Update | 17 May 2018 Sector: Automobile Eicher Motors

All set for next leg of growth

Jinesh Gandhi - Research Analyst ([email protected]); +91 22 3982 5416 Suneeta Kamath - Research Analyst ([email protected]) | Deep Shah - Research Analyst ([email protected]) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. Eicher Motors

Contents: Eicher Motors | All set for next leg of growth

Summary ...... 3

Expanding market share in growing segment ...... 4

Next leg of growth to come from rural, semi-urban areas ...... 6

RE needs to address few challenges ...... 13

Exports: huge potential in unexplored mid-size bikes ...... 15

VECV to benefit from strong tailwind in the CV industry ...... 17

Valuation and view...... 18

Scenario analysis indicates favorable risk-reward ...... 20

SWOT analysis ...... 21

Operating metrics...... 22

Story in charts: Multiple growth drivers ...... 23

Financials and Valuations ...... 24

17 May 2018 2 Eicher17 May Motors 2018 Update | Sector: Automobiles Eicher Motors

BSE SENSEX S&P CNX 35,149 10,683 CMP: INR30,550 TP:INR35,572(+16%) Buy All set for next leg of growth… …driven by high-potential, under represented BIMARU states  High-potential markets like BIMARU under-represented: We see high growth Stock Info potential in key motorcycling markets like BIMARU (Bihar, MP, Rajasthan and Bloomberg EIM IN UP). These under-penetrated 2W markets not just offer higher scope for Equity Shares (m) 27 motorcycles but also for aspirational products like RE. RE’s market share in 52-Week Range (INR) 33484 / 26000 these states is currently 3-4% (v/s 6% for pan-India). With network expansion 1, 6, 12 Rel. Per (%) -7/-7/-13 focused on these high potential tier-2 markets, we expect these states to M.Cap. (INR b) 832.7 continue to grow strongly at 36% CAGR over FY18-20, contributing ~24% to RE’s M.Cap. (USD b) 12.3 Avg Val, INRm 1427.0 domestic volume. We expect UP to become the largest market for RE by FY20 Free float (%) 49.5 (5th largest in FY17).  State-wise demand model suggests 20% CAGR: Assuming no capacity Financials Snapshot (INR b) constraints, based on our state-wise demand model, we see potential of 20% Y/E Mar 2018 2019E 2020E CAGR in domestic volumes over FY18-20. However, assuming 2nd phase of 3rd Net Sales 89.6 107.7 129.4 plant comes on-stream from April 2019, we model ~16% volume CAGR. EBITDA 28.1 35.1 43.8  PAT 21.8 28.6 36.7 Demand moderation in select key states due to systemic pressures: In key EPS (INR) 799.6 1,050.3 1,347.1 states like Maharashtra, Karnataka and Tamil Nadu, there are signs of demand Gr. (%) 27.0 31.3 28.3 moderation. While Tamil Nadu witnessed decline for the first time in 3QFY18, BV/Sh (INR) 2,579 3,424 4,538 volumes in Maharashtra and Karnataka have been declining since 4QFY17and RoE (%) 35.2 35.0 33.8 2QFY18 respectively, primarily impacted by systemic factors like (a) weakness in RoCE (%) 30.1 30.3 30.6 IT sector impacting demand in Pune and Bangalore, (b) increase in road tax in P/E (x) 38.2 29.1 22.7 Karnataka and Maharashtra, and (c) high penetration in key cities (15-25% of P/BV (x) 11.8 8.9 6.7 motorcycles v/s 6% pan-India). Shareholding pattern (%)  Export market a huge opportunity, but ramp-up to be gradual: RE is focused on As On Mar-18 Dec-17 Mar-17 creating a mark in developing markets like LatAm and South East Asia. By Promoter 50.5 50.5 50.6 appealing to these markets as a step-up aspirational product with an accessible DII 5.9 5.5 4.0 cost of ownership vis-à-vis competitors, it is expanding its exclusive dealership FII 31.0 32.1 32.5 outlets. Its new launches, the 650cc twins would further help establish its Others 12.6 11.8 12.9 presence in these markets. We believe that export markets can be a meaningful FII Includes depository receipts contributor to volumes in five years, but ramp-up would be back-ended.  VECV volumes to clock 14% CAGR over FY18-20: We expect VECV to benefit Stock Performance (1-year) Eicher Motors from strong tailwinds in the domestic CV industry, with volumes growing at 14% Sensex - Rebased CAGR over FY18-20. Further, with signs of discount levels reducing and 37,000 expansion of dealership network, VECV would regain lost market share in the 34,000 LMD and HD segment.  Valuation and view: We expect RE volumes to grow at 16% CAGR over FY18-20. 31,000 We believe the next leg of growth would be driven by (a) strong volume growth 28,000 in relatively under-penetrated markets, (b) expansion of dealership network in 25,000 these under-penetrated markets, providing better brand accessibility, (c) timely production ramp-up to meet demand, and (d) ramp-up in exports led by new Feb-18 Aug-17 Nov-17 launches and expansion of exclusive outlets in target markets. We maintain our May-18 May-17 multiples (P/E of 27.5x for RE and EV/EBITDA of 10x for VECV). We reiterate our Buy rating on the stock, with an SOTP-based TP of INR35,572 (FY20E).

17 May 2018 3 Eicher Motors

Expanding market share in growing segment RE has significant headroom to gain market share in premium segment

 We expect the premium segment (>150cc) of the motorcycle industry to grow at ~13% CAGR over FY18-22E, as against motorcycle industry growth of 5.4% and 2W industry growth of 8.7%.  This value migration is expected to be driven by upgrading by the existing motorcycling population, especially in urban markets, as well as first-time buyers directly buying premium motorcycles.  With its niche positioning, we believe an expanding premium segment would provide further impetus for RE to grow and capture a larger share of the pie. Consequently, we expect RE to outperform the premium motorcycles segment, with ~15% volume CAGR over FY18-20E.  While premium segment is expected to capture ~31% of the motorcycle market by FY22E, RE’s share within premium motorcycles is expected to expand to ~29% by FY22E (refer exhibit 3).

