BUY EicherMotors Religare TG 22500

Company Initiation
INDIA
AUTOMOBILES
9 September 2015
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Let the good times roll! Initiate with BUY

We initiate coverage on EIM with BUY and a Sep16 TP of Rs 22,500 (30%
upside). EIM continues to dominate the premium motorcycle market with its
iconic Royal Enfield brand we expect a robust 33% volume CAGR over CY14REPORT AUTHORS
FY18 as the business builds on its cult status and unassailable market
position. CV volumes too are expected to post a healthy 19% CAGR as benefits
from a cyclical demand recovery and premium launches kick in. Valuations are
appealing and the recent correction offers a good entry point for investors.
Mihir Jhaveri
+91 22 6766 3459
mihir.jhaveri@religare.com
Siddharth Vora
Royal Enfield (RE) remains a cult brand: Over the years, RE has built a powerful brand
image in the lifestyle/cruiser biking segment that remains unmatched by any other
mass segment player, as evidenced by its 96% market share. We expect RE volumes
to more than double from 0.3mn units in CY14 to 0.77mn in FY18, well on course to
reaching 1mn units in the next 4-5 years, as (a) the median age of RE buyers shifts
from the early 30s to the early 20s (the upshot of product upgrades), (b) launches add
to sales, (c) the dealership network is expanded, and (d) capacity is raised from 300k
units in CY14 to 720k in FY17. RE continues to have a waiting period of 4-5 months.
CV cycle recovery to aid VECV growth: After a two-year slump, the CV cycle in India
rebounded in FY15. We expect the MHCV truck industry to grow at a 21% CAGR over
FY15-FY18 and factor in a volume CAGR of 19% for EIMs CV business during this
period, with a cumulative 600bps increase in margins from higher operating leverage.
Initiate with BUY for 30% upside: With strong volume momentum in the RE business
and higher CV margins, we expect EIM to post a revenue/PAT CAGR of 30%/50% over
CY14-FY18 and ROE expansion from 27% to 39%. EIMs share price surged 75% YoY till
early Aug15 before correcting 20% in the past month and is now trading at 27x FY17E
earnings. We see strong upside potential and value EIM at Rs 22,500 as follows: (1) RE
at Rs 19,450 based on 33x fwd P/E a premium to peers due to its superior earnings,
margin and returns profile, (2) VECV at Rs 3,050 on 10x fwd EV/EBITDA. BUY.
+91 22 6766 3435

siddharth.vora@religare.com
PRICE CLOSE (08 Sep 15)
INR 17,234.30
MARKET CAP
INR 467.8 bln

USD 7.0 bln
SHARES O/S
27.1 mln
FREE FLOAT
45.1%
3M AVG DAILY VOLUME/VALUE
0.1 mln / USD 27.4 mln

52 WK HIGH
52 WK LOW
INR 21,620.00
INR 10,727.00
Financial Highlights
Y/E 31 Mar
CY13A
CY14A
FY16E*
FY17E
FY18E
Revenue (INR mln)
68,098
87,383
1,46,932
1,70,374
2,05,837
EBITDA (INR mln)
7,137
11,148
23,110
31,209
39,420
(INR)
20950
Adjusted net profit (INR mln)
3,945
6,154
12,923
17,764
23,055
15950
Adjusted EPS (INR)
145.9
227.1
476.9
655.5
850.7
10950
Adjusted EPS growth (%)
21.5
55.6
110.0
37.5
29.8
5950
DPS (INR)
30.0
50.0
70.0
80.0
90.0
950
ROIC (%)
30.8
33.5
63.6
85.9
101.3
Adjusted ROAE (%)
20.7
26.9
42.4
40.9
37.7
Adjusted P/E (x)
118.1
75.9
36.1
26.3
20.3
EV/EBITDA (x)
64.4
41.4
20.0
14.7
11.3
P/BV (x)
22.7
18.6
13.0
9.1
6.6
Stock Price
Index Price
29,410
24,410
19,410
14,410
Source: Company, Bloomberg, RCML Research | *FY16 is a 15-mth period due to a change in Y/E from Dec to Mar
This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Strong upside potential

