RESULTS REVIEW 1QFY17

01 AUG 2016

Eicher Motors
BUY
INDUSTRY

AUTOS

CMP(as on 29 Jul 2016)

Rs 22,461

Target Price

Rs 24,736

Nifty

8,639

Sensex

28,052

KEY STOCK DATA

Bloomberg

EIM IN

No. of Shares (mn)

27

MCap (Rsbn) / ($ mn)

609/9,100

6m avg traded value (Rsmn)

1,242

STOCK PERFORMANCE (%)

52 Week high / low Rs 22,567 / 14,800
3M

6M

12M

Absolute (%)

12.1

35.7

16.7

Relative (%)

2.6

23.0

14.9

SHAREHOLDING PATTERN (%)

Promoters
FIs & Local MFs

50.67
3.84

FIIs

32.37

Public & Others

13.12

Source : BSE

Sneha Prashant
sneha.prashant@hdfcsec.com
+91-22-6171-7336

Gearing up for the next level

Eicher Motors (EIM) 1QFY17 consolidated APAT at
Rs 3.8bn (+59% YoY, +5% QoQ) was above estimates.
REs operating performance surprised positively,
with margins scaling to the highest-ever level of
30.2% (+416bps YoY, +105bps QoQ) led by operating
leverage benefits. The performance of EIMs
subsidiaries, VECV and Eicher Polaris Pvt Ltd, has
been consolidated under the equity method as share
of profits from JV, as per Ind AS.
With REs order book expanding (waiting period at
three months) and SSG increasing in C/D towns, we
have revised our volume estimates to 665k/787k for
FY17/18E. VECVs market share gain in HDs (>12T) is
encouraging and with the MD segment picking up
pace, further gains will seep in.
We upgrade our rating to BUY with an SOTP-based
TP of Rs 24,736 (RE at 30x core FY18E EPS, VECV 9x
EV/EBITDA on FY18E and 1.5x BV for Eicher-Polaris).

Highlights of the quarter

RE on a strong footing: The management

reiterated 675k units of production in FY17 and
the commissioning of a new plant by Sep-17, thus
taking the total capacity to 900k units. The
management believes that lower logistics cost and
better inventory management will aid margin
expansion, with three vendors moving close to its
plant.
VECV market share gains: The management
reckoned that fleet operators were starting to
appreciate the quality of Eichers PRO series
trucks, with the company gaining ~300 bps YoY
market share in the HD category. The mediumduty segment is gradually gaining traction as well.
Near-term outlook: Expect strong earnings
momentum, driven by healthy volume growth
across the RE and VECV businesses. There is little
scope for the stock to fall except for a broader
market correction.

Financial Summary (Consolidated)

(Rs mn)
Net Sales
EBITDA
PAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
RoE (%)

1QFY17
15,557
4,702
3,763
121.4

2QFY16
10,959
2,857
2,372
73.5

YoY (%)
42.0
64.6
58.6
65.2

5QFY16 QoQ (%)

15,322
1.5
4,471
5.2
3,599
4.6
120.4
0.8

CY14
87,382
11,108
6,114
225.6
99.6
53.6
26.7

FY16
160,047
27,633
15,940
587.1
47.8
21.5
41.0

FY17E
177,633
31,177
18,258
672.5
33.4
18.8
41.5

FY18E
215,851
40,677
24,283
894.4
25.1
14.1
40.1

Source: Company, HDFC sec Inst Research * FY16P is 15M ending Mar-16, earnings are annualised.
Our estimates are based on Indian GAAP, not Ind AS

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

EICHER MOTORS : RESULTS REVIEW 1QFY17

Quarterly Financials Snapshot (Consolidated)

Consol numbers for all three
quarters have been
restated as per Ind AS

Consol top-line rose 47%

YoY as volume growth at RE
rose sharply

Consol APAT saw robust

77% YoY rise, ahead of
estimates on account of
sharp margin improvement
and lower tax

