Automobiles : A formidable competition – Incumbents beware !!

April 25, 2013 Honda is making a huge inroad in the Indian Automobile sector. On one hand, Honda Motorcycle and Scooters India (HMSI) has overtaken (BJA) as the second Surjit Arora highest two-wheeler manufacturer on account of new launches and capacity [email protected] expansion (scooters + motorcycles), while on the other, Honda India has +91-22-66322235 forayed into the Diesel segment with its first offering ‘Amaze’ which is attractively priced to take the competition head-on. In this report, we analyse Honda’s market

Update share in both the segments and what it means for the incumbents. In motorcycles, we believe HMSI would further increase its market share by 210-220bps, whereas in the Passenger segment, we estimate 190-200bps gain in FY14E for Honda.

Stock Performance Sector (%) 1M 6M 12M ! Motorcycle segment to grow by 9%, mainly driven by 30% growth likely by Sensex 2.4 2.5 11.5 HMSI: Led by new launches from HMSI, mainly 110cc ‘Dream Yuga’ and the Auto 3.5 3.1 (1.1) recently launched 110cc ‘Dream Neo’, HMSI is likely to grow its motorcycle volumes by ~30% in FY14E. The company has already increased its capacity of Bajaj Auto 0.1 2.6 9.1 two‐wheelers from 2.8m to 4.0m units. As a result, we foresee its market share Hero Motocorp (2.7) (14.1) (29.9) further improving by 220‐230bps to 14.0% (from 7.7% in FY12). Given the strong Maruti 19.5 12.2 11.2 growth expected from HMSI, we expect the incumbents to lose 40bps -120bps in market share in FY14E. Hence, we are cautious on the two-wheeler space. The overall motorcycle segment is likely to grow at 9.1% YoY in FY14E (excl.

HMSI, growth is expected at 6.3%).

Stock Data ! Honda to gain 200bps in market share in FY14E in the passenger car segment: CMP (Rs) TP (Rs) PE (x) Honda has recently forayed into the diesel segment with its offering ‘Amaze’ FY14E FY15E which takes the competition head on, given its attractive pricing and better Bajaj Auto 1,805 1,717 15.5 13.7 features. Honda’s stated fuel efficiency is 10% more than that of ‘Dzire’ with Hero Motocorp 1,574 1,501 14.7 10.9 33% more power and price points in line with the Dzire. However, given the 1,536 1,690 18.9 14.2 reach of MSIL on account of its wide distribution network, we don’t see a major impact on MSIL’s overall passenger car market share, although we have built in some moderation in the ‘Dzire’ sales (Avg. sales estimated at 15,500/month as against a 17‐18,000/ month run rate recently). We believe other competitors would face stiff competition from Honda ‘Amaze,’ mainly ‘Etios’, How we differ from Consensus Volkwagen’s ‘Vento’ and Ford’s ‘Fiesta.’ We built a 190-200bps improvement in EPS (Rs) PL Cons. % Diff. market share for Honda in the passenger car segment in FY14E. On account of Bajaj Auto lower base for MSIL and entry of Honda in the diesel segment, we expect the 2014 116.3 128.8 ‐9.7 passenger car segment to grow at 2.9% YoY in FY14E. 2015 132.1 144.5 ‐8.6 ! Maintain our ‘Reduce’ call on two‐wheelers, BUY on MSIL: With exports, three- Hero Motocorp wheeler and spares (higher margin business) accounting for ~50% of its FY14E 2014 106.7 113.9 ‐6.3 turnover, we believe BJA is a better place to mitigate the impact of slowdown in 2015 143.7 144.6 ‐0.6 the two-wheeler industry. However, valuations seem demanding at 15.5x FY14E EPS and 13.7x FY15E EPS for BJA (8.6% CAGR for FY12-FY15E) and 14.7x FY14E Maruti Suzuki EPS and 10.9x FY15E EPS for HMCL (8.3% CAGR for FY12-FY15E). We maintain 2014 89.1 96.8 ‐7.9 our ‘Reduce’ call on two-wheelers on account of increased competition from 2015 116.9 122.1 ‐4.3 HMSI. In our view, MSIL is the best play on recovery in the macroeconomic situation. We maintain our positive stance on MSIL, but given the run up of ~14% since our upgrade from ‘Accumulate’ to ‘BUY’ on Feb 28, 2013, we foresee a moderate upside of 10-11% from the current levels.

