TVS Motor Company

TVS Motor Company Sector: Auto/Mid cap 21 March 2014 Initiating Coverage 20 March 2014 Sensex Nifty Price: INR 90 Target Price: INR 106 OUTPERFORMER 21,833 6,524 Background : TVS Motor, formerly known as TVS Suzuki, is the flagship company of TVS group and the fourth largest two wheeler manufacturer in India. TVS has manufacturing facilities in Hosur, Mysore, Himachal Pradesh and Indonesia with a production capacity of 2.8mn. The product portfolio of TVS encompasses motorcycles (40%), mopeds(20%), scooters (22%), 3 Wheelers (6%) and Spares & Others(12%). TVS exports it products to over 50 countries and derives ~12% of revenues from exports. The market share across various segments are: Motorcycles (6%), Scooters (12%), Mopeds (100%) and 3 Wheelers (10%). In 2013, TVS entered into technical collaboration with BMW to develop a series of sub 500cc bikes that are expected to rollout in 2HFY15.

52 Week High/Low INR 28/91 On a comeback trail to regain market share Bloomberg code TVSL IN Revenues to grow at 16% CAGR during FY14-16 on traction in scooter and 3 wheeler exports Reuters code TVSM NS On the back of momentum in export volumes, traction in scooters and 3W exports and off-take in executive Issued Equity 475.1 bikes, we expect TVS to attain volume growth of 12.5% CAGR over FY14-16 to 2.59mn units leading to a (shares in mn) revenue growth of 16% CAGR to INR 103.2bn in FY16. Timely expansion of product portfolio with expected Mkt. Cap in mn INR 42284 successful new launches in the executive motorcycles segment coupled with aggressive spending on Mkt. Cap in mn USD $ 692.1 advertising are likely to help TVS arrest its sliding market share and subsequently improve its market share Avg. Daily Vol. (‘000) 2526.6 from 13% in FY13 to 16% by FY16. Avg. Daily Vol. (mn) INR217/$3.5 Well positioned to ride on the Scooter mania

Shareholding Dec 13 Sep 13 Dec 12 TVS has a complete portfolio catering to all user segments. (men, women & unisex). With launch of Jupiter and Scooty Zest, the company aims at selling 50,000 scooters/month from 1QFY15 onwards and also plans Promoters(%) 57.40 57.40 57.40 to ramp up scooter capacity to 75000 units by FY15 to cater to the burgeoning demand. Success of new FII (%) 3.35 2.51 1.93 product launches coupled with traction in Jupiter volumes can spur scooter volumes and help TVS improve its DII (%) 17.70 18.29 18.10 market share. TVS aims to increase its market share from 12% to ~18% by FY15 in the scooters segment. Others (%) 21.55 21.8 22.57 Pledge (% of Indonesian unit break even hinges on success of Skubeck and new product launches promoter 0.00 0.00 NA TVS has set an ambitious sales volume target of 60,000 units for FY15, implying a growth of 78% CAGR in holding) FY13-15. We believe that the Indonesian subsidiary will reach the sales target by FY16 and turn EPS

accretive in FY16 and not in FY15 as projected by the management. The profitability in the Indonesian Performance% subsidiary largely depends on the success of Skubeck and new product launches. 1M 3M 6M TVS 7.92 60.78 156.3 Change in product mix can and healthy exports can trigger margin expansion Sensex 7.08 5.57 10.47 We expect EBITDA margins to improve 90bps to 6.7% by FY16 on the back of change in product mix (increased proportion of 3W and Scooters), higher share of export volumes (12% in FY13 to 15% by FY16), 100 250 off -take in new product launches and benefits from operating leverage. 90

80 200 Outlook & Valuation: We initiate coverage on TVS Motor Company with a OUTPERFORMER rating

70 given its robust product portfolio, momentum in scooters and 3W exports, strong distribution network, new product launches and moderation in debt levels going forward. At CMP of INR 90, the stock is trading at 60 150 13.1/10.5 FY15/16E EPS. We value the stock at 12x FY16 EPS, which gives us a target price of INR 106, 50 implying an upside potential of ~18%. RIsks: Failure of new product launches coupled with persistence of 40 100 subdued macro conditions can have an adverse impact on sales volume estimates. Sustained losses in 30 Indonesian subsidiary remain a concern.

20 50 Valuation Summary 10 Y/E March ( INR mn) FY13 FY 14 FY 15E FY16E

0 0 Revenue 70,650 76,436 88,946 103,185

13 13 14

13 14

13 13 13

13 14

13 EBITDA 4,090 4,565 5,721 6,896

- - -

- -

- - -

- - - Adj.PAT

Jul 2,069 2,318 3,255 4,081

Jan

Oct

Apr

Jun

Feb

Mar Mar

Dec

Sep

Aug Nov May Adj.EPS 4.4 4.9 6.9 8.6 TVS Motor Relative Sensex (RHS) EPS growth (%) -16.9 12.1 40.4 25.4 FCF / Share 7.2 4.6 7.1 9.4 PE 20.5 18.4 13.1 10.5

P/ BV 3.5 3.1 2.6 2.2 Rajasekhar R +91-44-30007360 EV / Sales 0.7 0.6 0.5 0.4 [email protected] EV / EBIDTA 12.0 10.4 7.8 6.2 Dividend Yield (%) 1.3 1.4 1.8 2.4 ROCE (%) 11.6 19.3 24.6 27.0 ROE (%) 9.7 17.8 21.7 23.1 Net Debt / Equity 0.5 0.3 0.1 0.1

Company Overview

TVS Motor Company, the flagship company of USD 7.3bn TVS Group, is the third largest two wheeler manufacturer in India. The product portfolio of TVS comprises motorcycles, scooters, mopeds and auto rickshaws. The company is equipped with state-of-the-art manufacturing facilities at Hosur in Tamil Nadu, Mysore in Karnataka, Nalagarh in Himachal Pradesh and Karawang in Indonesia and currently has a production capacity of 2.8mn units in the domestic market and 0.3mn units in the Indonesian facility.

In 1982, Suzuki came together with TVS for the production of 100cc motorcycles under the name of Ind-Suzuki. TVS and Suzuki shared a 19 year long relationship that was aimed at technology transfer to enable design and manufacture of motorcycles for the Indian market. Some of the popular products from the joint venture include the Suzuki Samurai, Suzuki Shogun and Suzuki Fiero. Post break-up of the alliance in 2001, the market share of TVS dipped from ~17% in FY02 to 13% in FY13 on account of infrequent product launches/up gradations as compared to competition and time taken to develop indigenous 4-stroke technology. In 2013, the company has announced technical collaboration with German premium motorcycle brand BMW with an aim to produce bikes in the sub 500cc segment and penetrate into the premium 2 wheeler market in India. The chronology of key events since the company's inception is briefly outlined below.

