CV Industry - Initiating Coverage

Commercial vehicle industry
Chapter heading (1St heading)

Entering a stable growth phase in the cycle
India Equity Research I Auto & Auto Ancillaries January 11, 2011 Initiating Coverage
We initiate on the domestic CV industry with an OVERWEIGHT rating and we are modeling in
OVERWEIGHT
a demand CAGR of 15.5% and 16.5% for the domestic M&HCV and LCV segments,
respectively, during FY11-13E. Given that CV demand stagnation in the past six months was
Basudeb Banerjee
primarily led by the lack of a freight hike increase, we believe that growth momentum will
Basudeb.Banerjee@quantcapital.co.in
pick up again on the back of a 4-5% freight rate hike in 4Q FY11. We also do not expect
+91 22 3954 1480
peaking of the current CV cycle in the second year of its uptrend on account of a 8.8% GDP
CAGR along with a 10% gross fixed capital formation CAGR during FY11-13E as per quant Price performance
Economist Jayprakash Sinha. As the current capex cycle is almost over for CV manufacturers,
1M 3M 6M 12M
revenue growth supported by stable margins will likely lead to debt repayment, thereby Tata Motors (5.6) 6.6 52.9 49.3
improving capital efficiency incrementally. Within the CV sector, we initiate on two Ashok Leyland (14.2) (18.5) (13.3) 13.1
companies — Tata Motors (BUY, PT: Rs1,453) and Ashok Leyland (BUY, PT: Rs87). Eicher Motors (6.9) (11.9) 18.8 73.1
BSE Sensex (1.5) (5.1) 7.8 9.6
We expect road freight rates to move up by 4-5% in 4Q FY11E: We expect road freight rates
BSE Auto index (8.3) (3.6) 14.6 28.0
across major routes in the country to increase by 4-5% in 4Q FY11E on the back of rising capital
Source: Bloomberg
costs and an expected hike in diesel prices, thereby maintaining capital efficiency of road freight
operators to pre-monsoon levels. Since July 2010, the lack of freight rate hikes led by an
extended monsoon season and the transition to BS-3 norms has shrunk profitability of CV Coverage summary
operators, affecting demand for new CVs. Given that the freight rate hike is lumpy and seasonal Company Ticker Rating LTP (Rs) PT (Rs) % upside
in nature, we believe CV operators can take care of the recent rise in expenses through a single Tata Motors TTMT IN BUY 1,177 1,453 23.4
hike, thereby helping CV demand momentum to continue in FY12E. Ashok Leyland AL IN BUY 60 87 45.0
Macro indicators do not suggest peaking of the current CV cycle: As per our trend analysis of Note: Pricing as on 10 January 2011
growth patterns of industrial GDP, transportation expenditure and private final consumption Source: Quant Global research estimates
expenditure (PFCE), we do not expect peaking of the current CV cycle before FY13E. On the back
of our estimate of a 12% CAGR in road freight in billion-tonne-km (BTKM) during FY11-13E led
by strong capex plans across freight-intensive industries like steel, cement and autos, we
believe the current stagnation in demand is temporary, led by a delay in passing on the hike in
operating costs.
Highway addition set to move up gradually on the base of 2,600km in FY11E: We expect
highway addition to pick up in the next few years against current levels of 2,600km annually,
leading to improved connectivity across major domestic industrial hubs for the road freight
industry. We believe improved road infrastructure and the acceptance of the hub & spoke
model will augur well for higher tonnage CVs along with 1MT GVW small commercial vehicles
(SCV), leading to volume shrinkage in the 7-12MT segment. As per our analysis, profitability of a
16MT+ GVW goods CV is superior to lower-end M&HCVs, justifying an expected
outperformance of the higher GVW CV segments.
Initiate coverage of TTMT and AL with BUY ratings: We initiate on TTMT and AL with BUY
ratings and 12-month PTs of Rs1,453 and Rs87, respectively. We believe the current
underperformance of core CV stocks like AL and Eicher Motors (EICM) in the past three months
led by concerns of rising operational costs for fleet owners is not justified as domestic road
freight demand is strong enough to weather these storms. Given the capex cycle of CV
manufacturers is almost over, we do not see any reason for the companies to trade at a
discount to five-year average valuation multiple levels, especially with free cashflow generation
yet to enter the higher growth phase.
Risks: 1) Spiraling effect of a rise in fuel prices over inflation, in turn higher lending rates leading
to a slowdown in industrial capex, 2) lower rate of annual highway addition on the back of
bottlenecks like land acquisition, 3) an increment al spike in prices in steel and other essential
commodities like aluminum, copper and rubber in the short term would be tough for the
industry to pass on after a series of price hikes based on the transition to BS-3 norms along with
a rise in input prices.
Exhibit 1. Financials and valuation summary
Company BB Ticker Rating CMP PT RoAE (%) RoACE (%) P/E (x) EV/EBITDA (x)
FY10 FY11E FY12E FY10 FY11E FY12E FY11E FY12E FY11E FY12E
Ta ta Motors TTMT IN BUY 1,177 1,453 30.6 41.1 35.3 9.8 20.8 21.8 9.9 8.4 6.3 5.2
As hok Leyl a nd AL IN BUY 60 87 17.9 21.7 24.2 12.7 18.9 21.8 13.3 9.5 9.0 6.9
Note: pricing as of 10 January 2011; Source: Company data, Quant Global research estimates
(We acknowledge the efforts of Mr. Achint Bhagat, Management trainee, Quant Broking for his efforts in making of this report)
Commercial vehicle industry: Entering a stable growth phase in the cycle
Table of Contents
Investment summary
Near-term concerns giving opportunities to enter the current CV cycle 3
Trend analysis of macro indicators do not suggest peaking of CV cycle 3
Highway addition to move up gradually on base of 2,600km in FY11E 4
We expect CV demand CAGR of 15.5-16.5% during FY11-13E 6
Annexure 9
Company section 10
Ashok Leyland (AL IN, CMP: Rs60, PT: 87, BUY): Moving up the CV cycle 11
Tata Motors (TTMT IN, CMP: Rs1,177, PT: Rs1,453, BUY): Diversity exemplified 21
January 11, 2011 2

Investment summary
Near-term concerns giving opportunities to enter the current CV cycle
We expect a 4-5% freight rate hike in 4Q FY11E
We expect a hike of at least 4-5% We expect a hike of at least 4-5% in the road freight rate in 4Q FY11E on the back of a rise in capital
in the road freight rate in 4Q costs of CVs and fuel price increases in the past six months. We believe the lack of adequate freight
FY11E on the back of a rise in rate hikes in the past six months has led to a decline in profitability of freight operators, resulting in
capital costs of CVs and fuel price demand stagnation. Freight rate hikes across major routes are seasonal and lumpy in nature, with
increases in the past six months September and January being the months when a majority of the hikes take place. On the back of a
rise in capital costs from October 2010 on account of the transition to BS-3 norms, we believe cost
pass on has not happened immediately. Hence, our analysis suggests that a 4-5% hike in the road
freight rate from January 2011 will improve profitability levels, leading to a revival in growth.
Exhibit 2: Lack of any major freight rate hike in the past six months Exhibit 3: Lumpiness and seasonality of a freight rate hike
Diesel rates Mumbai (Rs/lt) Mumbai-Delhi freight rate 9T (Rs/MT) (RHS) % change in freight rate
25%
45 3,000
40 2,800 20%
35 2,600
15%
30 2,400
2,200 10%
25
2,000
20 5%
1,800
15 1,600 0%
10 1,400
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
May-04
May-05
May-06
May-07
May-08
May-09
May-10
-5%
5 1,200
0 1,000 -10%
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
-15%
-20%
Source: Capitaline, Quant Global Research Source: Capitaline, Quant Global Research
Trend analysis of macro indicators do not suggest peaking of CV cycle

We expect the current cycle to move up until FY13E
On the back of a CAGR of 8.8% in real GDP and a 10-11% in GFCF during FY11-13E as per our quant
Economist Jayprakash Sinha, we believe the current stagnation in volume demand is temporary led
by compressed profitability for an extended period of time.
Led by strong capex plans in the freight-intensive sectors like cement, steel and autos, we expect a
demand CAGR of 12% in road freight during FY11-13E. Based on our projection of an 18% CAGR in
the passenger transportation industry in terms of billion-passengers-km (BPKM), we expect
passenger bus demand to grow at a similar pace during FY11-13E. Transportation expenditure in the
country has been on an uptrend as % of GDP in the past three years, touching 6% in FY10. With the
prospects of GST getting implemented leading to uniformity in taxation across states, industries will
no longer need local warehousing, reducing need in fixed asset requirements across sectors.
Exhibit 4: Freight demand set to grow at a CAGR of 12% in FY11-13E Exhibit 5: Transportation expenditure/GDP moving up the cycle
Road freight carried (BTKM) Growth (%) (RHS) Transportation expenditure/GDP (%)
7.0
1600 18
1409 6.4
16 6.5 6.2 6.3
1400 1258
14 6.0
1200 1123 6.0 5.9
985 12 5.6
1000 880 5.5
830 10 5.5 5.3 5.4
766 5.2 5.2
8 5.1 5.1
800 646 659
545 595 6 5.0 4.8
600 515
4
400 4.5
2
200 0 4.0
FY11E
FY12E
FY13E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: MORTH, Quant Global Research estimates Source: MORTH, Quant Global Research estimates
January 11, 2011 3

Exhibit 6: Road-based passenger transportation demand on an uptrend Exhibit 7: Cement demand growth expected to move up after FY11E
Road transport (BPKM) Growth (%) (RHS) Cement despatch (mn MT) Growth (%)
13000 12179 24 350 13
22 12
11000 10321 300
20 11
8747 18
9000 250 10
7540 16
6631 9
7000 5961 14 200
8
5051 12
5000 4252 150 7
3469 10
2815 3070 6
3000 2413 8 100
6 5
1000 4 50 4
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: MORTH, Quant Global Research estimates Source: CMA, Quant Global Research estimates
Highway addition to move up gradually on base of 2,600km in FY11E

We believe the execution of 8km per day is adequate to drive CV demand
We expect outperformance to Given the annual highway addition of more than 2,500km against sub-2,000km levels until FY08, we
continue for the 16MT GVW+ CV believe the CV industry will be a prime beneficiary, with an ability to handle higher GVW vehicles on
and 1MT SCV segments the road. National highways in India constitute only 2% of overall road network but carry around
40% of total road traffic, according to NHAI. Hence, with around 1% of highway addition annually,
we believe the scope for incremental higher-end CV volume demand is immense. On the back of
improving road infrastructure and prospect of GST implementation, we believe localised warehouses
will be replaced by centralised hubs with an efficient distribution mechanism, leading to the
acceptance of the hub & spoke model. Thus, we expect outperformance to continue for the 16MT
GVW+ CV and 1MT SCV segments. As a result, growth in CV industry revenue and road freight
demand would be prime indicators of industry growth rather than industry volume growth.
On the back of an estimated 18% CAGR in BPKM, we expect 21% CAGR in the passenger bus
segment, given improving road connectivity, government initiatives like JNNURM and the need for
mass transportation are the major drivers.
Exhibit 8: Highway addition expected to remain above 2,500km pa Exhibit 9: 16MT+ GVW vehicles set to maintain their outperformance
Highway completion (km) 7.5-12 12-16.2 16.2-26.4 26.4-35.2 >=35.2

3000 3100
2800 2900 60%
2900 2600
2351 2405 50%
2500 2205
2100 40%
1682
1700
1318 30%
1300
753 20%
900 635
480 391
500 10%
100 0%
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: MORTH, Quant Global Research estimates Source: SIAM, Quant Global Research
Exhibit 10: State Transport Undertaking (STU) bus addition trend

City STU CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09E CAGR % (CY00-09E)
Mumba i BEST 3,269 3,155 3,075 3,074 3,069 3,075 3,081 3,081 3,081 3200 -0.2%
Del hi DTC 4,916 4,330 4,466 2,496 2,905 3,010 3,143 2,814 2,800 3000 -5.3%
Chenna i CHI 2,353 2,314 2,211 2,270 2,251 2,187 2,176 2,087 2,090 2300 -0.3%
Kol ka ta CSTC 814 821 856 800 769 707 659 635 635 700 -1.7%
Ahmeda ba d AMTS 752 729 630 410 382 371 545 727 750 800 0.7%
Ba nga l ore BMTC 2,110 2,250 2,446 2,656 3,062 3,533 3,802 3,967 4,000 4100 7.7%
Source: MORTH, Quant Global Research estimates
January 10, 2011 4

Exhibit 11: Scope for improvement in usage of CVs with improving roads Exhibit 12: 16MT+ GVW vehicles set to maintain their outperformance
Average truck usage pa (km, '000)

120 110 112
100 95
80 73 75
71 68
64 63
60
40
20
0
Hungary
Pakistan
Nigeria
Indonesia
China
South Africa
Kenya
India
Columbia
Source: Quant Global Research Source: Quant Global Research
Exhibit 13: Comparative study of operational efficiency of M&HCVs across GVW-based segments
M&HCV operational efficiency comparison 9-T M&HCV 16-T M&HCV 25-T HCV
Pa ra meters
Ca pi ta l cos t of CV (Rs ) 900,000 1,100,000 1,700,000
LTV (%) 90 90 90
Interes t ra te (%) 14 13 12
Loa n tenure (yea rs ) 5 5 5
Down pa yment (Rs ) 90,000 110,000 170,000
Avera ge frei ght ra te (Rs /TKm) 3.2 2.6 2.2
Avera ge di s ta nce per tri p (Km) (Mumba i -NCR) 3,000 3,000 3,000
Tri ps per a nnum 70 65 60
Tonna ge ca rri ed 7 14 22
Revenue per a nnum (Rs ) 2,940,000 4,258,800 5,227,200
Fuel effi ci ency (Kmpl of di s el ) (Rs /l t) 7.0 5.0 4.0
Pri ce of di es el (Rs /l t) 42 42 42
Annua l fuel cos t (Rs ) 2,016,000 2,948,400 3,402,000
Ma i ntena nce cos t per a nnum (Rs ) 30,000 33,000 35,000
Tyre repl a cement cos t (Rs ) 48,000 98,000 134,400
Ma npower cos t (Rs ) 120,000 180,000 200,000
Ins ura nce, tol l , l oa di ng cha rge, ta x etc (Rs ) 300,000 360,000 380,000
Tota l revenue expendi ture (Rs ) 2,514,000 3,619,400 4,151,400
EBITDA (Rs ) 426,000 639,400 1,075,800
EMI on l oa n (Rs ) 18,847 22,526 34,034
Interes t outgo per a nnum (Rs ) 226,164 270,312 408,408
Depreci a ti on (a s s umi ng 5 yrs l i fe for SLM) 180,000 220,000 340,000
PBT (Rs ) 19,836 149,088 327,392
Ta x (Rs ) 5,951 44,726 98,218
PAT (Rs ) 13,885 104,362 229,174
Ca s h profi t per a nnum (Rs ) 193,885 324,362 569,174
Pa y ba ck peri od (Yea rs ) 4.6 3.4 3.0
EBITDA ma rgi n (%) 14.5 15.0 20.6
ROCE (%) 27.3 38.1 43.3
Source: Quant Global Research estimates
January 10, 2011 5