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

Automobiles

Exhibit 1: Two‐wheeler sector snapshot Avg. Domestic Monthly Sales Key New Launches Scooter (FY14E) Motorcycle (FY14E) Share in Market Share Share in Market Share Scooters Motorcycles Scooters Motorcycles portfolio (%) (%) portfolio (%) (%) 110cc Passion 110cc - Hero Motocorp 56,000 477,000 X Pro 125cc - 10.5% 21.2% 89.5% 52.0% Maestro Ignitor Discover 125 Bajaj Auto NA 220,000 NA ST Pulsar NA NA 64.0% 24.0% 200 NS 110cc Dream Honda Motorcycles & 110cc Dio 130,000 128,000 Yuga 51.5% 49.3% 48.5% 14.0% Scooters India 110cc Activa & Dream Neo 100cc TVS 125cc new TVS Motor 36,000 47,000 25.0% 13.6% 32.5% 5.1% Qube Bike Source: Company Data, PL Research

New Launches

Scooter

Hero’s ‘Maestro’ Honda’s ‘Dio’ Suzuki’s ‘Swish’

Motorcycles

Hero’s ‘Ignitor’ Honda’s ‘Dream Neo’ Bajaj’s 125 ST ‘Discover’

Source: Company Data, PL Research

April 25, 2013 2

Automobiles

Scooter segment to grow by 8.3%, mainly driven by HMCL and HMSI

Led by success of the ‘Maestro’, HMCL has already improved its market share by 260bps YoY in FY13. We expect HMCL to further improve its share in the scooters segment by 240bps in FY14E to 21.2%. We expect HMCL to capture market share from TVS motors as well as M&M in the segment.

Given the strong hold of HMSI in the scooter segment and the enhanced capacity, we expect HMSI to register a 10% growth in volumes in FY14E. HMSI, in our view, is likely to maintain its lead, with a moderate improvement in its market share to 49.3%, an increase of 70bps YoY in FY14E.

Exhibit 2: FY14 volume projection – Scooter Segment (Nos) Monthly Avg. Monthly Avg. Companies 2011‐12 2012‐13 2013‐14 FY13 FY14 Hero MotoCorp Ltd 414,389 549,808 672,000 45,817 56,000 YoY gr. (%) 32.7 22.2 MS (%) 16.2 18.8 21.2 Honda Motorcycle & Scooter India (Pvt) Ltd 1,224,579 1,420,115 1,560,000 118,343 130,000 YoY gr. (%) 16.0 9.9 MS (%) 47.9 48.6 49.3 India Yamaha Motor Pvt Ltd 0 60,281 66,000 5,023 5,500 YoY gr. (%) 9.5 MS (%) NA 2.1 2.1 Ltd 134,518 101,530 86,400 8,461 7,200 YoY gr. (%) (24.5) (14.9) MS (%) 5.3 3.5 2.7 Piaggio Vehicles Pvt Ltd — 38,718 51,000 3,227 4,250 YoY gr. (%) — 31.7 MS (%) 0.0 1.3 1.6 Suzuki Motorcycle India Pvt Ltd 288,603 328,766 300,000 27,397 25,000 YoY gr. (%) 13.9 (8.7) MS (%) 11.3 11.2 9.5 TVS Motor Company Ltd 496,892 424,183 432,000 35,349 36,000 YoY gr. (%) (14.6) 1.8 MS (%) 19.4 14.5 13.6 Total 2,558,981 2,923,401 3,167,400 243,617 263,950 YoY gr. (%) 14.2 8.3 8.3