• The company set up its first plant at Hosur to manufacture mopeds. Produced India's first two-seater moped 1980 - TVS 50

• The company entered into a technical know-how and assistance agreement with Suzuki Motor Co Ltd of 1982 Japan.

• Launched India's first indigenous scooterette - TVS Scooty, a 100cc model. 1994

• TVS Group and Suzuki part ways from their 19year joint-venture. Launched India's first fully indigenously 2001 designed and manufactured motorcylce - TVS Victor.

• TVS launched its first plant outside India in Indonesia. 2006

• TVS rolls out 7 new products. Forays into the 3 Wheeler market 2007

• The company has developed an engine that is 20% more fuel efficient and is usable in scooters and 2011 motorcycles.

• BMW Motorrad and TVS sign a cooperation agreement with the aim to develop and produce motorcycles in 2012 the segment below 500cc

Source Company, CSEC Research

For many years, TVS remained as India’s third largest two-wheeler maker with a market share of 18-20% until Honda captured its position in FY12. Since then, TVS has languished in fourth place. The company's market share in the motorcycle segment rapidly shrank to 6% in FY13 from 19% in FY03 due to slackened pace of introducing new products and under representation executive bike segment. In the mopeds segment, where the company has no competition, TVS commands 100% market share. With Scooty, the largest selling scooter in the female category the company commands a market share of ~12% in the scooters segment. In 2007, TVS announced its foray into the 3 wheeler market with TVS King, India's first 200cc 2-stroke auto rickshaw equipped with an electric start. Currently,

TVS operates only in the 3 Wheeler passenger segment. Within the first 3 years, TVS has been able to garner a market share of 10% in the 3 wheeler segment. TVS operates in the two and three wheeler markets. The two wheeler segment is further classified into scooters, motorcycles and mopeds. With the introduction of TVS Jupiter targeted at male user segment and Phoenix in the executive bike segment, TVS is armed with a complete product portfolio catering to the needs of all user segments. The product portfolio of TVS is briefly outlined below.

In FY13, the standalone entity reported overall revenues of INR 70.65bn, reflecting a de-growth of 1% YoY on account of subdued demand coupled with weak macro economic conditions. Motorcycles (40%) constitute the majority of revenues followed by Scooters (22%), Mopeds (20.5%), 3 Wheelers (6.2%) and Spares & Others (12%). Apart from the core 2 wheeler business, TVS has also ventured into other businesses such as auto components, Wind Energy and Housing through its subsidiaries.

Revenue ( INR 70.65bn)

Motorcycles Scooters Mopeds 3 Wheelers Spares & Others ( 39.6%) (21.9%) (20.4%) (6.2%) (11.9%)

In FY13, the volume mix of TVS was primarily dominated by Mopeds (38.8%) followed by Motorcycles (37%). Scooters (21.8%) and 3-Wheelers (2.4%). The shift in demand from motorcycles to scooters and the company's intent to further enhance its volumes in 3W segment is evident given the changing product mix in the last few years. While the scooters share increased from 17% in FY07 to 22% in FY13, the share of 3W has gradually inched up from 0.3% in FY09 to 2.4% in FY13. TVS, which is based in Tamil Nadu, focuses heavily on the southern market, which accounts for ~55% of the volumes. TVS has a robust two tier distribution network of 850 dealers supplemented by

more than 2500 sales & service points. The products of TVS are being exported to more than 50 countries. The export contribution to overall volumes has doubled from 6% in FY06 to 12% in FY13.

Chart 1: TVS- Revenue Mix FY 2013 Chart 2: TVS- Volume Mix

1% 2% 2% 2% Exports 20% 17% 23% 24% 22%

37% 35% 36% 39%

42% 41% 39% 37% Domestic 83% FY10 FY11 FY12 FY13 Motorcycles Mopeds Scooters 3W

Source: Company, CSEC Research Source: Company, CSEC Research

Key Management Personnel

Venu Srinivasan - Chairman & Managing Director

• Grandson of the TVS Group's founder T.V. Sundaram Iyengar. He completed a Master's Degree in Industrial Engineering from the Purdue University in the USA after graduating as an engineer from the University of Madras. In May 1979, he became the Managing Director of Sundaram Clayton Ltd. and in 2002 went on to become the Chairman of TVS Motor Company.

K.N. Radhakrishnan- President & CEO

• Prior to joining TVS Motor company, Mr Radhakrishnan was the Head of Business Planning and Human Resources at Sundaram Clayton, a group company where he started his career 20 years ago after doing his M. Tech from IIT, Chennai. An expert in TQM and planning, Mr Radhakrishnan, 43, is the youngest person, so far, to have held the position of president of the company.

S.G. Murali - Executive VP of Finance

• Before his stint in TVS, Mr. Murali was Chief Financial Officer at Tata Teleservices Ltd. and president of Park Properties Public Company Ltd. (Bangkok). Mr. Murali is a graduate in Physics from the University of Madras. He is also a Fellow Member of the Institute of Chartered Accountants of India and an Associate Member of the Institute of Cost Accountants of India.

Source: Company, CSEC Research

Industry overview

India is the second largest two-wheeler market in the world with sales of ~13.8 mn units in FY13. Two-wheelers account for ~77% of market share in the automobile market. After posting a robust volume growth of 19.8% CAGR during FY10-12, the 2 wheeler industry recorded a modest growth of 2.7% in FY13 owing to poor macro economic conditions, high inflation, rising fuel prices, weak monsoon and firm interest rates. The exports also weakened on the back of hike in import duty to 100% in Sri Lanka, mandatory 25% down payment scheme in Indonesia, political tensions in Egypt, strong competition from cheap Chinese products in the African market and demand contraction in other markets.