We expect CV demand CAGR of 15.5-16.5% during FY11-13E

We are modeling in a 15.5% volume CAGR in the domestic M&HCV market during FY11-13E and a
16.5% volume CAGR in the domestic LCV market during the same period. We expect the domestic
goods M&HCV segment to grow at a CAGR of 14.5% along with domestic passenger M&HCV growth
of 20.7% during FY11-13E. In the domestic LCV segment, we expect a CAGR of 16.5% during FY11-
13E, primarily led by the 1MT SCV segment in the form of brands like ACE and Maxximo.
Exhibit 14: We expect domestic goods M&HCV uptrend in cycle to Exhibit 15: We expect domestic goods M&HCV market share structure to
continue until FY13E remain stable
Domestic goods M&HCV volume M&HCV domestic volume growth (%) (RHS) Tata Motors MS (%) Ashok Leyland MS (%) VECV MS (%)
400,000 50 80.0
40
350,000 70.0
30
300,000 60.0
20
10 50.0
250,000
0 40.0
200,000 -10
30.0
150,000 -20
20.0
-30
100,000
-40 10.0
50,000 -50 0.0
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: SIAM, Quant Global Research estimates Source: SIAM, Quant Global Research estimates
Both goods and passenger segments to drive M&HCV demand growth

In the domestic goods M&HCV space, we expect TTMT’s market share to stabilise around 60% vs
66% in FY10, and AL’s around 23% vs 20% in FY10 and VECV’s around 10% vs 8.5% in CY09. In the
domestic passenger M&HCV segment, we are modeling in a 44% market share for TTMT, 41% for AL
and the rest distributed evenly between Swaraj Mazda and VECV.
Exhibit 16: Domestic passenger M&HCV volume trend Exhibit 17: Passenger M&HCV market share to stabilise
Domestic passenger M&HCV volume Growth (%) (RHS) TTMT ALL VECV Swaraj Mazda
110,000 30 60
100,000 25
90,000 50
20
80,000
15 40
70,000
10
60,000 30
5
50,000
0 20
40,000
30,000 -5
10
20,000 -10
10,000 -15 0
FY11E
FY12E
FY11E
FY12E
FY13E
FY14E
FY15E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
LCV demand to grow at a CAGR of 16.5% during FY11-13E

In the domestic LCV space, we expect TTMT to maintain its dominance in the goods and passenger
segments with a share of 56% and 48%, respectively, in FY12E, followed by M&M in both segments.
We do not expect any major change in market share for Nissan-AL in the domestic LCV market
before FY13E as we believe the company will take at least a year to establish its credentials in a
competitive market. Given the dominance of three-wheelers in the lower-end passenger
transportation market in India, the LCV market is dominated by the goods segment, contributing
around 88-90% of overall domestic demand.
January 10, 2011 6

Exhibit 18: We expect domestic LCV demand to remain strong Exhibit 19: Goods LCV broader market share structure to remain
unchanged
Domestic LCV volume Growth (%) (RHS) TTMT M&M Force Motors VECV
650,000 40 80
35 67.6
550,000 70 64.2
62.6 61.1 58.9
30 60 56.5 55.5
450,000 52.2 51.6
25 50 46.6
350,000 36.2 35.5 37.0
40 34.8 33.3
20 32.1
28.2 25.6 26.5 29.2
250,000 30
15
20
150,000 10
10
50,000 5
0
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
We believe a majority of capex is over for the CV industry; we expect debt reduction to start off
We believe a majority of capex for the CV industry is over, and, during FY12-13E, we expect the
industry to improve capacity utilisation and use operating cashflow to repay debt or increase cash
chest on books to prepare for the next leg of capex. There is no major capex on the cards for the
M&HCV industry currently, except for VECV which is planning to raise capacity to 60,000 against the
current 48,000. A 50,000-capacity Uttarakhand plant for AL is already operational, and we expect
almost 65% utilisation in FY12E. In the LCV segment, TTMT is planning a greenfield facility in South
India in the next couple of years to expand ACE family capacity beyond the Pantnagar facility.
Exhibit 20: CV capacity in place to meet demand potential in FY12-13E Exhibit 21: M&HCV exports set to revive in FY12E
Industry capacity utilisation Exports M&HCV volume Growth (%) (RHS)

100% 60,000 80
94% 95% 93%
88% 70
90% 50,000
60
80% 40,000
75% 50
72%
70%
70% 30,000 40
64%
61% 30
60% 20,000
20
50% 10,000
10
40% - 0
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant Global Research estimates Source: SIAM, Quant Global Research estimates
January 10, 2011 7

Annexure
Exhibit 22: CV industry growth/GDP growth trend in the US (x) Exhibit 23: US CV industry growth/US GFCF growth trend (x)
US CV sales change/GDP change Average Fixed asset change/CV change Average
10.0 4.00
8.0
3.00
6.0
2.00
4.0
1.00
2.0
0.0 -
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
-2.0
(1.00)
-4.0
(2.00)
-6.0
-8.0 (3.00)
Source: Bloomberg, Wards Auto Source: : Bloomberg, Wards Auto
Exhibit 24: CV demand trend in US; recovery in process Exhibit 25: CV demand trend in Western EU
US CV production (mn units) Western Europe CV output (mn units)

8.00
2.50
7.00
2.00
6.00
5.00 1.50
4.00
1.00
3.00
0.50
2.00
1.00 0.00
2010E
2012E
2014E
2010E
2012E
2014E
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: CRU Source: CRU
Exhibit 26: Chinese CV market defying cyclicality Exhibit 27: GFCF addition trend not disturbed by rise in PLR rates
China CV output (mn units) GFCF (Rs mn) PLR HDFC Bank (%) (RHS)
10.00 7,000,000 18
9.00
8.00 6,000,000 16
7.00
5,000,000 14
6.00
5.00 4,000,000 12
4.00
3,000,000 10
3.00
2.00
2,000,000 8
1.00
0.00 1,000,000 6
2010E
2012E
2014E
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
1QCY04
3QCY04
1QCY05
3QCY05
1QCY06
3QCY06
1QCY07
3QCY07
1QCY08
3QCY08
1QCY09
3QCY09
1QCY10
3QCY10
1QCY11
Source: CRU Source: CEIC
January 10, 2011 8

Exhibit 28: Regression analysis of freight rates with diesel rates (y-axis Exhibit 29: Road freight industry is improving its share gradually
denotes freight rates and x-axis denotes diesel rates)
% of total freight carried on road
2,400
y = 0.020x + 1206. 65.0
R² = 0.540
2,200 64.0
63.0
2,000 63.0
1,800 62.0
61.3 61.3 61.3
61.0
61.0 60.7 60.7
1,600
60.0
60.0
1,400
59.0
1,200
58.0
1,000
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
0 10,000 20,000 30,000 40,000 50,000
Source: Capitaline, Quant Global research Source: Ministry of Railways
Exhibit 30: CV industry revenue trend against transportation expenditure Exhibit 31: Goods M&HCV 16.2-26.4 MT GVW category share (%)
CV industry revenue/transportation expenditure (%) Ashok Leyland Eicher Motors Tata Motors Asia Motor Works
20.0 80
17.6
18.0 70
16.6
16.0 15.2 14.8 60
14.8
14.1 14.5 14
14.0 13.2 50
12.6
12
11.5 40
12.0 10.8
10.1
30
10.0
20
8.0
10
6.0
0
4.0
FY11 YTD
FY06
FY07
FY08
FY09
FY10
-10
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: CEIC, Company data, Quant Global Research estimates Source: : SIAM, Quant Global Research
Exhibit 32: Margin set to stabilise at current levels; cushioning elements Exhibit 33: CV demand cycle against industrial GDP trend
like improving product mix and excise benefit to prevent
erosion
TTMT OPM trend (%) ALL OPM trend (%)

M&HCV change/Industrial GDP change (x)
13.0
8.0
12.0 5.7
6.0
4.4
3.6 3.8
11.0 4.0 3.0 3.3
2.5
1.6 1.8
10.0 2.0
0.4 -0.5 -0.5 -1.5
0.0
9.0
FY11E
FY12E
FY13E
FY14E
FY15E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
-2.0
8.0
-4.0
7.0 -6.0
6.0 -8.0
-10.0
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
-9.5
-12.0
Source: Company data, Quant Global Research estimates Source: CEIC, Quant Global Research estimates
January 10, 2011 9

Company Section
January 10, 2011 10

Ashok Leyland
Moving up the CV cycle
We believe Ashok Leyland (AL), the second-largest CV manufacturer in India, is BUY Rs60
poised to benefit from the potential uptick in the CV cycle along with creating new
export opportunities led by a stronger product portfolio. Given the addition of 16- Reuters: ASOK.BO Bloomberg: AL IN
49MT GVW Unitruck Series CVs powered by 250-380HP engines in the next 12
months, ALL is gearing up to improve its market share in the high growth domestic 12-month price target Rs87
HCV market (0.11 mn in FY10) along with tapping new developed export markets.
We expect margin to get some cushioning (tax incentives) from the Pantnagar Basudeb Banerjee
facility, which will be fully operational from next year, along with the scope for basudeb.banerjee@quantcapital.co.in
improvement in economies of scale, thereby partially insulating AL from adverse +91 22 3954 1480
input material movements. We expect capex of Rs11.5 bn and investment of Rs9 bn
during FY11-12E to get funded by an operating cashflow of Rs23.4 bn, leading to Market cap Rs79.9 bn (US$1.76 bn)
contraction in the net debt-to-equity ratio to 0.5x from 0.6x in FY10 by FY12E. We 52 week high/low: Rs82/46
initiate coverage of AL with a BUY rating and a 12-month price target of Rs87 based Share o/s: 1,330 mn
Share o/s (fully diluted): 1,330 mn
on a core business value of Rs81 at 9.1x FY12E EV/EBITDA and an Rs6 per share
Avg daily trading vol (3m): 4,885 ('000)
discounted value for investment in JVs/subsidiaries.
Avg daily trading vol (3m): Rs349 mn (US$7.7 mn)
Better product mix, new service-related initiatives boost growth: Led by better ROA
for fleet owners and improving road infrastructure, we expect AL to benefit the most Quant vs Consensus
in the high growth 16MT+ segment, especially with the inclusion of the high power PT EPS (FY12E)
Unitruck Series in its portfolio in second half of FY12E. We expect more than 70% of Mean 84 5.9
volume from the 16MT+ segment against 67% in FY10, leading to a rise in the mix of High 105 7.0
superior EBITDA per vehicle models. AL’s ability to meet rising competition in the Low 49 4.0
domestic market while also tapping new export markets would improve its product Quant 87 6.3
portfolio, in our view. We are modeling in a 34% revenue CAGR during FY10-12E. Buy(s) Hold(s) Sell(s)
Nos 31 11 05
Higher Pantnagar production, improving economies of scale to cushion OPM: We Source: Bloomberg
expect the Pantnagar facility to contribute around 29% of AL’s production in FY12E.
Thus, after factoring in a 50% localization of input components along with savings in Shareholding pattern
logistics costs to cater to the North India market from this facility, AL can potentially
cushion its margin by 150-200bp against rising input material prices. Given that we Sep10 Jun09 Mar10
Promoter 38.6 38.6 38.6
expect capacity utilisation to reach 77% by FY12E on higher capacity against 54% in
FIIs 15.1 13.6 12.6
FY10, AL is likely to benefit based on improved economies of scale. We expect AL MFs/FIs/Banks 31.2 32.9 33.4
operating margin to remain range-bound (10-11%) in FY11-12E. We believe, the fact Others 15.1 14.9 15.4
the AL was able to raise prices by 6% to pass on the rise in input costs in 3QFY11,
Source: BSE
signifies the absorbing power of the market currently along with the acceptability of
AL products. Relative price performance
Initiate coverage of AL with a BUY rating and a 12-month price target of Rs87: We AL Sensex (RHS)
initiate on AL with a BUY rating and a 12-month price target of Rs87 based on our 90
80
22,000
21,000
SOTP valuation. AL has traded at a mean one-year forward EV/EBITDA of 8.3x in the 70
20,000
past five years against a mean ROCE of 20.4%. We assign a target multiple of 9.1x 60
50 19,000
forward EV/EBITDA (at a 10% premium to the five-year mean of 8.3x) to the core 40 18,000
business to arrive at our price target. We have factored in the investments in 30

20
17,000
JVs/subsidiaries at 0.75x book. 10

16,000
0 15,000
Key risks: Slowdown in industrial activity leading to lower freight demand, an inability
Dec-10
Jun-10
Oct-10
Nov-10
Apr-10
Jul-10
Feb-10
Sep-10
Mar-10
Jan-10
Aug-10
May-10
of AL to garner incremental market share and a rise in input prices beyond pricing
power and a likely diesel price hike are key risks to the core business and our Source: Bloomberg
estimates.
Exhibit 1: AL – financials and valuation summary