(Rs mn)
Sales volumes (in units)
2W
CV
Total volumes
Net sales (incl OOI)
Material Expenses
Employee Expenses
Other Operating Expenses
EBITDA
Depreciation
EBIT
Other Income
Interest Cost
PBT
Tax
RPAT
Share Of Profit/(Loss) Of Joint Ventures
APAT
Adj EPS

1QFY17

2QFY16

YoY (%)

5QFY16

QoQ (%)

147,483
15,914
163,397
15,557
8,314
906
1,636
4,702
394
4,308
468
7
4,769
1,473
4,867
467
3,763
121.4

106,613
12,128
118,741
10,959
6,269
651
1,182
2,857
224
2,633
262
3
2,891
904
2,892
385
2,372
73.5

38.3
31.2
37.6
42.0
32.6
39.2
38.4
64.6
75.7
63.6
79.0
155.6
64.9
63.0
68.3
21.4
58.6
65.2

148,186
15,568
163,754
15,322
8,331
775
1,746
4,471
375
4,096
620
6
4,711
1,440
5,467
328
3,599
120.4

(0.5)
2.2
(0.2)
1.5
(0.2)
16.9
(6.3)
5.2
5.2
5.2
(24.5)
21.1
1.2
2.3
(11.0)
42.2
4.6
0.8

YoY (bps)
(377)
(12)
(27)
416
(37)
254

5QFY16
54.4
5.1
11.4
29.2
30.6
23.5

QoQ (bps)
(93)
77
(88)
105
31
70

Source: Company, HDFC sec Inst Research. All quarterly data has been restated as per Ind AS by Eicher

Margin Analysis (Consolidated)

Material Expenses % Net Sales
Employee Expenses % Net Sales
Other Operating Expenses % Net Sales
EBITDA Margin (%)
Tax Rate (%)
APAT Margin (%)

1QFY17
53.4
5.8
10.5
30.2
30.9
24.2

2QFY16
57.2
5.9
10.8
26.1
31.3
21.6

Source: Company, HDFC sec Inst Research

Page | 2

EICHER MOTORS : RESULTS REVIEW 1QFY17

Quarterly Financials Snapshot (Standalone)

Net sales growth came in
line at 42% YoY on the back
of 38% YoY rise in volumes
and modest increase in net
ASP
EBIDTA margins were at the
highest-ever level at 30.8%
(+470bps YoY), led by strong
gross margin expansion
(390bps YoY) and lower
other expenses (-50bps YoY)

(Rs mn)
Sales Volume (units)
Net sales (incl OOI)
Material Expenses
Employee Expenses
Other Operating Expenses
EBITDA
Depreciation
EBIT
Other Income
Interest Cost
PBT
Tax
APAT
Adj EPS

1QFY17
147,483
15,575
8,306
865
1,605
4,799
394
4,405
468
7
4,867
1,495
3,372
124.2

2QFY16
106,613
10,959
6,269
651
1,182
2,857
224
2,633
262
3
2,892
904
1,988
73.5

YoY (%)
38.3
42.1
32.5
32.9
35.8
68.0
75.5
67.3
79.0
140.7
68.3
65.4
69.6
69.0

5QFY16
148,186
15,450
8,418
742
1,709
4,580
374
4,206
1,266
6
5,467
1,489
3,977
146.4

QoQ (%)
(0.5)
0.8
(1.3)
16.6
(6.1)
4.8
5.1
4.7
(63.0)
14.0
(11.0)
0.4
(15.2)
(15.2)

5QFY16
54.5
4.8
11.1
29.6
27.2
25.7

QoQ (bps)
(116)
75
(76)
117
348
(409)

Source: Company, HDFC sec Inst Research, All quarterly data has been restated as per Ind AS by Eicher

The order backlog remains

stable at three months of
production
The capacity is to be
enhanced to 675k in FY17
and 900k by CY18. Capex
guidance is maintained at Rs
6bn for FY17

Margin Analysis (Standalone)

Material Expenses % Net Sales
Employee Expenses % Net Sales
Other Operating Expenses % Net Sales
EBITDA Margin (%)
Tax Rate (%)
APAT Margin (%)