Source: SIAM Data, PL Research

April 25, 2013 3

Automobiles

Motorcycle segment to grow by 9.1%, mainly driven by HMSI

Led by new launches from HMSI, mainly 110cc ‘Dream Yuga’ and the recently launched 110cc ‘Dream Neo’, HMSI is likely to grow its motorcycle volumes by ~30% in FY14E. The company has already increased its capacity of two-wheelers from 2.8m to 4.0m units. As a result, we foresee its market share further improving by 220- 230bps to 14.0% (from 7.7% in FY12).

Exhibit 3: FY14 volume projection ‐ Motorcycle Segment (Nos) Monthly Avg. Monthly Avg. Companies 2011‐12 2012‐13 2013‐14 FY13 FY14 Bajaj Auto Ltd 2,566,757 2,463,863 2,640,000 205,322 220,000 YoY gr. (%) (4.0) 7.1 MS (%) 25.5 24.4 24.0 Hero MotoCorp Ltd 5,628,513 5,362,730 5,724,000 446,894 477,000 YoY gr. (%) (4.7) 6.7 MS (%) 55.9 53.2 52.0 Honda Motorcycle & Scooter India (Pvt) Ltd 771,715 1,186,726 1,536,000 98,894 128,000 YoY gr. (%) 53.8 29.4 MS (%) 7.7 11.8 14.0 India Yamaha Motor Pvt Ltd 355,493 302,562 318,000 25,214 26,500 YoY gr. (%) (14.9) 5.1 MS (%) 3.5 3.0 2.9 (Unit of Eicher Ltd) 78,546 120,694 138,000 10,058 11,500 YoY gr. (%) 53.7 14.3 MS (%) 0.8 1.2 1.3 Suzuki Motorcycle India Pvt Ltd 50,081 85,211 72,000 7,101 6,000 YoY gr. (%) 70.1 (15.5) MS (%) 0.5 0.8 0.7 TVS Motor Company Ltd 621,722 558,468 564,000 46,539 47,000 YoY gr. (%) (10.2) 1.0 MS (%) 6.2 5.5 5.1 Total 10,073,303 10,085,586 11,001,080 840,466 916,757 YoY gr. (%) 0.1 9.1 9.1

Source: SAIM Data, PL Research

Given the strong growth expected from HMSI, we expect the incumbents to lose 40bps-120bps in the market share in FY14E. The overall motorcycle segment is likely to grow at 9.1% YoY in FY14E (excl. HMSI growth would be at 6.3%).

April 25, 2013 4

Automobiles

Honda to gain 200bps in market share in FY14E in the passenger car segment

Honda has recently forayed into the diesel segment with its offering ‘Amaze’ which takes the competition heads on, given its attractive pricing and better features. Honda’s stated fuel efficiency is 10% more than that of ‘Dzire’, with 33% more power and price points in-line with the Dzire. However, given the reach of MSIL on account On account of lower base for MSIL and of its wide distribution network, we don’t see a major impact on Maruti’s overall entry of Honda in the diesel segment, we passenger car market share although we built in some moderation in the ‘Dzire’ expect the passenger car segment to grow sales (Avg. sales estimated at 15,500/month as against a 17-18,000/ month run rate at 2.9% YoY in FY14E. recently).

We believe other competitors would face stiff competition from Honda ‘Amaze’, mainly Toyota ‘Etios’, VW’s ‘Vento’, GM’s ‘Sail’ and Ford’s ‘Fiesta’. We built a 190- 200bps improvement in market share for Honda in the passenger car segment in FY14E.