Y/E March Net revenue EBITDA Adjusted net income EPS ROaE ROaCE PE EV/EBITDA
(Rs mn) (% growth) (Rs mn) (% growth) (Rs mn) (% growth) (Rs/share) (%) (%) (x) (x)
2009 59,811 (22.6) 4,591 (42.8) 1,932 (59.9) 1.5 8.0 9.2 41.4 21.5
2010 72,447 21.1 7,476 62.8 4,117 113.1 3.1 12.7 17.9 19.4 12.8
2011E 106,245 46.7 10,925 46.1 6,031 46.5 4.5 18.9 21.7 13.3 9.0
2012E 130,183 22.5 14,374 31.6 8,396 39.2 6.3 21.8 24.2 9.5 6.9
Note: pricing as on 10 January 2011; Source: Company data, Quant Global Research estimates
Ashok Leyland: Moving up the CV cycle
Investment summary
Opportunity to enter current CV cycle through core CV manufacturer
Portfolio to strengthen with the inclusion of 250HP+ Unitruck Series CVs
We expect overall volume to reach We believe Ashok Leyland is poised to benefit from the potential uptrend in the CV cycle along with
92,789 and 109,184, respectively, creating new export opportunities led by a stronger product portfolio. Led by the launch of 16-49MT
in FY11E and FY12E, against GVW Unitruck Series CVs powered by 250-380HP engines in 2H FY12, AL is gearing up to improve its
63,933 in FY10, after factoring in a market share in the high growth domestic HCV market (0.11 mn in FY10) along with tapping
volume CAGR of 31% during FY10- developed export markets. We expect overall volume to reach 92,789 and 109,184, respectively, in
12E FY11E and FY12E, against 63,933 in FY10, after factoring in a volume CAGR of 31% during FY10-12E.
With a richer product portfolio, we expect the company to regain a market share of 23-24% in the
domestic goods M&HCV market against the lows of 20% in FY09-10. In our view, based on a ramped-
up production capacity of 150,000 vehicles annually, AL is nearing the end of the current capex cycle,
thereby giving us visibility of lower capex requirement to tap the demand uptrend in the current CV
cycle for the next 2-3 years.
 AL is set to tap the higher end of the M&HCV market (16MT+ segment) with a better product
portfolio in the form of Unitruck Series powered by 250HP and Neptune series of engines. Thus
we expect AL to benefit from the growth opportunity in the 16MT+ GVW models through
improving highway connectivity and overall road infrastructure along with better profitability of
truck owners.
 We expect AL to regain a market share of 23-24% in the domestic goods M&HCV market, led by
a richer product portfolio with the launch of higher power Unitruck Series CVs against the lows
of 20% in FY09-10. We are modeling in a 32% volume CAGR during FY10-12E in this segment,
with FY12E segmental volume expected to touch 70,863.
 In the bus segment, we expect a 21% industry volume CAGR and a 300-bp improvement in AL’s
market share to 41%, resulting in a volume CAGR of 26% for AL during FY10-12E. AL is likely to
touch passenger bus volume figure of 25,946 in FY12E against 16,405 in FY10.
 On the exports front, we are modeling in a 39% volume CAGR in FY10-12E, with expected
volume of 11,480 in FY12E. We expect higher power-to-weight ratio vehicles through the
Unitruck Series to help AL access newer export markets, thereby helping it grow exports
volume.
 We expect LCV production from the Nissan-AL JV to start from mid-CY11, using excess capacity
at the Hosur plant. AL is planning to launch four models within the 1.25-4.00MT segment
initially and start production from the greenfield facility in Tamil Nadu by FY12-end. We have
not factored in the impact of the JV business into our earnings estimates.
 We expect engine sales volume to remain muted led by lower demand from the telecom sector
at around 13,000 in FY12E against 19,000 in FY10.
Exhibit 2: AL – volume set to move up along with CV cycle uptrend Exhibit 3: AL – rising exports volume to add to overall volume growth
AL CV volume YoY growth Export volume YoY growth
120,000 50.0% 12,000 11,480 70%

109,184
110,000 40.0% 60%
11,000
100,000 92,789 50%
30.0% 10,000 9,566
90,000 83,059 83,308 40%
20.0% 30%
80,000 9,000
10.0% 20%
70,000 61,626 63,933 8,000 7,285
0.0% 10%
60,000 54,769 54,433 6,812 6,815
7,000 0%
-10.0% 6,025 5,979
50,000 -10%
-20.0% 6,000
40,000 4,879 -20%
30,000 -30.0% 5,000
-30%
20,000 -40.0% 4,000 -40%
FY11E
FY12E
FY11E
FY12E
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
January 10, 2011 12

Better product mix visibility via Unitruck Series launch

We are modeling in a 31% volume CAGR during FY10-12E
Given the favorable business dynamics of operating a higher GVW CV, we believe AL is set to
improve its product mix toward higher-end trucks. We expect more than 70% of volume to come
from the 16MT+ segment against 67% in FY10. Beyond the EBITDA break-even volume level of 45-
50% of capacity, we believe this segment will deliver superior marginal profitability led by better
pricing power than incumbent players like TTMT and VECV.
Exhibit 4: AL – share of 16MT+ segment on the rise in product mix (%) Exhibit 5: AL – market share on the rise in the 16.0-26.4MT segment (%)
7.5 - 12 T 12 - 16.2 T 16.2-26.4T 26.4- 35.2T >35.2T Ashok Leyland Eicher Motors Tata Motors Asia Motor Works
70
80
60 70
50 60
50
40
40
30 30
20 20
10
10
0
0
FY11 YTD
FY06
FY07
FY08
FY09
FY10
-10
FY11E
FY12E
FY05
FY06
FY07
FY08
FY09
FY10
Source: SIAM, Quant Global Research estimates Source: SIAM, Quant Global Research
Passenger bus segment an important part of the portfolio contributing around 24% by volume
Demand in the passenger segment is set to grow from the government’s thrust on urban
infrastructure, led by initiatives like the Jawaharlal Nehru National Urban Renewal Mission
(JNNURM) and improving highway connectivity across major towns and cities in the country. We
expect the passenger M&HCV domestic market to grow at a CAGR of 20-21% in the next five years.
AL is likely to benefit the most, led by this demand potential, and it is likely to improve its market
share from 38% in FY10 to 41% by FY12E, thereby growing at a volume CAGR of 26% during the same
period to around 26,000.
In the State Transport Undertakings (STU) space, AL is the market leader with a share of around 45-
50%, and we believe annual increment to STU’s fleet size contributes to around 30-40% of AL’s
passenger M&HCV volume. For private bus operators, who are expanding business across
new/existing routes from an affordability point of view, capital cost of a higher-end AL bus would be
at a ~60% discount over capital cost of a Volvo bus. Hence, we believe value growth proposition for
players like AL and TTMT will be higher in the bus segment, primarily due to affordable pricing
leading to a greater size of target audience.
Exhibit 6: AL – bus segment volume moves up after FY09 Exhibit 7: AL – M&HCV bus market share dominated by AL and TTMT
(%)
M&HCV Passenger segment YoY growth TTMT ALL VECV Swaraj Mazda
60
30,000 60.0%
25,946 50.0% 50
25,000
40.0%
20,817 40
20,000 30.0%
17,575
16,026 16,405 20.0% 30
15,000 13,409 10.0%
11,676 20
10,506
0.0%
10,000
10
-10.0%
5,000 -20.0% 0
FY11E
FY12E
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
January 10, 2011 13

We expect a CV realisation CAGR of 5.7% during FY10-12E

Blended net realisation/vehicle (NRV) muted led by lower engine volume
Lower volume from the engine business has led to muted growth in the blended realisation per
vehicle figure whereas core CV realisation is set to grow at a CAGR of 5.7% during FY10-12E, in our
view, led by a series of price hikes to combat incremental costs caused by a rise in input material
prices and the transition to BS-3 compliant engine. We believe muted growth in the engine business
was primarily led by demand saturation from the telecom tower sector.
Exhibit 8: AL – NRV growth looks muted due to lower engine volume Exhibit 9: AL – engine volume set to stabilise around current levels
Realisation per vehicle (Rs) Engine volume
1,300,000 23,000 21,447

1,192,326
1,133,172
1,200,000 1,145,018 20,000 19,050
1,098,796
1,100,000
17,000
1,000,000
927,777
863,022 14,000 12,802
900,000 851,533 11,757 11,430
763,552 11,000
800,000
8,202
697,641 7,171
700,000 8,000 6,254
600,000 5,000
FY11E
FY12E
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY05
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant Global Research estimates Source: Company data, Quant Global Research estimates
Pantnagar production to pick up momentum from FY12

We expect the 50,000-unit Pantnagar assembly facility to help AL improve its market share in North
India along with overall margins. Set up with an investment of around Rs11 bn, the facility is entitled
to a 100% excise exemption for the first 10 years (subject to the level of localization) and a 100% tax
exemption for the first 10 years (and ~30% tax exemption for the subsequent five years). The
company is planning to assemble higher-end CVs fitted with the Neptune series engine along with
regular tippers and tractor trailers dedicated for the North India market from this facility. Hence, we
expect AL to save in terms of excise duty and logistics costs to the extent of 2.0-2.5% of NRV on an
average after FY11, assuming a steady capacity utilisation level of 80%. Management has guided for
an annual tax benefit of Rs1.75 bn after the plant starts running at full capacity, thereby cushioning
the bottom line. We expect the Pantnagar facility to contribute around 29% of overall volume in
FY12E, with an output of 32,000 against 15,000 in FY11E. We expect operating margin to get a boost
after FY12E, with utilisation levels set to touch over 90%, giving AL the opportunity to take
advantage of the improving economies of scale.
Exhibit 10: AL – The South continues to dominate regional mix; there is Exhibit 11: AL – revenue breakdown business-wise
scope for improvement in North India’s market share
MS % of AL volume M&HCV goods M&HCV passenger LCV Exports Engines Spare parts
45% 42%
40% 1.7
6.2
35% 32%
30% 0.4 9.0
26% 26% 26%
25% 22%
20% 16%
15% 13%
18.7
10% 6%
63.5
5% 2%
0%
Central
West
South
North
East
Source: Company data, Quant Global Research Source: Company data, Quant Global Research
January 10, 2011 14

Improving service network, spare parts availability to boost volume

With the gradual improvement of road infrastructure in India led by the highway addition of
approximately 2,500km annually in the Golden Quadrilateral and NSEW Corridor (source: NHAI), the
availability of superior service network for CV manufacturers would help reduction in vehicle down-
time, in our view. Led by an increase in the mix of higher tonnage CVs in the overall CV segment, we
believe the reduction in vehicle down-time is a critical factor for profitability as revenue per vehicle
is increasing with higher GVW. AL has recently introduced the emergency response scheme called
Tatkal where the company is responding to customer issues within four hours anywhere on the
Golden Quadrilateral through a dedicated helpline and bringing the off-road vehicle on-road within
48 hours, or else pay a penalty of Rs1,000 for every day of delay. To date, AL has 180 dealerships
along with 150 authorised service centers, and it is increasing the number by 20 dealers annually.
Exhibit 12: AL – new initiative to boost service-related customer Exhibit 13: AL – scope to improve market share beyond 30% led by better
satisfaction service network, proximity of the Pantnagar plant to the NCR
hub and new CV launches
Tata Motors Ashok Leyland Volvo-Eicher CV
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Jul-09
Jul-10
Sep-09
Feb-10
Sep-10
Jan-10
Dec-09
Jun-09
Jun-10
Aug-09
Aug-10
May-09
May-10
Oct-09
Oct-10
Nov-09
Nov-10
Apr-10
Mar-10
Source: Company presentation Source: SIAM
With NHAI projects awarded during FY09-11E expected to touch Rs620 bn, we expect South India to
receive a Rs200-bn order, thereby boosting AL’s prospects of improving market share, as 32% of
volume is from that region. We estimate a net revenue CAGR of 34% during FY10-12 to Rs133 bn by
FY12, led by a volume CAGR of 31% during the same period.
Exhibit 14: AL – we expect revenue to touch Rs133 bn in FY12E Exhibit 15: AL – higher production from Pantnagar to reduce duty further
Net revenue (Rs mn) YoY Growth(%) (RHS) Excise Duty
140,000 60.0% 15.0%

13.7% 13.6% 13.7% 13.5%
50.0% 14.0%
120,000
13.3% 13.1% 13.3%
40.0% 13.0%
12.0%
100,000 30.0% 12.0%
20.0% 11.0% 10.3%
80,000
10.0% 10.0%
60,000 0.0% 9.0% 8.4%

8.0%
-10.0% 8.0%
7.1%
40,000
-20.0% 7.0%
20,000 -30.0% 6.0%

FY11E
FY12E
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant global research estimates Source: Company data, Quant global research estimates
January 10, 2011 15

Higher Pantnagar production, improving economies of scale to

stabilise OPM in the range of 10-11%
We expect AL’s operating margin to stabilise in the range of 10-11%, primarily led by the opportunity
to improve economies of scale, improving product mix along with increasing production out of the
tax-free Pantnagar facility. Although we expect the upside risk to margin to remain capped with
rising input material prices and increasing competition (the entry of Mahindra Navistar, Mercedes-
Benz, higher-end model launches by VECV and TATA Global Truck), we believe positive drivers of
improving operating leverage and rising production out of Pantnagar facility are significant enough
to cushion AL from any major margin erosion from 10% levels.
We expect production from the Pantnagar facility to touch 32,000 in FY12E, thereby contributing
around 21% of total volume sold. After assuming 50% localisation of input ancillaries, AL can benefit
to the extent of 1.5-2.0% of NRV, which broadly turns out to be around Rs15,000-Rs20,000 per
vehicle. Hence, Rs40,000 cost incurred per vehicle to meet BS-3/4 norms is expected to be mitigated
along with a 6% price hike initiative taken by management effective October 3, 2010 (3% for all
vehicles + 3% additionally for BS-3 vehicles getting upgraded from BS-2).
Exhibit 16: AL – operating margin to get cushion from Pantnagar volume Exhibit 17: AL – capacity utilisation set to improve further
EBITDA/Vehicle (Rs) EBITDA margin (RHS) Capacity utilisation (%)
140,000 13.0% 110.0