Exhibit 1: Value migrating from 100cc to premium Exhibit 2: … where RE enjoys virtual monopoly with ~95% segment, particularly Premium >250cc segment market share

Economy Executive Premium 150-250cc Premium >250cc 4% 1% 1 6 18 10 18 21 Royal Enfield Bajaj 63 52 44 Others

18 23 25 95% FY12 FY17 FY22E

Source: MOSL, Company Source: MOSL, Company

Exhibit 3: Premium’s share within m/cycles to expand to 31% by FY22E, with RE’s market share of premium segment to expand to 29% by FY22E

15.6m

12.6m Motorcycle Ind 10.1m

4.87m [31%] Premium M/Cycle 2.93m 1.57m [23%] 1.4m [16%] 121k 801k [29%] [8%] [27%] RE

FY13 FY18 FY22E

Note: % in brackets is market share of the segment i.e Premium share in total motorcycle and RE’s share in Premium; Source: SIAM, MOSL

17 May 2018 4 Eicher Motors

Exhibit 4: Share of Premium (>150cc) motorcycles to expand to ~31% of motorcycles by FY22E

Note: % in circle represents share of premium segment in motorcycles Source: MOSL

Exhibit 5: Segment leaders generally enjoy disproportionate Exhibit 6: RE to gain further market share in premium market share segment

RE market share within premium motorcycles 82.7 28.7 27.0 26.9 27.4 28.0 24.0 59.0 57.6 22.2 47.8 42.6 15.5 28.8 31.2 27.2 13.0 16.2 RE TVS Bajaj HMSI HMSI HMSI Bajaj HMCL HMCL HMCL FY15 FY16 FY17

Economy Exec. 100cc Exec. 125cc Scooters Premium FY18E FY19E FY20E FY21E FY22E

Source: SIAM, MOSL Source: SIAM, MOSL

17 May 2018 5 Eicher Motors

Next leg of growth to come from rural, semi-urban areas Large part of RE’s ongoing network expansion is in tier-2 cities & beyond

 Key motorcycling markets like BIMARU are under-represented; offer significant room for aspirational product like RE to expand market share.  Expansion of dealership network with emphasis on under-represented markets to provide better brand accessibility.  State-wise volume estimates suggest ~20% CAGR in domestic volumes over FY18-20E. However, based on current visibility of capacity, we estimate ~15% CAGR over FY18- 20E.  Signs of demand moderation in certain states like Maharashtra, Karnataka and Tamil Nadu are due to systemic pressure like (a) weakness in IT sector impacting demand in Pune and Bangalore, (b) increase in road tax in Karnataka and Maharashtra, and (c) high penetration in key cities (15-25% of motorcycles v/s 6% pan-India).

High potential markets like BIMARU under-represented; to drive next leg of growth  Strong growth to continue in key motorcycling BIMARU states: We see high growth potential in key motorcycling markets like BIMARU (Bihar, MP, Rajasthan and UP), Jharkhand, Orissa and Assam. These under-penetrated 2W markets not just offer higher scope for motorcycles, but also for aspirational products like RE.  RE has room to increase market share in these markets: RE currently has low market share in these states (3-4% v/s market share of 6% nation-wide). With RE’s network expansion focused on these high potential tier-2 markets, we see significant room for expansion of market share.  Strong growth in these markets to continue: Though BIMARU states contribute just ~18% to RE volumes (12% in FY14), they have been growing rapidly at ~63% CAGR over FY14-17. We expect these states to continue to grow strongly at 34% CAGR over FY18-20, contributing ~24% to RE’s domestic volumes. In fact, we expect UP to become the largest market for RE by FY20 (v/s 5th largest in FY17).

Exhibit 7: High potential to grow in BIMARU and other eastern states, where RE has low market share 6%

4% 4% 3% 3% 2% 3%

MP Rajasthan Bihar UP Jharkhand Orissa RE's market share in India

Source: SIAM, MOSL

17 May 2018 6 Eicher Motors

Exhibit 8: BIMARU states have high potential for RE, considering its under-representation Market Mix (%) M/Cycle Ind RE 17 8 7 11 7 7 11 9 9 6 6 6 7 5 7 5 6 5 4 4 3 3 2 3 2 1 3 2 3 3 3 3 3 3 2 2 AP TN UP Tel Raj Kar Ker MP Guj Ors b WB Har JHK CTG Mah Delhi Bihar Punja

Source: SIAM, MOSL

Exhibit 9: BIMARU states growth remains strong at >20% 220% FY12 FY13 FY14 FY15 FY16 FY17 9MFY18

170%

120%

70%

20% Bihar MP Rajasthan UP

Source: SIAM, MOSL

Exhibit 10: Healthy volume growth (58% YoY) coupled with Exhibit 11: MP volumes continue to grow – 46% YoY growth market share gain in UP in 9MFY18

Volume M/cycle market share Volume M/cycle market share

4% 3% 4% 3% 3%

3% 2,746 3% 1,868 2% 2% 3% 2% 2% 2% 3% 2% 2% 5,600 2% 2% 2% 2% 1% 1% 5,811 5,045 4,234 3,919 3,993 3,466 2,883 3,200 11,452 12,372 13,546 18,397 19,783 7,985 2,517 9,659 15,842 7,220 10,401 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Source: SIAM, MOSL Source: SIAM, MOSL

17 May 2018 7 Eicher Motors

Exhibit 12: RE continues gaining market share in Bihar Exhibit 13: Rajasthan volumes grew 24% YoY in 9MFY18

Volume M/cycle market share Volume M/cycle market share 4% 3% 3% 3% 2% 2% 2% 4,176 3% 3% 3,870 2% 3% 3% 2,530

3,127 3% 2% 2% 2% 2% 2% 2% 1% 2% 1% 6,696 6,015 7,798 4,711 6,370 4,656 4,828 5,116 4,362 4,640 4,900 4,267 3,855 4,300 3,104 3,453 3,309 5,595 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18

Source: SIAM, MOSL Source: SIAM, MOSL

Expansion of dealership network to provide better brand accessibility  The management is focused on ramping up its dealership network from ~825 dealers at present to ~1,000 dealers in the next two-three years. Expansion of dealership network would lead to increase in access to the brand, which in turn, would drive volume growth.  When compared to MSIL, RE lags behind in terms of dealership network and number of cities covered. This is because RE has good representation in top-10 motorcycling markets, but not in other markets. A large part of new dealerships in the last 12-18 months and upcoming ones are targeted towards under- represented markets there-by filling these market gaps.  Over CY13-FY17, RE’s network has expanded substantially from 307 dealers to 675, and to ~825 as of March 2018. This has masked booking SSG for RE in tier-1 markets, partly moderating booking SSG in top-25 cities to early teens.

Exhibit 14: Rapid pace of dealership addition supports Exhibit 15: Growth in average monthly volume per dealer volume growth subdued, as focus shifts to tier-2 cities Dealership network India YoY growth Volume per dealer YoY growth

34% 34% 28% 28% 26% 28% 23% 25% 22% 22% 81 80

2% 1% 198 249 307 392 527 675 825 30 37 47 63 79

CY11 CY12 CY13 CY14 FY16 FY17 FY18 CY11 CY12 CY13 CY14 FY16 FY17 FY18

Source: Company, MOSL Source: Company, MOSL

17 May 2018 8 Eicher Motors

Exhibit 16: RE’s distribution yet to penetrate tier-2 cities & below Exhibit 17: RE’s distribution network mix Maharashtra RE MSIL Uttar Pradesh 2800 12% Tamil Nadu 20% Karnataka 10% Kerala Punjab 1652 4% Andhra Pradesh 4% 9% Gujarat 825 4% Telangana Haryana 513 4% 8% 5% Bihar 5% 7% West Bengal 5% 6% Rajasthan FY18 Dealer network No. of cities covered Others Source: Company, MOSL Source: Company, MOSL

State-wise volume estimates suggest ~20% CAGR in domestic volumes  Based on our state-wise volume estimates, we see potential 20% CAGR in domestic volumes over FY18-20. This is assuming no capacity constraints. Based on current visibility of capacities, we estimate ~15% volume CAGR for RE over FY18-20.  Large part of this growth would be driven by BIMARU states, with growth of 36% CAGR.  We expect weakness in Maharashtra and Karnataka to persist, resulting in declining volumes.