Chart 3: 2W - Product Mix FY13 Chart 4: Industry Domestic Sales & Exports Trend 34.3%

Mopeds, 26.0% 27.1% 5% 25.6% Scooters, 22.5% 21% 13.5% 14.2%

Motorbikes, 2.6% 2.7% 74% 0.7%

FY09 FY10 FY11 FY12 FY13 Domestic Sales Exports

Source: SIAM, CSEC Research Source: SIAM, CSEC Research

Chart 5: Scooters as % of Total Sales Chart 6: Domestic Market Share Trend 50% 45% 45% 21% 43% 19% 18% 40% 16% 15% 14% 30% 21% 19% 19% 15% 18% 20% 15% 13% 14% 13%

10% 4% 4% 5% 2% 3% 3% 0%

FY08 FY09 FY10 FY11 FY12 FY13 FY11 FY12 FY13 Hero Motocorp Bajaj Honda TVS Motors Yamaha Others Source: SIAM, CSEC Research Source: SIAM, CSEC Research

The market share of TVS declined significantly post its break-up with Suzuki in 2001. From being India’s 2nd largest two wheeler manufacturer the company has come down to the fourth spot after its slew of new product launches failed to enthuse customers. Interestingly, Honda which split with Hero in 2010 has been gradually gaining market share from peers by surpassing both Bajaj and TVS to become the 2nd largest in terms of market share. India's motorcycle market is ~3X the size of scooters. However, the shift in demand from motorcycles to scooters is evident, given healthy growth of 16% CAGR FY05-FY13 witnessed in scooter segment as compared to ~9% CAGR in the motorcycle segment. Scooters are cheaper, easier to operate, offers clutch less and gearless drive, providing the convenience to navigate through congested roads and can be used by both men and women riders.

Chart 7: Motorcycle Domestic Market Share FY13 Chart 8: Scooter Domestic Market Share FY13

Others Others 3% TVS 3% Suzuki 6% 9% Yamaha Yamaha 5% Honda 4% Hero 14% Motocorp TVS 45% 12% Honda 52% Hero Motocorp Bajaj 19% 28%

Source: SIAM, CSEC Research Source: Company, CSEC Research

Traction in Executive bike segment to remain strong As per SIAM, India’s two-wheeler industry can be classified into three distinct segments, based on cost and lifestyle classifications – Economy (19.3%), Executive (64.4%) and Premium (16.3%). In FY13, both the economy and executive segment witnessed muted growth of 4.3% and 2% respectively, while the premium segment registered 11% de-growth. While Hero dominates the market in both the economy and executive segment, Bajaj leads the market in the premium segment aided by one of its best selling product Pulsar. Based on projections that forecast increase in working age population, sales in executive segment are expected to remain buoyant.

Motorcycles

Economy Executive Premium (19.3%) (64.4%) (16.3%)

Chart 9: Economy – Market Share Chart 10: Executive – Market Share Chart 11: Premium – Market Share

Royal Enfield Others TVS Others Yamaha TVS 7% 1% 20% 2% 2% Honda 7% 15% Yamaha Bajaj 14% 41% Bajaj Hero 20% 53% Hero Bajaj 63% Honda 25% 14% Hero 16%

Source: SIAM, CSEC Research Source: SIAM, CSEC Research Source: SIAM, CSEC Research

Three Wheelers: Regulatory constraints in domestic market; Immense potential in Export markets India is the world’s largest producer and exporter of three-wheelers (3Ws) with domestic sales of 5,38,000 units and exports of ~3.03,000 units in FY13 The passenger 3W segment dominates the market as the need for passenger commutation is higher given the lack of adequate public transportation. The passenger vehicles segment dominates the market with 82% share, while the goods carrying vehicles command 18% of the market. The sales of goods- carrying three-wheelers have come under pressure, owing to the introduction of 4 wheeler small commercial vehicles (SCVs) in the sub 1-ton payload segment by Mahindra & Mahindra, Tata Motors and Ashok Leyland. These vehicles offer greater carrying capacity, stability, higher speed resulting in highway runs for short inter-city travel, image durability and rigidity. The passenger three-wheeler market, whose sales depend indirectly on the state governments based on the number of permits to be released, which is at the discretion of the respective state governments.

Chart 12: 3 Wheeler Domestic Sales & Exports Trend Chart 13: 3 Wheeler Domestic Market Share FY13 1000000 40% Others Mahindra 2% 800000 30% 7% Atul Auto 600000 20% TVS 4% 10% 400000 10% Volumes Bajaj Growth (%) Growth 54% 200000 0% Piaggio 23% 0 -10% FY08 FY09 FY10 FY11 FY12 FY13

Source: SIAM Source: SIAM

Chart 14: 3W Segment Share Chart 15: 3W Passenger Vehicles 88% 88% 83% 84% 85%

32% 30% 29% 47% 41%

68% 70% 71% 17% 16% 53% 59% 15% 12% 12%

FY09 FY10 FY11 FY12 FY13 FY09 FY10 FY11 FY12 FY13 Domestic Sales Exports Goods Vehicle Passenger Vehicle Source: SIAM, ACG Source: SIAM, ACG

Chart 16: Domestic Sales Growth Trend Chart 17: Exports Growth Trend 30% 187% 22%

11% 11% 9% 41% 6% 21% 20% 28% 22%

-3% -4% -35% -9%

FY10 FY11 FY12 FY13 FY10 FY11 FY12 FY13 Goods Passenger

Goods Passenger

Source: SIAM, ACG Source: SIAM, ACG

Based on channel checks and sales trend, we observe that 3W sales in the domestic market has been more or less stagnant in the in the recent 6-8 months. which is substantiated by the inventory pile up across dealers. Exports are the only saving grace for this segment and we believe that companies that tend to focus on exports will do well in the near term. We base our outcome on the compelling arguments outlined below:

The introduction of quadricycle, which is touted as a more stable and comfortable alternative to the existing 3 wheelers, by Bajaj can have an adverse impact on the sales of 3W. Bajaj hopes to introduce the quadricycle, which is likely to be priced a little more than the 3W at INR 2,00,000, in countries where three- wheelers are widespread, and has sent samples for test runs in Sri Lanka, Colombia and Kenya. Quadricycles will be seen plying on roads in India from 1st October 2014. These four wheelers were earlier red flagged as they were branded unsafe, but now they are fitted with seatbelts for occupants in front and rear segments. In general, 3 Wheelers entail lack of intrinsic stability and compromise on safety and that’s probably the reason why the Japanese have abstained from venturing into the 3W segment.

The advent of minibuses in cities like Chennai and the imminent launch of Metro rail across major metropolitan cities can also have a potential impact on the 3W Sales. Share auto models such as Ape Piaggio and Tata Magic, which cost less and have a greater seating capacity, have cannibalized sales of 3 wheelers. Furthermore, the restricted release of permits by state governments is another area of concern

Indian Two wheeler market: Current Scenario

The two wheeler industry in India consists of four major players namely Hero Motorcorp., Bajaj Auto, Honda Motorcycle and Scooters (HMSI) and TVS Motor who control ~90% of the market. TVS Motor is the only company that serves all two wheeler segments (motorcycles, scooters, and mopeds) as well as three wheelers. From a geographical standpoint, only Bajaj receives a big share of its revenues (35%) from export activities while the other players focus primarily on the domestic market. Even though the number of manufacturing facilities within India is equal between the competitors, TVS falls behind in production capacity and only achieves 40% of Hero’s volumes.