Even accounting for the recent 20% correction, EIMs share price has run up by over 55%
in the last year and is currently trading at 27x FY17E earnings. We expect sustained stock
outperformance backed by robust revenue/PAT growth of 30%/50% (CAGR) over CY14FY18E, as the company continues to enjoy volume and margin gains in both businesses.
Stock has run up 55% in the past year

but still holds plenty of upside
We model for volume growth of 33% in Royal Enfield (RE low competition, strong brand
recognition, market leadership, new launches, network expansion) and 19% in Volvo
Eicher Commercial Vehicles (VECV CV cycle recovery, premium launches) over our
forecast period, accompanied by consolidated EBITDA margin expansion to 19.2% in FY18
from 12.8% in CY14.
Fig 1 - Stock outperformance vs. Sensex
(Indexed to
100)
Sensex
Fig 2 - Stock performance

(Rs)
35,000
EIM
390
Price
20x
30x
40x
50x
60x
30,000
340
25,000
290
20,000
240
Sep-15
Mar-15
Sep-14
Mar-14
Mar-13
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
5,000
90
May-14
10,000
140
Sep-13
15,000
190
Source: RCML Research, Company
Fig 3 - EIM stock up from Rs 500 to Rs 3,000 over FY09-FY13...
Fig 4 - and up a further 6 times over FY13-FY15

RE announces Rs 5bn capex
plan to expand capacity to
0.6mn by FY16
(Rs)
(Rs)
Volumes start to rise with the launch
of Classic and Thunderbird post
shift to UCE platform
3,500
3,000
21,000
19,000
RE launches Continental
GT in the UK; volumes
keep growing at 50%+
17,000
2,500
RE stops discounting, shifts to

UCE platform sees decline in
volumes
2,000
15,000
13,000
11,000
1,500
Eicher signs agreement
with Volvo to form VECV
1,000
RE announces plan to
increase production to
0.25mn units by CY14
9,000
7,000
500
5,000
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
3,000
May-13
Oct-12
Apr-13
Apr-12
Oct-11
Apr-11
Oct-10
Oct-09
Apr-10
Apr-09
Oct-08
Apr-08
Oct-07
Apr-07
Oct-06
Oct-05
Apr-06
Apr-05
Oct-04
Apr-04
Oct-03
Apr-03
9 September 2015
Page 2 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Royal Enfield: A cult brand

The bulk of EIMs value is derived from the motorcycle business which contributed 66%
of its operating profits in CY14 (and forms 86% of our SOTP target price). The company
owns the iconic Royal Enfield motorcycle business, which leads the premium end of the
market in India. RE is one of the worlds oldest motorcycle brands with the Bullet
enjoying the longest continuous production run in the history of motorcycles since 1948.
EIM forayed into this business with the acquisition of Enfield India in 1991. Originally a
UK-based company, RE set up its Indian arm in 1955 to build motorcycles for the Indian
government. While the UK business was shut down in 1970, Enfield India continued to
exist independently until the acquisition by EIM.
Fig 5 - RE share in EIMs revenue has risen sharply
Revenues
(%)
RE
Fig 6 - contributing 65% of operating profits in CY14
100
100
90
90
80
83.6
74.8
65.3
59.6
60.1
59.0
60
50
40
40
30
16.4
25.2
34.7
40.4
39.9
41.0
32.3
38.4
38.4
65.8
67.7
61.6
61.6
CY14
15MFY16E
FY17E
FY18E
45.5
20
10
34.2
73.5
30
20
VECV & Others
54.5
70
50
10
RE
80
70
60
EBITDA
(%)
VECV & Others
Owns the iconic Royal Enfield

motorcycle brand, which leads the
premium end of the market in India
26.5
0
CY12
CY13
CY14
15MFY16E
FY17E
FY18E
CY12
CY13
Resurgent volume growth

CY10 was a watershed year for EIM marking the run-up to an astonishing revival of
fortunes in the RE business from a mere 9% CAGR over CY03-CY10, REs volume growth
accelerated to a 55% CAGR through to CY14 when 300,000 motorcycles were sold versus
just 52,000 in CY10. Demand for RE motorcycles currently exceeds supply with buyers
encountering a waiting period of 4-5 months. This despite steady capacity expansion
from 60,000 units in CY10 to 300,000 in CY14 and 500,000 units by Q3FY16; we expect
capacity to double by FY19. The brand continues to enjoy iconic status with 96% market
share in >250cc motorcycles and strong brand recognition in leisure biking.
RE sold 300,000 motorcycles in CY14