17 May 2018 9 Eicher Motors

Exhibit 18: Domestic volume model based on state-wise volume estimates (assuming no capacity constraints) Volume Market sh %. FY15 FY18E FY20E FY18-20 CAGR FY15 FY18E FY20E Chandigarh 3,944 5,879 7,631 12 20.6 36.1 41.4 Delhi 20,846 53,801 72,698 16 9.6 19.5 23.4 Haryana 8,975 22,213 31,237 22 2.4 5.7 7.8 H.P. 3,662 7,300 11,792 22 10.7 18.6 24.9 J&K 2,474 10,403 20,336 35 8.2 18.5 26.6 Punjab 24,159 45,270 62,191 17 6.0 12.1 16.8 U.P. 17,607 75,478 144,943 43 1.1 3.6 6.0 UTK 3,197 14,479 28,378 37 4.4 13.4 19.2 North Zone 84,864 234,822 379,206 28 3.0 7.1 9.9 Assam 4,370 16,867 31,879 37 2.6 8.3 13.5 Bihar 10,798 27,034 40,130 33 2.1 3.5 5.0 JHK 4,140 14,601 26,573 35 1.8 4.3 6.3 Orissa 4,838 18,391 25,392 35 1.5 4.4 7.1 WB 10,300 26,893 38,846 25 2.0 4.2 5.4 East Zone 36,224 107,717 170,116 32 2.0 4.5 6.5 Goa 2,321 5,250 7,313 22 17.4 42.6 61.3 Gujarat 15,439 37,965 59,321 25 2.2 5.4 7.8 MP 6,090 21,106 35,039 32 0.9 2.7 4.0 CTG 3,530 8,535 11,319 22 1.2 2.8 3.6 Mah. 55,284 73,171 69,513 (5) 4.9 6.6 5.4 Raj 7,029 23,349 33,622 20 0.8 2.8 3.8 West Zone 89,693 169,377 216,126 13 2.5 4.5 5.2 AP 24,658 26,334 38,742 22 2.8 4.4 5.9 Kar 32,585 54,347 53,260 (5) 5.1 9.4 8.7 Kerala 30,121 94,955 125,578 15 12.9 36.3 41.9 TN 24,542 76,851 122,962 14 3.4 9.6 10.7 Telangana - 30,410 46,527 22 8.2 10.5 South Zone 112,881 286,208 392,880 13 4.6 10.9 12.5 DOMESTIC RE 323,662 798,124 1,158,327 20 3.0 6.6 8.3 Exports 11,405 19,262 43,686 51

Total RE 323,662 817,386 1,202,014 21 Source: SIAM, MOSL Systemic pressure in select key states impacting RE demand  In key states like Maharashtra (~9% of total RE volumes), Karnataka (~7% of total RE volumes) and Tamil Nadu (~10% of total RE volumes), there are signs of demand moderation.  While volumes in Maharashtra have been declining since 4QFY17, Karnataka volumes have been declining since 2QFY18 (though sub-10% growth since 4QFY17) and Tamil Nadu witnessed decline for the first time in 3QFY18.  However, as per our channel checks, moderating trend in both bookings and volumes in these cities is attributable to market-specific factors such as: (a) Weakness in IT sector (Bangalore and Pune being IT hubs) has impacted demand for RE in Karnataka and Maharashtra. Motorcycle industry volumes for these two states have also declined (refer exhibit 19, 20). (b) 6pp increase in road tax to 18% for 2Ws priced >INR100k has dragged down demand for high-end motorcycles in Karnataka. (c) RE’s penetration in cities like Chennai, Bangalore, Mumbai and Pune is already at 15-25% of new motorcycles sales, which is well above its Pan-India ~6% share in total motorcycle sales. This offers limited scope for RE to expand market share in these cities.  Our channel checks suggest that booking growth now ranges from zero to high single-digit in these states.  Most of these markets now do not have any waiting period; on the contrary, products are largely available off the shelf (barring few colors).

17 May 2018 10 Eicher Motors

Exhibit 19: Both PV and Motorcycle sales remain under pressure in Maharashtra

Mah. RE sales Mah. Total m/cycle Mah. PV sales 10% 6% 7% 8% 0% 1%

-5% -3% -5% -6% -8% -8% -14% -16% -22%

3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Source: SIAM, MOSL

Exhibit 20: RE sales decline in Karnataka mimic motorcycle and PV industry decline

28% Kar. RE sales Kar. Total m/cycle Kar. PV sales

4% 5% 7% -1% -5% -3% -5% -7% -6% -8% -11% -9% -23% -22%

3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Source: SIAM, MOSL

Exhibit 21: While motorcycle sales in Tamil Nadu were on a downtrend since 4QFY17, RE sales first decline in 3QFY18

51% TN RE sales TN Total m/cycle 43% 29%

2%

-5% -14% -12% -11% 4QFY17 1QFY18 2QFY18 3QFY18 Source: SIAM, MOSL

Exhibit 22: Three of RE’s top-10 markets witnessing Exhibit 23: RE’s motorcycle market share is increasing, pressures on volumes particularly in top-10 markets RE's Top 10 markets - FY17 RE's M/cycle market share - FY17

12.1 11.7 31 10.1 8.8 7.4 6.9 18 5.8 4.8 3.7 3.1 7 8 10 11 8 3 5 3 AP AP TN TN UP UP Tel Tel Kar Kar Ker Ker Guj Guj Mah Mah Delhi Delhi Punjab Punjab

Source: SIAM, MOSL Source: SIAM, MOSL

17 May 2018 11 Eicher Motors

Exhibit 24: Waiting period reduces drastically on the back of capacity addition and dealership expansion Exhibit 25: Growth in monthly volumes decelerates Waiting period (in months) 65.0 YoY Growth (3month MA) 8 8 7 55.0 5 5 5 5 5 5 45.0 4 4 4 3 3 3 3 3 35.0 2 2 1.5 1.5 25.0 15.0 Jun-16 Jun-17 Oct-16 Oct-17 Apr-16 Apr-17 Feb-16 Feb-17 Feb-18 Dec-15 Dec-16 Dec-17 Aug-16 Aug-17 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17