Hero Bajaj Honda TVS 3 (Gurgaon, 3 (Manesar, 3 (Hosur, Mysore, Dharuhera, 3 (Waluj, Chakan, Tapukara, Himachal)+in Manufuring Facilities Haridwar) Pant Nagar) Narsapura) Indonesia Production Capacity p.a. 6,900,000 6,000,000 4,000,000 2,800,000 Volume Mix Mopeds 0 0 0 38.8% Motorcycles 95.0% 88.7% 40% 37.0% Scooters 5.0% 0 60% 21.8% 3 Wheelers 0 11.3% 0 2.4% Revenue Mix (INR mn) 23,768 20,466 NA 7,065 Domestic 98% 65% 100% 88% Export 2% 35% 0% 12% EBITDA Margins 13.80% 18.80% NA 5.80% Market Share 43% 18% 19% 13%

The Indian 2 wheeler market is oligopolistic in nature with top 4 players controlling over 90% of the market. As new products are getting launched by Japanese makers such as Honda, Yamaha and Suzuki, the rivalry in the domestic market has intensified. The bargaining power of buyers tends to remain high as customers are confronted with several options in the market within the same price range with access to an array of financing options. In a bid to improve public infrastructure and ease traffic congestion, the government has proposed to introduce metro rail network across major cities for intra-city travel. The continuous rise in petrol, which increased 34% in the last 3 years and the successful rollout of metro rail in major cities in the next couple of years can curtail 2W sales to a certain extent. However, this is will not completely negate the need for personal transport. The threat of new entrants is low as the business entails huge capital requirements, economies of scale, technical expertise and access to wide distribution network.

Export opportunities in Africa and Latin America on the rise Among the Indian manufacturers, both Bajaj and TVS have put in best efforts to capture market share in Indonesia, which is considered the world's third largest 2 wheeler market and is primarily dominated by Japanese brands (98% market share). However, both Bajaj and TVS have failed to make successful inroads into the market given the intense competition and lack of brand prominence. The Duty Entitlement Passbook Book Scheme (DEPB) scheme, which was initiated in 1997 was withdrawn on September 2011 by the government and the duty drawback scheme was introduced. Under the provisions of DEPB scheme, exporters are reimbursed ~8-9% on free on board value (FOB) on the import content of the export product while the reimbursement component is ~1-4% under the duty drawback scheme. The withdrawal of DEPB scheme made Indian products in the export markets uncompetitive compared to China, where exports incentives are higher at 13-15%. The repercussions of the withdrawal of scheme is evidenced by a scant growth of 0.7% in 2 wheeler exports in FY13. Indian 2 wheeler manufacturers are now looking at markets such as Latin America, Middle East and African markets to mitigate the impact of slowdown in Indonesian market.

Key growth drivers in 2 wheeler industry

Demographic trends lead to an increasing amount of young, mobile people joining the work force, requiring low cost transportation. In addition, rampant urbanization has led to expansion of major cities, resulting in longer distances travel and traffic congestion. India’s two wheeler penetration is low at 7%, despite the country being the second largest two wheeler market in the world. India has been experiencing rapid urbanization on a wide scale. According to the United Nations, the Indian urban population will account for 35% of the country‘s population by 2020, rising to approximately 40% by 2030. The population in the age-group of 15-34 increased from 353 million in 2001 to 430 million in 2011. Current predictions suggest a steady increase in the youth population to 464 million by 2021 and finally a decline to 458 million by 2026. By 2020, India is set to become the world’s youngest country with 64% of its population in the working age group. The extension of excise duty cut by the new government, reduction in interest rates, revival in rural demand and increase in financing schemes can help revive 2 wheeler sales in the country.

Chart 18: Two Wheeler Penetration by country Chart 19: Urbanization Trend India 35% 100% 30% 25% 80% 20% 60% 15% 10% 40% 5% 0% 20%

0% 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 Rural Urban

Source: IMF, World Bank Source: MOSPI, CSEC Research

Chart 20: Rural consumption growth outpacing urban Chart 21: Savings to GDP Trend 25% 38% 37% 20% 36% 35% 15% 34% 33% 10% 32% 31% 5% 30% 0% 29% 28% 1987-94 1993-05 2004-10 2009-12 Rural Urban 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: NSSO, Dabur FY12 AR Source: MOSPI, CSEC Research

Chart 22: Auto Loan Book growth trend Chart 23: Working Age population 1,200,000 30% 64.0%

1,000,000 25% 60.3% 800,000 20%

600,000 15% 56.9% 55.4% INR (mn) INR 400,000 10%

200,000 5%

0 0% FY09 FY10 FY11 FY12 FY13 1991 2001 2011 2021* Auto Loans YoY Growth Source: Company data, CSEC Research Source: CensusIndia-2011

Investment Rationale:

Aggressive sales strategy coupled with dealer expansion to help garner market share

TVS indicated that it will sustain its aggressive spending on advertising on the back of new product launches in order to strengthen its brand identity and thereby improve its market share. TVS, which is largely perceived to be a South centric company, has a large number of dealers (~56%) in the South market compared to the industry norm of ~30%. The company foresees better demand scenario in the East and West markets and has planned to expand its dealership network to cater to customers in the non-South markets. TVS plans to add another ~80 dealers in CY14, taking its total number of dealers to 930. Apart from dealers, the company has around 2,700 sub-dealers to address the needs in rural areas with service points. The company aims to capitalize on the demand from tier-II and III cities, where customers expect easy access to sales and services. This strategy not only helps the company to diversify its geographical presence, but also tap in to the rural market and gain market share from peers. We believe that this strategy should help TVS gain market share by ~300bps to 16% by FY16.

Chart 24: TVS Dealer Network Chart 25: No of Dealers – Peer Comparison FY13 1000 930 850 900 900 850 800 750 700 700 650 650 600 465 500 400 300 200 100 0 TVS Bajaj Hero Honda 2003 2011 2012 2013 2014*

Source: Company, CSEC Research Source: Company, CSEC Research

Indonesian unit break even hinges on success of Skubeck and new product launches

In 2007, TVS setup its manufacturing unit in Indonesia and has invested ~ USD 150mn in PT TVS Motor Company (PT TVS), the Indonesian subsidiary of TVS but is yet to break even. The current manufacturing capacity of the plant stands at 300,000 units; however the company sold barely 19,000 units in FY13 compared to 23,000 in FY12. In the last 5 years, TVS was able to gain a market share of mere 0.6% in the Indonesian market, which is primarily dominated by Japanese automakers. In 2013, the total number of two wheelers sold in the Indonesian market fell by 10% YoY to 7.2mn owing to introduction of mandatory down payment of 25% in 2012, which had an adverse impact on motorcycle sales as ~80% of buyers take a loan to finance the purchase. Furthermore, the central bank raised the benchmark interest rate from 5.75% to 7.5% in 2013, resulting in high borrowing costs and prompting customers to defer purchases.