versus just 52,000 units in CY10
We look at the key factors behind EIMs transformational journey and examine why this
cult brand will continue to fascinate the Indian buyer.
2010 a watershed year for Eicher
RE volumes clocked a mere 9% CAGR over CY03-CY10 and growth plummeted to 1.2% in
CY10 as the company was in transition mode, involving a change in engine platform,
which constrained production. At the time, EIM also discontinued discounts being
handed out to push weak sales.
In Oct10, the company completed transition to the new engine platform bringing with it
key benefits such as better fuel efficiency and lower maintenance costs; this also paved
the way for new, improved model launches such as the Classic all of which yielded
handsome dividends as volume growth surged to a 55% CAGR over CY10-CY14, with sales
rising six-fold to 300k units in CY14. We discuss the key contributing factors behind this
turnaround below.
9 September 2015
Page 3 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Fig 7 - Stellar volume growth since CY10

Volume
('000 Units)
Growth (%) (R)
(%)
350
69.9
80
Business boomed post-CY10 as

benefits from a product revamp
kicked in
70
300
57.0
60
52.0
250
50
41.9
200
40
150
30
19.7
18.1
100
20
12.7
50
4.4
6.0
31
10
33
39
33
52
53
FY08
9MCY08
CY09
CY10
0
FY06
FY07
1.2 75
CY11
113
178
303
CY12
CY13
CY14
Source: Company, RCML Research
Improvement in product mechanicals: At the end of CY10, the company had

completed a transition from cast iron engines to the all-aluminum unit construction
engine (UCE) platform. This platform has an integrated assembly for the engine,
gear-box and clutch which reduces friction between moving parts. This resulted in
lower transmission losses, in turn boosting fuel efficiency and lowering maintenance
costs critical factors for Indian customers. Features like placement of the gear shift
on the left side and introduction of a self-starter further improved the ease of use.
Bullet got a Classic makeover: After improving product quality, RE introduced

several new products which included the Classic 350. The styling of the Classic was
almost identical to the original Bullet but with a premium touch in the form of
brighter colours, split seats and a new taillight assembly. The Classic has now
become the companys best-selling brand, constituting more than 55% of the last
12-month volumes.
Fig 8 - Royal Enfield Bullet
Fig 9 - Royal Enfield Classic 350
Source: Company
Source: Company
New state-of-the-art facility and dealer network expansion: RE had a legacy plant
that was nearly 50 years old; as demand grew EIM invested heavily in a new state-ofthe-art manufacturing and product development facility at Oragadam near Chennai,
and also raised capacity from ~60,000 units in CY10 to ~300,000 units in CY14. The
number of dealers has also increased from 140 in CY10 to 425 currently.
9 September 2015
Page 4 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Fig 10 - Rapid capacity expansion

('000 units)
Fig 11 - along with a growing dealer network

Dealer network
(Nos)
Capacity
840
900
800
600
720
500
650
700
500
400
600
400
500
307
400
300
300
300
175
200
60
100
200
100
249
186
140
100
FY18E
FY17E
15MFY
16E
CY14
CY13
CY12
CY11
0
CY10
CY11
CY12
CY13
CY14
CY15E
A cult brand at affordable prices for affluent Indian masses

To decipher the future volume growth potential of RE, we look at the features that make
an RE product so compelling in India:
Brand image: Royal Enfield is a well-recognised brand in both urban and rural India.
Owning an RE motorcycle is a matter of pride and is considered a status symbol
this powerful brand image remains unmatched by any other mass segment player.
Engine power at an affordable price: RE is the leader in Indias lifestyle/cruiser

biking segment and holds 96% market share. Its range of products employs
350-500cc engines with 20-27bhp and is sold at price points of Rs 105-192k the
only motorcycle range in India available at this price and specification.
Fuel efficiency and low maintenance cost: After the CY10 revamp, fuel efficiency
has risen to 50kmpl for 350cc and 40kmpl for 500cc engines. Reliability and
durability have also improved substantially. As per our dealer interactions, the cost
of maintenance is only slightly higher than mass market offerings but significantly
lower than the premium offerings of other players in the 350cc and above category.
REs powerful brand image remains