Source: Company, MOSL Source: Company, MOSL

Exhibit 26: Snapshot of feedback from dealers in key markets State City Feedback Maharashtra Mumbai *Bookings are flat YoY, with walk-ins reducing drastically. Lack of new products also adds on to the issue. *RE is now 90% push market which was earlier 100% pull market. *Upto 1 month of inventory in channel. *RE market share is 15-20% within motorcycles. *Accessories hasn't picked up Tier-2 cities *Decline of 20-25% in bookings. *Volumes are not growing. *Current market share is optimal. *Repeat purchase for RE is very low, partly due to lack of options. *Rural demand was impacted by shortage of cash and uncertainty about loan waiver. *New 650cc launches are long awaited. *Bullet is very popular among farmers. Karnataka Bengaluru *Bookings declined by 15% YoY. *Dealer count has doubled in the last 2 years. *Walk-ins have reduced by ~20% YoY. *Moderate demand for accessories. Tier-2 cities *Bookings have declined by 3-5% YoY. *Some dealerships have started marketing activities in the last 6 months, due to which footfalls have increased. *New models are needed to attract existing as well as new users. Tier-3 cities *Bookings are flat YoY, however, signs of pick-up are now visible. *New dealerships are seeing good response, with footfalls increasing since inception *Rural demand has improved now, and dealership expects 10-15% growth going ahead. Kerala Tier-2 cities *Bookings growth has slowed in the last 3 months, declining by ~7% YoY. *Waiting period at 1 month, v/s 2.5 months a year back. Tier-3 cities *Bookings growth of 8-10% YoY. *RE enjoys >40% market share within 2W in these regions. *Dealers believe there is no problem of product fatigue. *Expect good response to the 650cc new launches. UP Tier-2 cities *Bookings growth of ~40% YoY. *RE enjoys huge brand appeal, especially in Kanpur, Bareilly. *Accessories are doing good in areas like Agra, Lucknow Tamil Nadu Tier-3 cities *Bookings have increased by ~10% YoY. *Models other than Classic 350 are not doing well. Classic 350 accounts for 95% of sales. *Dealership count has more than doubled in the last 2 years. Gujarat Tier-2 cities *Demand for RE remains strong, with increasing footfalls. *50% conversion rate. *New launches would further boost sales, however, 650cc new launches would cater to a very small segment. Delhi Delhi *Booking growth of ~30% YoY. *Contrary to other markets, Himalayan has gained good popularity here. *Accessories and apparel are growing ~20% YoY. Source: MOSL

17 May 2018 12 Eicher Motors

RE needs to address few challenges Developing another successful product will help fighting future competition

 Challenge #1: New product needed to complement Classic, expand addressable market  Challenge #2: Competition trying hard, although yet to crack the code

Challenge #1: New product needed to complement Classic, expand addressable market  RE’s success in India has been primarily driven by Classic 350, which accounts for ~70% of domestic volumes.  RE’s strategy of being both a traditional and iconic brand while providing a viable upgrade for commuters has worked for it in the past. Our channel checks suggest that ~75% of RE customers are commuters, who now do not have meaningful options to switch/upgrade to within the RE franchise.  Also, our interactions with channel partners indicate that RE needs another strong brand that can attract new customers – the ones not attracted to Classic. This will also help to create pull at the dealership level and drive footfalls, having a rub-off on existing products.  RE has made a couple of attempts (Continental GT and Himalayan) in the past to have offerings other than the Classic brand, but hasn’t got any success yet.  New launches in the 650cc segment – Interceptor and Continental GT are expected to be on board by 1HFY19. Although it would have a very small addressable market in India (RE’s 500cc motorcycle contributes only 5% to RE’s domestic volumes), we believe it would help in increasing footfalls and improving brand visibility. Exhibit 27: No meaningful contribution from new launches in the >350cc segment

Launched in Model Average volumes YTDFY18 % of domestic sales 2009 Thunderbird Twinspark 350 3,570 6% 2009 Classic 500 2,040 3% 2010 New Bullet 350 8,742 14% 2012 New Thunderbird 350 4,128 6% 2012 New Thunderbird 500 266 0% 2013 New Bullet 500 668 1% 2013 Continental GT 51 0% 2016 Himalayan 604 1% 2018 Continental GT 650 NA ? 2018 Interceptor 650 NA ? Source: SIAM, MOSL Challenge #2: Competition trying hard, although yet to crack the code  While RE enjoyed virtual monopoly in the >250cc premium segment, threat of competition is only increasing, with the advent of players like BMW, Triumph, Husqvarna, Honda, Norton, Benelli and UM in this space.  In the past, Bajaj tried to penetrate in RE’s domain with products like Avenger (150cc, 220cc) and Dominar (400cc). However, it is yet to gain any meaningful success with these brands. Avenger and Dominar did average monthly volumes of 8.7k and 1.5k units respectively in FY18YTD.

17 May 2018 13 Eicher Motors

 Going forward, there are several launches lined-up in the cruiser and sports segments, with key difference being competition from global aspirational brands like BMW and Triumph in tie-up with local players like TVS, Bajaj, etc.  However, with RE’s niche positioning, we believe an expanding premium segment would provide further impetus for RE to grow and capture a larger share of the pie.

Exhibit 28: RE has led the exponential growth in the >250cc segment Exhibit 29: RE enjoys virtual monopoly in >250cc segment

>250 cc segment ('000) YoY Growth (%) 72.3 4% 1% 60.5 54.6 52.0 Royal Enfield

31.2 Bajaj 24.1 Others

79.3 122.6 211.3 339.1 515.4 676.2 839.4 95% FY12 FY13 FY14 FY15 FY16 FY17 FY18E

Source: SIAM, MOSL Source: SIAM, MOSL

Exhibit 30: Upcoming launches by competitors in premium segment

Model Type Price (estimated) Jawa 350 Classic INR 200k Husqvarna Street INR 300k Triumph-Bajaj Classic INR 200k Bajaj Avenger Cruiser INR 160k KTM 390 Duke/ RC 390/ 250 Duke Super Sports INR 225k Norton Commando Café Racer INR 1800k BMW G 310 R Super Sports INR 250k Kawasaki Z900 RS Cruiser INR 1000k UM Scrambler Cruiser INR 300k Honda Rebel 300 Cruiser INR250k Benelli Imperiale 400 Classic INR 250k-300k Source: Industry, MOSL

17 May 2018 14 Eicher Motors

Exports: huge potential in unexplored mid-size bikes RE’s focus on experiential based marketing to result in back-ended ramp-up

 Focusing on LatAm and SE Asia to replicate India strategy: The company is focusing on two major two-wheeler clusters – Latin America and South East Asia, with key markets including Brazil, Mexico, Colombia, Indonesia, Vietnam and Thailand to boost export sales. These markets collectively sell ~15m two- “Royal Enfield endeavors to wheelers annually. They have a larger young population and an underserved reinvent and lead the global mid-sized motorcycle market with a huge commuter base. It attempts to mid-size motorcycle capture these markets by positioning itself as a step-up aspirational product segment, and South-East Asia is a critical market for with an accessible cost of ownership vis-à-vis competitors. us in this global strategy.”  Expanding footprint globally: The management targets to increase overseas - Rudratej Singh, President, presence through exclusive outlets. While RE has presence through >500 multi- Royal Enfield brand outlets, its entire focus is on building exclusive outlets. It wants to ramp up dealer count from 30 exclusive outlets currently to 70-80 outlets by FY20.  Export-oriented new product launches: The management expects Interceptor 650cc and Continental GT 650cc to strengthen RE’s presence in developed markets like US, UK and Europe, and to establish a strong presence in emerging markets. With the new launches, it expects exports to increase from the current ~2% contribution to volumes to ~4% of volumes by FY20.  Ramp-up to be gradual: While exports provide an exciting opportunity for RE, we expect this to play out over the long term. Ramp-up would be gradual, as it would take time for RE to build its brand and replicate its India strategy of creating brand pull by building a riding culture.