The 2 wheelers are classified into three broad segments namely - Bebeks (Bikes), Skubecks (Scooters) and Sports Motorcycles. The transition from Bebeks to Skubecks is clearly evident given the robust growth in skubecks in the last 5 years. The rapid shift in customer preference to Skubecks comes on the back of greater convenience, brand image and family vehicle use. In 2013. TVS, which was underrepresented in the Skubeck catgory, launched TVS Dazz, its first automatic skubek for Indonesia which the company expects to perform well and increase sales in FY14-15. The

management has indicated that it plans to sell 60,000 units per annum by FY15 and achieve break-even in the Indonesian arm by FY15. The company has sold 15500 units by 3QFY14 and we believe that the company will clock in ~20,000 units in FY14. TVS has set an ambitious sales target of 60,000 units in FY15, implying a growth of 78% CAGR in FY13-15. The company indicated that it may convert Indonesian unit into export hub if it doesn't achieve break even by FY15. We expect that the Indonesian subsidiary will record sales of 60,000 units by FY16 and not by FY15 as projected by the management. Despite decline in sales, the Indonesian subsidiary reduced the EBITDA loss to INR 375.3mn in FY13 against EBITDA loss of INR 490mn in FY12.

Chart 26: Transition from Bebek to Skubek Chart 27: Indonesian two wheeler market share 70% 79% 60%

61% 50%

40%

30% 27% 20% 16% 12% 5% 10% 0% 2008 2013 2011 2012 2013 Bebek Skubeck Sports Motorcycle Honda Yamaha Suzuki Others Source: Company, CSEC Research Source: Company, CSEC Research

Chart 28: TVS-Indonesia Sales Volumes Chart 29: TVS Indonesia- No of dealers 70000

60000 160 150 50000

40000 104 106 110 110

30000

20000

10000

0 FY09 FY10 FY11 FY12 FY13 FY14* FY15* FY09 FY10 FY11 FY12 FY13 FY14*

Source: Company, CSEC Research Source: Company, CSEC Research

Some of the initiatives that the company has taken up to prop up sales in Indonesia include: . Ramp up the number of dealers from 100 to 150 by FY14 and also improve productivity within the existing dealers. Increase its brand prominence and promote its product as a safe and quality product through media campaigns. . Introduction of Dazz, with features such as tubeless tires and a hand phone charger at a very affordable price. Plans to launch a new bebek, skubeck and strengthen its sports bike portfolio ( Apache 160cc and 180cc) However, the shortage of bank lending for those who buy non-Japanese bikes in Indonesia needs to be addressed, if otherwise TVS is unlikely to attain 50,000 units is volumes even by FY16.

Well positioned to ride on the Scooter mania

The increasing prominence of scooters in the Indian market cannot be disputed given the strong growth in scooters that has surpassed other segments in the last six years. Although scooter's proportion of overall sales has considerably improved from 14% in FY08 to 21% in FY13, the scooter market in India still remains underpenetrated when compared to other global peers. Based on a study by TVS, Men comprise 36% of scooter rider, women constitute 29% and 35% of the scooters sold are used by both. With the recent launch of Jupiter, TVS has a complete portfolio catering to all user segments. (men, women & unisex). The trademark Scooty range is targeted at women segment while the Jupiter and Wego is aimed at men and unisex riders.. At present, TVS sells about 14,000 units of the Wego and ~22,000 units of the Scooty every month. With launch of Jupiter and Scooty Zest the company aims at selling 50,000 scooters/month from 1QFY15 onwards and also plans to ramp up scooter capacity to 75000 units by FY15 to cater to the burgeoning demand.

Chart 30: Growth across 2W categories Chart 31: Underpenetrated scooter market 84% 42% 63% 61% 31% 28% 26% 23% 24% 24% 14% 29% 9% 12% 11% 21% 4% 1% 0.2% 2%

FY09 FY10 FY11 FY12 FY13 ASEAN Europe Indonesia South India America Motorcycles Scooters Mopeds

Source: Company, CSEC Research Source: Company, CSEC Research

Chart 32: Working Women population in India Chart 33: Labor participation (% of females aged 15+) 200 180 70% 180 60% 160 50% 127 140 40% 120 30% 100 87 20% 80 63 10% 60 0% 36 40 20 0 1971 1981 1991 2001 2011

Source: Company, CSEC Research Source: Company, CSEC Research

TVS has taken a few initiatives to cash in on the increasing popularity of scooters in the domestic market by launching new products. With the launch of Jupiter, TVS has filled the void in its scooter portfolio by launching a product for the men segment. The company plans to launch Scooty Zest targeting younger audiences among women and an upgraded version of Wego in 1QFY15. The successful launch of both these models coupled with traction in Jupiter volumes can spur scooters volumes and help TVS improve its market share. The company aims to increase its market share from 12% to ~18% by FY15 in the scooters segment.

Models Ex-Showroom price (INR) Capacity ( in cc) Engine Type Max Power Honda Activa 50,998 110 4-stroke, Single cylinder, air cooled, OHC 8 Bhp @ 7500 rpm Hero Maestro 50,400 110 4-stroke Single Cylinder OHC 8.2 Bhp @ 7500 rpm TVS Jupiter 44,200 110 4 Stroke, Single cylinder, Air Cooled, OHC 8 Bhp @ 7500 rpm

Since its launch in 2QFY14, TVS Jupiter has won many awards. TVS Jupiter was adjudged ‘Scooter of the Year’ by NDTV Car and Bike Awards 2014, BBC Top Gear Magazine Awards 2014, Bike India and Car India Awards 2014. For its competitive price the Jupiter offers a powerful motor, comfortable seating and decent mileage, making it one of the best scooters in the market today. The Jupiter fares well on critical parameters such as price and mileage when compared to Honda Activa and Hero Maestro, both of which dominate ~57% of the market. The success and demand of the product is evidenced by the waiting period which runs up to 3-4 months.

