dynamics like lower fuel cost and softening of interest rates
would further fuel the demand for the CV Industry going forward. Together with it, the bigger growth
opportunity lies in the smaller companies and therefore we are positive on Ashok Leyland (ALL),
Eicher Motors (Eicher), while we recommend accumulate stance on Atul Auto (Atul), Force Motors
(Force), SML Isuzu (SML). We are also positive on Indag rubber, which is into re-treading tyre
business and is typically a CV play.
Exhibit 16: Relative Comparison of companies under coverage
Mkt Cap Sales growth EBITDA margins
RoE
P/E
EV/EBITDA
P/BV
Company
CMP
(Rs Cr) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16EFY17E
Ashok Leyland
69
19694
24.1
27.4
8.6
9.8 11.6
20.4
35.7
18.7
16.5 11.0
4.0
3.6
Atul Auto
583
1279
22.8
25.5
12.1
12.5 33.0
32.8
26.9
21.3
17.2 13.5
7.9
6.2
Eicher Motor
16938
45911
28.8
41.0
14.0
15.1 35.9
41.6
43.7
27.8
27.9 17.9 13.8
10
Force Motor
1413
1842
16.6
26.5
5.6
6.4
5.9
8.5
24.2
15.6
11.7
7.9
1.4
1.3
SML Isuzu
1005
1454
25.6
31.1
6.7
7.4 15.7
21
29.6
19.7
15.6 11.1
4.4
3.9
Indag Rubber
876
460
7.9
9.5
15.9
13.4 23.4
19.8
14.3
14.4
9.9 10.2
3.1
2.7
Source: Company, BSE, Systematix Research
Our recommendations
Ashok Leyland Ltd (ALL) Buy:

We believe Ashok Leyland Ltd (ALL) is well placed to draw benefit from the demand
revival in the commercial vehicle industry in India. As of 9MFY15, ALL enjoys around 14%
share in the overall CV industry, with M&HCV and LCV market share at 27% and 6%
respectively. ALL is taking various restructuring steps like voluntary retirement of
employees and selling non-core assets in order to reduce its debt. We expect ALLs debt
to equity to be at 0.4x by FY17E as against 0.9x in FY14. Also higher utilization level and
lower discounts going forwards is likely to improve EBITDA margins by 250-350 bps over
the next two years. This would further result into free cash flow generations and higher
return on equity. At current price the stock is trading at P/E and EV/EBITDA of 18.7x and
11x its FY17E. We believe ALL is likely to benefit from the CV demand revival in addition
to its operational efficiency and hence we recommend Buy with target price of Rs85.
Atul Auto Ltd (Atul) Buy:
Atul Auto Ltd (Atul) is the fastest growing domestic three wheeler (3W) company with
sales volumes witnessing a CAGR of 40% as against industry growth of 7% during FY0914. This has helped the company to gain market share which has increased from 2% in
FY09 to 7.7% in FY14. We believe Atul is likely to continue its strong growth momentum
and increase its market share going forward. This is mainly after its plans to launch its first
petrol model over the next 3-4 months and plans to penetrate export market by launching
the same. At present, petrol fuel engine is around 1/3 of the overall domestic 3W industry
thus providing huge growth opportunity. Atul currently is operating at 85%-90% utilization
level and hence it is planning a capex of Rs150 crore over the next 2 years which would
be majorly funded internally. Apart from that, free cash flow generation, cash and carry
business model and high return ratios are positive for the company. At current price the
stock is trading at a P/E and EV/EBITDA of 21.3x and 13.5x its FY17E respectively.
Hence we recommend Buy with target price of Rs740.
Eicher Motors Ltd (Eicher) - Buy:

Eicher Motors Ltd is a dual play on sustained strong growth from its motorcycle business
and Volvo Eicher Commercial Vehicles (VECV) which is well placed to grab the CV
recovery in India. Its motorcycle business owns the iconic brand Royal Enfield and its
volumes have witnessed a CAGR of 42% over CY09-14. It has consistently increased its
motorcycle capacity over the last 3-4 years and is likely to maintain its strong growth
momentum going forward too. On the other hand, VECV is well placed to grab the
demand revival in Indian CV space. As of December 2014, VECV market share stands at
~6% in the overall CV industry and ~12% share in the M&HCV segment. The launch of
Pro-series along with the expected recovery in demand is likely to expand its overall
share in the CV space. With VECV expected to post better performance, consolidated
EBITDA margins is likely to expand from 10.5% in CY13 to 15% in CY16 further boosting
profitability. At current price the stock is trading at P/E and EV/EBITDA of 27.8x and 17.9x
its CY16E respectively. We believe higher earnings growth from VECV segment would
eventually bring down the valuation multiple going forward and hence we recommend Buy
with target of Rs20079.
Force Motors Ltd (Force) - Accumulate:
Force Motors Ltd (Force) is a fully integrated automobile company with a focus on design
and development of vehicles (mainly into LCV, UVs and tractors) and auto components in
India. The company has strong brand recall with Traveller being one of the prominent
names enjoying the market leadership position of 41% share in the LCV passenger
segment in India. Force also has technical collaboration with Daimler AG, Germany in
respect of multi-purpose passenger vehicles. Further as per media reports, Indian arm of
German luxury auto maker BMW is likely to partner Force motors, in its strategy for
localization of its resources at its Chennai plant. We believe the company has diversified
business segment and is well placed to benefit from the revival in the overall recovery in
the automobile industry in India. Higher demand is likely to improve the utilization level
and operating performance resulting into margin expansion going forward. At current price
the stock is trading at trading at P/E and EV/EBITDA of 15.6x and 7.9x its FY17E
respectively. Hence we are positive on the stock with a target price of Rs1538.
SML Isuzu Ltd (SML) - Buy:
SML Isuzu Ltd (SML) is a small player with market share of 2% in the overall CV industry
in India. It operates in 5-12 tonne gross vehicle weight (GVW) segment with
passenger/cargo sales volume mix at 55:45 respectively. During 9MFY15, SML volume
grew by 13% YoY to 7,988 units outpacing the overall CV industry volume which declined
by 6% YoY (M&HCV grew by 10% while LCV declined 13%). With the expectation of
revival in demand in addition with companys focus on new launches is likely to increase
its share to 15% from 9.7% in FY14 in the 5-12 tonne category over the next 2-3 years.
Higher utilization level would result into operating efficiencies and margin expansion going
forward. At current price the stock is trading at P/E and EV/EBITDA of 19.7x and 11.1x its
FY17E earnings. Considering its strong financial performance, net cash, free cash flow
and consistent dividend payout could result into re-rating of the stock. Hence we
recommend Buy with target of Rs1222.
Indag Rubber Ltd (Indag) - Buy:
Indag Rubber is into tyre re-treading business with market share of ~23% in the organized
cold process tread manufacturing in India. The re-treading of tyre is particularly done in
case of commercial vehicle in India. With the demand expected to revive in the CV space
we expect the demand for re-treading to also gather momentum. Indag has large
distribution network with 25 depots, 600 re-treader and 150 dealers across India. Retreading of the tyre is cost effective (saves 50%-70% compared to new tyre), and is safer
and durable similar to new tyre thus improving fleet operators margins and ensuring
similar kind performance. Further the likely implementation of GST would reduce the
pricing gap of 12%-25% which currently unorganized players enjoy over the organized
players. Indag is debt free, free cash flow generating with high return on equity of 30%. At
current price the stock is trading at P/E of 14.4x its FY17E EPS of Rs61. We believe
Indag is well placed to capture the growth opportunity rising from the recovery of the
Indian CV industry going forward. Hence we recommend Buy with target price of Rs1092
.
Indian Automobile Industry

According to Deloitte, India is expected to become a major automobile manufacturing hub and the
third largest market for automobiles by 2020. India currently is the world's second largest twowheeler manufacturer and fourth largest producer of commercial vehicles. The automobile industry
accounts for nearly 22% of the country's manufacturing gross domestic product (GDP).
During the period FY11-14, Indian Automobile Industry faced multiple headwinds like moderation of
GDP growth, lower demand across the segment, higher operating cost with crude prices and interest
rates at higher level resulting into lower utilization level which impacted the performance of the Auto
companies. During FY11-14, the overall Automobile sales volumes witnessed a CAGR of 6% to 1.84
crore vehicles. The Automobile Industry is dominated by two wheelers which hold around 81% of
volume share of the overall market. Passenger vehicle holds the 2nd position with volume share of
13% while the Commercial Vehicle and three wheelers holds volume market share of 3% each of
the total Auto Industry in India.
Exhibit 17: Volume wise market share as of 9MFY15 (%)
3 wheelers
3%
2 wheelers
81%
Commerical
Vehicles
3%
Passanger
Vehicles
13%
Source: SIAM, Systematix Research
As of 9MFY15, in the two wheeler space, Hero Motocorp continues to dominate the market with 40%
nd
rd
volume share. While Honda Motorcycle and TVS holds the 2 and the 3 position with volume
market share of 26% and 13% respectively. In the Passenger Vehicle segment, Maruti Suzuki
continues to be the market leader with volume share of 45%. While Hyundai and M&M enjoys share
of 16% and 9% respectively. In the Commercial vehicle (CV) space Tata Motors and M&M holds
majority of the market with volume share of 44% and 39% respectively. While Ashok Leyland and
Force Motors hold ~6% and ~5% share in the overall CV space in India. In the three wheeler
category, Bajaj Auto and Piaggio Vehicle holds 45% and 32% volume market share while Atul Auto
holds 7% share.
Exhibit 18: 2 Wheeler market share (%) 9MFY15
Mahindra
Eicher 1%
Motors
2%
Hero
Motocorp
40%
Suzuki
Motorcycle
2%
Yamaha
4%
TVS
Motors
13%
Bajaj Auto
12%
Honda
Motorcycle
26%
Exhibit 19: Passenger Vehicle market share (%) 9MFY15
Others
Ford India 9%
3%
Maruti
Suzuki
45%
Toyota
Kirlosakar
5%
Honda Cars
7%
Tata Motors
6%
M&M
9%
Hyundai
Motor
16%
10
Exhibit 20: 3 wheeler market share (%) 9MFY15
Atul Auto
7%
Bajaj Auto
45%
TVS Motor
3%
Scooters
India
2%
Exhibit 21: Commercial Vehicle market share (%) 9MFY15
Others
2%
VECVs Eicher
5%
Tata Motors
48%
SML Isuzu
2%
Piaggio
Vehicles
32%
M&M
11%
Force
Motors
3%
Ashok
Leyland
14%
M&M
26%