unmatched by any other mass
segment player
For the value conscious Indian buyer, RE is seen as the perfect mix of brand status,
quality, fuel efficiency, durability and low-cost maintenance. Competitors will thus face
an uphill task should they look to replicate the brand experience of owning an RE.
Fig 12 - Players in the premium motorcycle range
Company
Model
Engine (cc)
Price (Rs '000)
Bajaj
Avenger
220
80
Bajaj
KTM
200
130
Bajaj
KTM
390
190
Bajaj
Ninja
300
350
Bajaj
Ninja
650
460
Suzuki
Inazuma
250
310
Honda
CBR
250
160
Royal Enfield
Bullet 350
350
100
Royal Enfield
Classic 350
350
120
Royal Enfield
Thunderbird 350
350
130
Royal Enfield
Bullet Electra 350
350
155
Royal Enfield
Bullet 500
500
145
9 September 2015
Page 5 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company
Model
Royal Enfield
Royal Enfield
Company Initiation
INDIA
AUTOMOBILES
Engine (cc)
Price (Rs '000)
Classic 500
500
155
Thunderbird 500
500
167
Royal Enfield
Continental GT
535
190
Harley-Davidson
Street 750
750
410
Harley-Davidson
883 IRON
880
670
Harley-Davidson
FATBOY
1,700
1,550
Suzuki
Hayabusa
1,500
800
Suzuki
Intruder
1,800
1,000
Triumph
Daytoma
675
1,015
Triumph
Street Triple
675
745
Triumph
Boneville
800
660
Only motorcycle range in India

available at this price and specification
Fig 13 - Royal Enfield brand portfolio

(%)
100
90
80
70
60
50
40
30
20
10
0
Bullet
0.0
10.3
Classic
Thunderbird
0.5
Fig 14 - Royal Enfield volume split by platform

Continental GT
0.4
0.9
14.3
11.9
10.9
48.7
54.5
58.7
(%)
100
90
80
70
60
50
40
30
20
10
0
43.4
46.4
FY13
36.5
32.7
30.1
FY14
FY15
FY16 YTD
350cc
500cc
10.1
10.8
10.6
10.0
89.9
89.2
89.4
90.0
FY13
FY14
FY15
FY16 YTD
Capacity addition to strengthen volumes

EIM is expanding its RE capacity from 360,000 units in Jan15 to 720,000 units in FY17.
The company has already indicated that capacity will touch 50,000 units per month by
Dec15 from 30,000 in Jan15. In phase II of the Oragadam plant in Chennai, total
production will be raised to 60,000 units per month by mid-FY16. RE has also bought land
at Vallam Vadagal in Chennai for a third plant which will be ready for production by FY18.
RE capacity being expanded from

360,000 units in Jan15 to 720,000
units in FY17
Despite the rapid expansion drive, RE products continue to have a waiting period of 4-5
months. Thus, the only hindrance to volume growth in the near term would be supply
constraints we build in a volume CAGR of 33% to 769k units over FY15-FY18E and
believe the company is well on course to selling 1mn units in the next 4-5 years.
Fig 15 - Royal Enfield capacity addition
Capacity
('000 units)
900
71.4
Fig 16 - We expect 33% volume CAGR over CY14-FY18
Growth (%) (R)
73.3
800
700
600
('000 units)
80
900
70
800
60
700
50
500
40
38.5
400
30
300
200
100
(%)
16.7
300
650
720
840
0
CY14
15MFY16E
FY17E
FY18E
Source: RCML Research, Company | Growth normalized for 15-month FY16
Growth (%) (R)
(%)
80
69.9
70
54.0
60
600
50
500
40
37.4
400
30
300
20
200
10
100
Volumes
20.2 20
10
303
582
640
769
CY14
15MFY16E
FY17E
FY18E
9 September 2015
Page 6 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
New launches will keep growth moving

EIM plans to launch at least one new RE product every year till 2020. The company is in
the final stages of developing two platforms, speculated to be in the 400cc and 750cc
categories, which will expand the RE offering to the desired 250-750cc range. These two
platforms are expected to spawn multiple products suited for both domestic and
international markets. EIM recently trademarked the Himalayan brand name which is
expected to be a scrambler-style RE model suited for hilly terrain.
Plans to launch at least one new