Uptick in exports to mitigate any slowdown in domestic market

In FY13, two wheeler exports of TVS declined 27% YoY to 0.22mn units due to mandatory 25% down payment scheme in Indonesia, hike in import duty in Sri Lanka and demand contraction in key markets. However, exports of 3W witnessed good traction and grew 31% YoY to 34,000 units in FY13. TVS has established its presence in over 50 countries and plans to foray into newer geographies in a bid to improve its export volumes. The exports, which have been on a decline in the last 2 years are expect to gain momentum and contribute significantly to the top line.

Chart 34: TVS Export Trend and Number of Countries Chart 35: Exports as % of Volumes Peer comparison 60 60% 35.0% 58 50% 56 40% 54 30% 52 20% 50 10% 48 12.0% 46 0% 44 -10% 42 -20% 2.7% 40 -30%

2009 2010 2011 2012 2013 TVS Bajaj Hero No. of countries Export Trend

Source: Company, CSEC Research Source: Company, CSEC Research

The company plans to strengthen its presence in markets like Laos, Columbia, Argentina, Peru, Guatemala, Nigeria, Brazil and Vietnam. In the East African nation Uganda, TVS is planning to set up a highly modern assembly line and launch two motorcycles in the market to capture 25% market share in FY14. New launches in Kenya and the commissioning of an assembly line at Nakuru are expected to increase the company’s market share up to 40% (in FY13 it was 27%). The company's successful foray into overseas market helps the company cushion the slowdown in domestic market. During Q3FY14, revenue from exports grew 70% YoY to INR 4.4bn aided by higher volumes and better realization. In 9MFY14 exports grew 27% YoY and are likely to remain a key growth driver going ahead. We estimate TVS to increase its proportion of exports in overall volumes from 12% in FY13 to 15%% by FY16.

Traction in executive bike and successful launch of premium bikes can propel volumes

The motorcycle market can be classified into three distinct segments, based on income and lifestyle classifications – Economy (19.3%), Executive (64.4%) and Premium (16.3%). Once the production of Victor ceased in 2004 various models such as Centra, Flame and Jive were introduced in the executive segment but failed to take off and the production was subsequently curbed thereby creating a vacuum in executive motorcycle portfolio of TVS, which until then was represented in all the segments. In a bid to fill the void, TVS launched Phoenix 125cc in October 2012. But the launch of Phoenix didn't translate to any gains in the market share. Currently Phoenix commands only 1% market share in the executive segment. TVS indicated that it plans to launch an new variant of Victor and another executive bike in FY15 in an attempt to strengthen its presence in the executive segment. In the recent few months TVS Star has been rapidly losing market share and currently commands 14% market share in the economy segment. The company plans to launch the new Star City+, which can help the company to regain market share to ~20% in the entry segment by FY15.

Motorcycles

Economy Executive Premium (19.3%) (64.4%) (16.3%)

Top models in each segment Economy Executive Premium Model Mkt Share Model Mkt Share Model Mkt Share Hero CD Dawn Dlx 50.20% Hero Splendor 36% Bajaj Pulsar 38.20% Bajaj Platina 24.90% Hero Passion 21.10% Honda Unicorn 13.20% TVS Star 19.90% Bajaj Discover 10.50% TVS Apache 7.40% Hero CBZ X-Treme 6.90%

Apart from Apache, which currently commands 9% market share in the premium segment, TVS does not have any major products in its premium portfolio TVS plans on launching an upgraded version of Apache in FY15. TVS Draken a 250cc premium bike and Graphite a high end 150cc Scooter were showcased in the Auto Expo however the details of commercial launch are yet to be disclosed. The company expects to launch the first of the sub-500 cc bikes from the BMW Motorrad partnership in 2HFY15. The successful off take in executive and premium bikes can not only spur sales (and) but also enhance margins as they entail better realizations.

Revenues to grow at 16% CAGR during FY14-16 on traction in scooter and 3 wheeler exports

TVS is betting on new product launches to regain its lost market share from peers. In FY14, the company has launched Jupiter and Scooty Zest in the scooters segment, TVS Star City + in the motorbike segment and TVS King (diesel variant) in the 3W segment. The company plans to launch an upgraded version of Victor and Phoenix to its portfolio in FY15. In the scooters segment, release of an upgraded version of Wego and Streak is planned. The key catalyst however is the range of premium bikes (>250cc) that are expected to be launched in collaboration with BMW in the later part of FY15. In terms of new product launches TVS has lagged its peers. Going forward, TVS has

indicated that it will launch a product every quarter with an intent to gain market share. With new product launches we expect TVS to leverage on its robust distribution network of 850 dealers, which is on par with and sustain its current rate on advertising to build a brand image and gain market share. With incremental sales from new launches, we forecast TVS to improve its market share in the 2W segment from 13% in FY13 to ~17% by FY16. The industry sales of 2 wheelers in the last 2 years has been somewhat subdued. Motorcycle volumes exhibited signs of a downtrend (1.3% in FY12 & -10.4% in FY13) while moped volumes witnessed marginal growth (-10% in FY12 & -2% in FY13). The demand in the moped business is contingent on rural income, strong monsoon and agricultural production. We estimate moped volumes to grow at 8% CAGR in FY14-16 to 0.82mn on the back of good monsoon and uptick in rural demand. We estimate motorcycle volumes at 9% CAGR in FY14-16 to 0.95mn on the back of demand revival in exports, which declined 22% in FY13, increased availability of retail finance, extension of excise duty cut by the new government and interest rate cuts. The real growth catalyst for TVS comes in the form of traction in scooters and 3W exports segment. TVS is cognizant of the shift in industry demand from motorcycles to scooters and has introduced new products on a timely basis to cash in on the rising demand in scooters. We estimate scooters to record volume growth of 19% CAGR in FY14-16 led by urbanization, rise in disposable income, increasing proportion of women in workforce, convenience and family use aspect. Although, 3W sales in the domestic market continue to disappoint (-36% in FY12 & 7% in FY13) on the back of reduction in permits issued in major cities exports trend is in stark contrast. (53% in FY12 % 31% in FY13). We estimate traction in 3W export volumes to continue (40% CAGR in FY14-16) aided by foray into newer geographies, especially the African market which dominate ~70% of the volumes. In overall terms, TVS is expected to report robust volume growth in scooters and 3W exports to attain volume growth of 12.3% CAGR over FY14-16 to 2.59mn units leading to a revenue growth of 16.2% CAGR to INR 103.2bn in FY16.