Exhibit 31: Management’s roadmap to evolve the RE brand globally

Aiming at emerging as a significant Make inroads Emerge as a player in the in the mid- Grow the size significant 250-750 cc weight space of the mid- segment weight player in the segment entire motorcycle market

Source: Company, MOSL

17 May 2018 15 Eicher Motors

Exhibit 32: Management sees potential to lead and grow the global mid-sized motorcycle segment

Source: Company

Exhibit 33: Current breakup of overseas dealership network Exhibit 34: Expanding its global footprint through exclusive – to increase in favor of exclusive stores dealership outlets (overseas) Multi-brand outlets Exclusive stores Exclusive dealers

30 80 60

36 25

500 FY17 FY18 FY19E FY20E

Source: Company, MOSL Source: Company, MOSL

Exhibit 35: Average monthly volume/exclusive dealer set to grow Exhibit 36: RE exports to grow at ~41% CAGR over FY17-20E

Average monthly vol./ excl. dealer RE Exports 43,686 43 39 36 36 31,204

19,262 15,383

FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E

Source: Company, MOSL Source: Company, MOSL

17 May 2018 16 Eicher Motors

VECV to benefit from strong tailwind in the CV industry Profitability to improve substantially  To regain lost market share in LMD and HD segments:  VECV has lost ~250bp and ~60bp market share in the LMD and HD segment, respectively in 9MFY18. The management’s strategy of focusing on profitable market share had hurt VECV’s market share during this period of heavy discounting by incumbents.  We believe, going ahead, there would be an industry-wide downtrend in discount levels, with initial signs of reduction in discounts visible since January 2018.  This would enable VECV to regain lost market share in these segments.  The company is also focusing on gaining market share by strengthening its distribution reach across India.  Exports to grow at faster pace: VECV has recently entered South Africa and is soon entering the South East Asian market, starting with Indonesia. The company is also exploring newer geographies of Africa and Middle East. With the extensive Pro series range and focus on entering India-like markets, we expect exports to grow at 18% CAGR over FY18-20.  ~300bp margin accretion, led by operating leverage: We expect VECV’s volumes to grow at 14% CAGR over FY18-20. We estimate revenue CAGR of ~16% over FY18-20, led by ~14% CAGR in volume and ~2% CAGR in realizations. EBITDA margins are estimated to expand 180bp to 10.9% by FY20, mainly due to better operating efficiency and operating leverage. Consequently, VECV’s PAT is expected to grow at 33% CAGR over FY17-20.

Exhibit 37: Market share in LMD and HD segments hurt due to discounting in 9MFY18

Market share in LMD Market share in HD

4.9 33.9 33.5 4 4.4 4 4.3 32.6 3.6 31.5 3.1 30.5 30.4 31.0 FY16 FY17 FY16 FY17 CY11 CY12 CY13 CY14 CY11 CY12 CY13 CY14 9MFY18 9MFY18

Source: Company, MOSL

Exhibit 38: VECV – volume to grow at 14% CAGR over Exhibit 39: VECV – expect 300bp margin expansion over FY17-20 three years to 10.9% Total volume ('000 units) YoY Growth (%) EBITDA margin (%) 23.4 16.7 16.3 12.9 12.3

(1.6) 41 (2.3)

(14.1) 48 40 62 57 65 75 85 7.5 7.7 6.7 8.4 7.9 9.1 10.1 10.9 FY17 FY18 CY12 CY13 CY14 FY16 FY19E FY20E (15M) FY17 CY12 CY13 CY14 FY16 FY18E FY19E FY20E (15M) Source: Company, MOSL Source: Company, MOSL

17 May 2018 17 Eicher Motors

Valuation and view Continued momentum in RE, strong recovery in VECV to drive ~30% EPS CAGR

 Premium segment to grow faster than motorcycle industry: We expect the premium segment (>150cc) of the motorcycle industry to grow at 13% CAGR over FY18-22E, as against motorcycle industry growth of 5.4% and 2W industry growth of 8.7%. Faster growth in the premium segment is expected to be driven by upgrading by the existing motorcycling population, especially in urban markets, as well as first-time buyers directly buying premium motorcycles.  RE’s volume growth to normalize, but still remain strong: We expect RE volume to grow at ~16% CAGR over FY18-20, faster than the premium segment. We believe as the premium segment expands, RE would capture a higher share of the pie due to its niche positioning within this segment. We believe the next leg of growth would be driven by (a) strong volume growth in relatively under- penetrated markets like BIMARU, (b) expansion of dealership network in under- penetrated markets to provide better brand accessibility, (c) timely production ramp-up to meet demand, (d) ramp-up in exports led by new launches and expansion of exclusive outlets in target markets.  VECV volumes to clock ~14% CAGR over FY18-20: We expect VECV to benefit from the strong tailwind in the domestic CV industry, with volumes growing at 14% CAGR over FY17-20. Further, with signs of discount levels reducing and led by expansion of dealership network, VECV would regain lost market share in the LMD and HD segments.  Consolidated margin to expand ~250bp by FY20: We expect ~250bp margin expansion to 34% by FY20, driven by focus on cost reduction and benefit of operating leverage. As a result, consolidated EPS is expected to grow at ~30% CAGR over FY18-20.  Maintain Buy with TP of INR35,572: We value Royal Enfield business at 27.5x EPS (Standalone EPS excl dividend from VECV), which is at ~15% discount to 3 year median PE of 32.5x. EIM is trading at 29.1x/22.7x FY19E/FY20E consolidated EPS. We reiterate our Buy rating on the stock, with an SOTP-based TP of INR35,572 (FY20E).

Exhibit 40: Implied valuation for Royal Enfield business are near 7yr median PE (x) P/E (x) 7yr Median (x) 5yr Median (x) 3yr Median (x)

40 32.5 29.0 30 31.2 27.9 20

10

0 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Source: Bloomberg, MOSL

17 May 2018 18 Eicher Motors

Exhibit 41: Currently trading at 28.8x; 42% premium to Exhibit 42: Currently trading at a premium to historical historical average average P/E (x) Avg (x) Max (x) P/B (x) Avg (x) Max (x) Min (x) +1SD -1SD Min (x) +1SD -1SD 40.0 37.4 16.0 30.9 13.1 30.0 12.0 9.5 20.6 28.0 20.0 8.0 8.5 5.5 10.3 10.0 4.0 3.1 1.4 0.3 0.0 0.0 Feb-17 Feb-17 Feb-12 Feb-12 Aug-14 Aug-14 Aug-09 Aug-09 Nov-15 Nov-15 Nov-10 Nov-10 May-18 May-18 May-13 May-13 May-08 May-08 Source: MOSL Source: MOSL