The Indian CV industry is largely focused on the domestic market which contributes ~88% of the
total volume sold while the exports volume account for remaining of 12% share in the country. The
Indian CV Industry is directly correlated with the GDP growth of the country. Hence during FY11-14,
when Indias GDP moderated the CV volumes also faced headwinds resulting into decline CAGR of
2% over the same period. The Indian Commercial Vehicle Industry can be broadly classified into
segments and categories:
The Indian CV Industry is segmented on the basis of Gross Vehicle Weight (GVW) into Heavy
Commercial Vehicles (with GVW at 12.5 tonnes and above), Medium Commercial Vehicles (7.5
tonnes to 12.5 tonnes) and Light Commercial Vehicles (upto 7.5 tonnes). Indian CV market is
dominated by LCVs which holds around 64% of total volumes while M&HCV holds around 36%
volume in the overall CV space. Over the years the share of LCVs has kept on increasing from
~54% in FY11 to ~64% as of 9MFY15. The growth in the M&HCV business has direct correlation
with the economic growth and is one of the leading indicators of economic cycles. On the other
hand, LCVs follows the lag effect of 6-9 months in reflecting the trend of the economic cycle. During
FY11-14, Indias economy growth moderated impacting the M&HCV sales volumes which declined
at CAGR of 14% while LCVs (having lag effect) volumes have grown 6% over the same period.
On the category front, it is broadly divided into Passenger Carrier and Goods (Cargo) carriers.
Passengers carriers (Bus) are used for the transportation of public while the cargo / goods carriers
are used for moving goods from a place to another. As of 9MFY15, the CV Industry is largely
dominated by Goods carriers which account for 86% of the total volume share while the passenger
carriers hold the remaining of 14% share. During FY11-14 the passenger carriers sales volumes
declined at CAGR of 5% while Cargo carriers volumes declined marginally by 2% over the same
period.
11
Exhibit 22: M&HCV players share in India (%) 9MFY15
Others
2%
Exhibit 23: LCV players share in India (%) 9MFY15
Others
Force 2%
Motors
5%
VECV Eicher
3%
Ashok
Leyland
27%
VECV Eicher
11%
Tata Motors
55%
Tata Motors
44%
SML Isuzu
1%
M&M
2%
M&M
39%
Ashok
Leyland
6%
SML Isuzu
3%
Exhibit 24: Overall CV Volume Mix (%) 9MFY15
Exhibit 25: Passanger:Cargo Mix (%) 9MFY15
Pass
14%
Export
12%
Domestic
88%
Goods
86%
Exhibit 26: Growth in Passenger & Cargo carriers (%)
25
20
15
10
5
0
-5
-10
-15
-20
-25
Exhibit 27: Growth in M&HCV & LCV growth
40
21.0
29.0
30
20
6.2
2.0
FY12
FY13
-2.7
-6.9
FY14
-13.8
-19.4
Passanger
Cargo
9MFY15
-4.4
10
7.2
13.9
11.3
0
-10
FY12
FY13
9MFY15
-11.2
-20
-30
FY14
-23.5
M&HCV
-17.0
-22.1
LCV
12
Risk to our call
Delay in demand recovery

After two years of down cycle in CV Industry, the volumes are now showing some signs of
demand recovery which is positive for the Industry. With government taking reformist action
in addition with other favorable factors like lower crude prices and the softening of interest
rate going forward we believe Indias GDP growth is likely to pick up over the next couple of
years. Indian CV industry has direct correlation with GDP growth of the country and delay
in economic recovery is likely to be negative for the CV industry.
Infrastructure and mining activity remain subdued:
Slower and subdued infrastructure activity is likely to result in lower Industrial Production.
Commercial Vehicle industry is heavily depended on construction and roads sector in
addition with the mining activity in the country. Any delay in executing infrastructure
projects would impact CV industry.
Rupee depreciation or increase in crude prices:
Any sharp rise in crude prices or depreciation of rupee would further increase the fuel cost
for the fleet operators. Fuel accounts for 40%-50% operating cost for the fleet owners.
Lower operating margins would impact fleet operators profitability.
Interest rates fall if extended:
Almost 90% of the CV purchased is through some kind of financing hence credit availability
and cost of borrowing plays a significant role in influencing the demand for CVs. If the
Inflation level again moves higher then we believe it would restrict RBI to cut rate further
keeping the cost of borrowing at the higher levels.
13
Ashok Leyland Ltd
Initiating Coverage
Rating: BUY
Date
February 19, 2015
CMP (Rs.)
69
Target (Rs.)
85
Potential Upside (%)
23.1
BSE Sensex
29320
NSE Nifty
8869
Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol
Al in equity
Ashok.bo
A
500477
ashokley
Market Data
Market Cap.(Rs. Cr)
Equity Sh.Cap.(Rs Cr)
52 Wk High/Low
Avg. Qtrly Volume
Face Value (Rs.)
19694
266
70/15
2335741
1
Shareholding Pattern
(As on 31th Dec 2014)
FII
DII
Promoters
Public & Others
Total
19.6
13.2
38.8
28.4
100
Comparative Price Chart
500
400
300
200
100
Ashok Leyland
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Sensex
Vidrum Mehta
Research Analyst
Arun Gopalan
ALL is well in the CV cycle revival.

We believe Ashok Leyland Ltd (ALL) is well placed to gain benefit from the demand revival
in the commercial vehicle industry. As of 9MFY15, ALL enjoys ~14% share in the overall CV
industry, with M&HCV and LCV market share at 27% and 6% respectively. ALL is taking
various restructuring steps like voluntary retirement of employees and selling non-core
assets in order to reduce its debt levels. We expect ALLs debt to equity to be at 0.4x by
FY17E as against 0.9x in FY14. Also higher utilization level and lower discounts going
forwards is likely to improve EBITDA margins by 250-350 bps over the next 2 years. This
would further result into free cash flow generations and higher return on equity. At current
price the stock is trading at P/E and EV/EBITDA of 18.7x and 11x its FY17E respectively. We
believe ALL is pure CV revival play and is likely to benefit from the demand revival in
addition with its operational efficiency and hence we recommend Buy with target of Rs85.
M&HCV segment to drive growth:
Ashok Leyland is the 2nd largest CV manufacturer in India and 4th largest manufacturer of buses in
the world. At present, category volume mix stands at 70:30 for passenger and cargo carriers.
While the truck and bus market share of ALL stands at 37.5% and 25.2% respectively. We believe
ALL is well placed to gain benefit from the demand revival in the CV space mainly after M&HCV
(one of the leading indicators) volume contribute ~73% of its total volume. As of 9MFY15, ALLs
M&HCV sales volume grew by 24% YoY as against the industry growth of 10% during the same
period helping the company to gain market share of 300 bps YoY to 26%. On the other hand, LCV
volumes contribute around 27% of its total volume, declined by 11% YoY. ALLs LCV volumes
have shown some signs of improvement and we expect company to post higher volume growth
from FY16 onwards. Management expects the overall CV industry to grow by 10% and 15% for
FY15 and FY16 respectively and ALL to outperform the industry growth going forward.
EBITDA margins to be ~10% levels by FY17:
We expect ALLs EBITDA margins to improve by 250-350 bps to ~10% by FY17 driven by both
internal and external factors. Operational efficiencies like voluntary retirement of employees and
other cost saving measures is likely to improve margins on the internal front while external factors
include higher demand, better revenue mix (higher contribution from M&HCV) and lower discounts
levels is likely to expand margin going forward. According to management, the current discount per
vehicle is at its highest level of Rs 175,000. The discount level 5 years ago when the CV industry
had good demand stood ~Rs20,000 per vehicle thus huge scope of lowering the discounts going
forward. As of FY14, companys utilization level stood at 60%. With economic recovery the
demand for CV is likely to improve which is likely to result into higher utilization for the company.
We expect ALLs utilization to gradually improve from 68% in FY15 to 94% by FY17. We believe
higher margins would boost ALLs profitability going forward.
Free cash flow to reduce debt:
Improvement in demand is likely to result into higher utilization and better margins generating cash
flows for the company. Since the company is operating at lower utilization level management has
guided that it is not planning any major capex in the near to medium term. We believe companys
free cash flow would be used to repay its debt and expect debt to equity to improve from 0.9x in
FY14 to 0.4x by FY17. This would further improve return ratio, with return on equity and return on
capital employed to 20% each by FY17. We believe company would also resume its 50% payout
resulting into dividend yield of 3% by FY17.
Valuation:
At current price the stock is trading at P/E and EV/EBITDA of 18.7x and 11x its FY17E
respectively. We believe ALL is pure CV revival play and is likely to benefit from the demand
revival in addition with its operational efficiency. Hence we recommend Buy with target of Rs85.
Year (Rs Cr)
Revenue
Growth
YoY (%)
EBITDA
EBITDA
margin
(%)
PAT
Growth
YoY (%)
EPS
(Rs)
PE (x)
EV/
EBITDA
(x)
RoE (%)
FY13
FY14
FY15E
12,481
9,943
12,330
-2.8
-20.3
24.0
877
167
807
7.0
1.7
6.5
203
(374)
90
-64.0
-284.0
-124.1
0.7
-1.3
0.3
96.6
-52.5
217.8
26.4
138.8
27.8
4.7
-8.4
2.0
FY16E
15,306
24.1
1,320
8.6
551
510.7
1.9
35.7
16.5
11.6
FY17E
19,498
27.4
1,913
9.8
1,051
90.9
3.7
18.7
11.0
20.4
14
Exhibit 28: Monthly Sales volume (M&HCV & LCV)
Exhibit 29: Revenue (Rs Cr)
16000
14000
12000
10000
8000
6000
4000
M&HCV
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
2000
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
19498
15306
12842
9943
FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E
Sales (Rs Cr)

Source: Company, Systematix Research
Exhibit 30: EBITDA margins (%)
Exhibit 31: RoE & RoCE (%)
12.0
25
10.0
20
9.8
9.8
8.6
8.0
7.0
15
6.5
6.0
20 20
14 14
4.0
-5
0.0
FY2014 FY2015E FY2016E FY2017E
5
4
4.3
4.0
96.6
3.6
18.7
FY17E
160
138.8
120
100
60
40
(100.0)
Return on capital employed
80
35.7
50.0
(50.0)
-8
140
200.0
4.4
FY2014 FY2015E FY2016E FY2017E