Chart 36: 3W Export vs Domestic Sales Trend Chart 37: Scooter & Motorcycles Volume Trend 1 80% 10 40%

60% 30% 0.8 8 40% 20% 0.6 20% 6 10%

0.4 4 0% Numbers in lakh in Numbers -20% lakh in Number -10% 0.2 2 -40% -20% 0 -60% 0 -30% FY12 FY13 FY14E FY15E FY16E FY12 FY13 FY14E FY15E FY16E 3W Domestic 3W Exports Motorcycles Scooters 3W Exports Growth 3W Domestic Growth Motorcycles Growth Scooters Growth Source: Company, CSEC Research Source: Company, CSEC Research

Change in product mix can and healthy exports can trigger margin expansion

EBITDA margins of TVS remains mediocre when compared to its peers. Higher spend on marketing and brand awareness ( 6-7% of Sales vs 2-3% among peers) and high employee costs (5.6% vs 3-4% among peers) have had an adverse impact on the operating margins. TVS has a production capacity of 2.8mn units in the domestic market and 0.3mn units in its Indonesian arm. In FY13 the company achieved volumes of 2mn in the domestic market, reflecting a capacity utilization of 72-75%, however the volumes of 19000 units in the Indonesian market reflect a dismal capacity utilization at 7-10%. Once capacity utilization improves to ~80% on the back of revival in demand in the domestic market, the benefits of operating leverage comes into play and margins are bound to improve. The

success of new product launches and off take in premium bikes, a niche segment offering higher margins, act as a catalyst for margin expansion. Change in product mix (increased proportion of 3W and Scooters) can aid in margin improvement. Furthermore, there is scope to scale up export volumes from 12% in FY13 to 15% by FY16 to enhance margins. We estimate margins to improve 90 bps to 6.7% by FY16 on the back of change in product mix, higher share of exports, off-take in new product launches and benefits from operating leverage.

Chart 38: Costs & EBITDA Margins- Peer Comparison FY13 Chart 39: Change in product Mix 18.8%

39% 39% 39% 38% 37% 36% 37% 13.8% 34% 33% 32%

24% 24% 25% 22% 23% 6.5% 5.8% 5.8%

3.2% 3.5% 2.0% 6% 1.2% 4% 5% 2% 2%

TVS Bajaj Hero Motocorp FY12 FY13 FY14E FY15E FY16E Marketing Exp % of Sales Employee Cost % of Sales EBITDA Margins Motorcycles Mopeds Scooters 3W Source: Company, CSEC Research Source: Company, CSEC Research

Moderation in debt to aid in improved profitability

Non-core investments ( Low cost housing and wind energy), huge investments in the Indonesian subsidiary and capex incurred for capacity expansion and product development have caused a drag on FCF generation in the last few years. With the company having ample spare capacity to cater to its long term growth, we do not anticipate any significant investment for expanding capacities. TVS has decided to focus on core business and divest its stake in non-core business. In 2QFY14, TVS sold its stake in TVS Energy, bringing down the consolidated borrowings from INR 8.5bn to INR 5.9bn. TVS is also planning to cut down on its investment in TVS Motor Company (Europe). The sale of surplus land in Indonesia generated a profit of INR 1.1bn. On a standalone basis, TVS has a total debt of INR 6.3bn of which the interest bearing debt is INR 3.1bn. The company plans to retire its interest bearing debt in the standalone entity by FY15 ted by divestment in non-core business and restructuring initiatives, which leads to improved profitability and higher cash flows. We expect the D/E levels in the standalone entity to moderate from 0.5 in FY13 to 0.2 by FY16.

Chart 40: Standalone and Consolidated debt levels Chart 41: Standalone - FCF & D/E trend 14000 5,000 0.8

12000 0.7 4,000 0.6 10000 3,000 0.5 8000

0.4 D/E

6000 2,000 0.3 FCF ( INR mn) INR( FCF INR ( in mn) in ( INR 4000 0.2 1,000 2000 0.1 0 0.0 0 FY09 FY10 FY11 FY12 FY13 FY09 FY10 FY11 FY12 FY13 FCF Debt/Equity Cons Debt Standalone Debt

Source: Company, CSEC Research Source: Company, CSEC Research

Outlook and Valuation

The industry body SIAM indicated that revival in 2 wheeler sales is bound to occur only after GDP recovers to 6% levels. The price reductions arising from the recent cut in excise duty from 12% to 8% has helped little to bolster demand. The management has guided to sell around 2.4mn units in FY15. The volume uptick is dependent on traction in scooter sales and 3W exports, improved moped sales, revival in 2W demand and success of new product launches. TVS is expected to clock an overall volume growth of 12.3% CAGR over FY14-16 and reach 2.59mn units, resulting in an overall revenue growth of 16% CAGR to INR 103.2bn in the same period. On the EBITDA margins front, the company's inability to sustain its margins even above 6% levels when its peers are operating at double digit margins despite cost pressures and weak demand scenario continues to remain a cause of concern. We project 90bps improvement in margins from 5.8% in FY13 to 6.7% in FY16 as most of the gains from operating leverage, change in product mix and uptick in exports are offset by sustained high spending on advertising and firm raw material prices. The Indonesian subsidiary continues to remain a concern as the company is yet to attain break-even since it commenced operations in 2007. We estimate that volumes in Indonesia will inch up to ~60,000 and turn EPS accretive by FY16 and not FY15 as indicated by the management. TVS is expected to incur capex at INR 2bn in FY14 on account of capacity expansion in 3W and new product development. Further, the company estimates capex of Euro 20mn (INR 1.90bn) in the next 2 years for product design and development in collaboration with BMW over the next 2 years. Divestment in non-core subsidiaries and healthy cash flows will help reduce debt from overall reduction in debt. The success of new product launches, traction in scooters and revival in mopeds segment should help the company arrest its sliding market share and subsequently improve its market share from 13% in FY13 to 16% by FY16. On the back of margin expansion (90bps in FY14-16) and reduction in interest costs, we forecast the PAT to increase from INR 2.3bn to INR 4.1bn, reflecting a CAGR of 32.7% during FY14-16. There exists a positive trigger if rollout of products in collaboration with BMW happens sooner than expected or if BMW decides to take a strategic stake in the company.