Exhibit 4: Passenger car segment – Competitive Landscape Maruti Suzuki Swift 1.5 EXMT Volkswagen Vento

Toyota Etios JD Sail 1.3 Base

DZire VDI i‐DTEC Trendline Diesel

Ex-showroom 6,82,196 6,49,495 6,79,555 8,51,689 6,38,876 Price (Rs) Length (mm) 3995 3990 4265 4384 4249 Width (mm) 1695 1680 1695 1699 1690 Height (mm) 1555 1505 1510 1466 1508 Displacement (cc) 1248 1498 1364 1598 1248 Max Power 74 @ 4000 98 @ 3600 67 @ 3800 103 @ 4400 77 @ 4000 (bhp@rpm) Max Torque 190 @ 2000 200 @ 1750 170 @ 1800 250 @ 1500 205 @ 1750 (Nm@rpm) Mileage (ARAI) 23.4 25.8 23.59 20.5 22.1 (kmpl) Transmission Manual Manual Manual Manual Manual Type Power Steering " " " " " Power Windows Front & Rear Front & Rear # Front & Rear Front Only Central Locking With Key " # Remote # Anti-Lock Braking System # " # # # Seat Upholstery Fabric Fabric Fabric Fabric Fabric

Source: PL Research

April 25, 2013 5

Automobiles

Passenger car segment to grow at 2.9% YoY in FY14E

Exhibit 5: FY14 volume projection ‐ Passenger car (Nos) Monthly Avg. Monthly Avg. Companies 2011‐12 2012‐13 2013‐14 FY13 FY14 Pvt Ltd 90,423 75,771 67,200 6,314 5,600 YoY gr. (%) (16.2) (11.3) MS (%) 4.5 4.0 3.4 Pvt Ltd 86,849 67,220 61,200 5,602 5,100 YoY gr. (%) (22.6) (9.0) MS (%) 4.3 3.5 3.1 Ltd 54,108 73,182 111,582 6,099 9,299 YoY gr. (%) 35.3 52.5 MS (%) 2.7 3.9 5.7 Hyundai Motor India Ltd 387,168 382,851 390,000 31,904 32,500 YoY gr. (%) (1.1) 1.9 MS (%) 19.1 20.2 20.0 Maruti Suzuki India Ltd 855,730 861,337 907,236 71,778 75,603 YoY gr. (%) 0.7 5.3 5.3 MS (%) 42.1 45.4 46.5 Motor India Pvt Ltd 32,971 35,504 31,200 2,959 2,600 YoY gr. (%) 7.7 (12.1) MS (%) 1.6 1.9 1.6 Ltd 257,966 174,692 138,000 14,558 11,500 YoY gr. (%) (32.3) (21.0) MS (%) 12.7 9.2 7.1 Pvt Ltd 90,969 72,000 84,000 6,000 7,000 YoY gr. (%) (20.9) 16.7 MS (%) 4.5 3.8 4.3 Volkswagen India Pvt Ltd 78,265 65,379 68,400 5,448 5,700 YoY gr. (%) (16.5) 4.6 MS (%) 3.9 3.4 3.5 Total 2,031,306 1,895,471 1,949,528 157,956 162,461 YoY gr. (%) (6.7) 2.9 2.9