-2
Exhibit 33: EV/EBITDA (x)
217.8
4.4
FY2013
Exhibit 32: P/E and P/BV (x)
100.0
FY2012
Return on Equity
150.0
-10
EBITDA margins (%)
250.0
1.7
FY2013
12 12
10
5
FY2012
12330
LCV
2.0
12481
FY13
FY14
FY15E
(52.5)
P/E
FY16E
0
P/BV
27.8
26.4
20
16.5
11.0
FY16E
FY17E
0
FY13
FY14
FY15E
EV/EBIDTA
15
Financial Performance
Income Statement
Y/E March (Rs Cr)
Revenue
Growth (%)
Raw Material
% of sales
Personnel expenses
% of Sales
Manufact. & Other Exp.
% of Sales
EBIDTA
EBIDTA margin %
Depreciation
Interest
Other Income
PBT
Provision for tax
Effective tax rate %
Cash Flow
FY13
12,481
(2.8)
9,123
73.1
1,076
8.6
1,406
11.3
877
7.0
381
377
62
181
37
FY14
9,943
(20.3)
7,603
76.5
1,000
10.1
1,175
11.8
167
1.7
377
453
67
(597)
(121)
FY15E
12,330
24.0
9,045
73.4
1,184
9.6
1,295
10.5
807
6.5
414
397
87
82
25
FY16E
15,306
24.1
11,047
72.2
1,423
9.3
1,515
9.9
1,320
8.6
398
321
87
688
138
FY17E
19,498
27.4
13,978
71.7
1,755
9.0
1,852
9.5
1,913
9.8
406
251
92
1,348
296
22.0
Y/E March (Rs Cr)

Net Profit Before Tax
Depreciation
Others
Change in work Cap
Tax expenses
Cash flow from Ops
Capex
Other investing activities
Cash flow from Invest
Proceeds from Eq capital
Borrowings/ (Repayments)
Dividends paid
Interest paid
Cash flow from finance
Net Cash Flow
FY13
471
386
30
(49)
(110)
728
(644)
(520)
(1,164)
1,089
(309)
(363)
417
(19)
FY14
(91)
379
(72)
370
(30)
557
(207)
97
(110)
174
(187)
(436)
(449)
(2)
FY15E
82
414
310
36
(25)
818
82
87
169
(550)
(397)
(947)
39
FY16E
688
398
234
102
(138)
1,284
(150)
87
(63)
(500)
(266)
(321)
(1,087)
134
FY17E
1,348
406
159
83
(296)
1,699
(200)
92
(108)
(600)
(533)
(251)
(1,384)
208
FY13
FY14
FY15E
FY16E
FY17E
20.4
20.2
30.0
20.0
230.4
403.5
75.6
Net Profit (Reported)
434
29
166
551
1,051
Y/E March
Adj Net Profit

Growth %
Net profit margin %
203
(64.0)
1.6
(374)
(284.0)
(3.8)
90
(124.1)
0.7
551
510.7
3.6
1,051
90.9
5.4
Return ratios (%)

ROE
ROCE
4.7
7.2
(8.4)
(1.7)
2.0
5.6
11.6
12.2
20.4
19.7
ROIC
7.2
(1.7)
5.9
13.0
21.5
Inventory
Debtors
Creditors
Fixed asset turnover (x)
Solvency Ratio (x)
Debt-equity
Interest coverage
Per share (Rs)
Adj EPS
BVPS
CEPS
Dividend Ratios
DPS (Rs)
Dividend Yield (%)
Dividend Payout (%)
Valuation (x)
P/E
P/BV
60.3
38.7
76.9
1.6
56.6
49.9
86.3
1.2
39.5
43.0
72.9
1.4
37.7
41.9
73.4
1.7
34.0
39.8
73.3
2.2
0.8
1.5
0.9
(0.3)
0.7
1.2
0.6
3.1
0.4
6.4
0.7
15.7
2.1
(1.3)
15.6
0.0
0.3
16.2
1.8
1.9
17.2
3.3
3.7
19.0
5.1
0.6
0.8
78.5
0.8
1.2
41.4
1.6
2.3
43.3
96.6
4.4
(52.5)
4.4
217.8
4.3
35.7
4.0
18.7
3.6
EV/EBIDTA
EV/Sales
26.4
1.9
138.8
2.3
27.8
1.8
16.5
1.4
11.0
1.1
Exceptional Item
Balance Sheet
Y/E March (Rs Cr)
Share capital
Reserves & surplus
Total shareholder's fund
Minority Interest
Loan fund
Deferred tax liability
Total capital employed
Net fixed assets
Investments
Cash and bank
Inventories
Debtors
Loans and advances
Total current assets
Current lia. and provisions
Net current assets
Total assets
Key Ratios
Turnover Ratios (days)

FY13
266
4,189
4,455
3,505
527
8,487
5,971
2,338
14
1,896
1,419
1,459
4,788
4,609
179
8,487
FY14
266
4,182
4,448
3,884
407
8,739
5,841
2,790
12
1,189
1,299
1,677
4,177
4,069
107
8,739
FY15E
266
4,348
4,614
3,334
407
8,354
5,346
2,790
159
1,480
1,603
1,991
5,233
5,014
219
8,354
FY16E
266
4,632
4,898
2,834
407
8,138
5,097
2,790
293
1,684
1,913
2,469
6,359
6,107
251
8,138
FY17E
266
5,150
5,416
2,234
407
8,057
4,891
2,790
501
1,950
2,340
3,143
7,934
7,558
376
8,057
16
Atul Auto Ltd
Initiating Coverage
Rating: BUY
Date
February 19, 2015
CMP (Rs.)
583
Target (Rs.)
740
27.0
BSE Sensex
29320
NSE Nifty
8869
Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol
Ata in equity
Atul.bo
B
531795
ATULAUTO
Market Data
Market Cap.(Rs. Cr)
Equity.Sh.Cap.(Rs Cr)
52 Wk High/Low
Avg. Qtrly Volume
Face Value (Rs.)
1279
11
722/135
112440
5
(As on 31st Dec 2014)
FII
DII
Promoters
Public & Others
Total
3.3
9.0
52.7
35.0
100
Entering next phase of growth

Atul Auto Ltd (Atul) is the fastest growing domestic three wheeler (3W) company with sales
volumes witnessing a CAGR of 40% as against industry growth of 7% during FY09-14. This
has helped the company to gain market share which increased from 2% in FY09 to 7.7% in
FY14. We believe Atul is likely to continue its strong growth momentum and further expand
its share going forward. We believe this is mainly after the company is likely to launch its
first petrol model over the next 3-4 months and to plans to expand the export market by
launching the same. At present, petrol fuel engine is around 1/3 of the overall domestic 3W
industry thus providing huge growth opportunity in the domestic market. Atul currently is
operating at 85%-90% utilization and is planning a capex of Rs150 crore over the next 2
years which would be majorly funded internally. Also free cash flow generation, cash and
carry business model and high return ratios (RoE at 35% for FY14) are positive for the
company. At current price the stock is trading at P/E and EV/EBITDA of 21.3x and 13.5x its
FY17E respectively. Hence we recommend Buy with target price of Rs740.
Fastest growing domestic 3 wheeler:
Atul Auto is the fastest growing domestic 3W with sales volumes witnessing a CAGR of 40% as
against industry growth of 7% during FY09-14 helping the company to gain market share from 2%
in FY09 to 7.7% in FY14. The company has strong brand image as its products has higher
mileage, better carrying capacity, extended warranty period and other benefits compared to its
peers. The volume mix in terms of passenger/cargo stands at 55:45 respectively. As of FY14, its
two major brands Atul Gem and Atul Shakti contributes 59% and 29% of its overall revenue. While
other brands like Gemini, Smart and its spares business contribute the remaining of 7%, 3% and
3% respectively. Atul has diversified its presence and now is a Pan India player with Gujarat and
Rajasthan contributing less than 50% of its overall revenue as against ~80% contribution 5-6 years
ago. The dealer network is expected to increase from 116 in FY11 to 225 in FY15 and is likely to
add 20-25 dealers ever year. This would help the company to penetrate further in addition with its
strong brand which is likely to continue its strong growth momentum going forward.
New launch & expanding export market to drive growth:
Atul Auto is planning to launch its first petrol vehicle model over the next 3-4 months and further
expand the export market by launching the same. At present, petrol fuel engine is approx 1/3 of the
overall domestic 3W industry thus providing huge growth opportunity in the domestic market. It is
also looking at the export market and is likely to further explore Bangladesh, Sri Lanka, African
countries, and other Latin American countries. As of FY14, exports volume accounted only 2% of
its total volume however this is likely to be ~7% in FY16 and ~10% by FY17. According to the
management, the new petrol vehicle would also be sold in the domestic and export market driving
companys next phase of growth for the company.
600
500
400
300
200
100
Atul Auto
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Sensex
Vidrum Mehta
Research Analyst
Robust financial performance to continue:

During FY09-14, Atuls sales and profit witnessed CAGR of 30% and 130% respectively. The
launch of new model and tapping the export market is likely to result into better product mix, better
utilization along with operating efficiencies which is likely to expand margins by 100 bps over the
next 2 years. The companys operates in cash and carry business helping it to generate free cash
flow which resulting into higher return ratio. As of FY14, Return on equity and Return on Capital
employed stands at 35% and 48% respectively. The company is planning to set up Greenfield
plant in Gujarat with an investment of around Rs150 crore over the next 2 years. It has already
procured land worth around Rs32 crore for the same. We believe majority of around 80% of the
fund would be done through internal accruals and 20% (~Rs30 crore) would be funded via debt.
Valuation:
At current price the stock is trading at P/E and EV/EBITDA of 21.3x and 13.5x its FY17E
Arun Gopalan
respectively. We believe the launch of petrol model is likely to increase its volume in the domestic
and export market thus maintaining its strong growth momentum. Hence we are positive on the
stock with target price of Rs740.
EBITDA
EV/
Growth
Growth
EPS
Year (Rs Cr)
Revenue
EBITDA
margin
PAT
PE (x)
EBITDA
RoE (%)
YoY (%)
YoY (%)
(Rs)
(%)
(x)
FY2013A
364
21.8
40
11.0
26
67.2
11.8
39.8
49.4
31.0
FY2014A
430
18.2
45
10.6
30
15.0
13.6
35.3
42.9
27.2
FY2015E
500
16.2
58
11.7
43
45.2
19.7
39.1
29.6
21.1
FY2016E
614
22.8
74
12.1
48
9.9
21.7
33.0
26.9
17.2
FY2017E
770
25.5
96
12.5
60
26.5
27.4
21.3
13.5
32.8
17
Exhibit 34: Yearly Sales Volume (Units)
70000
60094
60000
50079
50000
40000
37557
32040
27000
30000
42439
20000
10000
0
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E
900
800
700
600
500
400
300
200
100
0
770
614
500
299
FY2012
430
364
FY2013
FY2014 FY2015E FY2016E FY2017E
Sales Volumes
Sales (Rs Cr)
Exhibit 37: RoE and RoCE (%)
14
45
13
11.7
12
11.0
39.8
40
10.6
11
10
12.1
12.5
35
9.2
32.1
39.1
35.3
53.3
52.5
33.0
32.8
48.0
43.3
42.1
40.7
30
8
7
25
6
5
20
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E
EBITDA margins (%)
Return on equity
Exhibit 39: EV/EBITDA (X)
83
80
70
60
49
50
43
40
30
30
23
20
17
14
27
10
10
21
8
0
FY2012
FY2013
Exhibit 38: P/E & P/BV (x)
90
60
55
50
45
40
35
30
25
20
15
10
FY2014 FY2015E FY2016E FY2017E