Chart 42: Standalone Net Revenue Trend Chart 43: EBITDA Margin and PAT Trend 110,000 4000 6.8% 100,000 3500 6.6% 90,000 3000 6.4% 80,000 2500 6.2% 70,000 2000 6.0% 60,000 1500 5.8%

50,000 mn) (INRPAT Adj 1000 5.6%

40,000 500 5.4% Net Revenue (INR mn) (INR Revenue Net 30,000 0 5.2% 20,000 FY12 FY13 FY14E FY15E FY16E 10,000 Adjusted PAT EBIDTA Margin (%) FY12 FY13 FY14E FY15E FY16E

Source: Company, CSEC Research Source: Company, CSEC Research

We initiate coverage on TVS with a OUTPERFORMER rating given its strong product portfolio, momentum in scooters and 3W exports, strong distribution network, new product launches and moderation in debt levels going forward. However, prolonged weakness in the domestic auto market, failure of new product launches and sustained

18 losses in the Indonesian subsidiary pose a threat. At CMP of INR 90, the stock is trading at 13.1/10.5 FY15/16E EPS. We value the stock at 12x FY16 EPS of INR 8.9 (Standalone – INR 8.6 & subsidiary –INR 0.3), which gives us a target price of INR 106, implying an upside potential of ~18%. The target multiple of 12X, which is at a discount of ~10-15% to its peers is justified given the company’s scale of operations and inferior margins.

Peer Comparison Adj EPS P/E P/B Div Yield (%) ROE (%) FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E Hero Motocorp* 105.3 138.4 161.5 20.2 15.4 13.2 7.2 5.9 4.9 2.6 3 3.3 37.7 41.5 40.3 Bajaj* 117.8 134.9 151.9 16.8 14.6 13.1 5.9 4.9 4.1 2.7 3 3.3 37.8 35.8 33.7 TVS Motors 4.8 6.4 7.9 18.5 13.8 11.1 3.0 2.6 2.3 1.5 1.8 2.5 17.4 20.4 21.9 * Bloomberg estimates for parent company

Sales Volume Projection (in lakh units) Product Segments FY11 FY12 FY13 FY14E FY15E FY16E Motorcycles 8.33 8.44 7.56 8.00 8.64 9.50 Growth(%) 30.6% 1.3% -10.4% 5.8% 8.0% 10.0% Mopeds 7.05 7.78 7.93 7.06 7.55 8.23 Growth(%) 23.5% 10.4% 1.9% -11.0% 7.0% 9.0% Scooters 4.66 5.25 4.46 4.64 5.47 6.57 Growth(%) 50.3% 12.7% -15.0% 4.0% 18.0% 20.0% 3 Wheelers 0.39 0.40 0.49 0.79 1.13 1.55 Growth(%) 160.0% 2.6% 22.5% 61.2% 43.0% 37.2% Overall 20.43 21.87 20.44 20.48 22.79 25.85 Growth(%) 33.2% 7.0% -6.5% 0.2% 11.3% 13.4%

RIsks: Failure of new product launches coupled with persistence of subdued macro conditions can have an adverse impact on sales volume estimates. Sustained losses in Indonesian subsidiary remain a concern.

Financials (Standalone)

Income Statement (Abstract) Per Share Ratios INR(million) Particulars FY13 FY14E FY15E FY16E Particulars FY13 FY14E FY15E FFY16E Adjusted EPS (INR) 4.4 4.9 6.9 8.6 Net Revenue 70,650.0 76,436.4 88,945.8 103,184.7 Cash EPS 7.1 7.9 10.0 12.0 Growth (%) -1.1 8.2 16.4 16.0 BV/Share (INR) 25.8 29.1 34.1 40.2 Operating FCF/Share(INR) 7.2 4.6 7.1 9.4 Expenditure 66,559.7 71,871.4 83,224.5 96,288.8 EBIDTA 4,090.3 4,564.9 5,721.3 6,895.9 DPS (INR) 1.2 1.3 1.6 2.2 Growth (%) -12.9 11.6 25.3 20.5 Depreciation 1,304.1 1,428.5 1,518.4 1,618.3 Key Ratios Other Income 238.4 305.7 400.3 361.1 Particulars FY13 FY14E FY15E FY16E Interest 480.4 288.0 144.0 48.0 Exceptional Items -908.4 0.0 0.0 0.0 Dividend Payout (%) 49.1 26.6 23.4 25.6 Tax Paid 475.6 835.9 1,204.0 1,509.5 EBIDTA Margin (%) 5.8 6.0 6.4 6.7 Reported PAT 1,160.2 2,318.3 3,255.2 4,081.2 PBT Margin (%) 3.6 4.1 5.0 5.4 PAT Margin (%) 1.6 3.0 3.7 4.0 Adjusted PAT 2,068.6 2,318.3 3,255.2 4,081.2 RoCE (%) 11.6 19.3 24.6 27.0 Growth (%) -16.9 12.1 40.4 25.4 RoE (%) 9.7 17.8 21.7 23.1 Current Ratio 0.9 0.9 1.0 1.1

Balance Sheet (Abstract) Inventory Days 26 26 25 24 Debtor days 12 13 12 11 INR(million) Particulars FY13 FY14 FY15E FY16E Creditor days 45 44 43 41 Share Capital 475 475 475 475 CCC -7 -5 -6 -6 Reserves & Surplus 11,772 13,373 15,747 18,615 Interest Cover Ratio 4.4 12.0 32.0 117.5 Networth 12,247 13,848 16,222 19,091 Current Liabilities 12,542 12,659 13,791 15,010 DuPont Analysis Non-Current Liab 6,404 5,216 4,675 4,639 Particulars FY13 FY14E FY15E FY16E Total Liabilities 31,193 31,724 34,687 38,739 Net Profit Margin (%) 1.6 3.0 3.7 4.0 Net Fixed Assets 10,115 10,608 10,640 10,271 Other Non-Current Asset Turnover 2.3 2.4 2.7 2.8 Assets 9,783 9,649 9,844 11,448 Leverage factor 2.6 2.4 2.2 2.1 Cash & marketable RoE (%) 9.69 17.77 21.65 23.12 securities 175 262 1,756 3,411 Other Current Assets 11,121 11,205 12,448 13,609 Valuation Ratios Total Assets 31,193 31,724 34,687 38,739 Particulars FY13 FY14E FY15E FY16E Cash Flow statement (Abstract) P/E 20.5 18.4 13.1 10.5 INR(million) P/BV 3.5 3.1 2.6 2.2 EV/Sales 0.7 0.6 0.5 0.4 Particulars FY13 FY14 FY15E FY16E Cash flow from EV/EBITDA 12.0 10.4 7.8 6.2 operations 4181 4436 4940 5827 Div Yield (%) 1.3 1.4 1.8 2.4 Cash flow from investing -985 -1985 -1620 -2712 *CCC – Cash Conversion Cycle Cash flow from financing -1463 -2363 -1826 -1460 Free cash flow 3,411 2,170 3,362 4,468 Net change in cash 1734 88 1494 1655

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