Source: SIAM Data, PL Research

April 25, 2013 6

Bajaj Auto – Reduce – CMP: Rs1,805 – TP: Rs1,717 Automobiles

Income Statement (Rs m) Balance Sheet Abstract (Rs m) Y/e March 2012 2013E 2014E 2015E Y/e March 2012 2013E 2014E 2015E Net Revenue 197,734 202,310 229,071 261,651 Shareholder's Funds 60,411 73,054 88,164 107,836 Raw Material Expenses 141,027 143,658 161,888 184,906 Total Debt 975 975 975 975 Gross Profit 56,707 58,652 67,183 76,744 Other Liabilities 484 484 484 484 Employee Cost 5,446 6,189 6,904 7,595 Total Liabilities 61,870 74,513 89,624 109,296 Other Expenses 11,663 12,924 15,591 18,173 Net Fixed Assets 14,913 15,447 15,363 15,433 EBITDA 39,598 39,539 44,688 50,977 Goodwill — — — — Depr. & Amortization 1,456 1,584 1,702 1,847 Investments 48,828 51,828 54,828 57,828 Net Interest 222 50 50 40 Net Current Assets (2,192) 6,918 19,112 35,714 Other Income 2,343 3,950 5,000 5,500 Cash & Equivalents 16,553 17,498 36,519 45,335 Profit before Tax 40,262 41,856 47,936 54,590 Other Current Assets 30,196 32,409 39,324 47,519 Total Tax 10,226 12,403 14,285 16,377 Current Liabilities 48,941 42,990 56,731 57,140 Profit after Tax 30,035 29,453 33,651 38,213 Other Assets 320 320 320 320 Ex-Od items / Min. Int. (1,340) — — — Total Assets 61,870 74,513 89,624 109,296 Adj. PAT 31,375 29,453 33,651 38,213 Avg. Shares O/S (m) 289.4 289.4 289.4 289.4 EPS (Rs.) 108.4 101.8 116.3 132.1

Cash Flow Abstract (Rs m) Quarterly Financials (Rs m) Y/e March 2012 2013E 2014E 2015E Y/e March Q1FY13 Q2FY13 Q3FY13 Q4FY13E C/F from Operations 27,840 22,918 42,180 32,275 Net Revenue 49,557 50,496 55,064 47,240 C/F from Investing 595 (5,118) (4,618) (4,918) EBITDA 9,617 9,924 11,054 8,990 C/F from Financing (17,446) (16,855) (18,541) (18,541) % of revenue 19.4 19.7 20.1 19.0 Inc. / Dec. in Cash 10,988 945 19,021 8,816 Depr. & Amortization 352 410 411 410 Opening Cash 5,565 16,553 17,498 36,519 Net Interest — — — — Closing Cash 16,553 17,498 36,519 45,336 Other Income 920 895 1,095 1,039 FCFF 35,154 20,754 40,562 30,357 Profit before Tax 10,184 10,409 11,739 9,620 FCFE 32,877 20,754 40,562 30,357 Total Tax 3,000 3,000 3,550 2,853 Profit after Tax 7,184 7,409 8,188 6,767 Adj. PAT 7,184 7,409 8,188 6,767

Key Financial Metrics Key Operating Metrics Y/e March 2012 2013E 2014E 2015E Y/e March 2012 2013E 2014E 2015E Growth 2W Domestic Vol. (nos) 2,566,757 2,457,371 2,640,000 2,904,000 Revenue (%) 20.6 2.3 13.2 14.2 2W Export Vol. (nos) 1,267,648 1,299,734 1,449,686 1,652,642 EBITDA (%) 24.9 (0.1) 13.0 14.1 3W Domestic Vol. (nos) 202,979 227,700 261,855 293,278 PAT (%) 20.1 (6.1) 14.3 13.6 3W Export Vol. (nos) 312,176 252,357 274,692 302,161 EPS (%) 20.1 (6.1) 14.3 13.6 Total Vol. (nos) 4,349,560 4,237,162 4,626,233 5,152,081 Profitability Net Realization/Unit (Rs) 45,461 47,757 49,516 50,785 EBITDA Margin (%) 20.0 19.5 19.5 19.5 RM Cost/Unit (Rs) 32,423 33,904 34,993 35,890 PAT Margin (%) 15.9 14.6 14.7 14.6 EBITDA/Unit (Rs) 9,104 9,342 9,660 9,894 RoCE (%) 55.4 43.5 41.3 38.6 Net Profit /Unit (Rs) 7,215 6,962 7,274 7,417 RoE (%) 57.3 44.1 41.7 39.0 Tax Rate (%) 25.4 29.6 29.8 30.0 Balance Sheet Source: Company Data, PL Research.