product every year till 2020
The company has chalked out plans for a new technology centre in Leicestershire,
UK, and has already started assembling a team which will focus on design and
development. One of the high profile recruits includes legendary former Ducati
designer Pierre Terblanche.
To strengthen its design and development capabilities further, EIM recently acquired
UK-based Harris Performance Products, a motorcycle design and engineering firm. Harris
Performance has had a longstanding relationship with the RE brand and was responsible
for chassis development of the Continental GT model. Notably, Harris Performance was the
only UK manufacturer to have been officially commissioned by Yamaha and Suzuki to
design, develop and manufacture race bikes for the Grand Prix and World Superbike series.
A Harley perspective
Similarities have been drawn between Harley Davidson (HD) and Royal Enfield (RE) by
investors and customers alike. We favour the idea of RE being Indias Harley Davidson, as
both players operate in the leisure biking and lifestyle segment; but in our view, REs
potential is significantly higher as it competes at a lower price point and has a larger
target customer base globally.
RE is Indias Harley Davidson but with

stronger growth potential
On average, an HD costs US$ 15,000 as compared to US$ 2,500 for an RE. HD reached
peak volumes of 350,000 units in 2006, growing at 12% CAGR over 1986-2006. We expect
RE to achieve sales of 582,000 units in FY16 (15 months) from 52,576 units in CY10. While
the current growth rate has been super-normal, we see potential for a 15% CAGR in the
next 10 years similar to HDs run over 1986-2006.
Fig 17 - HD volumes started gaining momentum in CY00,
hit a peak in CY06 and tapered off
('000 Units)
Harley Davidson Volumes
400
Fig 18 - Valuation multiples peaked around CY00 when

volumes started gaining momentum
(x)
Harley Davidson 1yr fwd PE
60
350
50
300
40
250
200
30
150
20
100
10
50
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
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2000
2001
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2006
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2008
2009
2010
2011
2012
2013
2014
Sep-86
Sep-87
Sep-88
Sep-89
Sep-90
Sep-91
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Sep-96
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Sep-12
We expect RE to benefit significantly from its HD-style brand-building strategy in the long
run. EIM has shied away from mass media advertising for RE, concentrating more on
building its brand around the perceived cult status. The company promotes leisure
motorcycling as a lifestyle. It organises annual events and rides such as the Himalayan
Premium brand-building strategy has

been the key to success
9 September 2015
Page 7 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Odyssey, the Tour of Rann of Kutch, the Tour of NH17 (Mumbai to Goa), the Tour of
Rajasthan and the Southern Odyssey. Dealers regularly update customers about group
rides and other events. An RE motorcycle gives the owner entry to an exclusive club
of Enfield riders who are typically seen in groups, drawing the envious attention of
people around. EIMs current strategy of a showroom makeover only further
differentiates the brand experience compared to other manufacturers in the market.
Fig 19 - Brand new concept RE store opened in New Delhi...
Fig 20 - to promote leisure biking
Low competition, low penetration equals immense opportunity

In the 250cc-and-above category of motorcycles, RE holds 95.6% market share (FY15),
which declined 40bps YoY. RE faces virtually nil competition in the >250cc cruiser bike
segment, while Bajaj Avenger (220cc) sells ~44,000 units and is the only credible
competitor in the sub-250cc segment. The >250cc category grew 60% in FY15 and is
expected to do well going forward we expect RE to maintain or marginally lose market
share in the category, but to grow its share in the overall market.
RE holds 95.6% market share in the

>250cc category, which grew at 60% in
FY15
In the 150cc-and-above category which is a potential RE customer base, the brand

expanded its market share to 37.3% in FY15 from 34.6% in FY14. We expect RE to gain
further market share in this category with new launches. RE holds 3% share of Indias
overall motorcycle market, implying massive scope for growth.
Fig 21 - Market share of Royal Enfield in Indias motorcycle market
(%)
100
FY14
96.0
FY15
95.6
90
80
70
60
50
34.6
40
37.3
30
20
10
1.9
3.0
0
Above 250cc
Above 150cc
Overall motorcycle market
9 September 2015
Page 8 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Leadership brands Classic to join the likes of Activa, Pulsar

Over the decades, we have seen some brands go from strength to strength while
competition has been a mere spectator. Two such examples are Honda Activa and Bajaj
Pulsar. Right from a first-mover advantage to having the highest market share, these
brands remain the epitome of success in Indias two-wheeler industry despite new
launches by competitors.
We believe the common ingredients for this success are their first-mover advantage and
strong reputation in terms of reliability, cost of maintenance, ownership status and ease
of use. As time goes by, these brands have become synonymous with the segment,
creating a following among customers which helps maintain their sales momentum. We
believe the Classic launched by EIM in CY10 is one such brand in the making it has all
the qualities we mentioned above and in the coming years could become synonymous
with the cruiser category.
Fig 22 - Honda Activa sales have risen steadily over the years
(Units)
250,000
Honda Activa
Classic likely to garner a loyal customer

following and become synonymous
with the cruiser category
Fig 23 - We expect RE Classic to gain a similar fan following