101.3 101.6
130,000
12.0% 100.0
120,000
110,000 11.0% 90.0
82.2
100,000 78.2
10.0% 80.0
72.8
90,000 69.5 68.7
80,000 9.0% 70.0 63.9
70,000 8.0% 60.0 54.4
60,000
7.0% 50.0
50,000
40,000 6.0% 40.0
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Exhibit 18: AL – operating margin set to stabilise during FY11-12E Exhibit 19: AL – steel price consolidates around US$600/tonne
OPM China HRC FOB (US$/MT)
14.0% 12.9% 1,100
11.3% 11.5% 11.4% 11.3% 1,000

12.0%
10.2% 10.5%
10.0% 900
9.5%9.7%9.2% 9.4%
10.0%
8.5% 8.2% 800
7.9%
8.0%
6.2% 700
6.0% 4.8% 600
4.0% 500
2.0% 1.3% 400

300
0.0%
200
Q1FY07
Q2FY07
Q3FY07
Q4FY07
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
Dec-07
Dec-08
Dec-09
Jun-07
Jun-08
Jun-09
Jun-10
Sep-07
Sep-08
Sep-09
Sep-10
Mar-08
Mar-09
Mar-10
Source: Company data, Quant Global Research Source: Bloomberg, Quant Global Research
January 10, 2011 16

Financial analysis
A 31% CAGR in CV volume on We believe AL is set to benefit in terms of improvement in ROCE during FY10-12E, led by the end of
higher capacity of 150,000 units the capex cycle with the growth phase in the CV cycle. A 31% CAGR in CV volume on higher capacity
would lead to an improvement in of 150,000 units would lead to an improvement in asset turnover of 2.1x by FY12E against the lows
asset turnover of 2.1x by FY12E of 1.4-1.6x in FY09-10, as per our analysis. In addition to this, the play on operating leverage and the
against the lows of 1.4-1.6x in rise in production from the Pantnagar facility would boost margin from 8-10% levels in FY09-10 to
FY09-10, as per our analysis 10-11% levels in the upcoming quarters, partially cushioning against risks associated with a rise in
commodity prices and competition shrinking the pricing power of players. Hence, we expect overall
capital efficiency of AL to reach 22-23% by FY12E against 13% in FY10.
We expect working capital/sales to stabilise around 4% in FY11-12E against a peak of 16% in FY09,
led by the company shifting to the “cash-and-carry” model with dealers since last year along with
the implementation of efficient inventory management practices.
AL underwent a major shift in its capital structure after it hiked its loan book from Rs9 bn in FY08 to
Rs19.6 bn in FY09, primarily led by funding requirements for the Pantnagar facility. Post that in FY09-
FY10, the downturn in the market caused a significant rise in working capital, resulting in another
round of debt-raising, with debt on book touching Rs22 bn. In FY11-12E, we expect AL to generate a
cumulative operating cashflow of Rs23.4 bn against capex and investment plans of Rs20 bn, resulting
in a debt repayment cycle getting initiated from FY12 with no major incremental capex requirement.
According to management, capex of Rs12 bn in FY11-12 would be invested to set up a new cabin
facility for Unitruck Series vehicles, and building up capacity of Neptune series engine along with
product development-related expenses. Under the planned investment of Rs8 bn, we expect AL to
invest in JVs/subsidiaries like Nissan LCV JV, JV with John-Deere for the construction equipment
business along with investment in subsidiaries like ALTEAMS, Optare and Hinduja Finance.
Exhibit 20: AL – ROCE on an improving trend post the bottoming in FY09 led by the capex cycle coinciding with demand slowdown
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Asset turn (x) 1.5 1.7 2.1 2.1 1.4 1.6 2.1 2.1
EBIT margin (%) 7.5 7.9 7.7 8.1 4.7 7.5 8.4 9.1
ROCE (%) 22.5 26.9 28.0 24.5 8.0 12.7 18.9 21.8
Net debt/equity (x) 0.0 0.0 0.1 0.2 0.8 0.6 0.6 0.5
ROE (%) 20.5 21.6 24.0 22.4 9.2 17.9 21.7 24.2
BVPS 9.8 11.9 14.2 16.2 15.8 17.3 20.9 26.1
WC/sales (%) 4.7 4.2 7.1 2.0 15.7 9.1 4.7 4.2
Source: Company data, Quant Global Research estimates
Exhibit 21: AL – end of the capex cycle to help in debt reduction from Exhibit 22: AL – operating cashflow to comfort debt repayment from
FY12E FY12E
Capex for the year (Rs mn) Net Curent Assets (Rs mn) Operating cash flow (Rs mn)
Borrowings (Rs mn)
14,000
12,128
30,000 11,246 11,139 11,231
12,000
25,000 10,000
20,000 8,000
6,000 4,581
15,000 4,292
3,474
4,000
10,000
2,000
5,000
-
FY11E
FY12E
FY05
FY06
FY07
FY08
FY09
FY10
- (2,000)
FY11E
FY12E
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
(4,000) (2,777)
January 10, 2011 17

Valuation
In the past five years, the We initiate coverage of AL with a 12-month price target of Rs87 based on our SOTP valuation. We
company has traded at a mean have arrived at our core business value using 9.1x FY12E EV/EBITDA of Rs81 and an Rs6 as per share
one-year forward EV/EBITDA of value of investments in JVs and subsidiaries at 0.75x investment book. In the past five years, the
8.3x against a mean ROCE of company has traded at a mean one-year forward EV/EBITDA of 8.3x against a mean ROCE of 20.4%.
20.4% Currently, AL is trading near at a significant discount to the five-year mean of 8.3x at around 7x. Led
by the uptrend in the CV cycle coinciding with the end of capex cycle, we are assigning a target
multiple of 9.1x one-year forward EV/EBITDA, giving it a premium of 10% over the five-year mean.
AL has traded at a one-year forward mean P/E of 12.3x in the past five years, factoring in a balanced
figure for the business across one complete CV cycle. During FY10-12E, we expect an earnings CAGR
of 43%; hence, at our price target of Rs87, AL would be trading around the five-year mean forward
P/E of 12.3x.
Exhibit 23: AL – trading near the five-year average one-year forward Exhibit 24: AL – one-year forward EV/EBITDA (x); debt repayment
P/E(x) cushioning ahead
18
30 16
27
14
24
21 12
18
15 10
12
8
9
6 6
3
4
0
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
2
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: Bloomberg, Quant Global Research estimates Source: Bloomberg, Quant Global Research estimates
January 10, 2011 18

Risks
• A sharp rise in input materials incrementally over current cost escalations would lead to AL’s
inability to pass on costs, thus hurting margins in turn, although they can be partially protected
by the higher production from the Pantnagar facility.
• Hurdles to road infrastructure development in the form of land acquisition and margin risk for
private players to develop road projects.
• Crude making new highs would lead to the preponement of another round of the diesel rate
hike, which can hurt profitability of the road freight industry again.
• Entry of new players with proven technological expertise in the form of Navistar, Volvo and
Daimler can add to the competition in a big way against the current duopolistic goods CV
market structure.
Company description
Ashok Leyland is a focused commercial vehicle manufacturer with a strong presence in the bus
segment and is the second largest player in India. The company has recently commenced its new
facility at Uttarakhand which would enjoy tax benefits for next 10 years with a capacity of 50,000,
taking its overall CV capacity to 150,000. The company has recently introduced a highly sophisticated
range of commercial vehicles on the Unitruck platform. Ashok Leyland earns significant revenue from
the sale of engines and spare parts. With the view to expand its product portfolio, the company has
entered into joint venture for manufacture and sale of LCV’s and Construction Equipment with
Nissan and John Deere respectively. Mr. R Seshasayee is the MD of AL with Mr. Sridharan as the CFO.
AL is a Hinduja group promoted entity with Mr. Dheeraj Hinduja as its current chairman.
January 11, 2011 19

Financial summary
Exhibit 25: AL – Financial statements, YE March
Income Statement (Rs mn) 2009 2010 2011E 2012E Balance Sheet (Rs mn) 2009 2010 2011E 2012E
Net revenue 59,811 72,447 106,245 130,183 Equi ty ca pi ta l 1,330 1,330 1,330 1,330
Expenditure 55,219 64,971 95,320 115,809 Res erves a nd s urpl us 19,688 21,637 26,486 33,339
Ra w ma teri a l s 44,848 52,534 78,533 94,719 Deferred ta x l i a bi l i ty (net) 2,634 4,611 4,611 4,611
Empl oyee expens es 5,663 6,716 8,712 10,675 Total equity 23,652 27,578 32,427 39,280
Other expendi ture 4,708 5,721 8,075 10,415 Secured l oa ns 3,044 7,116 10,116 8,116
EBITDA 4,591 7,476 10,925 14,374 Uns ecured l oa ns 16,537 14,923 14,923 14,923
Non-opera ti ng i ncome 496 704 250 300 Mi nori ty i nteres t — — — —
Depreci a ti on 1,784 2,041 1,989 2,496 Total borrowings 19,581 22,039 25,039 23,039
EBIT 2,807 5,435 8,937 11,878 Current l i a bi l i ti es 21,369 29,608 33,630 40,625
Net i nteres t expens e 1,187 811 1,648 1,683 Total liabilities 64,603 79,225 91,097 102,944
Adjus ted pre-ta x profi t 1,620 4,623 7,289 10,195
Unus ua l or i nfrequent i tems — — — — Ca s h 881 5,189 5,714 3,117
Reported pre-tax profit 2,117 5,328 7,539 10,495 Inventory 13,300 16,382 16,010 19,260
Les s : ta xes 185 1,211 1,508 2,099 Debtors 9,580 10,221 11,061 12,840
Reported net profit 1,932 4,117 6,031 8,396 Other current a s s ets 7,895 9,605 11,597 14,009
Add: extra ordi na ry i tems (pos t-ta x ba s i s — — — — Total current assets 31,656 41,397 44,382 49,225
Les s : mi nori ty/a s s oci a te ea rni ngs — — — — Gros s bl ock 35,813 46,466 52,966 57,966
Reported net profit for shareholders 1,932 4,117 6,031 8,396 D&A (15,542) (17,691) (19,679) (22,175)
Adjusted net profit for shareholders 1,932 4,117 6,031 8,396 Add: ca pi ta l work-i n-proces s 9,983 5,615 5,615 5,615
Total fixed assets 30,254 34,390 38,902 41,406
EPS (Rs), based on wtd avg shares 1.5 3.1 4.5 6.3 Inves tments 2,636 3,262 7,762 12,262
EPS (Rs), based on fully diluted shares 1.5 3.1 4.5 6.3 of whi ch, l i qui d i nves tment 169 881 900 1,000
Yea r-end s ha res outs ta ndi ng (mn) 1,330 1,330 1,330 1,330 Other a s s ets — — — —
Wei ghted a vera ge s ha res outs ta ndi ng ( 1,330 1,330 1,330 1,330 Total assets 64,643 79,100 91,097 102,944
Ful l y di l uted s ha res outs ta ndi ng (mn) 1,330 1,330 1,330 1,330 Net working capital 15,648 19,163 20,029 19,807
Growth ratio (%) Cash flow statement (Rs mn) 2009 2010 2011E 2012E
Net revenue (22.6) 21.1 46.7 22.5 Operating cashflow
EBITDA (42.8) 62.8 46.1 31.6 Pre-ta x i ncome 2,198 5,480 7,539 10,495
Adjus ted net profi t (59.9) 113.1 46.5 39.2 Add: D&A 1,784 2,041 1,989 2,496
Les s : i nteres t expens e (net) 1,187 811 1,648 1,683
Ratios (%) 2009 2010 2011E 2012E Les s : other a djus tments — — — —
Effecti ve ta x ra te 8.7 22.7 20 20 Les s : ta xes pa i d -60 — -1,508 -2,099
EBITDA ma rgi n 7.7 10.3 10.3 11 Add: worki ng ca pi ta l cha nges (7,886) 2,806 1,563 -447
Adjus ted net i ncome ma rgi n 3.2 5.7 5.7 6.4 Total operating cashflow (3,964) 10,327.30 9,583.00 10,445.50
Net debt/equi ty 0.8 0.6 0.6 0.5
ROa CE 8 12.7 18.9 21.8 Investing cashflow
ROa E 9.2 17.9 21.7 24.2 Ca pi ta l expendi ture (11,079) (6,285) (6,500) (5,000)
Tota l a s s et turnover ra ti o (x) 1.4 1.6 2.1 2.1 Inves tments 3,463 (626) (4,500) (4,500)
Inventory turnover ra ti o (x) 81.2 82.5 55 54 Others — — — —
Debtors turnover ra ti o (x) 58.5 51.5 38 36 Total investing cashflow -7,615 -6,911 -11,000 -9,500
Per share numbers (Rs) 2009 2010 2011E 2012E Financing cashflow
Di l uted ea rni ngs 1.5 3.1 4.5 6.3 Sha re i s s ua nces — — — —
Ca s h ea rni ngs 2.8 4.6 6 8.2 Loa ns 8,315 1,637 1,837 -3,682
Free ca s h -11.3 3 2.3 4.1 Les s : others (1,556) (1,556) (1,543) (1,543)
Book va l ue 15.8 17.3 20.9 26.1 Total financing cashflow 6,759 81 294 (5,225)
Valuations (x) 2009 2010 2011E 2012E Net change in cash (3,633) 4,308 524 (2,597)
Pri ce to di l uted ea rni ngs 41.4 19.4 13.3 9.5 Openi ng ca s h 4,514 881 5,189 5,714
EV/EBITDA 21.5 12.8 9.0 6.9 Add: other a djus tments — — — —
Pri ce to book 3.8 3.5 2.9 2.3 Closing cash 881 5,189 5,714 3,117
Note: pricing as of 10 January 2011; Source: Company data, Quant Global Research estimates
January 10, 2011 20