Net Debt : Equity (0.3) (0.2) (0.4) (0.4) Net Wrkng Cap. (days) (45) (35) (49) (32) Valuation PER (x) 16.6 17.7 15.5 13.7 P / B (x) 8.6 7.1 5.9 4.8 EV / EBITDA (x) 12.8 12.8 10.9 9.4 EV / Sales (x) 2.6 2.5 2.1 1.8 Earnings Quality Eff. Tax Rate 25.4 29.6 29.8 30.0 Other Inc / PBT 8.9 9.4 10.4 10.1 Eff. Depr. Rate (%) 4.3 4.4 4.5 4.7 FCFE / PAT 104.8 70.5 120.5 79.4 Source: Company Data, PL Research.

April 25, 2013 7

Hero Motocorp – Reduce – CMP: Rs1,574 – TP: Rs1,501 Automobiles

Income Statement (Rs m) Balance Sheet Abstract (Rs m) Y/e March 2012 2013E 2014E 2015E Y/e March 2012 2013E 2014E 2015E Net Revenue 235,790 235,905 258,444 295,423 Shareholder's Funds 42,898 57,143 69,033 88,080 Raw Material Expenses 172,816 173,777 187,725 211,556 Total Debt 380 380 380 380 Gross Profit 62,974 62,128 70,719 83,867 Other Liabilities 12,197 7,467 — — Employee Cost 7,355 7,947 8,741 9,790 Total Liabilities 55,475 64,990 69,413 88,460 Other Expenses 19,572 22,499 26,042 32,509 Net Fixed Assets 38,244 59,546 71,913 86,017 EBITDA 36,047 31,682 35,936 41,568 Goodwill — — — — Depr. & Amortization 10,973 11,697 12,633 8,896 Investments 39,643 34,643 29,643 34,643 Net Interest (79) 120 125 125 Net Current Assets (22,411) (29,199) (32,143) (32,199) Other Income 3,494 4,150 4,550 4,800 Cash & Equivalents 768 775 831 2,582 Profit before Tax 28,648 24,015 27,728 37,346 Other Current Assets 20,235 21,249 23,091 28,129 Total Tax 4,865 3,990 6,413 8,643 Current Liabilities 43,414 51,223 56,065 62,911 Profit after Tax 23,783 20,025 21,315 28,703 Other Assets — — — — Ex-Od items / Min. Int. — — — — Total Assets 55,475 64,990 69,413 88,460 Adj. PAT 23,783 20,025 21,315 28,703 Avg. Shares O/S (m) 199.7 199.7 199.7 199.7 EPS (Rs.) 119.1 100.3 106.7 143.7

Cash Flow Abstract (Rs m) Quarterly Financials (Rs m) Y/e March 2012 2013E 2014E 2015E Y/e March Q1FY13 Q2FY13 Q3FY13 Q4FY13E C/F from Operations 47,531 38,857 37,303 39,772 Net Revenue 62,473 51,875 61,876 59,681 C/F from Investing (20,050) (29,000) (21,000) (19,000) EBITDA 9,369 7,192 7,786 7,335 C/F from Financing (27,428) (9,850) (16,246) (19,021) % of revenue 15.0 13.9 12.6 12.3 Inc. / Dec. in Cash 53 7 57 1,751 Depr. & Amortization 3,035 2,895 2,832 2,935 Opening Cash 715 768 775 831 Net Interest 29 30 30 32 Closing Cash 768 775 831 2,582 Other Income 1,044 993 901 1,211 FCFF 3,322 14,517 20,948 25,407 Profit before Tax 7,349 5,261 5,826 5,580 FCFE 3,345 14,517 20,948 25,407 Total Tax 1,194 855 947 995 Profit after Tax 6,155 4,406 4,879 4,585 Adj. PAT 6,155 4,406 4,879 4,585