(Units)
30,000
Classic
25,000
200,000
20,000
150,000
15,000
100,000
10,000
50,000
5,000
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-13
Jul-13
Apr-13
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Dealer checks point to sustained, buoyant demand

Based on our dealer checks and interactions with the management, we observe that the
median age of an RE customer has reduced dramatically from the late 20s to early 30s to
someone who is in his early 20s. This change in profile has been led by product
improvements such as the introduction of a self-starter and left gear shift as well as
products with weight distributed across the motorcycle.
Demand growing rapidly with fall in

median age of customers
An individual who has learnt to drive on an entry-level motorcycle feels a sense of

achievement when he graduates to an RE. There are also instances of first-time riders
aged 18-22 years now considering owning an RE as their first motorcycle. At the other
end of the spectrum, the number of executives aged over 35+ taking up leisure biking as
a hobby is on the uptrend as well.
Our interactions with dealers indicate that the demand buoyancy continues, with
volumes up 30-80% YoY in the recent months. The Classic continues to be the model
most in demand across regions and dealers expect a new product in the 400cc range to
be a volume driver, as higher powered motorcycle still dont sell in good numbers, as
evident from flagging sales of the Continental GT. Dealers also believe that the new RE
showrooms help draw customers in, but sizeable revenues from accessory sales are still a
few years away.
9 September 2015
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Export strategy in place

Exports currently constitute only 2-3% of overall volumes in the RE business as
managements focus has been predominantly on the domestic market. With the
domestic business stabilising, we expect management to shift focus towards exports.
While EIM aspires to grow exports to 6-7% of total volumes by FY18, we build in a
conservative 2% share by FY18.
Steadily entering both developed and

developing markets such as the US, UK
and Indonesia
In CY13, RE launched its Continental GT globally in London to mark its importance in

global markets. Going forward, the company plans to launch models with higher sales
potential in global markets than in India. EIM is steadily entering both developed and
developing markets such as the US, UK and Indonesia. The company will continue to
position RE as an aspirational brand with a few exclusive stores to create awareness
among customers and fuel demand, providing products manufactured in India. The
company currently has no plans to set up a manufacturing base outside India.
Fig 24 - Export growth subdued due to capacity constraints
Exports
('000 Units)
18
Growth (%) (R)
(%)
60
52.0
Exports /Total Sales
(%)
6
5.0
16
14
46.2
37.5
34.7
12
50
40
30
20
10
30.0
10
21.7
8
6
20.5
10.4
4
2
Fig 25 - Expect the proportion to sales to remain steady
11.2
2.0
2.6
3.2
3.5
4.3
6.2
11.8
13.0
CY09 CY10 CY11 CY12 CY13 CY14
3.1
16.9
0
15M FY17E FY18E
FY16E
4.3
3.8
2.4
CY09
CY10
CY11
CY12
CY13
2.1
CY14
2.0
2.0
2.2
15M FY17E FY18E

FY16E
9 September 2015
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CV recovery to boost VECV volumes

Indias CV cycle is on the path to recovery after a slump of two years. Formation of a
single-party majority at the Centre after three decades has buoyed consumer and
business sentiments in India, boosting demand in both the passenger car and CV
markets. MHCV truck sales have gained momentum, growing at +24% in FY16YTD from a
27% decline in FY14 and 21% growth in FY15 this revival has been led by capacity
addition by organised fleet operators as well as replacement demand.
We expect the recovery to gather pace in the next two years and forecast a 21% CAGR in
overall industry MHCV truck volumes over FY15-FY17 given (1) the ongoing macro
recovery, (2) the cyclical nature of CV demand where sales dip sharply (much higher than
the automobile industry) during an economic slowdown and pick up swiftly during the
ensuing cyclical recovery, (3) a softer interest rate environment (90-100% of CV
purchases are financed, per our dealer check), (4) recent lifting of mining restrictions
along with more stringent safety norms (ban on overloading, restriction on age of
vehicles on road), implying an increase in transport loads and (5) GST implementation by
Apr16 which will support demand for newer, faster vehicles, given enhanced turnaround
time post-removal of state tax checkposts.
Fig 26 - Improving business sentiments have led to higher
MHCV truck demand over the past few months
(%)
80
We forecast a 21% CAGR in overall