1QFY17
53.3
5.6
10.3
30.8
30.7
21.7

2QFY16
57.2
5.9
10.8
26.1
31.3
18.1

YoY (bps)
(388)
(38)
(48)
474
(54)
351

Source: Company, HDFC sec Inst Research

Page | 3

EICHER MOTORS : RESULTS REVIEW 1QFY17

VECV top-line growth at

31% YoY, in line with 32.5%
YoY volume growth
EBITDA margin rose 890bps
QoQ, driven mainly by
operating leverage benefits

Quarterly Financials Snapshot VECV (Derived)

(Rs mn)
Sales volumes (in units)
Net Sales
EBITDA
APAT

1QFY17
15,914
21,390
1,940
1,080

1QFY16
12,128
17,850
1,460
770

YoY (%)
31.2
19.8
32.9
40.3

1QFY17
9.1
5.0

1QFY16
8.2
4.3

YoY (bps)
89
74

Source: Company, HDFC sec Inst Research

Margin Analysis VECV (Derived)

As VECV launches more
models in the lower
tonnage segment, there is
likely to be a structural
downward shift in average
selling prices. However, this
could be offset by higher
market share in heavier
trucks, driven by the new
Pro series

EBITDA Margin (%)

APAT Margin (%)
Source: Company, HDFC sec Inst Research

Page | 4

EICHER MOTORS : RESULTS REVIEW 1QFY17

SOTP Valuation
We increase our TP to factor
in higher RE volumes

VECV
Standalone (RE)
Eicher Polaris JV
Target price (Rs)

Stake held
54.4%
100%
50%

Valuation methodology
EV/EBIDTA on Mar-18E
P/E on Mar-18E Core EPS
BV in CY15

Multiple (x)
9.0
30.0
1.5

Attributable value (Rs mn) Per share (Rs)

54,356
2,001
607,858
22,381
3,000
110
665,214
24,492

Source: HDFC sec Inst Research. * Note Core EPS excludes dividend from VECV

Key Assumptions
Our RE volumes factor in the
upcoming capacities

Despite commodity price

increases, we reckon that
REs gross margin expansion
may not be limited, with
vendors economies of scale
coming into play and rampup in capacity

VECVs robust volume

growth traction and
improving HD market share
over the past few months
indicate increasing
acceptability of its PRO
series range

Volumes (in units)

RE
% YoY
VECV
% YoY
Net ASP (Rs/vehicle)
RE
% YoY
VECV
% YoY
Revenue (Rs mn)
RE
% YoY
VECV
% YoY
EBITDA (Rs mn)
RE
EBITDA Margin (%)
VECV
EBITDA Margin (%)

CY13

CY14

FY16*

FY17E

FY18E

178,121
57.0
41,251
(15.5)

302,601
69.9
40,783
(1.1)

601,000
58.9
63,158
23.9

666,022
10.8
66,758
5.7

786,902
18.1
78,235
17.2

95,579
3.3
1,243,521
13.5

100,172
4.8
1,411,867
13.5

107,455
(14.2)
1,511,553
(14.4)

112,161
4.4
1,541,872
2.0

116,653
4.0
1,585,677
2.8

17,025
62.3
51,296
(4.1)

30,312
78.0
57,580
12.2

64,580
70.4
95,467
32.6

74,702
15.7
102,932
7.8

91,795
22.9
124,056
20.5

3,138
18.4
3,970
7.7

7,254
23.9
3,830
6.7

20,005
118.2
6,847
43.0

23,589
31.6
7,589
7.4

29,844
32.5
10,505
8.5

Source: HDFC sec Inst Research, * FY16 is 15M ending Mar-16, % YoY annualised for FY16

Page | 5

EICHER MOTORS : RESULTS REVIEW 1QFY17

Peer Valuation

Ashok Leyland
Atul Auto
Bajaj Auto
Eicher Motors
Hero Motocorp
M&M
Maruti Suzuki
SML Isuzu
Tata Motors

MCap
(Rs bn)

CMP
(Rs/sh)