Exhibit 43: SOTP based target price INR Mn FY19E FY20E FY21E Royal Enfield PE (x) 27.5 27.5 27.5 PAT (ex VECV div) 24,899 31,941 39,396 Equity Value PE based 684,720 878,366 1,083,378 VECV (@ 54.4% Economic interest) EBITDA 6,722 8,332 9,758 EV @ 10x EV/EBITDA 67,224 83,315 97,579 Net Debt -6,176 -8,013 -10,849 Equity Value 73,400 91,328 108,427 Total Equity Value 758,120 969,695 1,191,806 Target Price (INR/Sh) 27,811 35,572 43,720 Upside (%) (10) 16 20 Source: MOSL

Exhibit 44: Comparative valuation CMP TP P/E (x) EV/EBITDA (x) RoE (%) Div Yield (%) EPS CAGR (%) Auto OEM's (INR)* Rating (INR) FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E FY18-20E Bajaj Auto 2,808 Buy 3,550 16.7 14.2 12.1 9.9 24.6 26.0 2.7 3.0 15.5 Hero MotoCorp 3,576 Neutral 4,052 17.8 15.6 10.7 9.4 32.1 32.4 2.9 3.2 11.2 TVS Motor 610 Neutral 635 30.9 21.2 18.4 13.2 29.0 33.2 0.7 0.8 43.8 M&M 853 Buy 889 18.2 16.7 14.4 12.7 14.8 15.2 1.2 1.2 13.5 Maruti Suzuki 8,698 Buy 10,468 24.9 19.6 15.2 12.2 21.4 23.1 1.1 1.4 29.1 Tata Motors 310 Buy 565 5.4 4.7 2.5 2.0 24.3 22.1 0.1 0.1 62.8 Ashok Leyland 153 Buy 179 21.1 16.6 11.0 8.5 27.6 29.2 1.5 1.6 30.1 Eicher Motors 30,550 Buy 35,572 29.1 22.7 24.4 19.7 35.0 33.8 0.6 0.7 29.8 Auto Ancillaries Bharat Forge 729 Buy 869 27.6 21.0 15.9 12.7 23.3 25.4 0.7 0.9 31.9 Exide Industries 256 Buy 296 25.8 20.5 14.3 11.6 14.1 15.8 1.0 1.3 23.5 Amara Raja Batteries 861 Buy 1,000 25.3 21.5 13.0 10.9 18.0 18.3 0.6 0.7 19.0 BOSCH 18,166 Neutral 19,096 31.2 26.2 18.3 15.3 17.5 18.7 1.1 1.3 23.0 Endurance Tech 1,176 Buy 1,530 30.6 23.1 14.6 11.4 22.6 25.2 0.6 1.1 32.5 Motherson Sumi 333 Buy 437 26.6 19.1 9.7 6.9 25.4 29.3 0.9 1.4 47.0 Mahindra CIE 238 Buy 298 17.3 14.4 9.0 7.2 13.1 13.8 0.0 0.0 31.3 Source: MOSL

17 May 2018 19 Eicher Motors

Scenario analysis indicates favorable risk-reward Bull-case upside of 39% v/s bear-case downside of ~14%

Bull case  Stronger growth in under-represented states like BIMARU, more than offsetting the moderation of growth in key states, would drive RE volume CAGR of ~22% over FY17- 20 (v/s base case CAGR of 18%), assuming timely capacity additions.  Revenue could clock 27% CAGR over FY17-20 (v/s base case CAGR of 23%).  EBITDA margin could expand by ~280bp to 34.1% by FY20 (v/s 33.9% under base case), driven by operating leverage and faster ramp-up of production capacity.  Consequently, PAT could register CAGR of 33% over FY17-20 (v/s base case CAGR of 30%).

Bear case  Impact of strong growth in other smaller states, offsetting the decline in key states, would lead to RE volume CAGR of 16% over FY17-20 (v/s base case CAGR of 18%).  Revenue could clock 18% CAGR over FY17-20 (v/s base case CAGR of 23%).  EBITDA margin could expand by ~130bp to 32.6% by FY20 (v/s 33.9% under base case), driven by operating leverage.  Consequently, PAT could register CAGR of 24% over FY17-20 (v/s base case CAGR of 30%).

Exhibit 45: Scenario analysis Base Case Bull Case Bear case FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E RE Vols ('000 units) 820 951 1,101 820 996 1,202 820 927 1,038 Growth % 23.1 15.9 15.8 23.1 21.4 20.7 23.1 13.0 12.0 Net Revenue (INR b) 89.6 107.7 129.4 89.6 113.9 143.3 89.6 102.2 116.2 Growth % 27.3 20.2 20.2 27.3 27.2 25.8 27.3 14.1 13.7 EBITDA (INR b) 28.5 35.1 43.8 28.5 37.8 48.9 28.5 32.7 37.9 EBITDA margin % 31.9 32.6 33.9 31.9 33.2 34.1 31.9 32.0 32.6 SA. PAT (INR b) 17.1 25.7 32.9 17.1 27.6 36.5 17.1 24.0 28.8 Contribution from JV 2.5 3.0 3.8 2.5 3.0 3.8 2.5 3.0 3.8 Consol PAT 19.6 28.6 36.7 19.6 30.5 40.2 19.6 27.0 32.6 Consol. EPS 800 1,050 1,347 800 1,120 1,476 800 991 1,196 Growth (%) 27.0 31.3 28.3 27.0 40.1 31.8 27.0 23.9 20.7 Valuing RE @ PE (x) 27.5 30.0 22.5 TP (INR/shr) 35,572 42,379 26,307

Upside 16 39 (14) Source: Company, MOSL

17 May 2018 20 Eicher Motors

SWOT analysis

 Strong brand identity; heritage status of products  Virtual monopoly in the >250cc premium segment with ~95% market share.  Strong distribution network in Tier-1 cities.  Focused, well-experienced management team. VECV:  . StrongTo brand benefit appeal from strong. tailwindsNo presence in the in domestic CV. Low penetration in key . Increasing competitive industry Leadership in the fast- scooters given the export markets like intensity in the growing premium scooterization trend. Africa (1.7%), LatAm motorcycle segment, motorcycle, segment . Frequent product (4.2%) and Middle StrengthEast effectively hurting with wide range of changes and too (8%) presents huge market share and product offerings many variants High within dependence opportunity on 350cc segment,for BJAUT. particularly profitability. on

differentiated from a brand leadingClassic to 350. . KTM-Husqvarna- . Strong pick-up in  Inability to establish itself in segments other than each other. confusion among Triumph alliance would scooterization arising 350cc despite new product launches. . Established leadership customers. further strengthen its from shift in consumer

position in the . Last entrantVECV: in the foothold in the preference poses a domestic 3W market. cargo 3W segmentIncreasing competitivedomestic intens premiumity may possess risksignificant to threat for . First mover advantage dominated bymargins and profitability.segment, as well as in the executive and in manyWeaknesses export competitor. global markets. commuter segments. markets where BJAUT . Correction in oil prices . Strong technological . New variant launches enjoys Exports leadership provide huge opportunitycould impact to demand establish itself capabilitiesas provide cannibalizing existing position.a leader in the global midfor- sizeBJAUT’s segment. products opportunity to make product sales rather . Strong Well control placed on to ride the inpremiumization key markets like trend of thean impressive entry than expanding costs leadingdomestic to motorcycle industry.Nigeria. into electric vehicles. product portfolio. superior Improve profitability. presence in Tier-2 and Tier-3 cities through expansion of distribution network. VECV:  Well positioned for BS-VI transition Opportunities