Tata Motors
Diversity exemplified
We believe Tata Motors (TTMT) is no longer primarily exposed to the cyclicalities of domestic BUY Rs1,177
CV dynamics, as we expect JLR to contribute 56% and 59% of consolidated revenue and
EBITDA in FY12E, respectively. We are modeling in a 24.4% revenue CAGR for JLR during FY10- Reuters: TAMO.BO Bloomberg: TTMT IN
12E, led by a 12.5% volume CAGR to 0.25 mn in FY12E. On the domestic CV front, we expect a
12-month price target Rs1,453
16% volume CAGR during FY10-12E to 0.47 mn, with growth led equally by M&HCV and LCV.
We expect the Nano to reach its EBITDA-neutral volume of 0.15 mn in FY12E, contributing 2% Basudeb Banerjee
of consolidated revenue of Rs1,350 bn in FY12E. We expect operating margin (OPM) to be basudeb.banerjee@quantcapital.co.in
around 12-13% against current levels of 14%, led by the improvement in standalone OPM due 91 22 3954 1480
to a rise in ACE and Nano volumes and normalization of JLR OPM to 13%. We expect JLR to
Market cap Rs732.2 bn (US$16.2 bn)
fund its annual capex and product development expenses as long as it operates above 10% 52 week high/low: Rs1,382/634
OPM. At our estimated 12.7% consolidated OPM in FY12, we expect the net debt-to-equity Share o/s: 571 mn
ratio to be lower than 1x. We initiate coverage of TTMT with a BUY rating and a 12-month Share o/s (fully diluted): 622 mn
price target of Rs1,453 based on our SOTP valuation factoring in 6x, 10x and 12x FY12E Avg daily trading vol (3m): 3,706 ('000)
EV/EBITDA of JLR, standalone TTMT and other subsidiaries, respectively. Avg daily trading val (3m): Rs4,648 mn (US$102.4 mn)
Global car market reviving; factoring in a 12.5% volume CAGR for JLR during FY10-12E: We are Quant vs Consensus
modeling in a 12.5% volume CAGR for JLR over FY10-12E, led by the recovery in the global PV PT EPS (FY12E)
market on the back of improving consumer confidence and a reviving global economy. Led by a Mean 1,474 149.5
combination of growth and contraction in emerging and developed markets, in the past two High 1,774 187.3
years the global PV market has grown at a CAGR of 1.5%. We expect growth to move up to 4-5% Low 1,286 120.5
in 2H of the current cycle, thus benefitting JLR dually, exposing it to higher growth in emerging Quant 1,453 139.7
markets and the revival of PV demand on low base in developed markets. We believe new
launches in the form of the trimmed version of the Range Rover named Evoque will help JLR
Buy(s) Hold(s) Sell(s)
expand its geographical base across high growth markets. Nos 42 4 0
Source: Bloomberg
CV cycle in the middle of growth path; ACE and Nano key drivers in LCV and PV segments:
Concerns over rising operating costs of CVs and no freight rate hike in the past six months has Shareholding pattern
become a serious threat to CV owner profitability in the near term. But, on the basis of strong Sep 10 Jun 10 Mar 10
macro indicators like a 10% gross fixed capital formation CAGR and strong capex cycle across Promoters 54.2 54.2 54.2
major asset-intensive manufacturing industries, we believe the CV cycle is intact. Growth FIIs 21.1 22.8 21.1
segments in the form of ACE and Nano is likely to drive margin recovery ahead led by improving MF/s/FIs/Banks 16.7 16.3 16.7
operating leverage. Others 8.0 6.7 8.0
Source: BSE
Strong cashflow to reduce net debt-to-equity ratio to sub 1x; core ROCE to touch 28% in
FY12E: Given a strong operating cashflow generation along with efficient debt management Price movement
through dilution, a stake sale in subsidiaries and conversion of convertibles, we believe the net TTMT Sensex (RHS)
debt-to-equity ratio to be lower than 1x in FY12E for TTMT. We expect core ROCE to be in the 1500
1400
23000
range of 25-28% during FY11-12E, led by improving margins and capacity utilisation. A stake sale 1300
21000
1200
in subsidiaries like HVTL, HVAL, TMFL and associate like Telcon would further help TMMT to 1100
reduce debt on books in years to come. 1000 19000

900
Valuation: We initiate coverage of TTMT with a BUY rating and a 12-month PT of Rs1,453 based 800
700
17000
on our SOTP valuation, consisting of 10x, 6x and 12x FY12E EV/EBITDA of the standalone 600
500 15000
business of TTMT, JLR and other subsidiaries, respectively.
Dec-10
Jun-10
Oct-10
Nov-10
Apr-10
Jul-10
Feb-10
Sep-10
Mar-10
Jan-10
Jan-11
Aug-10
May-10
Risks: Unprecedented contraction in global PV demand, an abrupt rise in input costs, a shorter-
than-expected domestic CV cycle, continued lukewarm response to Nano and adverse forex Source: Bloomberg
movements in the form of a stronger GBP against the USD for JLR are key risks to our call.
Exhibit 1. TTMT – consolidated financials and valuation summary

Revenue EBITDA Adjusted net income EPS RoACE RoAE P/E EV/EBITDA
(Rs mn) Growth(%) (Rs mn) Growth(%) (Rs mn) Growth(%) (Rs/share) (%) (%) (x) (x)
2009 708,810 98.8 18,488 (56.1) (25052) (220.9) (41.0) (2.1) (47.2) (28.7) 55.4
2010 925,193 30.5 81,160 339 25,711 (202.6) 41.3 9.8 30.6 28.5 12.2
2011E 1,132,136 22.4 147,336 81.5 74,151 188.4 119.2 20.8 41.1 9.9 6.3
2012E 1,350,320 19.3 171,005 16.1 86,926 17.2 139.7 21.8 35.3 8.4 5.2
Note: Pricing as of 10 January 2011; Source: Company data, Quant Global research estimates
Tata Motors: Diversity exemplified
Investment summary
Tapping the global village with a diversified portfolio
We initiate coverage of TTMT with Benefitting from diversity in terms of products and geographies
a BUY rating and a 12-month price We believe the global PV market is set to move up the demand cycle in FY12-13E after languishing at sub-
target of Rs1,453 based on our 2% growth levels for the past two years, as growth was primarily driven by emerging markets like India
SOTP valuation using 10x, 6x and and China without major participation from developed markets. Given that JLR is expanding its sales base
12x FY12E EV/EBITDA of the across new markets along with the planned launch of a trimmed UV Evoque, we believe TTMT is poised to
standalone business of TTMT, JLR benefit from the next leg of PV demand upsurge.
and other subsidiaries,
respectively On the CV front, we believe that with stability in the current CV cycle, TTMT will benefit the most through
the diversified SCV portfolio under the ACE umbrella along with the 16T-plus HCV portfolio, leading to an
overall CV volume CAGR of 16% during FY10-12E. We do not expect the domestic PV business to add to
consolidated earnings in a big way during FY11-12E as revenue contribution of 12-13% would get
mitigated by lower margins from newly launched models like Manza and Vista Drivetech due to higher
marketing expenses, along with higher fixed cost from the Sanand plant.
On a consolidated basis, we expect a revenue CAGR of 21% during FY10-12E to Rs1,350 bn, led by a 24.4%
revenue CAGR in JLR. We expect OPM to stabilise in the range of 12-14% in the upcoming quarters,
leading to a cumulative operating cashflow of Rs285 bn. This should facilitate the reduction in gross debt
by Rs65 bn after factoring in cumulative capex of Rs160 bn during FY11-12E. Post the JLR acquisition,
TTMT has efficiently managed its debt reduction programme through dilution and a stake sale in
subsidiaries, and we expect its net debt-to-equity ratio to contract to 0.6x by FY12E against a peak of 5x in
FY09. We expect an adjusted ROCE on a consolidated basis to improve to 28% in FY12E, after contracting
to 2% in FY09.
We initiate coverage of TTMT with a BUY rating and a 12-month price target of Rs1,453 based on our
SOTP valuation using 10x, 6x and 12x FY12E EV/EBITDA of the standalone business of TTMT, JLR and other
subsidiaries, respectively.
Primary drivers of growth for TTMT

 The global PV market has grown at a slower pace of sub-2% in the past two years, primarily led by
superior growth from emerging markets like India and China, although this was mitigated by the
decline in demand in developed markets. Given the demand revival in the developed markets
gradually catching up, in addition to the favourable demographic structure leading to the
continuation of a demand surge in the emerging markets, we believe JLR volume is poised to grow at
a 10%-plus CAGR during FY11-13E.
 We believe strong macro indicators in the form of 9% GDP, a 10-11% gross fixed capital formation
growth and the improvement in highway addition will augur well for domestic CV demand against
adversities like increasing crude oil rates, higher capital costs of CVs led by the implementation of BS-
3 norms and the threat of rising lending rates. We are modeling in a 15.4% domestic M&HCV market
volume growth during FY11-13E, with increasing competition led by the entry of new players like
Mahindra Navistar, Daimler, Volvo-Eicher and AMW. We do not expect any significant impact of the
World Truck launch from TDCV Korea to overall CV sale volume. We are modeling in a market share
of 57% and 53% in FY12E in the M&HCV and LCV segments, respectively.
 We expect a TTMT PV volume CAGR of 31% during FY10-12E to 0.44 mn, primarily led by a rise in an
estimated Nano volume of 144,000 in FY12E, along with a 38% volume CAGR for the Indigo, led by
the success of the Manza against a muted, estimated CAGR of the Indica at 3%. We expect a 13.4%
volume CAGR in the UV segment during FY10-12E, led by a low FY10 base and modest acceptance of
the Safari Dicor. We do not expect the recently launched Aria to be a game-changer for UV segment
growth of TAMO looking at the price proposition disparity with product proposition.
 We expect consolidated OPM to stabilise around 12-13%, led by the improvement in standalone
margins through rising Nano and ACE volumes, along with the normalization in JLR margin to 13%, led
by higher input costs. We believe an above 10% OPM of JLR will be in a position to finance its own
capex and product development expenses to the tune of £800 mn in FY12E, thus not constraining the
overall debt reduction plan.
January 10, 2011 22

Modeling in a JLR volume CAGR of 12.5% in FY10-12E

We believe the global PV market, after consolidating at sub-2% growth levels since CY08 led by the
recession in developed markets, is recovering gradually and is set to move up the PV cycle in the
upcoming years, led by a combination of revival in developed economies and the continuation of
consumption-led demand in emerging markets like India and China. Hence, we expect JLR to grow at
a CAGR of 12-15% during FY11-12E by tapping into high growth emerging markets like China, the
Middle East and Asia. Through the introduction of a trimmed version of the Range Rover named
Evoque, JLR is getting prepared to target growth opportunities in emerging markets like the BRIC
nations, after factoring in lower affordability of higher-end vehicles in these markets.
Exhibit 2: Global PV market set for a 4-5% growth opportunity in the Exhibit 3: Western Europe PV demand expected to recover from CY11E
next cycle after bottoming out in 2009
World PV market ('000) Growth (%) Western Europe car output (mn units)
16.00
55,000 8.0%
15.00
50,000 6.0% 14.00
45,000 13.00
4.0%
40,000 12.00
2.0% 11.00
35,000
0.0% 10.00
30,000
9.00
25,000 -2.0%
8.00
20,000 -4.0% 7.00

6.00
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
2010E
2012E
2014E
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Bloomberg, Quant Global Research Source: CRU
Exhibit 4: TTMT – JLR monthly volume trend intact in the past eight Exhibit 5: US PV market on a consolidation mode since April 2009
months despite European economic uncertainties and a
stagnant PV market
Jaguar Land Rover Total US PV volume

1,500,000
25000 23538 22957
20189 19386 19528 18845 1,300,000
19053
20000 17909
17197
16269 16220
15000 1,100,000
10000 900,000
5000 700,000
0 500,000
Jul-10
Feb-10
Sep-10
Jan-10
Jun-10
Aug-10
May-10
Oct-10
Nov-10
Apr-10
Mar-10
Feb-09
Feb-10
Dec-08
Dec-09
Jun-08
Jun-09
Jun-10
Aug-08
Aug-09
Aug-10
Oct-08
Oct-09
Oct-10
Apr-08
Apr-09
Apr-10
Source: Company data, Quant Global Research Source: Ward’s Auto Data
From a geographic sales breakdown perspective for JLR in FY12E, the UK will contribute around 25-
30% of total sales, followed by Europe and North America at 20% and 25%, respectively. High growth
markets like China (~12%), Russia (~5%) and the rest of the world combined will contribute around
~12%, partially insulating JLR against economic uncertainties in developed economies. Net realisable
value per vehicle (NRV) for JLR has improved in the past five quarters, led by an improving product
mix through the addition of the Jaguar XJ (2,000 per month and favourable currency movements
along with the reduction in discounts at the wholesale level). We are modeling in a 12.5% volume
CAGR and a 24% revenue CAGR during FY10-12E, leading to a volume estimate of 245,521 units and
a revenue estimate of Rs767.5 bn in FY12E.
January 10, 2011 23