Reco

TP

271
10
782
609
640
866
1,437
18
1,709

95
470
2,701
22,461
3,203
1,467
4,758
1,263
503

NEU
BUY
NEU
BUY
BUY
NEU
BUY
NEU
BUY

92
643
2,685
24,736
3,325
1,410
4,912
1,086
524

Adj EPS (Rs/sh)

FY16E FY17E FY18E
3.9
4.8
5.9
21.6
26.0
32.3
126.2 139.4 157.2
470.7 609.4 829.1
156.8 172.4 190.0
55.5
70.1
79.4
153.9 200.4 245.6
35.3
52.7
67.9
40.6
49.9
59.2

FY16E
24.4
21.7
21.4
47.7
20.4
26.4
30.9
35.8
12.4

P/E (x)
FY17E
20.0
18.1
19.4
36.9
18.6
20.9
23.7
24.0
10.1

FY18E
16.3
14.6
17.2
27.1
16.9
18.5
19.4
18.6
8.5

EV/EBITDA (x)
FY16E FY17E FY18E
13.0
11.1
9.6
13.3
10.6
8.5
14.5
12.8
11.0
22.2
19.5
14.3
13.6
12.1
10.7
15.8
12.9
11.2
15.8
14.3
11.6
21.8
15.3
11.6
5.8
5.1
4.4

FY16E
20.9
34.4
31.8
39.5
43.1
15.6
18.3
15.9
20.1

RoE (%)
FY17E
23.1
32.6
30.8
40.9
39.6
17.6
20.7
20.7
19.1

FY18E
25.1
32.3
30.8
40.5
37.6
17.7
21.9
22.8
18.9

Source: Companies, Bloomberg, HDFC sec Inst Research

Page | 6

EICHER MOTORS : RESULTS REVIEW 1QFY17

6%
13%

5%
14%

5%
15%

17%

15%

15%

11%

10%

10%

13%
10%

13%
9%

12%
8%

5%
15%
7%
7%

48%

51%

52%

55%

57%

57%

59%

5%

20%

0%

0%

4QFY16

40%

1QFY17

5QFY16

4QFY16

3QFY16

2QFY16

1QFY16

4QCY14

3QCY14

2QCY14

10%

6%
13%

1QFY17

15%

6%
13%

5QFY16

60%

6%
14%

3QFY16

20%

80%

Bullet Elec
TB 500

1QFY16

25%

100%

TB 350
C-500
Cont GT

4QCY14

30%

Source: Company, HDFC sec Inst Research

Source: Company, HDFC sec Inst Research

VECV: Strong Volume Growth

VECV: Sharp Market Share Gains In HD And Buses

Volumes ('000)

Volume Growth (% YoY) - RHS

16

45%

LMD

40.0

HD

Buses

35.0
30.0

14

30%

25.0
20.0

12
15%

10

15.0
10.0
5.0

Source: Company, HDFC sec Inst Research

1QFY17

5QFY16

4QFY16

3QFY16

2QFY16

1QFY16

4QCY14

3QCY14

2QCY14

1QCY14

1QFY17

5QFY16

4QFY16

3QFY16

2QFY16

1QFY16

4QCY14

0%

3QCY14

1QCY14

VECV delivered strong

volume growth across
segments. Market share rise
in the HD segment is
encouraging with critical
scale being achieved (1,000
units/month) and should
lead to better brand visibility

C-350
Bullet 350
Bullet 500

35%

1QCY14

Product mix remains largely

unchanged. As per the
company, the recently
launched Himalayan has a
healthy order book

RE's Mix Stable

EBITDA Margin - RHS

165
150
135
120
105
90
75
60
45
30
15
-

2QCY14

RE volumes continue to
ramp-up with production
increase

Volume (in '000)

2QFY16

Strong QoQ Volumes, Margins Sharply Higher

Source: SIAM, HDFC sec Inst Research

Page | 7

EICHER MOTORS : RESULTS REVIEW 1QFY17

Income Statement (Consolidated)