P/E
P/BV
50
45
40
35
30
25
20
15
10
5
0
46.2
31.0
27.2
21.1
17.2
13.5
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E

EV/EBITDA
18
Income Statement
Y/E March (Rs Cr)
Cash Flow
FY13
FY14
FY15E
FY16E
FY17E
Revenue
364
430
500
614
770
Y/E March (Rs Cr)

FY13
FY14
FY15E
FY16E
FY17E
37
43
62
68
86
Growth (%)
21.8
18.2
16.2
22.8
25.5
Raw Material
284
332
379
464
581
Depreciation
13
Others
(10)
(3)
(3)
% of sales
Change in working cap
78.1
77.1
75.8
75.6
75.5
Personnel expenses
21
27
32
39
47
Tax expenses
% of Sales
5.8
6.4
6.4
6.3
6.2
Cash flow from Ops
Other Exp.
19
26
30
37
45
Capex
% of Sales
5.1
6.0
6.1
6.0
5.9
Other investing activit
EBIDTA
40
45
58
74
96
11.0
10.6
11.7
12.1
12.5
Depreciation
13

Proceeds from Eq
capital
Borrowings/ (Repay)
15
15
Interest
Dividends paid
(4)
(13)
(11)
(13)
(16)
(0)
EBIDTA margin %
Other Income
11
(4)
(16)
(6)
(12)
(13)
(19)
(20)
(26)
41
31
40
37
64
(10)
(11)
(39)
(65)
(70)
10
(10)
(11)
(29)
(62)
(67)
10
Interest paid
(0)
(0)
(0)
(0)
PBT
37
43
62
68
86
(4)
(13)
(11)
(1)
Provision for tax
11
13
19
20
26
Net Cash Flow
26.7
7.1
(0.7)
(22.3)
(4.3)
30.4
30.3
30.0
30.0
30.0
26
30
43
48
60
Y/E March
FY13
FY14
FY15E
FY16E
FY17E
26
30
43
48
60
Return ratios (%)
67.2
15.0
45.2
9.9
26.5
ROE
39.8
35.3
39.1
33.0
32.8
7.1
6.9
8.7
7.7
7.8
ROCE
52.5
48.0
53.3
43.3
40.7
ROIC
80.0
89.6
86.5
55.0
45.0

Profit / Loss Discontinued
Ops.
Adj Net Profit
Growth %
Net profit margin %
Balance Sheet
Y/E March (Rs Cr)
Key Ratios

FY13
FY14
FY15E
FY16E
FY17E
26.5
19.6
18.6
19.1
19.7
Share capital
11
11
11
11
11
Debtors
6.6
8.6
11.2
12.5
13.1
Reserves & surplus
63
83
116
150
195
Creditors
19.5
21.5
21.4
20.3
19.7
5.6
5.7
4.8
3.9
3.4
0.1
0.1
93.3
124.6
129.7
142.5
180.1
74
94
127
162
206
Minority Interest
Loan fund
15
30
Inventory
Solvency Ratio (x)

Debt-equity
79
101
133
183
242
Per share (Rs)
Net fixed assets
48
53
86
142
212
Adj EPS
11.8
13.6
19.7
21.7
27.4
BVPS
33.9
43.1
57.8
73.6
93.8
Cash and bank
38
45
44
22
18
CEPS
13.8
16.0
22.5
25.8
33.3
Inventories
6.3
Investments
Interest coverage
23
23
27
37
46
Dividend Ratios
Debtors
13
17
25
31
DPS (Rs)
3.0
3.7
4.3
5.0
Loans and advances
12
22
28
Dividend Yield (%)
0.5
0.6
0.7
0.9
1.1
74
90
101
106
123
25.4
27.6
21.6
23.1
22.8
44
44
56
67
95
Valuation (x)
Net current assets
29
46
45
39
41
P/E
49.4
42.9
29.6
26.9
21.3
Total assets
79
101
133
183
242
P/BV
17.2
13.5
10.1
7.9
6.2
EV/EBIDTA
31.0
27.2
21.1
17.2
13.5
3.4
2.9
2.5
2.1
1.7
Dividend Payout (%)
EV/Sales
19
Eicher Motors Ltd
Initiating Coverage
Rating: BUY
Date
February 19, 2015
CMP (Rs.)
16938
Target (Rs.)
20079
18.5
BSE Sensex
29320
NSE Nifty
8869
Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol
Eim in equity
Eich.bo
A
505200
eichermot
Market Data
Market Cap.(Rs. Cr)
Equity Sh.Cap. (Rs Cr)
52 Wk High/Low
Avg. Qtrly Volume
Face Value (Rs.)
45911
27
16895/4525
4509
10
FII
DII
Promoters
Public & Others
Total
19.4
4.7
55.0
20.9
100
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Eicher Motors Ltd is a dual play on sustained strong growth from its motorcycle business
and Volvo Eicher Commercial Vehicles (VECV) which is well placed to grab the CV recovery
in India. Its motorcycle business owns the iconic brand Royal Enfield and its volumes
have witnessed a CAGR of 42% over CY09-14. It has consistently increased its motorcycle
capacity over the last 3-4 years and is likely to maintain its strong growth momentum going
forward too. On the other hand, VECV is well placed to grab the demand revival in Indian
CV space. As of December 2014, VECV market share stands at ~6% in the overall CV
industry and ~12% share in the M&HCV segment. The launch of Pro-series along with the
expected recovery in demand is likely to expand its overall share in the CV space. With
VECV expected to post better performance, consolidated EBITDA margins is likely to
expand from 10.5% in CY13 to 15% in CY16 further boosting profitability. At current price
the stock is trading at P/E and EV/EBITDA of 27.8x and 17.9x its CY16E respectively. We
believe higher earnings growth from VECV segment would eventually bring down the
valuation multiple going forward and hence we recommend Buy with target of Rs20079.
Motorcycle segment to continue its robust growth:
Eicher Motors Ltd owns the iconic brand Royal Enfield which caters to premium and niche
segment in India. Motorcycle sales volume has consistently witnessed robust growth with CAGR
of 42% over CY09-14. Management has consistently increased its motorcycle capacity from 1.8
lacs units in CY13 to around 3.0 lacs units in CY14 and is expected to be in the range of 4.3 lacs
to 4.5 lacs units in CY15. Despite huge capacity addition, the growth momentum continues to
remain strong for RE, with the demand situation robust and the motorcycle still commanding
nearly 5 months of waiting periods. We believe the company is likely to continue with its strong
volume growth momentum on the back of new launches, delaer network addition of 70-80 dealers
p.a. and inherent demand from the Tier 2/3 cities which are yet to be played out. The company is
further penetrating the export market which would continue its strong growth momentum.
VECV to revive performance:
VECV is a 54:46 joint venture (JV) between Eicher Motors and Volvo group. As of December
2014, VECV has overall market share of ~6% in the CV industry with ~12% share in the M&HCV
segment. The company in the past launched Eicher Pro-1000 and Pro-3000 range of trucks and
buses which was well responded by the customers. We believe the launch of Pro series of
vehicles along with the expected recovery in demand is likely to expand its overall share in the CV
space going forward. Improvement is VECV performance is expected to expand consolidated
margins further boosting profitability for the company.
350
300
250
200
150
100
50
0
Eicher Motors
A Sweet Spot CV and premium 2-wheelers
Sensex
Vidrum Mehta
Research Analyst
Strong financial performance to continue:

During CY09-13, when overall Automobile industry witnessed slowdown, Eichers continued to
show strong financial performance. Consolidated sales and profit witnessed a CAGR of 23% and
42% respectively during the same period. This is mainly after strong growth from its standalone
(motorcycle business) which witnessed sales and profit CAGR of 46% and 53% respectively. For
CY13, Motorcycle business contributed 25% and 49% of its consolidated revenue and profit of the
company. Further the management has guided capex of Rs600 crore for CY15 at its Oragadam
plant. The company is net cash with high return on equity of 40% for CY14 despite the regular
capex incurred in the past. We believe company is likely to continue with its strong financial
performance, cash flow generation and higher return ratios going forward.
Valuation:
The stock is currently trading at P/E and EV/EBITDA of 27.8x and 17.9x its CY16E respectively.
Eicher is dual play with Motorcycle business to continue its robust growth momentum and VECV
to witness a strong demand recovery. We believe higher earnings growth from VECV segment
would bring down the valuation multiple and hence we recommend Buy with target of Rs20079.
Arun Gopalan
Year (Dec Ending)