Key Financial Metrics Key Operating Metrics Y/e March 2012 2013E 2014E 2015E Y/e March 2012 2013E 2014E 2015E Growth Total Vol. (nos) 6,235,205 6,075,583 6,561,630 7,283,409 Revenue (%) 21.5 — 9.6 14.3 Net Realization/Unit (Rs) 37,816 38,828 39,387 40,561 EBITDA (%) 20.9 (12.1) 13.4 15.7 RM Cost/Unit (Rs) 27,716 28,603 28,610 29,046 PAT (%) 18.5 (15.8) 6.4 34.7 Other Exp./Unit (Rs) 3,139 3,703 3,969 4,463 EPS (%) 18.5 (15.8) 6.4 34.7 EBITDA/Unit (Rs) 5,781 5,215 5,477 5,707 Profitability Net Profit/Unit (Rs) 3,814 3,296 3,248 3,941 EBITDA Margin (%) 15.3 13.4 13.9 14.1 Components/Unit (Rs) 27,700 28,586 28,586 29,015 PAT Margin (%) 10.1 8.5 8.2 9.7 Tax Rate (%) 17 17 23 23 RoCE (%) 48.4 34.6 32.3 36.5 Source: Company Data, PL Research.

RoE (%) 65.6 40.0 33.8 36.5 Balance Sheet Net Debt : Equity — — — — Net Wrkng Cap. (days) (30) (35) (37) (33) Valuation PER (x) 13.2 15.7 14.7 10.9 P / B (x) 7.3 5.5 4.6 3.6 EV / EBITDA (x) 8.7 9.9 8.7 7.5 EV / Sales (x) 1.3 1.3 1.2 1.1 Earnings Quality Eff. Tax Rate 17.0 16.6 23.1 23.1 Other Inc / PBT 12.2 17.3 16.4 12.9 Eff. Depr. Rate (%) 16.2 12.7 11.7 7.3 FCFE / PAT 14.1 72.5 98.3 88.5 Source: Company Data, PL Research.

April 25, 2013 8

Maruti Suzuki – BUY – CMP: Rs1,536 – TP: Rs1,690 Automobiles

Income Statement (Rs m) Balance Sheet Abstract (Rs m) Y/e March 2012 2013E 2014E 2015E Y/e March 2012 2013E 2014E 2015E Net Revenue 355,871 429,745 472,088 565,193 Shareholder's Funds 151,874 174,478 194,173 221,433 Raw Material Expenses 280,656 336,478 365,436 436,330 Total Debt 10,784 10,784 10,784 10,784 Gross Profit 75,215 93,268 106,652 128,863 Other Liabilities 5,671 3,023 3,023 3,023 Employee Cost 8,438 10,101 11,807 13,762 Total Liabilities 168,329 188,285 207,979 235,240 Other Expenses 41,647 50,471 52,695 62,041 Net Fixed Assets 81,366 97,159 110,955 118,097 EBITDA 25,130 32,695 42,151 53,059 Goodwill — — — — Depr. & Amortization 11,384 14,082 16,080 17,734 Investments 74,660 90,112 80,442 108,080 Net Interest 552 1,500 1,400 1,400 Net Current Assets 12,303 1,013 16,582 9,064 Other Income 8,009 7,130 7,000 8,200 Cash & Equivalents 24,362 18,838 21,988 30,969 Profit before Tax 21,203 24,243 31,670 42,125 Other Current Assets 38,889 51,235 63,050 76,916 Total Tax 5,111 5,656 8,234 10,952 Current Liabilities 50,947 69,060 68,456 98,822 Profit after Tax 16,092 18,587 23,436 31,172 Other Assets — — — — Ex-Od items / Min. Int. (260) 430 — — Total Assets 168,329 188,285 207,979 235,241 Adj. PAT 16,352 18,157 23,436 31,172 Avg. Shares O/S (m) 289.0 289.0 289.0 289.0 EPS (Rs.) 56.6 62.8 81.1 107.9