(Rs mn)
Volumes (in units)
2W
CV
Total volumes
Net Revenues
Growth (%)
Material Expenses
Employee Expenses
Other Operating Expenses
EBITDA
EBITDA Margin (%)
EBITDA Growth (%)
Depreciation
EBIT
Other Income (Incl. EO Items)
Interest
PBT
Tax (Incl Deferred)
Minority Interest
APAT
APAT Growth (%)
Adjusted EPS (Rs)
EPS Growth (%)
EO (Loss) / Profit (Net Of Tax)
RPAT

CY13

Balance Sheet (Consolidated)

CY14

FY16P*

FY17E

FY18E

178,121 302,601 601,000

41,251 40,783 63,158
219,372 343,384 664,158
68,098 87,382 160,047
6.6
28.3
83.2
46,401 57,699 101,212
5,333
6,596 10,575
9,232 11,941 20,627
7,132 11,147 27,633
10.5
12.8
17.3
29.9
56.3
99.0
1,300
2,198
4,516
5,831
8,949 23,116
953
1,074
1,120
79
98
90
6,706
9,925 24,146
1,452
2,909
6,465
1,314
864
1,741
3,939
6,153 15,940
21.5
56.2
108.6
146
227
587
21.3
55.8
108.2
3,939
6,153 15,940

666,022
66,758
732,780
177,633
11.0
114,149
10,923
21,384
31,177
17.6
12.8
4,366
26,812
2,255
105
28,962
9,027
1,677
18,258
14.5
672
14.5
18,258

786,902
78,235
865,138
215,851
21.5
137,929
12,652
24,593
40,677
18.8
30.5
4,972
35,705
3,238
120
38,823
11,913
2,628
24,283
33.0
894
33.0
24,283

Source: Company, HDFC sec Inst Research * FY16 is 15M ending Mar-16
Growth (%) annualised for FY16

(Rs mn)
SOURCES OF FUNDS
Share Capital - Equity
Reserves
Total Shareholders Funds
Minority Interest
Long-term Debt
Short-term Debt
Total Debt
Net Deferred Taxes
Long-term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments
LT Loans & Advances
Total Non-current Assets
Inventories
Debtors
Other Current Assets
Cash & Equivalents
Total Current Assets
Creditors
Other Current Liabilities & Provns
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF FUNDS

CY13

CY14 FY16P*

FY17E

FY18E

270
20,284
20,554
10,397
839
839
1,805
2,159
35,754

271
24,888
25,159
10,851
584
584
2,394
3,213
42,199

272
36,706
36,978
11,569
859
859
3,382
2,195
54,981

272
50,833
51,105
13,245
859
859
3,627
6,653
75,488

272
69,716
69,987
15,873
859
859
3,939
8,338
98,995

16,561
5,551
1
5,248
27,361
5,268
5,125
532
15,080
26,005
11,914
5,699
17,612
8,393
35,754

23,093
5,867
1,606
6,976
37,542
6,455
5,622
480
13,977
26,534
15,127
6,750
21,876
4,658
42,199

30,671
2,518
9,316
9,886
52,391
10,143
8,336
990
15,262
34,731
25,093
7,048
32,141
2,590
54,981

35,805
2,518
13,998
13,045
65,366
11,862
10,561
1,368
23,210
47,002
26,967
9,913
36,880
10,122
75,488

40,833
2,518
16,998
15,701
76,051
14,886
12,739
1,428
37,352
66,406
32,300
11,161
43,461
22,945
98,995

Source: Company, HDFC sec Inst Research * FY16 is 15M ending Mar-16

Page | 8

EICHER MOTORS : RESULTS REVIEW 1QFY17

Cash Flow (Consolidated)

(Rs mn)
Reported PBT
Non-operating & EO items
Interest expenses
Depreciation
Working Capital Change
Tax Paid
OPERATING CASH FLOW ( a )
Capex
Free cash flow (FCF)
Investments
Non-operating Income
INVESTING CASH FLOW ( b )
Debt Issuance/(Repaid)
Interest Expenses
FCFE
Share Capital Issuance
Dividend
FINANCING CASH FLOW ( c )
NET CASH FLOW (a+b+c)
EO Items, Others
Closing Cash & Equivalents