Exhibit 6: TTMT – much scope left to retest peak volume of CY07 Exhibit 7: TTMT – JLR geographic retail volume breakdown for FY12E;
skewness toward the EU set to reduce
Jaguar Land Rover North America UK Europe ( Excldg Russia) Russia China Rest of World
270,000
232654 12%
20%
220,000
187870 192108
179,521
163329 163495 167,334 13%
170,000 154,100
120,000 108489
86744 6%
71006 67394 66,000
70,000 55890 54,100 60,000
25%
20,000
25%
FY11E
FY12E
CY04
CY05
CY06
CY07
CY08
FY10
Source: Company data, Quant Global research estimates Source: Quant Global research estimates
Exhibit 8: TTMT – NRV moving up for five consecutive quarters, led by Exhibit 9: TTMT – weakening GBP against the USD helped NRV to move
an improving product mix and favourable currency up further
movements
Net realisation per vehicle (NRV)(GBP) GBP-US$
42,000 1.75
40,759
1.70
40,000
1.65
38,209
38,000 1.60
35,884 1.55
36,000
34,586 1.50
34,000 1.45
32,054 1.40
32,000 31,337
1.35
30,000 1.30
Dec-09
Jun-09
Jun-10
Oct-09
Nov-09
Jul-09
Jul-10
Apr-09
Apr-10
Sep-09
Feb-10
Sep-10
Mar-10
Jan-10
Aug-09
Aug-10
May-09
May-10
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
Exhibit 10: TTMT – revival in US consumer confidence to drive demand Exhibit 11: TTMT – we expect JLR revenue to cross £10 bn in FY12E
growth
US Consumer confidence index JLR revenue (GBP mn)
110 12,000 10,660

100 10,000 9,139
90 8,000 7047 7468

6,554
80 6,000 4974
70 4,000
60 2,000
FY09 (10 months)
FY11E
FY12E
CY06
CY07
FY10
50
40
Nov-79
Nov-80
Nov-81
Nov-82
Nov-83
Nov-84
Nov-85
Nov-86
Nov-87
Nov-88
Nov-89
Nov-90
Nov-91
Nov-92
Nov-93
Nov-94
Nov-95
Nov-96
Nov-97
Nov-98
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Source: Bloomberg, Quant Global Research Note: Change in accounting period from FY10; Source: Company data, Quant research estimates
January 10, 2011 24

Domestic CV cycle on the growth path

M&HCV revenue to grow at a CAGR of 23% to Rs243 bn by FY12E
Growth segments in the form of We believe TTMT is poised to become one of the prime gainers from the current uptrend in the
ACE and Nano are likely to be key domestic CV cycle, with proven leadership across product segments starting from 16MT GVW and
drivers in LCV and PV segments above HCV segments to the SCV segment in the form of the ACE family. Led by rising competition
across segments in the domestic CV market through the entry of new players like Mahindra Navistar,
Daimler and Volvo-Eicher, we expect the market share in the domestic goods M&HCV market for
TTMT to stabilise around 60%, from FY10 levels of 66%, leading to volume of 0.19 mn in FY12E.
Exhibit 12: TTMT – domestic goods M&HCV market share trend Exhibit 13: TTMT – we expect goods M&HCV segment to grow at a CAGR
of 18% during FY10-12E
Tata Motors MS (%) Ashok Leyland MS (%) VECV MS (%)
80.0
TTMT domestic goods M&HCV volume
70.0 200,000
184861
60.0 180,000 165926
159630
50.0 160,000 149099
140,000 133036
40.0
115950 116354
120,000
30.0 98990
100,000 90789
20.0
80,000
63849
10.0
60,000 48216
0.0 40,000
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Exhibit 14: TTMT – stable market share in the bus segment (%) Exhibit 15: TTMT – average GRV has grown at a CAGR of 7.4% in the past
five years
TTMT ALL VECV Swaraj Mazda
60 Average realisation M&HCV (Rs)
50 1,200,000
1,100,000 1,074,579
40 1,028,525
1,000,000 960,058
30 902,087
900,000 860,603
20 797,904
800,000
712,536
10 673,091
700,000
623,438
0 600,000
FY11E
FY12E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
500,000 FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: SIAM, Quant Global Research estimates Source: SIAM, Company data, Quant Global Research estimates
From the above exhibit, we analyse that in the past five years TTMT has been able to grow its gross
realisation per vehicle at a CAGR of 7.4% i.e. above inflationary rates, signifying the gradual
improvement in product mix toward higher tonnage CVs along with strong pricing power. Given that
higher tonnage trucks will be the order of the day with improving road infrastructure, we believe
revenue CAGR in the M&HCV segment for TTMT will be the key parameter to watch for rather than
volume CAGR.
January 10, 2011 25

ACE to expand TTMT base in the LCV market across new segments
Market share under threat with new entrants flooding the market
ACE to expand TTMT base in the In the LCV segment, we expect a 15.3% volume CAGR for TTMT, led by 17% domestic SCV market
LCV market across new segments growth during FY10-12E. We believe, TTMT is set to expand its base in the domestic SCV market
through a portfolio of six models within the next two quarters, with three each in the passenger and
goods segments. In the passenger segment, TTMT would have a SCV portfolio in the form of 1MT
Venture, 0.75MT Magic and 0.5MT Magic Iris and 1MT Super ACE, 0.75MT ACE and 0.5MT Zip on the
goods SCV side. Currently, TTMT is manufacturing SCVs from the 0.225-mn capacity Uttaranchal
plant from where it has plans to expand capacity to 0.4 mn by FY12-end. In addition to this, TTMT is
planning a greenfield SCV facility in South India by FY14 to cater to potential demand from this
segment. We believe replacement demand for ACE will start from FY12-13, assuming the average life
of an ACE is around 5-7 years, thus adding to demand potential. We expect TTMT’s market share in
the domestic LCV segment to decline to 53% by FY12E against 60% levels until FY10, led by the entry
of new players in the form of M&M and Nissan-Ashok Leyland.
Exhibit 16: TTMT – post launch of the ACE, TTMT is redefining the LCV Exhibit 17: TTMT – post the portfolio restructuring in the LCV segment, a
space steady rise in GRV signifies strong pricing power in this
segment for TTMT
LCV volume Avg. GRV LCV (Rs)

300,000
460,000
245,103 437,845
250,000 440,000 425,828
213,124 420,000 404,364 405,181
200,000 184,505 396,734 392,350
173,434 400,000 388,137
149,263 380,000 371,285
137,244 363,181
150,000
360,000
108,119
340,000
100,000
74,112
320,000
55,094
50,000 300,000
FY11E
FY12E
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant Global research estimates Source: Company data, Quant Global research estimates
Exhibit 18: TTMT – market share to stabilise ~55% in FY12E versus peers Exhibit 19: TTMT – revenue trend in the LCV segment
(%)
TAMO M&M Force Motors VECV LCV revenue (Rs mn)

80
130,000
67.6
70 64.2 107,317
62.6 61.1 58.9 110,000
60 56.5 55.5
52.2 51.6 90,754
90,000
50 46.6 74,758
37.0 70,000 64,393
40 34.8 36.2 35.5
33.3 32.1 54,196
28.2 25.6 26.5 29.2 47,342
30 50,000 41,797
29,971
20 30,000 21,859
10
10,000
0
FY11E
FY12E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11E
FY12E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant Global research estimates Source: Company data, Quant Global research estimates
January 10, 2011 26

Nano expectation from the PV segment

We expect Nano volume to reach We expect a 14.3% volume CAGR for TTMT in the PC (ex-Nano) segment between FY10-12E,
the crucial EBITDA breakeven of primarily led by the success of the Manza. Led by rising competition in the domestic PC market with
60% utilisation level of 0.14 mn in a plethora of new launches, we expect TTMT to suffer the most among the larger incumbent players,
FY12E, likely leading to a monthly in the Indica and the Indigo segments. We expect volume CAGR in the Indica segment to shrink to
volume of 12,000 3% during FY10-12E, leading to almost a 300-bp erosion in market share to 7-8%. After the initial
success of the Manza, we believe, led by the entry of sedans in the form of Volkswagen’s Vento and
the recently launched Toyota Etios, TTMT can see major erosion in its share from current 20% levels.
We expect Nano volume to reach the crucial EBITDA breakeven of 60% utilisation level of 0.14 mn in
FY12E, likely leading to a monthly volume of 12,000.
In the UV segment, we are modeling in a 13% volume CAGR with an estimated FY12E volume at
46,600 along with a stable market share of around 14%, against the peak level market share of 20-
22% pre-FY08. Overall, we estimate the PC segment revenue CAGR of 29% during FY10-12 to Rs144
bn, led by the Manza and Nano. We also expect the UV segment to grow at a revenue CAGR of 19%
during FY10-12E to Rs26 bn by FY12E.
Exhibit 20: TTMT – overall PC (ex-Nano) market share set to erode Exhibit 21: TTMT’s A2 segment market share trend is not encouraging
further
MSIL (%) Hyundai(%) Tata Motors (%)
MSIL (%) Hyundai(%) Tata Motors (ex-Nano) (%) 70.0
60.0% 60.0
50.9%
50.0% 46.7% 46.6% 45.8% 46.0% 46.1% 46.0% 46.5% 50.0
44.7% 44.5%
42.7%
40.0
40.0%
30.0
30.0%
20.0
20.0% 15.5% 16.8% 16.5% 16.4% 14.7% 14.9% 14.6%
13.3% 14.8% 13.3% 12.7% 10.0
10.0% 0.0
Dec-08
Dec-09
Jun-08
Jun-09
Jun-10
Oct-08
Oct-09
Oct-10
Apr-08
Apr-09
Apr-10
Feb-09
Feb-10
Aug-08
Aug-09
Aug-10
0.0%
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: SIAM, Quant Global Research estimates Source: SIAM, Quant Global Research
Exhibit 22: TTMT – after the initial success of the Manza, TTMT market Exhibit 23: TTMT – lack of competitive products in the growing UV
share in the A3 segment is under threat segment is leading to continued erosion in TTMT’s market
share
MSIL (%) Tata Motors (%) Hyundai(%)
45.0 TTMT UV market share (%)
40.0 26.0%
35.0 23.8%
24.0%
30.0 21.9% 21.5% 21.7%
22.0%
25.0 20.2%
20.0% 19.2% 19.3%
20.0 18.5%
15.0 18.0%
10.0 16.0% 14.4% 14.1%

5.0 14.0% 12.7%
0.0 12.0%
Dec-08
Dec-09
Jun-08
Jun-09
Jun-10
Oct-08
Oct-09
Oct-10
Apr-08
Apr-09
Apr-10
Feb-09
Feb-10
Aug-08
Aug-09
Aug-10
10.0%
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: SIAM, Quant Global Research Source: SIAM, Quant Global Research estimates
January 10, 2011 27

Exhibit 24: TTMT – Nano: we do not expect it to turn cash profit positive before FY14E, but the extent of loss is set to become small by FY13E
Year (Rs mn) FY10E FY11E FY12E FY13E FY14E FY15E

Monthl y s a l es 2,528 5,250 12,000 15,000 18,000 20,700
Growth 108% 129% 25% 20% 15%
Annua l s a l es vol ume 30,341 63,000 144,000 180,000 216,000 248,400
NRV (Rs .) 142,000 152,000 162,640 174,025 186,207 199,241
Rea l i za ti on growth 7% 7% 7% 7% 7%
Net Sa l es 4,308 9,576 23,420 31,324 40,221 49,491
Ra w ma teri a l cos t 3,188 6,895 16,394 21,301 27,350 33,654
% of Net Sa l es 74% 72% 70% 68% 68% 68%
Empl oyee Cos t 65 134 304 376 442 495
% of Net Sa l es 1.5% 1.4% 1.3% 1.2% 1.1% 1.0%
Other expendi ture 12,780 12,160 11,385 10,441 11,172 11,954
% of Net Sa l es 9.0% 8.0% 7.0% 6.0% 6.0% 6.0%
EBITDA (11,724) (9,613) (4,663) (794) 1,256 3,388
EBITDA ma rgi n NA -100.4% -19.9% -2.5% 3.1% 6.8%
Les s : Interes t Exp 600 600 600 600 570 513
Cos t of borrowi ng 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Depreci a ti on 1,080 1,080 1,080 1,080 1,080 1,080
PBT (13,404) (11,293) (6,343) (2,474) (394) 1,795
PAT (13,404) (11,293) (6,343) (2,474) (394) 1,795
Accumul a ted PAT (13,404) (24,697) (31,040) (33,514) (33,908) (32,113)
Ca s h profi t (12,324) (10,213) (5,263) (1,394) 686 2,875
Peri od - 1 2 3 4 5
Source: Company data, Quant Global research estimates
Exhibit 25: TTMT – key assumptions of the Nano project Exhibit 26: TTMT – we expect EVA-neutral volume only by FY16E
Key Assumptions Key Assumptions (Rs mn)
Project cos t (US$ mn) 435 A.Required EBIT (Project cost*Target ROIC) 1,800
B.Depreciation ( 6%*Gross block) 1,080
Re/$ 46.0
Required EBITDA (A+B) 2,880
Project cos t (Rs m) 20,000
Assumed EBITDA margin 7.0%
Debt/equi ty 50.0%
Net Sales 41,143
Cos t of debt 6.00% NRV (0.85*retail price) (Rs) 148,750
Cos t of equi ty 12.0% Required annual sales of Nano to become EVA neutral 276,591
EBIDTA ma rgi n 7.0% Monthly sales required 23,049
Depreci a ti on/GB (x) 6.0%
Reta i l pri ce of ca r (Rs ) 175,000
Source: Quant Global Research estimates Source: Quant Global Research estimates
As per our analysis on the Nano, we do not expect it to turn cash profit positive before FY14E and
expect it to turn EVA-neutral only by FY16E. But, on the other side, the magnitude of expected losses
to the consolidated book is not enough to affect overall fundamentals, prime movers of the overall
bottomline being JLR and the CV business.
January 10, 2011 28

Consolidated revenue to grow at a CAGR of 20% during FY10-12E

On a consolidated basis, we expect a revenue CAGR of 20% to Rs1,350 bn in FY12E, led by JLR and
the domestic CV business. We do not expect the Nano to contribute more than 1.5-2.0% of
consolidated revenue, thus confirming negligible impact on TTMT revenue due to product design-
related issues. On a broader basis, given the global PV market is set to move up the demand cycle
led by a gradual revival in developed economies and JLR contributing almost 55% of TTMT’s
consolidated revenue, we believe JLR will be the prime driver of revenue growth.
Exhibit 27: TTMT – consolidated revenue set to undergo 20% CAGR over Exhibit 28: TTMT – JLR to constitute 55% of revenue in FY12E; Nano is
FY10-12E barely 2%
Net Sales (Rs mn) JLR M&HCV LCV PC (ex-Nano) Nano UV MPVs Other subsidiaries
1,600,000
1,350,320 2% 2%
1,400,000
2% 7%
1,200,000 1,132,136
1,000,000 925,193 7%
800,000 708,810
8%
600,000
400,000 320,996 55%
194,401
200,000 77,570 17%
-
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant Global Research estimates Source: Quant Global Research estimates
Exhibit 29: TTMT –Other subsidiary revenue set to grow at a CAGR of 13% Exhibit 30: TTMT – standalone revenue to be primarily driven by the CV
between FY10-12E business
Other subsidiary revenue (Rs mn) Standalone revenue (Rs mn)
100,000 97,108 600,000