 Increasing competitive intensity with advent of well- established global players.  Brand Fatigue impacting domestic sales.  Loss of brand appeal on moving to an electric powertrain. VECV:  Aggressiveness of competitors with bout of new launches in the LMD segment could hurt market share Threats

17 May 2018 21 Eicher Motors

Operating metrics

Exhibit 46: Snapshot of Revenue Model 000 units CY13 CY14 FY16 (15m) FY17 FY18E FY19E FY20E ROYAL ENFIELD (S/A) Total 2W (units) 178 303 600 666 820 951 1,101 Growth (%) 57.0 69.9 98.3 38.8 23.1 15.9 15.8 Net realn (INR'000/unit) 95 100 103 105 109 113 117 Growth (%) 2.7 5.4 3.1 2.4 3.3 3.7 3.7 RE Revenues (INR b) 17 30 62 70 90 108 129 Growth (%) 63.3 76.9 104.2 42.1 27.3 20.2 20.2 VECV Dom - LMD 31 28 42 37 42 49 55 Growth (%) -13.3 -9.9 50.0 10.3 13.9 16.1 11.6 % of CV Vols 76.1 70.1 68.1 64.4 65.0 64.9 64.4 Dom - HCV 7 6 12 12 14 16 18 Growth (%) -27.4 -8.2 98.2 28.0 10.6 14.7 11.8 % of CV Vols 16.3 15.3 19.7 21.6 21.1 20.8 20.7 Total Dom. 38 34 54 49 56 65 72 Growth (%) -16.1 -9.6 58.6 14.3 13.1 15.7 11.6 % of CV Vols 92.3 85.4 87.8 86.0 86.1 85.7 85.1 Exports 3 6 8 8 9 11 13 Growth (%) 20.1 86.5 29.0 33.7 12.0 20.0 16.6 % of CV Vols 7.7 14.6 12.2 14.0 13.9 14.3 14.9 Total CV vols 41 40 62 57 65 75 85 Growth (%) -14.1 -2.3 54.3 16.7 12.9 16.3 12.3 MDEP Vols (Ex captive) 3 12 24 24 32 37 42 Net realn (INR'000/unit) 1,236 1,412 1,465 1,449 1,571 1,591 1,627 Growth (%) 11 14 4 24 8 1 2 VECV Revenues (INR b) 51 58 92 85 104 122 140 Growth (%) -4.1 12.3 60.5 14.9 21.9 17.8 14.8 Net Consol sales (INR b) 68 87 62 70 90 108 129 Growth (%) 6.6 28.3 -29.4 42.4 27.5 20.1 20.2 Source: Company, MOSL

17 May 2018 22 Eicher Motors

Story in charts: Multiple growth drivers

Exhibit 47: Capacity addition and healthy demand to drive Exhibit 48: …together with efficiencies of new plant to drive RE volumes… RE margins

Volumes (units) Growth (%) EBITDA EBITDA Margins (%) 33.9 31.3 31.9 32.6 27.7 69.9 38.8 24.2 57.0 58.7 19.0 1,101,470 951,016 820,492 35,072 28,532 43,817 600,175 23.1 22,058 666,490

178,118 302,591 15.9 15.8 3,250 7,336 17,123

CY13 CY14 FY16E (15m) FY17 FY18E FY19E FY20E CY13 CY14 FY16E (15m) FY17 FY18E FY19E FY20E

Source: Company, MOSL Source: Company, MOSL

Exhibit 50: Improved demand, lower discounts and Exhibit 49: VECV recovery expected to get stronger in FY18 favorable product mix to drive VECV margins VECV (units) Growth YoY % EBITDA (INR m) EBITDA (%) 10.9 54.3 10.1 9.1 8.4 7.7 7.9 6.7 16.7 12.9 16.3 12.3 (2.3) (1.6) (14.1) 12,357 15,315 9,473 6,726 7,752 3,831 47,544 40,817 39,892 61,549 57,441 64,873 75,472 84,778 3,971

CY12 CY13 CY14 FY16 FY17 FY18 FY19E FY20E CY13 CY14 FY16 (15m) FY17 FY18 FY19E FY20E (15m) Source: Company, MOSL Source: Company, MOSL

Exhibit 51: Consol. PAT to grow at ~29.5% CAGR (FY18-20E) Exhibit 52: Robust growth to drive RoE and RoCE (%) PAT (INR b) Growth (%) RoE RoIC 74 38 35 35 60 33 33 34 56 29 30 30 31 26 23 20 21 31 28 18 17 3 22 27 5 4 6 13 17 22 29 37

CY12 CY13 CY14 FY16 FY17 FY18E FY19E FY20E CY12 CY13 CY14 FY16 FY17 FY18E FY19E FY20E (15m) (15m) Source: Company, MOSL Source: Company, MOSL

17 May 2018 23 Eicher Motors

Financials and Valuations

Income Statement (Consolidated) (INR M) FY16E Y/E March 2012 CY13 CY14 FY17 FY18 FY19E FY20E (15m) Net Sales 63,299 66,858 85,987 61,469 70,030 89,209 107,118 128,689 Change (%) 11.5 5.6 28.6 -42.8 42.4 27.4 20.1 20.1 EBITDA 5,490 7,137 11,147 16,891 21,740 28,076 35,072 43,817 EBITDA Margin (%) 8.7 10.7 13.0 27.5 31.0 31.5 32.7 34.0 Depreciation 822 1,300 2,198 1,366 1,538 2,233 2,749 3,482 EBIT 4,669 5,837 8,949 15,525 20,201 25,843 32,323 40,335 Interest cost 38 79 98 21 36 53 40 25 Other Income 1,366 953 1,074 1,781 2,273 2,801 4,150 6,015 PBT 5,997 6,711 9,926 17,285 22,439 28,591 36,433 46,325 Tax 1,249 1,452 2,909 5,390 7,203 9,359 11,534 14,384 Effective Rate (%) 20.8 21.6 29.3 31.2 32.1 32.7 31.7 31.1 PAT 4,749 5,259 7,017 11,895 15,236 19,232 24,899 31,941 Change (%) -4.5 10.8 33.4 35.6 60.1 26.2 29.5 28.3 Less: Minority Interest 1,506 1,314 864 -1,486 -1,895 -2,566 -3,731 -4,782 Adj. PAT 3,243 3,945 6,153 13,380 17,131 21,797 28,630 36,722 Change (%) 5.0 21.7 56.0 74.0 60.0 27.2 31.3 28.3 Note: FY16 onwards IndAS Balance Sheet (Consolidated) (INR M) FY16E Y/E March 2012 CY13 CY14 FY17 FY18 FY19E FY20E (15m) Share Capital 270 270 271 272 272 273 273 273 Net Worth 17,549 20,554 27,556 36,531 53,451 70,301 93,349 123,714 Minority Interest 9,485 10,397 0 0 0 0 -3,731 -8,513 Deferred Tax 1,232 1,805 220 358 778 1,421 1,796 2,275 Loans 384 839 0 226 444 1,508 0 0 Capital Employed 28,649 33,595 27,775 37,115 54,673 73,230 91,411 117,467 Application of Funds Gross Fixed Assets 15,260 22,993 5,408 10,178 12,328 21,125 36,603 44,853 Less: Depreciation 5,342 6,431 1,342 2,472 3,875 6,108 8,857 12,340 Net Fixed Assets 9,918 16,561 4,066 7,707 8,453 15,017 27,745 32,513 Capital WIP 5,044 4,636 593 945 3,738 3,332 250 250 - of which Goodwill 223 223 223 223 223 223 223 223 Investments 6,385 8,255 25,588 33,834 49,871 55,808 68,607 84,193 Curr.Assets, L & Adv. 23,368 23,914 9,393 11,258 7,658 21,065 25,901 37,745 Inventory 4,888 5,268 2,040 3,084 3,359 3,946 4,720 5,673 Sundry Debtors 4,459 5,125 107 326 500 680 885 1,064 Cash & Bank Balances 8,035 6,826 210 530 251 12,120 14,158 22,696 Loans & Advances 5,503 6,163 34 124 92 7 0 0 Others 483 532 7,002 7,194 3,456 4,312 5,310 6,382 Current Liab. & Prov. 16,066 19,771 11,864 16,629 15,047 21,992 30,264 35,303 Sundry Creditors 14,356 17,612 4,822 7,232 8,327 11,719 13,570 15,600 Other Liabilities 6 0 6,752 7,202 6,033 9,511 10,325 12,409 Provisions 1,704 2,159 291 2,195 686 763 6,369 7,293 Net Current Assets 7,302 4,143 -2,471 -5,371 -7,389 -927 -5,191 511 Application of Funds 28,649 33,595 27,775 37,115 54,673 73,230 91,411 117,467 E: MOSL Estimates