Key Ratios (Consolidated)

CY13
CY14 FY16P*
6,706
9,925 24,146
79
98
90
1,300
2,198
4,516
1,491
2,020
(575)
(1,504) (2,810) (6,465)
8,072 11,431 21,712
(7,054) (9,682) (8,746)
1,017
1,749 12,966
- (1,506) (7,710)
115
275 (1,032)
(6,939) (10,913) (17,488)
610
(255)
275
(79)
(98)
(90)
1,548
1,396 13,151
17
79
0
(1,020) (1,348) (3,123)
(473) (1,622) (2,938)
660 (1,104)
1,285
15,080 13,977 15,262

Source: Company, HDFC sec Inst Research * FY16 is 15M ending Mar-16

FY17E
FY18E
28,962 38,823
105
120
4,366
4,972
1,715
348
(9,027) (11,913)
26,121 32,351
(9,500) (10,000)
16,621 22,351
(4,682) (3,000)
245
312
(13,937) (12,688)
(105)
(120)
16,516 22,231
(4,131) (5,400)
(4,236) (5,520)
7,948 14,142
23,210 37,352

PROFITABILITY (%)
GPM
EBITDA Margin
APAT Margin
RoE
RoIC (or Core RoCE)
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Other Current Assets (days)
Payables (days)
Other Current Liab & Provns (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA (Rs)
EPS
CEPS
Dividend
Book Value
VALUATION
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Revenues (x)
OCF/EV (%)
FCF/EV (%)
FCFE/Mkt Cap (%)
Dividend Yield (%)

CY13

CY14

FY16P*

FY17E

FY18E

31.9
10.5
5.8
20.7
16.2
12.9

34.0
12.8
7.0
26.9
18.8
17.1

36.8
17.3
10.0
41.0
38.0
27.9

35.7
17.6
10.3
41.5
40.7
30.1

36.1
18.8
11.2
40.1
40.5
30.6

21.7
3.0
28.2
27.5
2.9
63.9
30.5
(35.8)
0.1
(0.7)
74.0

29.3
2.8
27.0
23.5
2.0
63.2
28.2
(38.9)
0.1
(0.5)
91.5

26.8
3.7
23.1
19.0
2.3
57.2
16.1
(28.9)
0.0
(0.4)
255.7

31.2
3.4
24.4
21.7
2.8
55.4
20.4
(26.9)
0.0
(0.4)
255.3

30.7
3.4
25.2
21.5
2.4
54.6
18.9
(24.4)
0.0
(0.5)
297.5

145.7
193.8
32.4
760.1

227.0
587.1
672.5
894.4
308.1
753.4
833.3 1,077.5
50.0
100.0
130.0
170.0
928.2 1,362.0 1,882.3 2,577.8

135.1
25.9
72.6
7.6
1.6
0.2
0.3
0.2

86.7
21.2
46.7
6.0
2.2
0.3
0.3
0.3

47.8
16.5
21.6
3.7
3.6
2.2
2.2
0.4

33.4
11.9
18.8
3.3
4.4
2.8
2.7
0.6

25.1
8.7
14.1
2.7
5.6
3.9
3.6
0.8

Source: Company, HDFC sec Inst Research * FY16 is 15M ending Mar-16

Page | 9

EICHER MOTORS : RESULTS REVIEW 1QFY17

RECOMMENDATION HISTORY
Eicher

26,000

Date
7-Nov-15
8-Feb-16
6-May-16
1-Aug-16

TP

24,000
22,000

CMP
16,693
18,128
19,687
22,461

Reco

BUY
BUY
NEU
BUY

Target
19,294
20,143
19,633
24,736

20,000
18,000
16,000
14,000

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Aug-15

12,000

Rating Definitions
BUY
: Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL
: Where the stock is expected to deliver less than (-)10% returns over the next 12 month
d

Page | 10

EICHER MOTORS : RESULTS REVIEW 1QFY17

Disclosure:
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Page | 11