Cash Flow Abstract (Rs m) Quarterly Financials (Rs m) Y/e March 2012 2013E 2014E 2015E Y/e March Q1FY13 Q2FY13 Q3FY13 Q4FY13E C/F from Operations 32,239 40,972 26,245 64,675 Net Revenue 107,782 83,054 112,003 126,906 C/F from Investing (41,267) (44,328) (20,206) (52,514) EBITDA 7,863 5,086 8,913 10,834 C/F from Financing 8,304 (2,168) (2,890) (3,179) % of revenue 7.3 6.1 8.0 8.5 Inc. / Dec. in Cash (724) (5,524) 3,149 8,982 Depr. & Amortization 3,399 3,470 3,583 3,629 Opening Cash 25,085 24,362 18,838 21,988 Net Interest 332 380 459 329 Closing Cash 24,362 18,838 21,988 30,969 Other Income 1,123 1,133 1,886 2,558 FCFF 2,723 9,130 (2,779) 40,531 Profit before Tax 5,256 2,368 6,756 9,433 FCFE 13,195 9,130 (2,779) 40,531 Total Tax 1,018 524 1,743 2,371 Profit after Tax 4,238 1,845 5,013 7,062 Adj. PAT 4,238 1,845 5,013 7,062

Key Financial Metrics Key Operating Metrics Y/e March 2012 2013E 2014E 2015E Y/e March 2012 2013E 2014E 2015E Growth A2 Seg. Vol. (nos) 709,430 673,009 699,929 797,919 Revenue (%) (2.8) 20.8 9.9 19.7 Total Domestic Vol. (nos) 1,006,316 1,051,047 1,101,557 1,263,936 EBITDA (%) (32.1) 30.1 28.9 25.9 Export Vol. (nos) 127,379 120,388 135,000 155,000 PAT (%) (30.5) 11.0 29.1 33.0 Total Vol. (nos) 1,133,695 1,171,435 1,236,557 1,418,936 EPS (%) (30.5) 11.0 29.1 33.0 Net Realization/Unit (Rs) 313,904 366,854 381,776 398,321 Profitability RM Cost/Unit (Rs) 247,559 287,235 295,527 307,505 EBITDA Margin (%) 7.1 7.6 8.9 9.4 Other Exp./Unit (Rs) 36,736 43,085 42,614 43,724 PAT Margin (%) 4.6 4.2 5.0 5.5 EBITDA/Unit (Rs) 22,166 27,910 34,087 37,393 RoCE (%) 10.9 10.9 12.5 14.7 Net Profit/Unit (Rs) 14,195 15,867 18,953 21,969 RoE (%) 11.3 11.1 12.7 15.0 Royalty (Rs m) 19,592 22,875 22,940 27,113 Balance Sheet Royalty/Unit (Rs) 17,281 19,528 18,551 19,108 Net Debt : Equity (0.1) — (0.1) (0.1) SG&A Exp. (Rs m) 13,064 17,206 18,098 21,819 Net Wrkng Cap. (days) (26) (39) (28) (42) Selling & Distr. Exp./Unit (Rs) 11,524 14,688 14,636 15,377 Valuation Source: Company Data, PL Research.

PER (x) 27.2 24.5 18.9 14.2 P / B (x) 2.9 2.5 2.3 2.0 EV / EBITDA (x) 17.1 13.3 10.3 8.0 EV / Sales (x) 1.2 1.0 0.9 0.7 Earnings Quality Eff. Tax Rate 24.1 23.3 26.0 26.0 Other Inc / PBT 38.5 28.1 22.1 19.5 Eff. Depr. Rate (%) 7.4 7.8 7.6 7.5 FCFE / PAT 80.7 50.3 (11.9) 130.0 Source: Company Data, PL Research.

April 25, 2013 9

Automobiles

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage

60% 55.8%

50%

40% Coverage 30% 25.6% 17.8% Total 20% of

% 10% 0.8% 0% BUY Accumulate Reduce Sell

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

April 25, 2013 10