17 May 2018 24 Eicher Motors

Financials and Valuations

Ratios (Consolidated) FY16E Y/E March 2012 CY13 CY14 FY17 FY18 FY19E FY20E (15m) Basic (INR) EPS 120.1 145.9 227.1 492.7 629.6 799.6 1,050.3 1,347.1 EPS Growth (%) 5.0 21.5 55.6 73.6 59.7 27.0 31.3 28.3 Cash EPS 150.5 194 308 543 686 882 1,151 1,475 Book Value per Share 650.0 760 1,017 1,345 1,964 2,579 3,424 4,538 DPS 20.0 30.0 35.0 100.0 100.0 110.0 175.0 200.0 Payout (Incl. Div. Tax) % 17.3 22.3 25.1 23.4 19.1 16.1 19.5 17.3 Valuation (x) P/E 62.0 48.5 38.2 29.1 22.7 Cash P/E 56.3 44.5 34.7 26.5 20.7 EV/EBITDA 37.8 31.1 23.3 18.3 14.1 EV/Sales 7.2 6.9 5.4 4.4 3.6 Price to Book Value 22.7 15.6 11.8 8.9 6.7 Dividend Yield (%) 0.3 0.3 0.4 0.6 0.7 Profitability Ratios (%) RoE 20.0 20.7 25.6 33.4 38.1 35.2 35.0 33.8 RoCE 18.0 17.1 23.1 29.4 33.3 30.1 30.3 30.6 RoIC 59.6 39.7 82.9 535.7 1,047.4 1,249.6 426.2 297.0 Turnover Ratios Debtors (Days) 25 27 0 2 3 3 3 3 Inventory (Days) 28 28 9 23 17 16 16 16 Creditors (Days) 82 94 20 53 43 48 46 44 Working Capital (Days) -29 -39 -11 -28 -23 -29 -27 -25 Asset Turnover (x) 2.2 2.0 3.1 1.7 1.3 1.2 1.2 1.1 Leverage Ratio Debt/Equity (x) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow Statement (Consol.) (INR Million) FY16E Y/E March 2012 CY13 CY14 FY17 FY18 FY19E FY20E (15m) Profit before Tax 5,997 6,706 9,926 17,120 21,979 26,390 36,433 46,325 Depreciation & Amort. 822 1,300 2,198 1,366 1,538 2,233 2,749 3,482 Direct Taxes Paid -1,077 -1,504 -2,810 -5,187 -6,516 -8,773 -11,162 -13,911 (Inc)/Dec in Working Capital 391 1,491 2,020 3,674 2,232 2,624 873 899 Interest/Div. Received 1,351 1,023 950 -65 -40 2,801 4,150 6,015 Other Items -1,308 -819 -1,809 -2,278 -2,105 2,237 1,248 -4,096 CF from Oper. Activity 6,177 8,197 10,475 14,631 17,089 27,512 34,361 38,757 (Inc)/Dec in FA+CWIP -7,820 -7,054 -9,682 -5,094 -5,470 -8,392 -12,395 -8,250 Free Cash Flow -1,644 1,143 793 9,537 11,619 19,120 21,966 30,507 (Pur)/Sale of Invest. -1,263 -1,879 -1,190 -4,920 -12,049 -5,937 -12,798 -15,586 CF from Inv. Activity -9,083 -8,933 -10,872 -10,014 -17,519 -14,329 -25,194 -23,836 Issue of Shares 4 17 79 48 57 861 0 0 Inc/(Dec) in Debt -43 610 -255 0 444 1,064 -1,508 0 Interest Paid -40 -80 -98 -21 -32 -53 -40 -25 Dividends Paid -895 -1,020 -1,348 -4,682 0 -3,607 -5,582 -6,357 CF from Fin. Activity -974 -474 2,974 -5,052 788 -1,736 -7,130 -6,382 Inc/(Dec) in Cash -3,880 -1,209 2,576 -435 359 11,447 2,038 8,538 Add: Beginning Balance 11,915 8,035 6,826 171 530 250 11,697 13,735 Closing Balance 8,035 6,826 9,402 -264 888 11,697 13,735 22,273 E: MOSL Estimates 0 0 9,192 -794 638 -423 -423 -423

17 May 2018 25 Eicher Motors

N O T E S

17 May 2018 26 REPORT GALLERY RECENT INITIATING COVERAGE REPORTS

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` Explanation of Investment Rating Investment Rating Expected return (over 12-month) BUY >=15% SELL < - 10% Eicher Motors NEUTRAL < - 10 % to 15% UNDER REVIEW Rating may undergo a change NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation *In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures: The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI: SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice. The matter is closed and MOSL had to pay Rs. 2 lakhs towards penalty for misplacement of original POA of client.

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in the subject company at the end of the month immediately preceding the date of publication of the Research Report. MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report. Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may have received any compensation from the subject company in the past 12 months.

In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have: a) managed or co-managed public offering of securities from subject company of this research report, b) received compensation for investment banking or merchant banking or brokerage services from subject company of this research report, c) received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report. d) Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.

MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

Terms & Conditions: This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other 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. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement Eicher Motors Analyst ownership of the stock No A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to subject company for which Research Team have expressed their views.

Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id: [email protected], Contact No.:022-30801085.

Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

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