(Rs Cr)
Revenue
Growth
YoY (%)
EBITDA
EBITDA
margin
(%)
PAT
Growth
YoY (%)
EPS
(Rs)
PE (x)
EV/
EBITDA
(x)
RoE (%)
CY12
CY13
CY14
6,390
6,810
8,738
12.5
6.6
28.3
549
713
1,115
8.6
10.5
12.8
475
525
702
54.0
10.6
33.6
175.2
193.8
227.0
96.7
87.4
74.6
81.0
62.4
40.0
29.2
27.6
26.9
CY15E
CY16E
11,251
15,869
28.8
41.0
1,575
2,396
14.0
15.1
1,050
1,649
49.7
57.0
387.5
608.5
43.7
27.8
27.9
17.9
35.9
41.6
20
Exhibit 40: Yearly Sales Volumes CV & Motorcycle (Units)
700000
18000
600000
16000
500000
12000
400000
10000
300000
8000
4000
100000
8738
5678
6390
6810
CY12
CY13
2000
0
CY11
CY12
CY13
CV sales
CY14
CY15E
CY16E
14.0
12.8
10.5
9.8
8.6
8.0
6.0
CY11
CY12
CY13
CY14
CY15E
45
40
35
30
25
20
15
10
5
0
CY16E
140
87.4
74.6
80
60
43.7
26.2
22.3
20
18.2
13.8
27.8
10.0
CY15E
CY16E
0
CY11
CY12
29.8
22.6
27.6
43.1
26.9
30
34.2
27.6
22.8
40
20
21.9
10
0
CY12
CY13
CY14
CY15E
CY16E
Exhibit 45: EV/EBITDA (X)
148.9
30.7
29.2
Exhibit 44: P/E and P/BV (X)
96.7
50
35.9
Return on equity
100
41.6
CY11
EBITDA margins
120
CY16E
16.0
10.0
CY15E
15.1
14.0
CY14
Revenue (Rs Cr)
12.0
CY11
Motorcycle sales
40
11251
6000
200000
160
15869
14000
CY13
P/E
CY14
P/BV
90
80
70
60
50
40
30
20
10
0
79.8
81.0
62.4
40.0
27.9
17.9
CY11
CY12
CY13
CY14
CY15E
CY16E
EV/EBITDA
21
Income Statement
Y/E December (Rs Cr)
Revenue
Growth (%)
Raw Material
% of sales
Personnel expenses
% of Sales
% of Sales
EBIDTA
EBIDTA margin %
Depreciation
Interest
Other Income
PBT
Provision for tax
Profit / Loss Discontinued Ops.
Adj Net Profit
Growth %
Net profit margin %
Cash Flow
CY12
6,390
12.5
4,585
71.8
457
7.2
798
12.5
549
8.6
82
4
137
600
125
CY13
6,810
6.6
4,639
68.1
533
7.8
925
13.6
713
10.5
130
8
95
671
145
CY14E
8,738
28.3
5,766
66.0
660
7.5
1,198
13.7
1,115
12.8
220
10
107
993
291
CY15E
11,251
28.8
7,392
65.7
810
7.2
1,474
13.1
1,575
14.0
237
12
133
1,459
408
CY16E
15,869
41.0
10,394
65.5
1,079
6.8
1,999
12.6
2,396
15.1
288
12
195
2,291
641
20.8
21.7
29.3
28.0
28.0
475
475
54.0
7.4
525
525
10.6
7.7
702
702
33.6
8.0
1,050
1,050
49.7
9.3
1,649
1,649
57.0
10.4
Balance Sheet
Share capital
Reserves & surplus
Minority Interest
Loan fund
Net fixed assets
Investments
Cash and bank
Inventories
Debtors
Loans and advances
Net current assets
Total assets
CY12
27
1,728
1,755
948
22
123
2,849
1,496
639
804
489
446
599
2,337
1,623
714
2,849
CY13
27
2,028
2,055
1,040
84
180
3,359
2,120
825
683
527
513
670
2,391
1,977
414
3,359
CY14E
27
2,489
2,516
1,085
58
239
3,899
2,728
1,078
481
646
562
913
2,602
2,509
93
3,899
CY15E
27
3,301
3,328
1,085
58
239
4,711
3,241
1,078
1,044
1,058
911
1,466
4,479
4,085
393
4,711
CY16E
27
4,570
4,597
1,085
58
239
5,980
3,991
1,078
2,162
1,508
1,285
2,064
7,019
6,107
911
5,980

Depreciation
Others
Change in working capital
Tax expenses
Cash flow from Ops
Capex
Dividends paid
Interest paid
Net Cash Flow
CY12
600
82
(131)
53
(108)
496
(782)
9
(773)
(17)
(90)
(4)
(111)
(388.0)
CY13
671
130
(82)
149
(150)
717
(705)
(86)
(791)
63
(102)
(8)
(47)
(120.9)
CY14E
993
220
(98)
120
(232)
1,002
(828)
(145)
(973)
(26)
(159)
(10)
(194)
(164.5)
CY15E
1,459
237
(121)
263
(408)
1,430
(750)
133
(617)
(238)
(12)
(250)
562.8
CY16E
2,291
288
(183)
311
(641)
2,066
(750)
195
(555)
(381)
(12)
(393)
1,117.9
CY12
CY13
CY14E
CY15E
CY16E
29.2
22.8
27.6
21.9
26.9
27.6
35.9
34.2
41.6
43.1
ROIC
51.5
39.3
41.3
48.3
61.1
Inventory
29.0
28.2
27.0
27.6
29.5
Debtors
Creditors
Solvency Ratio (x)
Debt-equity
Interest coverage
Per share (Rs)
Adj EPS
BVPS
CEPS
Dividend Ratios
DPS (Rs)
Dividend Yield (%)
Dividend Payout (%)
Valuation (x)
P/E
P/BV
EV/EBIDTA
27.4
61.3
3.3
27.5
63.9
3.0
23.5
63.2
2.8
23.9
64.7
3.2
25.3
68.6
3.7
0.0
159.2
0.0
86.1
0.0
102.5
0.0
122.6
0.0
191.9
175.2
647.4
205.5
193.8
758.3
241.8
227.0
928.2
308.1
387.5
1,227.9
475.1
608.5
1,696.0
714.9
19.9
0.1
11.4
29.9
0.2
15.4
50.0
0.3
22.0
75.0
0.4
19.4
120.0
0.7
19.7
96.7
26.2
81.0
87.4
22.3
62.4
74.6
18.2
40.0
43.7
13.8
27.9
27.8
10.0
17.9
7.0
6.5
5.1
3.9
2.7
Key Ratios
Y/E December
Return ratios (%)
ROE
ROCE
EV/Sales
22
Force Motors Ltd
Initiating Coverage
Rating: ACCUMULATE
Date
February 19, 2015
CMP (Rs.)
1413
Target (Rs.)
1538
8.8
BSE Sensex
29320
NSE Nifty
8869
Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol
Fml in equity
Forc.bo
B
500033
Not listed
Market Data
Market Cap.(Rs. Cr)
Equity Sh. Cap.(Rs Cr)
52 Wk High/Low
Avg. Qtrly Volume
Face Value (Rs.)
1842
13
1463/282
141617
10
FII
DII
Promoters
Public & Others
Total
5.4
0.7
59.4
34.5
100
400
300
200
100
Force Motors
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
0
Apr-14
Force Motors Ltd (Force) is fully integrated automobile company with focus on design and
development of vehicles (mainly into LCV, UVs and tractors) and auto components in
India. The company has strong brand recall with Traveller being one of the prominent name
enjoying the market leadership position of 41% share in the LCV passenger segment in
India. Force also has technical collaboration with Daimler AG, Germany in respect of multipurpose passenger vehicles. Further as per media reports, Indian arm of German luxury
auto maker BMW is likely to partner Force motors, in its strategy for localization of its
resources at its Chennai plant. We believe the company is has diversified business
segment and is well placed to benefit from the revival in the overall recovery in the
automobile industry in India. Higher demand is likely to improve the utilization level and
operating performance resulting into margin expansion going forward. At current price the
stock is trading at trading at P/E and EV/EBITDA of 15.6x and 7.9x its FY17E respectively.
Hence we are positive on the stock with a target price of Rs1538.
A niche player with a strong brand recall :
Force is a diversified company with focus and design and developments of automotive vehicles in
India. As of FY14, 72% of the total revenue is in terms of sales of automotive vehicles, 27%
through sales of auto component and remaining of 1% is others. Within the Automotive segment,
Commercial vehicles (LCV & SCV contributing around 50% of volume), passenger vehicle (UV &
SUV accounts for 39% of volume) and the remaining of 12% are through sales of tractors. The
company has strong brand recall in each of the segment with Traveller, Trax and Trump (into CV
segment), Force Gurkha, Force One (PV) and Balwan and Orchard (tractors). The brand Traveller
is one of the prominent names and enjoying market leadership position with 41% share in the LCV
passenger segment in India. Domestic sales volume accounted for 91% of auto sales volume
while the remaining of 9% is through exports. The company is penetrating in the export market
through appointment of dealers in various countries like Nepal, Bangladesh, Sri Lanka and some
of the African and Latin American countries which is likely to drive its sales growth going forward.
Component business likely to gain traction:
Force motors components business currently accounts for 27% of the total revenue and has
witnessed a CAGR of 28% over FY10-14. The Company has technical collaboration with Daimler
AG, Germany in respect of multi-purpose passenger vehicles. Further as per media reports, Indian
arm of German luxury auto maker BMW is likely to partner Force motors in its strategy for
localization of its resources at its Chennai plant. The company is likely to produce engine and
gearboxes and other auto ancillary for BMW. We believe companys auto component segment is
likely to continue its strong growth momentum and to some extent cushions the overall financial
performance when there is slowdown in the automotive segment.
500
Feb-14
A unique blend of CVs and auto components
Sensex
Vidrum Mehta
Research Analyst
Financial performance to improve:

After 2 years of decline in sales volume of 4% and 7% in FY13 and FY14, the company is well
placed to gain from the revival in the demand. We expect companys sales volume to witness a
CAGR of 8% over FY14-17. Improved demand scenario is further likely to improve the overall
utilization levels and operating efficiencies which are likely to improve EBITDA margins from 4.8%
in FY14 to 6.4% in FY17. As of FY14, Force is net cash company with cash and cash equivalent
of Rs225 crore. As of FY14, book value of the company stands at Rs931 and hence it is trading
P/BV of 1.2x. Its return on equity is likely to gradually increase from 6% in FY14 to 9% in FY17.
Valuations:
At current price the stock is trading at trading at P/E and EV/EBITDA of 15.6x and 7.9x its FY17E
respectively. We believe company is well diversified player in the automobile business and is likely
to benefit from the revival in the overall automobile industry going forward. Further any positive tieups with global auto OEMs would further fuel the growth. Hence we are positive on the stock with
a target price of Rs1538
Arun Gopalan
arungopalan@systematixshares.co
Year (Rs Cr)
Revenue
Growth
YoY (%)
EBITDA
FY13A
FY14A
FY15E
1,973
2,022
2,122
-5.4
2.5
5.0
54
97
102
EBITDA
margin
(%)
2.7
4.8
4.8
PAT
Growth
YoY (%)
EPS
(Rs)
PE (x)
EV/
EBITDA
(x)
RoE (%)
14
78
54
-65.4
443.6
-29.9
10.9
59.0
41.3
130.3
24.0
34.2
31.1
17.2
16.1
1.2
6.5
4.4
FY16E
2,475
16.6
139
FY17E
3,131
26.5
200
5.6
77
41.4
58.5
24.2
11.7
5.9
6.4
119
54.8
90.5
15.6
7.9
8.5
23
Exhibit 46: Yearly Auto Sales Volume (Units)
Exhibit 47: Revenue Mix (%)
40000
35000
30000
25000
20000
15000
10000
5000
0
FY2017E
FY2016E
FY2015E
FY2014
FY2013
FY2012
FY2011
Moulds,
Dies, Press
Tools, Jigs &
Fixtures
0.4%
Auto
Components
27.1%
Automobiles
72.5%
Sales Volume (Units)