95,000 485,726
500,000
90,000 85,600 403,163
85,000 400,000 355,931
80,000 76,760 75,752
300,000 274,443 256,297
75,000 70,020 206,535
70,000
200,000
65,000 128,797
60,000 100,000 75,027
55,000
0
50,000
FY11E
FY12E
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY08
FY09
FY10
FY11E
FY12E
January 10, 2011 29

We expect OPM to stabilise around 12-13%

We believe the current level of We believe the current level of 14% consolidated margin reported by TTMT in the past two quarters
14% consolidated margin reported is not sustainable in the longer run and should stabilise 100-150bp lower around 13% in the
by TTMT in the past two quarters upcoming quarters. As per management, annual renewal of input material contracts for JLR takes
is not sustainable in the longer run place in 3Q of the fiscal, signifying higher input costs from the upcoming quarters, as input metal and
and should stabilise 100-150bp rubber prices have increased significantly in the past 12 months. Moreover, favourable forex
lower around 13% in the movements in the past couple of quarters contributed an additional 200-250bp to JLR’s margin, led
upcoming quarters by the GBP weakening against the USD (40% of revenue as exports in USD terms) and the euro
weakening against the GBP (net 20% of revenue importer in euro terms), which may not sustain. On
the positive side, although Evoque is strategically targeted for emerging markets with lower
consumer affordability, management would price it in accordance to maintain its EBITDA margin in
line with the rest of the portfolio, thus driving operating profit on an absolute level.
On the domestic front, we believe lower volume from the Sanand plant, which manufactures the
Nano, will act as a negative catalyst to standalone operating margin, as capacity utilisation in the
250,000-unit facility is expected to reach EBITDA-neutral levels of 60% only by FY12-end. On the
positive side, we expect a 15% demand CAGR in the higher margin ACE family with incremental
production coming out of excise-free Uttaranchal facility to cushion standalone margin.
Exhibit 31: TTMT – consolidated operating margin to stabilise around Exhibit 32: TTMT – JLR operating margin making new highs; we expect it
12-13% to stabilise in the range of 13-14% vs 16% plus currently
Conso. EBITDA Margin (%) JLR OPM (%)
16.0% 20.0%
13.7% 16.6%
14.0% 12.7% 13.0% 12.7% 15.5%
12.0% 12.1%
11.5% 11.8% 15.0%
12.0%
11.4%
10.0% 8.8% 9.8%
10.0%
8.0%
6.2%
6.0% 5.0%
2.9%
4.0% 2.6%
-3.1%
2.0% 0.0%
FY11E
FY12E
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
-5.0%
Source: Company data, Quant Global Research estimates Source: Company data, Quant Global Research
Exhibit 33: TTMT – stronger USD to cushion JLR margin in 2H FY11 Exhibit 34: TTMT – the euro weakening against the GBP to help JLR
maintain superior margins against rising material costs
1.8
1.00
1.7
0.95
1.6
0.90
1.5
0.85
1.4
0.80
1.3
0.75
1.2
0.70
Dec-09
Dec-10
Jun-09
Jun-10
Oct-09
Oct-10
Nov-09
Nov-10
Jul-09
Jul-10
Apr-09
Apr-10
Feb-09
Sep-09
Feb-10
Sep-10
Mar-09
Mar-10
Jan-09
Jan-10
Aug-09
Aug-10
May-09
May-10
Dec-09
Dec-10
Jun-09
Jun-10
Oct-09
Oct-10
Nov-09
Nov-10
Jul-09
Jul-10
Apr-09
Apr-10
Feb-09
Sep-09
Feb-10
Sep-10
Mar-09
Mar-10
Jan-09
Jan-10
Aug-09
Aug-10
May-09
May-10
Source: Bloomberg, Quant Global Research Source: Bloomberg, Quant Global Research
January 10, 2011 30

Exhibit 35: TTMT – stable steel rates (US$/tonne)in the past 12 months, Exhibit 36: TTMT – rubber prices (Rs/quintal) making new highs led by
factoring in a 2,500bp rise in RM/sales due to the renewal of unseasonal rains
RM contracts from September
23000
750 21000
19000
700
17000
650
15000
600 13000
11000
550
9000
500
7000
450 5000
Jul-09
Jul-10
Feb-09
Sep-09
Feb-10
Sep-10
Jan-09
Jan-10
Dec-09
Dec-10
Jun-09
Jun-10
Aug-09
Aug-10
May-09
May-10
Oct-09
Oct-10
Nov-09
Nov-10
Apr-09
Apr-10
Mar-09
Mar-10
400
Jul-10
Feb-10
Sep-10
Jan-10
Jun-10
Aug-10
May-10
Oct-10
Nov-10
Apr-10
Mar-10
Source: Bloomberg, Quant Global Research Source: Bloomberg, Quant Global Research
Exhibit 37: TTMT – capacity utilisation set to improve on standalone book, Exhibit 38: TTMT – standalone margin set to improve on the basis of
led by the gradual improvement in Nano volume from Sanand price hikes and a rise in Nano volume in FY12E
facility
Standalone operating margin
Capacity utilisation standalone 13.2%
14.0% 12.6%
90% 85% 86% 11.2%
12.0% 11.1% 11.1%
85%
9.3% 9.5%
80% 10.0% 8.7% 8.9% 8.6%
75%
75% 7.5% 8.0%
8.0%
70%
63% 6.0%
65%
60% 57% 56% 4.0%
55%
49% 1.6%
50% 2.0% 0.5%
45% 0.0%
40%
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
FY11E
FY12E
FY06
FY07
FY08
FY09
FY10
Source: Company data, Quant Global Research estimates Source: Bloomberg, Quant Global Research
Exhibit 39: TTMT – staff cost at the consolidated level declining Exhibit 40: TTMT – gross profit per vehicle at JLR level on an uptrend
significantly after trimming manpower at JLR; Other expenses
Raw material per vehicle (GBP) NRV (GBP) Gross profit per vehicle (GBP)
also reducing
40,000 38,209
Staff cost/Sales Other expenditure/sales 35,884
34,586
35,000 32,054
25% 31,337
22%
21% 30,000
20% 25,376
17% 25,000 23,598 22,778 23,530
22,674 22,280
15% 14%
15% 13% 13%
13% 20,000
12% 11% 11%
11% 15,383
14,679
10% 8% 8% 9% 8% 15,000 13,106
8% 7% 8%
7% 10,988
9,774
10,000 8,663
5%
5,000
0%
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
January 10, 2011 31

Financial analysis
As per our analysis, operating We expect JLR’s operating margin to contract to 13-14% levels against the current 16%-plus level,
margin of around 10-11% is the with a simultaneous recovery in standalone margin from 10.3% in FY11E to 11.5% in FY12E, led by
threshold level for the JLR business the rise in Sanand plant capacity utlisation. We estimate a cumulative operating cashflow generation
to finance its own capex of Rs275 bn during FY11-12E, which we believe is enough to finance capex requirements of Rs160 bn
requirement of £800 mn in FY12E and for partial debt repayment by Rs65 bn, taking the consolidated net debt-to-equity ratio to 0.6x
after factoring in volume of 0.25 by FY12E. We believe selling stakes in subsidiaries like Tata Motors Finance (TMFL) and Telcon and
mn units raising funds through IPOs of HVTL and HVAL can lead to lower net debt position for TTMT, which we
have not factored in into our estimates.
We believe the operating margin level of JLR is the crucial factor for the cashflow generating ability
on a consolidated level for TTMT. As per our analysis, operating margin of around 10-11% is the
threshold level for the JLR business to finance its own capex requirement of £800 mn in FY12E after
factoring in volume of 0.25 mn units. Thus, we believe with an estimated operating margin of 13.1%
in FY12E, JLR will be contributing to the debt repayment programme on a consolidated basis.
Exhibit 41: TTMT – balance sheet health set to improve with cashflow generation and led by the revival in JLR
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E
As s et turn (x) 1.6 1.7 1.9 1.8 2.4 2.5 2.5 2.3
EBIT ma rgi n (%) 9.3 9.4 9.4 9.6 -0.9 4.6 9.0 8.7
ROCE (%) 26.3 24.5 22.8 18.1 -2.1 9.8 20.8 21.8
Core ROCE (%) 38.4 27.9 21.6 20.3 -1.8 11.9 25.8 28.3
ROE (%) 31.6 28.2 27.7 23.8 -47.2 30.6 41.1 35.3
BVPS 113.8 152.2 189.6 169.2 86.8 135.0 290.1 395.3
WC/s a l es (%) -6% 8% 18% 5% -5% -9% -7% -7%
Exhibit 42: TTMT – debt to reduce gradually after peaking in FY09-10 post the JLR acquisition; the net debt-to-equity ratio to fall below 1x by FY12E
(Rs mn) FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E
Gross debt 27,142 33,791 73,019 115,849 349,739 351,924 336,924 286,924
Ne t i nte re s t outgo 1,697 2,460 4,058 7,431 19,309 22,397 20,000 18,092
Operating cash flow 21,547 2,879 876 74,338 42,497 101,209 121,235 163,804
Ne t de bt/e qui ty (x) (0.1) 0.1 0.6 0.7 5.0 2.7 1.0 0.6
Exhibit 43: TTMT – we expect dilution in equity capital to Rs6.22 bn until FY11E; further 3-4% potential dilution in FY12E from existing convertibles
Conversion Instrument Amount Currency Rs mn Conversion Shares on %
Oct-09 GDS 375 USD 17,663 591 29.9 100%
Ma r-10 0% FCCN* 11,760 JPY 4,500 533 7.8 93%
Ma r-10 1% FCCN* 300 USD 13,155 533 18.8 76%
Oct-10 QIP 200 USD 8,936 1,074 8.3 100%
Nov-10 QIP (DVR) 550 USD 24,574 764 32.2 100%
Dec-10 FCCN* 375 USD 17,663 613 28.8 40%
Jul -12 0% CARS 490 USD 19,927 908 21.9 0%
Note: *marked instruments can lead to incremental dilution in FY12E, which we are not factoring in now in our estimates; Source: Company data, Quant Global Research estimates
Exhibit 44: TTMT – JLR to contribute almost 60% of operating profit by FY12E
Gross revenue (Rs mn) FY08E FY09E FY10E FY11E FY12E % FY08E FY09E FY10E FY11E FY12E
M&HCV 154,863 111,585 160,583 203,887 242,821 M&HCV 38.4 15.4 17.2 17.5 17.4
LCV 64,393 47,342 74,758 90,754 107,317 LCV 16.0 6.5 8.0 7.8 7.7
PC 58,594 68,984 86,914 114,323 144,187 PC 14.5 9.5 9.3 9.8 10.4
UV 24,138 21,753 18,239 22,518 25,888 UV 6.0 3.0 1.9 1.9 1.9
JLR 405,336 496,334 643,373 767,486 JLR - 55.9 53.0 55.1 55.1
Others 101,419 70,020 99,283 92,295 104,383 Others 25.1 9.7 10.6 7.9 7.5
Tota l 403,408 725,021 936,112 1,167,150 1,392,082 Tota l 100.0 100.0 100.0 100.0 100.0
Operating profit (Rs mn) FY08E FY09E FY10E FY11E FY12E % FY08E FY09E FY10E FY11E FY12E
M&HCV 18,584 8,369 20,394 21,726 29,139 M&HCV 44.2 45.3 25.1 14.7 17.0
LCV 6,761 4,355 10,092 10,890 13,415 LCV 16.1 23.6 12.4 7.4 7.8
PC 4,981 4,829 8,691 8,003 11,535 PC 11.8 26.1 10.7 5.4 6.7
UV 2,127 1,740 2,189 1,801 2,589 UV 5.1 9.4 2.7 1.2 1.5
JLR - (3,047) 32,715 93,721 100,580 JLR - (16.5) 40.3 63.6 58.8
Others 9,620 2,240 7,106 11,194 13,746 Others 22.9 12.1 8.8 7.6 8.0
Tota l 42,073 18,488 81,160 147,336 171,005 Tota l 100.0 100.0 100.0 100.0 100.0
January 10, 2011 32

Valuation
We initiate TTMT with a BUY rating and a 12-month PT of Rs1,453 based on our SOTP valuation. We
have valued the standalone business, JLR and other subsidiaries at 10x, 6x and 12x FY12E EV/EBITDA,
respectively. Based on historical trends before the JLR acquisition, TTMT used to trade at a mean
forward EV/EBITDA of 11-12x against a mean core ROCE of 24-25%. Hence, we take a 15% discount
to the historical mean of TTMT to arrive at our target multiple for the standalone business at 10x.
Peers like Volkswagen, Toyota and BMW are trading within a forward EV/EBITDA in the range of 4-
12x. Hence, given our estimated operating margin of JLR of around 13% along with the business
transforming into a free cashflow generating entity, we assign a conservative target multiple of 6x
FY12E adjusted EBITDA (with 60% of R&D expensed).
TTMT hived off 20% stake in the construction equipment JV with Hitachi called Telcon for US$220
mn, implying a forward EV/EBITDA valuation of 20x for Telcon. With stake divestment in HVTL and
HVAL planned by management (both being a 50%-plus OPM businesses), we believe our target
multiple of 12x for other subsidiaries cumulatively is justified.
Exhibit 45: JLR – global peer valuation
Valuation multiples
Company name BB Ticker M Cap ROE (%) P/E (x) EV/EBITDA (x) P/B (x)
(US$ bn) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E
Asia ex-India
Toyota Motor Corp 7203 JP 143.4 4.5 6.4 23.8 16.5 14.4 12.2 1.0 1.0
Honda Motor Co Ltd 7267 JP 71.0 12.5 11.0 11.0 9.5 8.0 7.0 1.2 1.1
Nissan Motor 7201 JP 46.8 10.8 10.7 11.9 10.7 7.7 7.1 1.2 1.1
Hyundai Motor* 005380 KS 38.5 19.0 19.0 10.0 8.6 7.3 6.2 1.8 1.5
Kia Motors* 000270 KS 20.9 27.2 24.8 10.2 8.8 9.8 8.1 2.4 2.0
Suzuki Motor 7269 JP 14.5 5.1 5.9 23.9 19.7 4.3 3.9 1.2 1.2
Asia ex-India average 13.2 13.0 15.1 12.3 8.6 7.4 1.5 1.3
Europe
Volkswagen* VOW GR 71.9 11.1 11.4 11.1 9.6 7.2 6.7 1.2 1.1
BMW* BMW GR 48.8 12.7 14.8 13.4 10.9 8.6 7.8 1.7 1.5
Daimler* DAI GR 75.1 14.4 14.8 12.2 10.6 9.6 8.7 1.6 1.5
European average 12.7 13.7 12.2 10.4 8.5 7.7 1.5 1.4
Note: *denominated companies are CY ending; pricing as of 7 January 2011; Source: Bloomberg estimates for not rated companies, Quant Global Research estimates
Exhibit 46: TTMT – EV/EBITDA pre-JLR acquisition used to be around Exhibit 47: TTMT – SOTP valuation
10-12x (Rs mn) (FY12E) EBITDA Target EV/EBITDA (x) Target EV
Standalone EBITDA 55,625 10.0 556,245
Rolling forward EV/EBITDA (x) Mean EV/EBITDA (x)
Adjusted JLR EBITDA (60% R&D expensed) 66,020 6.0 396,121
45.0 Other subs EBITDA adjusting for stake 10,215 12.0 122,579
40.0 Cumulative EV 1,074,944
35.0 Consolidated net debt 170,756
30.0 Consolidated equity value 904,188
25.0
Diluted equity shares (mn) 622
20.0
Price target per share (Rs) 1,453
15.0
10.0
5.0
0.0
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Jul-05
Jul-06
Jul-07
Jul-08
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Jul-09
Jul-10
Apr-10
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: Bloomberg, Quant Global Research Source: Quant Global Research estimates
January 10, 2011 33

Risks
 Slower-than-expected demand growth in developed PV markets like the US and the EU leading
to lower-than-estimated growth for JLR volume, although it is partially insulated by growth
potential in emerging markets.
 Adverse forex movement in the form of a strengthening GBP against the USD (a 40% net
exporter in USD terms) and a strengthening euro against the GBP (a 20% net importer in euro
terms) would lead to incremental margin erosion for JLR. Also, rising steel and rubber prices are
a matter of concern for the next round of contract renewal for JLR.
 As JLR is spending a majority of its capex on product development to upgrade Land Rover
engines to meet emission norms requirements; we believe a slowdown in demand for Land
Rover can erode capital efficiency significantly.
 For the standalone business, we believe the lack of a price hike for an extended period to
combat rising operating costs through a combination of diesel price hike, lending rate hike and a
price hike of CV has led to lower profitability. Thus, any further delay in the freight rate hike can
lead to lower-than-estimated FY11 volume for the CV segment, in our view.
 From the Nano front, we do not expect any major revival in volume in the near term, affecting
standalone margin because of higher fixed costs. In our view, the extension of poor volume from
the Nano in FY12 can lead to a weaker standalone margin for an extended period, posing a risk
to our FY12E margin.
Company description
TTMT manufactures CVs, UVs, and PCs in India. It is the dominant player in the domestic commercial
vehicles space, with close to a 60% market share in the M&HCV and LCV markets in India. TTMT
entered the passenger car market in 1998 with the Indica. In 2003, it released the mid-size sedan,
Indigo, followed by the Nano in 2009. In June 2008, TTMT acquired Jaguar and Land Rover from
Ford. The Tata Group owns a 35% stake in Tata Motors. It has stakes in other subsidiaries in the form
of Tata Motors Finance, Tata Technologies, Tata Daewoo CV, HVTL, HVAL and Telcon. Mr. Telang is
currently the head of India operations with Mr. Foster heading TTMT globally. Mr. Ratan Tata is the
Chairman of the overall entity.
January 10, 2011 34

Financial summary
Exhibit 48: TTMT – financial statements, YE March
2009 2010 2011E 2012E Balance Sheet (Rs mn) 2009 2010 2011E 2012E
Net revenue 708810 925193 1132136 1350320 Equi ty ca pi ta l 5141 5706 6221 6221
Expenditure 690322 844033 984800 1179315 Res erves a nd s urpl us 47901 78270 174253 239698
Ra w ma teri a l s 479660 615823 730228 884460 Deferred ta x l i a bi l i ty (net) 6802 12536 12536 12536
Empl oyee expens es 72974 87518 90571 106675 Total equity 59844 96512 193010 258454
Other expendi ture 137688 140691 164001 188181 Secured l oa ns 137055 212900 197900 147900
EBITDA 18488 81160 147336 171005 Uns ecured l oa ns 212684 139023 139023 139023
Non-opera ti ng i ncome 7990 17931 1500 1800 Mi nori ty i nteres t 4030 2135 2485 2885
Depreci a ti on 25068 38871 45141 53035 Total borrowings 353769 354059 339409 289809
EBIT (6580) 42289 102195 117969 Current l i a bi l i ti es 321202 417208 513546 612516
Net i nteres t expens e 19309 22397 20000 18092 Total liabilities 734814 867779 1045965 1160779
Adjus ted pre-ta x profi t (25889) 19892 82195 99878 Ca s h 41213 87433 127778 119588
Unus ua l or i nfrequent i tems (3393) (2596) — — Inventory 109506 113120 143895 175441
Reported pre-tax profit (21292) 35227 83695 101678 Debtors 47949 71912 89535 106790
Les s : ta xes 3358 10058 10043 15252 Other current a s s ets 128192 152831 198416 236654
Reported net profit (24650) 25169 73651 86426 Total current assets 326860 425296 559623 638473
Add: extra ordi na ry i tems (pos t-ta x ba s i s ) — — — — Gros s bl ock 621880 682747 773427 858427
Les s : mi nori ty/a s s oci a te ea rni ngs (402) 542 500 500 Les s : depn. a nd a mortn. (332691) (344135) (389277) (442312)
Reported net profit for shareholders (25454) 26253 74651 87426 Add: ca pi ta l work-i n-proces s 105330 80680 70000 65000
Adjusted net profit for shareholders (25052) 25711 74151 86926 Total fixed assets 394520 419292 454151 481115
Inves tments 12574 22191 31191 40191
EPS (Rs), based on wtd avg shares (41.0) 41.3 119.2 139.7 of whi ch, l i qui d i nves tment 7000 7000 9000 12000
EPS (Rs), based on fully diluted shares (41.0) 41.3 119.2 139.7 Other a s s ets — — — —
Yea r-end s ha res outs ta ndi ng (mn) 514.1 570.6 622.1 622.1 Total assets 734814 867780 1045965 1160779
Wei ghted a vera ge s ha res outs ta ndi ng (mn) 514.1 570.6 622.1 622.1 Net working capital 168458 160958 232821 248690
Ful l y di l uted s ha res outs ta ndi ng (mn) 514.1 570.6 622.1 622.1
Growth ra ti o (%) Cash flow statement (Rs mn) 2009 2010 2011E 2012E
Net revenue 98.8 30.5 22.4 19.3 Operating cashflow
EBITDA (56.1) 339.0 81.5 16.1 Pre-ta x i ncome (21292) 35227 83695 101678
Adjus ted net profi t (220.9) (202.6) 188.4 17.2 Add: depreci a ti on a nd a morti s a ti on 25068 38871 45141 53035
Les s : i nteres t expens e (net) (19309) (22397) (20000) (18092)
Ratios (%) 2009 2010 2011E 2012E Les s : other a djus tments — — — —
Effecti ve ta x ra te (15.8) 28.6 12.0 15.0 Les s : ta xes pa i d 4579 5718 10043 15252
EBITDA ma rgi n 2.6 8.8 13.0 12.7 Add: worki ng ca pi ta l cha nges 53452 43790 2355 11931
Adjus ted net i ncome ma rgi n (3.5) 2.8 6.5 6.4 Total operating cashflow 61806 123606 141235 181896
Net debt/equi ty 5.0 2.7 1.0 0.6
ROa CE (2.1) 9.8 20.8 21.8 Investing cashflow
ROa E (47.2) 30.6 41.1 35.3 Ca pi ta l expendi ture (532309) (36217) (80000) (80000)
Tota l a s s et turnover ra ti o (x) 2.4 2.5 2.5 2.3 Inves tments 14084 (9617) (9000) (9000)
Inventory turnover ra ti o (x) 56.4 44.6 46.4 47.4 Others 210945 (14634) 763 (11511)
Debtors turnover ra ti o (x) 24.7 28.4 28.9 28.9 Total investing cashflow (307280) (60468) (88237) (100511)
Per share numbers (Rs) 2009 2010 2011E 2012E Financing cashflow
Di l uted ea rni ngs (41.0) 41.3 119.2 139.7 Sha re i s s ua nces 45598 19048 40249 —
Ca s h ea rni ngs 0.0 103.8 191.8 225.0 Loa ns 233890 2185 (15000) (50000)
Free ca s h (770.1) 140.5 98.4 163.8 Les s : Di vi dend a nd others (11823) (15754) (17902) (21483)
Book va l ue 86.8 135.0 290.1 395.3 Total financing cashflow 267664 5479 7346 (71483)
Valuations (x) 2009 2010 2011E 2012E Net change in cash 2881 46220 40344 (8190)
Pri ce to di l uted ea rni ngs (28.7) 28.5 9.9 8.4 Openi ng ca s h 38332 41213 87433 127778
EV/EBITDA 55.4 12.2 6.3 5.2 Add: other a djus tments — — — —
Pri ce to book 13.6 8.7 4.1 3.0 Closing cash 41213 87433 127778 119588
Note: Pricing as on 10 January 2011; Source: Company data, Quant Global research estimates
January 10, 2011 35

Ratings and other definitions

Stock rating system
BUY. We expect the stock to deliver >15% absolute returns.
ACCUMULATE. We expect the stock to deliver 6-15% absolute returns.
REDUCE. We expect the stock to deliver +5% to -5% absolute returns.
SELL. We expect the stock to deliver negative absolute returns of >5%.
Not Rated (NR). We have no investment opinion on the stock.
Sector rating system
Overweight. We expect the sector to relatively outperform the Sensex.
Underweight. We expect the sector to relatively underperform the Sensex.
Neutral. We expect the sector to relatively perform in line with the Sensex.
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January 10, 2011 37

CV Industry - Initiating Coverage

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CV Industry - Initiating Coverage

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Commercial vehicle industry

Chapter heading (1St heading)

Near-term concerns giving opportunities to enter the current CV cycle 3

Trend analysis of macro indicators do not suggest peaking of CV cycle 3

Highway addition to move up gradually on base of 2,600km in FY11E 4

We expect CV demand CAGR of 15.5-16.5% during FY11-13E 6

January 11, 2011 2

Trend analysis of macro indicators do not suggest peaking of CV cycle

January 11, 2011 3

Highway addition to move up gradually on base of 2,600km in FY11E

Highway completion (km) 7.5-12 12-16.2 16.2-26.4 26.4-35.2 >=35.2

Exhibit 10: State Transport Undertaking (STU) bus addition trend

Source: MORTH, Quant Global Research estimates

January 10, 2011 4

Average truck usage pa (km, '000)

Source: Quant Global Research Source: Quant Global Research

Source: Quant Global Research estimates

January 10, 2011 5

We expect CV demand CAGR of 15.5-16.5% during FY11-13E

Both goods and passenger segments to drive M&HCV demand growth

LCV demand to grow at a CAGR of 16.5% during FY11-13E

January 10, 2011 6

Industry capacity utilisation Exports M&HCV volume Growth (%) (RHS)

January 10, 2011 7

US CV sales change/GDP change Average Fixed asset change/CV change Average

Source: Bloomberg, Wards Auto Source: : Bloomberg, Wards Auto

US CV production (mn units) Western Europe CV output (mn units)

Source: CRU Source: CRU

Source: CRU Source: CEIC

January 10, 2011 8

Source: Capitaline, Quant Global research Source: Ministry of Railways

TTMT OPM trend (%) ALL OPM trend (%)

January 10, 2011 9

January 10, 2011 10

business to arrive at our price target. We have factored in the investments in 30

JVs/subsidiaries at 0.75x book. 10

Exhibit 1: AL – financials and valuation summary

AL CV volume YoY growth Export volume YoY growth

120,000 50.0% 12,000 11,480 70%

January 10, 2011 12

Better product mix visibility via Unitruck Series launch

January 10, 2011 13

We expect a CV realisation CAGR of 5.7% during FY10-12E

Realisation per vehicle (Rs) Engine volume

1,300,000 23,000 21,447

Pantnagar production to pick up momentum from FY12

January 10, 2011 14

Improving service network, spare parts availability to boost volume

Net revenue (Rs mn) YoY Growth(%) (RHS) Excise Duty

140,000 60.0% 15.0%

60,000 0.0% 9.0% 8.4%

20,000 -30.0% 6.0%

January 10, 2011 15

Higher Pantnagar production, improving economies of scale to

EBITDA/Vehicle (Rs) EBITDA margin (RHS) Capacity utilisation (%)

140,000 13.0% 110.0

OPM China HRC FOB (US$/MT)

14.0% 12.9% 1,100

11.3% 11.5% 11.4% 11.3% 1,000

2.0% 1.3% 400

January 10, 2011 16

Source: Company data, Quant Global Research estimates