8.0
7.0
6.4
5.8
5.6
6.0
10
5.8
4
2.7
3.0
6.5
5.9
5.6
2.2
8.5
6.0
4.4
2.0
1.2
1.0
FY2012
FY2013
FY2014
FY2012
FY2015E FY2016E FY2017E
EBITDA margins (%)
2.5
130.3
1.6
FY2015E FY2016E FY2017E

Exhibit 51: EV/ EBITDA (x)
140
1.6
FY2014
Exhibit 50: P/E & P/BV (X)
120
FY2013
Return on Equity
2.0
1.5
1.5
35
31.1
30
25
1.4
80
1.3
60
20
7.7
4.0
40
9.5
4.8
4.8
5.0
100
11.2
12
1.5
1.0
20
15
17.2
16.1
12.0
11.7
7.9
10
45.1
0.5
34.2
24.2
24.0
15.6

P/E
P/BV
0.0
0
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E
EV/EBITDA
24
Income Statement
Y/E March (Rs Cr)
Revenue
Growth (%)
Raw Material
% of sales
Personnel expenses
% of Sales
% of Sales
EBIDTA
EBIDTA margin %
Depreciation
Interest
Other Income
PBT
Provision for tax
Adj Net Profit
Growth %
Net profit margin %
Cash Flow
FY13
1,973
(5.4)
1,409
71.4
262
13.3
248
12.6
54
2.7
70
8
44
19
5
FY14
2,022
2.5
1,416
70.0
241
11.9
268
13.3
97
4.8
85
9
60
63
(15)
FY15E
2,122
5.0
1,485
70.0
253
11.9
282
13.3
102
4.8
86
8
60
68
14
FY16E
2,475
16.6
1,723
69.6
292
11.8
322
13.0
139
5.6
94
7
59
96
19
FY17E
3,131
26.5
2,163
69.1
360
11.5
407
13.0
200
6.4
102
7
61
153
34
25.3
(24.1)
20.0
20.0
22.0
14
14
(65.4)
0.7
78
78
443.6
3.8
54
54
(29.9)
2.6
77
77
41.4
3.1
119
119
54.8
3.8
Balance Sheet
Y/E March (Rs Cr)
Share capital
Reserves & surplus
Minority Interest
Loan fund
Net fixed assets
Investments
Cash and bank
Inventories
Debtors
Loans and advances
Net current assets
Total assets
FY13
13
1,140
1,153
42
22
1,217
811
1
225
382
109
181
896
491
405
1,217
FY14
13
1,213
1,226
20
7
1,253
849
1
216
377
135
193
922
519
403
1,253
FY15E
13
1,263
1,276
20
7
1,303
858
1
245
403
138
203
989
545
444
1,303
FY16E
13
1,332
1,345
20
7
1,372
888
1
256
463
161
232
1,112
629
482
1,372
FY17E
13
1,440
1,454
20
7
1,481
988
1
306
579
197
293
1,375
884
592
1,481
Y/E March (Rs Cr)

Depreciation
Others
Tax expenses
Cash flow from Ops
Capex
Dividends paid
Interest paid
Net Cash Flow
FY13
19
70
(23)
27
(11)
83
(338)
34
(304)
6
(15)
(6)
(16)
(237)
FY14
63
85
(4)
(20)
(2)
121
(114)
15
(100)
(16)
(5)
(9)
(30)
(9)
FY15E
68
86
(52)
(12)
(14)
76
(94)
60
(34)
(5)
(8)
(13)
29
FY16E
96
94
(52)
(27)
(19)
92
(125)
59
(66)
(8)
(7)
(15)
11
FY17E
153
102
(54)
(60)
(34)
106
(100)
61
(39)
(11)
(7)
(18)
50
FY13
FY14
FY15E
FY16E
FY17E
1.2
2.2
6.5
5.8
4.4
6.0
5.9
7.7
8.5
11.2
Key Ratios
Y/E March
Return ratios (%)
ROE
ROCE
ROIC
Inventory
3.1
7.1
7.3
9.5
14.0
68.8
68.5
67.1
63.9
60.7
Debtors
24.5
22.0
23.5
22.0
20.9
Creditors
Solvency Ratio (x)
Debt-equity
Interest coverage
Per share (Rs)
Adj EPS
BVPS
CEPS
Dividend Ratios
DPS (Rs)
Dividend Yield (%)
Dividend Payout (%)
Valuation (x)
P/E
P/BV
EV/EBIDTA
EV/Sales
45.9
1.5
49.9
1.4
52.8
1.3
49.6
1.4
47.4
1.6
0.0
3.3
0.0
7.8
0.0
9.5
0.0
14.8
0.0
22.8
10.8
875.0
64.1
59.0
930.5
123.4
41.3
968.3
106.4
58.5
1,020.9
130.0
90.5
1,103.2
167.5
3.0
0.2
27.7
3.0
0.2
5.1
3.0
0.2
7.3
5.0
0.4
8.6
7.0
0.5
7.7
130.3
1.6
31.1
0.9
24.0
1.5
17.2
0.8
34.2
1.5
16.1
0.8
24.2
1.4
11.7
0.7
15.6
1.3
7.9
0.5
25
SML Isuzu Ltd
Initiating Coverage
Rating: BUY
Date
February 19, 2015
CMP (Rs.)
1005
Target (Rs.)
1222
21.5
BSE Sensex
29320
NSE Nifty
8869
Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol
Sm in equity
Smli.bo
B
505192
SMLISUZU
Market Data
Market Cap.(Rs. Cr)
Equity Sh.Cap. (Rs Cr)
52 Wk High/Low
Avg. Qtrly Volume
Face Value (Rs.)
1454
14
1119/248
13889
10
FII
DII
Promoters
Public & Others
Total
0.3
18.8
43.9
37.0
100
500
400
300
200
100
SML
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Sensex
Vidrum Mehta
Research Analyst
Arun Gopalan
Small player with huge potential

SML Isuzu Ltd (SML) is a small player with market share of 2% in the overall CV industry in
India. It operates in 5-12 tonne gross vehicle weight (GVW) segment with passenger/cargo
sales volume mix at 55:45 respectively. During 9MFY15, SML volume grew by 13% YoY to
7,988 units outpacing the overall CV industry volume which declined by 6% YoY (M&HCV
grew by 10% while LCV declined 13%). With the expectation of revival in demand in
addition with companys focus on new launches is likely to increase its share to 15% from
9.7% in FY14 in the 5-12 tonne category over the next 2-3 years. Higher utilization level
would result into operating efficiencies and margin expansion going forward. At current
price the stock is trading at P/E and EV/EBITDA of 19.7x and 11.1x its FY17E. Considering
its strong financial performance, net cash, free cash flow and consistent dividend payout
could result into re-rating of the stock. Hence we recommend Buy with target of Rs 1,222.
Small player with huge growth opportunity:
During 9MFY15, SML volumes grew by 13% YoY to 7,988 units as against de-growth of 6% in the
overall commercial vehicle industry (M&HCV grew by 13% while LCV declined 13%). This is after
55% of the SMLs volumes are derived from passenger segment which grew at a healthy rate of
20%-25% while cargo volumes remained flat during the same period. According to the
management, passenger segment is less vulnerable to macro environment risk and slowdown in
the economy compared to cargo segment, which is helping SML to post better growth. With overall
economic and industrial activity likely to revive we expect a recovery n in CV cycle from FY16E
onwards and would benefit SML going forward.
Market share to expand to 15%:
SML primarily focuses on niche bus segment like School and college buses, city bus and buses
for BPO/ IT employees etc. For FY14, companys Bus and truck volume mix stood at 65% and
35% respectively. The company has PAN India presence with south and north contributing 35%
each while west and east contributing the 30% and 10% respectively. It currently has 100 dealers
with 20 dedicated service centers across the country. In FY2014, volumes of 5-12 tonnes segment
(in which SML operates) accounted for 14% (100,200 units) of the total CV volumes (709,800
units) in India. With the expectation of revival in demand in addition with SMLs focus on new
launches would increase its market share to 15% (in the 5-12 tonne category) over the next 2-3
years as against its share of 9.7% in FY14.
Strong financial performance to continue:
For 9MFY15 revenue grew by 19% YoY to Rs784 crore, mainly driven by volume growth of 13%
YoY to 8,317 units. EBITDA grew by 104% YoY to Rs45 crore while EBITDA margins expanded
by 237 bps YoY to 5.7%. Net profit grew by 150% YoY to Rs24 crore. On the back of revival in
demand, we estimate SMLs revenue, EBITDA and profit to witness a CAGR of 25%, 60% and
62% respectively over FY14-2017E. Higher utilization level and operating efficiencies is also likely
to improve EBTDIA margins from 3.6% in FY14 to 7.4% by FY17.
Capacity expansion to cater next phase of growth:
SML utilization level is expected to improve from 54% in FY14 to 74% in FY16E and further 91%
in FY17E. The company even at the lower utilization level has an asset turnover of 4x in FY14 and
is expected to increase further to 5.3x by FY17E. We believe management has anticipated the
higher demand going forward and therefore has planned a capex of Rs220 crore which 1x of its
current gross block. Expansion is likely to be done in various phases and over next 3 years
(starting FY16E) and would be a mix of internal accrual and debt.
Valuation:
Higher utilization level and operating efficiencies is likely to improve margins going forward. At
current price Force is trading at P/E and EV/EBITDA of 19.7x and 11.1x its FY17E respectively.
Considering its strong financial performance, net cash, free cash flow and consistent dividend
payout could result into re-rating of the stock. Hence we recommend Buy with target of Rs 1,222.
Year (Rs Cr)
Revenue
Growth
YoY (%)
EBITDA
FY13A
FY14A
FY15E
FY16E
1,002
881
1,067
1,340
-3.3
-12.1
21.0
25.6
70
32
65
90
EBITDA
margin
(%)
7.0
3.6
6.1
6.7
FY17E
1,756
31.1
130
7.4
PE (x)
EV/
EBITDA
(x)
25.2
12.0
25.5
34.0
39.9
83.5
39.5
21.9
44.6
21.2
29.6
15.6
14.4
6.4
12.8
15.7
50.9
19.7
11.1
21.0
PAT
Growth
YoY (%)
EPS
(Rs)
36
17
37
49
-19.6
-52.2
111.4
33.5
74
49.8
RoE (%)
26
Exhibit 52: Monthly Sales Volume (Units)
1800
1600
1400
1200
1000
800
600
400
200
0
2000
1756
1340
1500
1036
1002
FY12
FY13
1000
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
500
0
Sales Volumes (Units)
FY17E
25
7.4
7.0
35
21.0
20.0
6.7
30
20
6.1
15.7
14.4
6.0
15
5.0
3.6
4.0
12.8
23.0
10
29.9
25
20
23.5
15
18.4
17.0
3.0
6.4
10
2.0
1.0
6.5
0.0
0
FY12
FY13
FY14
FY15E
FY16E
FY17E
80
6
6.0
50
5.3
39.9
5
4.9
39.5
32.1
20
4.4
29.6
30
3.9
19.7
2
1
10
0
FY2012
FY2013
FY15E
FY16E
FY17E
Exhibit 57: EV / EBITDA (X)
83.5
5.5
FY14
Exhibit 56: P/E & P/BV (X)
60
FY13
Return on equity
90
0
FY12
EBITDA margin (%)
40
FY16E
7.7
7.0
70
FY15E
8.0
FY14
Revenue (Rs Cr)
9.0
1067
881
FY2014 FY2015E FY2016E FY2017E

P/E
P/BV
50
45
40
35
30
25
20
15
10
5
0
44.6
18.4
21.9
21.2
15.6
11.1
FY2012
FY2013
FY2014 FY2015E FY2016E FY2017E

EV/EBITDA
27
Income Statement
Y/E March (Rs Cr)
Revenue
Growth (%)
Raw Material
% of sales
Personnel expenses
% of Sales
% of Sales
EBIDTA
EBIDTA margin %
Depreciation
Interest
Other Income
PBT
Provision for tax
Adj Net Profit
Growth %
Net profit margin %
Cash Flow
FY13
1,002
(3.3)
762
76.1
81
8.1
89
8.9
70
7.0
12
19
9
48
12
FY14
881
(12.1)
668
75.8
94
10.7
88
10.0
32
3.6
13
6
5
18
0
FY15E
1,067
21.0
784
73.5
117
11.0
100
9.4
65
6.1
18
5
8
50
14
FY16E
1,340
25.6
982
73.3
143
10.7
125
9.3
90
6.7
19
10
9
69
20
FY17E
1,756
31.1
1,282
73.0
184
10.5
160
9.1
130
7.4
22
13
9
104
30
24.9
1.8
27.0
29.0
29.0
36
36
(19.6)
3.6
17
17
(52.2)
2.0
37
37
111.4
3.5
49
49
33.5
3.7
74
74
49.8
4.2
Balance Sheet
Y/E March (Rs Cr)
Share capital
Reserves & surplus
Minority Interest
Loan fund
Net fixed assets
Investments
Cash and bank
Inventories
Debtors
Loans and advances
Net current assets
Total assets
FY13
14
250
264
162
11
437
149
75
231
151
53
510
222
287
437
FY14
14
262
276
10
286
152
41
243
82
32
399
265
134
286
FY15E
14
284
298
10
10
318
150
84
256
107
47
493
325
168
318
FY16E
14
312
327
20
10
357
177
79
308
127
58
573
393
180
357
FY17E
14
361
375
40
10
425
252
46
395
167
77
685
511
177
425
Y/E March (Rs Cr)

Depreciation
Others
Tax expenses
Cash flow from Ops
Capex
Dividends paid
Interest paid
Net Cash Flow
FY13
48
12
8
(83)
(11)
(25)
(22)
(6)
(28)
62
(13)
(19)
30
(24)
FY14
18
13
2
135
(5)
162
(18)
40
22
(162)
(14)
(6)
(181)
2
FY15E
50
18
(0)
9
(14)
63
(15)
8
(7)
10
(15)
(5)
(10)
45
FY16E
69
19
2
(17)
(20)
53
(46)
9
(38)
10
(20)
(10)
(20)
(5)
FY17E
104
22
(15)
(29)
(30)
52
(75)
9
(66)
20
(25)
(13)
(18)
(32)
FY13
FY14
FY15E
FY16E
FY17E
14.4
17.0
6.4
6.5
12.8
18.4
15.7
23.5
21.0
29.9
ROIC
Inventory
21.5
7.8
23.2
31.0
35.6
83.2
98.2
85.4
76.8
73.1
Debtors
49.5
48.1
32.2
31.9
30.6
Creditors
Solvency Ratio (x)
Debt-equity
Interest coverage
Per share (Rs)
Adj EPS
BVPS
CEPS
Dividend Ratios
DPS (Rs)
Dividend Yield (%)
Dividend Payout (%)
Valuation (x)
P/E
P/BV
EV/EBIDTA
EV/Sales
50.1
4.9
57.1
4.0
61.8
4.5
60.1
5.1
58.2
5.5
0.6
3.6
4.0
0.0
11.1
0.1
7.9
0.1
9.0
25.2
182.5
34
12.0
191.0
21
25.5
205.9
38
34.0
225.9
47
50.9
259.3
66
8.0
0.8
31.8
8.0
0.8
66.5
9.0
0.9
35.4
12.0
1.2
35.3
15.0
1.5
29.5
39.9
5.5
21.9
1.5
83.5
5.3
44.6
1.6
39.5
4.9
21.2
1.3
29.6
4.4
15.6
1.0
19.7
3.9
11.1
0.8
Key Ratios
Y/E March
Return ratios (%)
ROE
ROCE
28
Indag Rubber Ltd
Initiating Coverage
Rating: BUY
Date
February 19, 2015
CMP (Rs.)
876
Target (Rs.)
1092
24.7
BSE Sensex
29320
NSE Nifty
8869
Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol
Idr in equity
Idgr.bo
B
509162
Not listed
Market Data
Market Cap.(Rs. Cr)
Equity Sh. Cap. (Rs
52
Cr)Wk High/Low
Avg.Qtrly Volume
Face Value (Rs.)
460
5
1100/226
7030
10
FII
DII
Promoters
Public & Others
Total
0.9
0.0
74.8
24.3
100
Indag
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
400
350
300
250
200
150
100
50
0
Sensex
Vidrum Mehta
Research Analyst
Arun Gopalan
Year (Rs Cr)
Revenue
FY13A
FY14A
FY15E
235
232
237
FY16E
FY17E
256
280
Re-treading business to benefit from CV revival

Indag Rubber is into tyre re-treading business with market share of ~23% in the organized
cold process tread manufacturing in India. The re-treading of tyre is particularly done in
case of commercial vehicle in India. With the demand expected to revive in the CV space
we expect the demand for re-treading to also gather momentum. Indag has large
distribution network with 25 depots, 600 re-treaders and 150 dealers across India. Retreading of the tyre is cost effective (saves 50%-70% compared to new tyre), and is safer
and durable similar to new tyre thus improving fleet operators margins and ensuring
similar kind performance. Further the likely implementation of GST would reduce the
pricing gap of 12%-25% which currently unorganized players enjoy over the organized
players. Indag is debt free, free cash flow generating with high return on equity of 30%. At
current price the stock is trading at P/E of 14.4x its FY17E EPS of Rs61. We believe Indag is
well placed to capture the growth opportunity rising from the recovery of the Indian CV
industry going forward. Hence we recommend Buy with target price of Rs1092.
Leading player in the re-trading market:
Indag rubber was incorporated in 1978 as joint venture between Khemka group and Bandag Inc
(USA). In 2006 the JV was terminated with Bandags 38.3% stake taken over by Khema group
which currently holds more than 70% stake in the company. It has one manufacturing plant
located at Himachal Pradesh with a capacity of 13,800 tonnes. The company has large distribution
network with 25 depots, around 600 retarders and 150 dealers across India. The revenue mix for
the same stands at ~10% with the fleet owners, while 36% and 54% between dealers and retreaders respectively. Indag also caters to most of the state transport companies. Management is
planning to have a tie-up with big fleet operators which are likely to generate higher revenue and
margin expansion going forward.
Favorable Industry dynamics:
The Indian Tread manufacturing industry is ~Rs3209 crore and is dividend among Cold and Hot
manufacturing process with share of 66.7% and 33.3% respectively. Within the cold process,
organized and unorganized players have equal market share. Indag manufactures tread via cold
process and is the 2nd largest player with market share of 23% while Midas (unlisted) is the leader
with 35% share, Vamshi rubber and Elgi rubber collectively hold ~22% and the remaining of ~20%
is held by others. Re-treading of tyre is cost effective, as the key input natural rubber (NR)
accounts for ~25% of its total raw material cost as against ~50% in manufacturing new tyre. This
results into cost saving in the range of 50%-70% as compared to new tyre. The durability and
safety is similar to that of new tyre thus improving fleet operators margins and ensuring similar
kind performance. Further re-treading can be done 2-3 times in the life of a tyre resulting into
substantial reduction in the cost over the period. The likely implementation of GST would reduce
the pricing gap of 12%-25% which currently unorganized players enjoy over the organized players.
Financial performance:
During FY10-14, companys sales witnessed a CAGR of 20% as against the overall tread
manufacturing industry witnessing a growth of around 4% during the same period. Softening of the
rubber price (key input) in addition with lower crude and other raw material price has expanded its
gross margins by over 600 bps, helping the companys profit to witness a CAGR of 24% over
FY10-14. Further Indag is debt free, free cash flow generating which is resulting into higher return
on equity of 30% in FY14. The management has guided a capex of Rs6 crore used as balancing
equipment to increase additional capacity of 3600 tonnes. Indag margins is likely to contract going
ahead as the company is completing its 10 years tax advantage at its Himachal Pradesh plant in
February 2016 thus resulting into higher tax outgo.
Valuations:
At current price the stock is trading at P/E of 14.4x its FY17E EPS of Rs61. We believe Indag has
a strong brand recall and huge distribution network and is well placed to capture the growth
opportunity rising from the recovery of the Indian CV industry going forward. Hence we
recommend Buy with target price of Rs1092.
EBITDA
EV/
Growth
Growth
EPS
EBITDA
margin
PAT
PE (x)
EBITDA RoE (%)
YoY (%)
YoY (%)
(Rs)
(%)
(x)
8.6
34
14.5
25
19.6
47.6
18.4
12.7
34.9
-1.0
37
16.0
28
10.3
52.5
16.7
11.7
29.8
2.0
37
15.7
29
4.9
55.0
15.9
11.2
25.4
7.9
9.5
41
38
15.9
13.4
32
32
11.1
-0.7
61.1
60.7
14.3
14.4
9.9
10.2
23.4
19.8
29
Exhibit 58: Revenue Mix FY14 (%)
300
Other
materials
6%
250
216
235
232
237
FY13
FY14
FY15E
250
262
200
150
Precured
tread
rubber
87%
Bonding
repair &
extrusion
gums
7%
100
50
0
FY12
Exhibit 60: EBITDA margin (%)
21
45
19
40
17
15
16.0
14.1
16.6
16.9
35
17.6
50
45.1
45
38.6
39.5
40
34.5
34.9
30
31.0
35
29.0
30
29.8
25
26.4
20
25
23.4
20
21.0
15
FY12
FY13
FY14
FY15E
FY16E
FY17E
16.7
15.9
5.6
14.3
14.4
4.5
10
3.7
3.1
5
2.7
0
FY2012
FY2013
FY15E
FY16E
FY17E
Exhibit 63: EV/EBITDA (%)
22.0
15
FY14
Exhibit 62: P/E & P/BV (x)
18.4
FY13
Return on Equity
7.5
15
FY12
EBITDA margin (%)
20
55
48.8
14.5
11
25
FY17E
Sales (Rs Cr)
13
FY16E
FY2014 FY2015E FY2016E FY2017E

P/E
P/BV
16
14
12
10
15.1
12.7
11.7
11.2
9.9
FY2012
FY2013
10.2
FY2014 FY2015E FY2016E FY2017E

EV/EBITDA
30
Income Statement
Y/E March (Rs Cr)
Revenue
Growth (%)
Raw Material
% of sales
Personnel expenses
% of Sales
% of Sales
EBIDTA
EBIDTA margin %
Depreciation
Interest
Other Income
PBT
Provision for tax
Adj Net Profit
Growth %
Net profit margin %
Cash Flow
FY13
FY14
FY15E
FY16E
FY17E
235
8.6
164
70.0
13
5.7
23
9.9
34
14.5
2
0
2
33
8
24.1
25
25
19.6
10.7
232
(1.0)
154
66.5
15
6.6
26
11.0
37
16.0
3
0
2
36
8
23.5
28
28
10.3
11.9
237
2.0
158
66.8
15
6.5
26
11.0
37
15.7
3
0
3
38
9
23.5
29
29
4.9
12.2
256
7.9
170
66.6
17
6.5
28
11.0
41
15.9
3
0
4
42
10
23.0
32
32
11.1
12.6
280
9.5
194
69.4
18
6.5
30
10.7
38
13.4
3
0
7
41
10
23.0
32
32
(0.7)
11.4
Y/E March (Rs Cr)

Depreciation
Others
Tax expenses
Cash flow from Ops
Capex
Dividends paid
Interest paid
Net Cash Flow
Y/E March (Rs Cr)

Share capital
Reserves & surplus
Minority Interest
Loan fund
Net fixed assets
Investments
Cash and bank
Inventories
Debtors
Loans and advances
Net current assets
Total assets
FY14
FY15E
FY16E
FY17E
33
2
(1)
5
(7)
32
(1)
(26)
(27)
(1)
(4)
(0)
(6)
(0.1)
36
3
(1)
(5)
(7)
25
(6)
(12)
(17)
(5)
(0)
(6)
1.6
38
3
(3)
(2)
(9)
27
(4)
3
(0)
(7)
(0)
(7)
19.0
42
3
(4)
(2)
(10)
29
(11)
4
(7)
(8)
(0)
(8)
14.9
41
3
(7)
(2)
(10)
26
(6)
7
1
(9)
(0)
(9)
17.9
FY13
FY14
FY15E
FY16E
FY17E
34.9
45.1
56.9
29.8
38.6
53.9
25.4
32.8
46.6
23.4
30.2
47.7
19.8
25.6
43.7
50.5
32.9
22.4
5.3
49.9
36.7
21.0
5.2
49.6
40.1
20.2
5.0
47.8
39.4
19.5
4.6
47.1
38.7
19.2
4.4
198.3
191.6
378.7
417.8
414.8
47.6
155.5
52.3
52.5
196.3
57.3
55.0
237.9
60.2
61.1
284.4
67.1
60.7
328.1
66.6
8.0
0.9
16.8
10.0
1.1
19.1
11.5
1.3
20.9
12.5
1.4
20.4
14.5
1.7
23.9
18.4
5.6
12.7
1.8
16.7
4.5
11.7
1.9
15.9
3.7
11.2
1.8
14.3
3.1
9.9
1.6
14.4
2.7
10.2
1.4
Key Ratios
Y/E March
Return ratios (%)
ROE
ROCE
ROIC
Balance Sheet
FY13

FY13
FY14
FY15E
FY16E
FY17E
5
76
82
1
83
24
27
2
32
21
6
60
28
33
83
5
98
103
1
104
27
40
3
32
25
5
66
29
37
104
5
120
125
1
126
28
40
22
32
27
5
86
28
58
126
5
144
149
1
151
36
40
37
34
29
6
105
31
75
151
5
167
172
1
174
42
40
55
38
31
6
129
37
94
174
Inventory
Debtors
Creditors
Solvency Ratio (x)
Debt-equity
Interest coverage
Per share (Rs)
Adj EPS
BVPS
CEPS
Dividend Ratios
DPS (Rs)
Dividend Yield (%)
Dividend Payout (%)
Valuation (x)
P/E
P/BV
EV/EBIDTA
EV/Sales
31
DISCLOSURES/ APPENDIX
I. ANALYST CERTIFICATION
I, Vidrum Mehta, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report, (2) No part
of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report by Systematix Shares & Stocks (I) Limited or its Group/associates
companies. (3) has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.
Disclosure of Interest Statement
Response
Analyst holding in the stocks covered in the report
Yes
Served as an officer, director or employee
No
II. ISSUER SPECIFIC REGULATORY DISCLOSURES, UNLESS SPECIFICALLY MENTIONED IN POINT NO. 9 BELOW:
1.
The Research Analyst(s), Systematix Shares & Stocks(I) Limited (SSSIL), Associate of Analyst or his relative does not have any financial interest in the company(ies) covered in this report.
2.
The Research Analyst, SSSIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies) covered in this report as of the end of
the month immediately preceding the distribution of the research report.
3.
The Research Analyst, his associate, his relative and SSSIL do not have any other material conflict of interest at the time of publication of this research report.
4.
The Research Analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the
company(ies) covered in this report, in the past twelve months.
5.
The Research Analyst, SSSIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for the company (ies) covered in this report.
6.
SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research report.
7.
The Research Analyst has not served as an Officer, Director or employee of the company (ies) covered in the Research report.
8.
The Research Analyst and SSSIL has not been engaged in market making activity for the company(ies) covered in the Research report.
9.
Details SSSIL, Research Analyst and its associates pertaining to the companies covered in the Research report:
Sr.
Particulars
Yes / No.
No.
1
Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by SSSIL
No
2
Whether Research Analyst, SSSIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the
company(ies) covered in the Research report
No
3
Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the Research report
No
4
SSSIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report
No
5
Research Analyst, his associate, SSSIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services
No
from the company(ies) covered in the Research report, in the last twelve month
10. There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities.
11. Systematix Shares & Stocks (I) Limited is in a process of seeking registration under SEBI (Research Analyst) Regulations, 2014.
EXPLANATION TO RATINGS: BUY: TP>15%; ACCUMULATE: 5%<TP<15%; HOLD: -5%<TP<5%; REDUCE: -15%<TP<-5%; SELL: TP<-15%
III. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently
verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable, but we do not represent that it is accurate or complete, and one should exercise due caution while acting
on it. Descriptions of any company or companies or their securities mentioned herein are not complete and this document is not, and should not be construed as an offer or solicitation of an offer to buy or sell any
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constitute the judgment of the author as on the date of the report and these, plus any other information contained in the report, are subject to change without notice. Prices and availability of financial instruments also
are subject to change without notice.
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Indian Commercial Vehicle Industry

Auto & Auto Ancillary

Ashok Leyland - Buy

The new Central Government focuses on reforms --

SML Isuzu - Buy

Acceleration in reforms The Government has undertaken various measures/steps

Fleet operators in a much better state:

February 19, 2015

Green shoots visible:

Indian Commercial Vehicle Industry

Governments strong policy initiatives

Exhibit 1: National Highway network in India (kms)

Plan wise addition of National Highway network in India

Indian Commercial Vehicle Industry

Strong Correlation with GDP growth

Exhibit 2: GDP growth Vs Domestic CV volumes growth (%)

Exhibit 3: GDP growth Vs M&HCV volumes growth (%)

Growth in LCV volumes (%)

Growth in M&HCV volumes (%)

Exhibit 5: M&HCV and LCV volume growth (%)

Source: SIAM, RBI, Systematix Research

Exhibit 4: GDP growth Vs LCV volumes growth (%)

Source: SIAM, RBI, Systematix Research

Source: SIAM, RBI, Systematix Research

Source: SIAM, RBI, Systematix Research

Growth in M&HCV volumes (%)

Indian Commercial Vehicle Industry

Mining activity improves over the last 12 months.

. Exhibit 7: Monthly trend of Mining & Quarrying Industry

Mining & Quarrying Industry Growth (YoY) %

Indian Commercial Vehicle Industry

Paved Road network to improve

Exhibit 9: Paved road comparison (%)

Road Density (km / sq km)

Share of paved road (%)

Fleet operators in a much better state:

Indian Commercial Vehicle Industry

Exhibit 10: Trend of Petrol & Diesel price in Mumbai

Exhibit 11: Trend of Brent Crude ($/barrel)

Source: Media reports, mypetrolprice, Systematix Research

Exhibit 13: Trend in Freight rates in India

Freight Rate from Delhi of Truck (Rs./9 Tonne)

Brent Crude Prices ($/ barrel)

Exhibit 12: Freight Rates in India

Source: Financial express, Systematix Research

Fall in Diesel price (%)

Fall in Petrol Price (%)

Source: Financial express, Systematix Research

Indian Commercial Vehicle Industry

Greater likelihood of cheap CV loans:

SBI base rate

Source: RBI, SBI, Systematix Research

Exhibit 15: Monthly WPI (Inflation) trend

Monthly WPI Growth YoY (%)

Indian Commercial Vehicle Industry

Green shoots visible:

Ashok Leyland Ltd (ALL) Buy:

Indian Commercial Vehicle Industry

Eicher Motors Ltd (Eicher) - Buy:

Indian Commercial Vehicle Industry

Indian Automobile Industry

Exhibit 19: Passenger Vehicle market share (%) 9MFY15

Source: SIAM, Systematix Research