industry MHCV truck volumes over
FY15-FY17
Fig 27 - Volume growth for the CV sector historical trends

and our assumptions for future performance
(%)
CAGR
MHCV Trucks YoY %
60
40
20
0
Total CV
MHCV
LCV
FY85-FY15
6.4
4.4
8.5
FY95-FY15
6.3
4.5
7.8
FY05-FY15
6.8
1.6
12.3
FY10-FY15
2.9
(1.0)
5.8
(20.2)
(2.8)
(25.3)
16.0
(17.6)
(11.5)
Annual
(20)
17.6
19.3
16.5
Feb-15
Aug-14
Jun-14
Feb-14
Aug-13
Jun-13
Jun-15
16.5
FY18E
Apr-15
13.4
21.9
Dec-14
20.7
18.5
Oct-14
16.1
FY17E
Apr-14
FY16E
Dec-13
(60)
Oct-13
FY14
FY15
Apr-13
(40)
Cyclical nature of demand

CV volume growth, being cyclical in nature, has historically exhibited sharp demand
growth and decline patterns. A year (or two) of decline is generally followed by high
double-digit growth in the segment (Fig 28). Accordingly, following the sharp 43%
correction in MHCV volumes over FY12-FY14 (~25% drop each in FY13 & FY14), we
expect a sharp recovery in the segment over FY15-FY17.
Fig 28 - Periods of steep decline in MHCV vols. are generally followed by sharp pickup
(%)
60
MHCV YoY %
36
40
20
34
29
23 21
8
13
39
33 32
33
23
10
16
21 22 19
Demand slump in CVs is typically

followed by high double-digit growth
as pent-up demand unwinds
0
(0)
(0)
(20)
(10)
(23)
(40)
(23)
(23)(25)
(33)
(39)
FY18E
FY17E
FY15
FY16E
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
FY00
FY99
FY98
FY97
FY96
FY95
FY94
FY93
FY92
FY91
FY90
(60)
Source: SIAM, RCML Research
9 September 2015
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Higher tonnage MHCVs in the lead, reflecting higher industrial activity

Early trends suggest that volumes in the higher tonnage segment have rebooted sharply.
Our dealer interactions suggest this can be attributed to a pick-up in the construction
segment (mainly roads), where higher tonnage vehicles are used. This also possibly
reflects the shift in demand in the last few years from 12-16t vehicles to >25t multi-axle
vehicles (MAV), as MAV trailers are preferred for transporting heavy capital goods and
automobiles, among others, while tippers are used for the mining industry.
Fig 29 - Domestic MHCV growth led by higher tonnage
(>16t) segment
(%)
400
16.3-25t
>25.1t
Trailers 26.5-35.2t
Trailers >35.2t
Construction activity pushing up

demand for higher tonnage vehicles
Fig 30 - while growth in lower tonnage (<16t) segments is

also following suit
(%)
7.5-12t
12.1-16.2t
60
Total Domestic CV
40
300
20
200
0
100
Jul-15
Jun-15
Apr-15
May-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Mar-14
Jan-14
Jul-15
Jun-15
Apr-15
May-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Mar-14
(60)
Jan-14
(100)
Feb-14
(40)
Feb-14
(20)
Fig 31 - Share of the >25t segment has increased over the past 4-5 years
(%)
7.5-12 T
12.1-16.2 T
16.3-25 T
>25T
100
90
10
29
28
29
32
14
13
80
70
11
13
60
12
11
16
26
22
27
49
45
42
31
38
31
26
28
28
39
25
27
50
25
40
49
47
30
40
45
34
26
26
29
24
22
20
22
20
17
20
10
18
19
20
26
15
17
26
12
15
22
12
22
11
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
19
0
FY15
Source: SIAM, RCML Research
9 September 2015
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VECV to gain from new heavy-duty launches

EIMs joint venture (JV) with Volvo has added the heavy-duty truck segment to its
portfolio. Earlier the company was predominantly in the 7.5-12t segment where it held
45% market share as of FY15. A wider portfolio coupled with access to Volvos
technology and resulting product improvement has helped EIM post market share gains
in the MHCV truck segment, from 7% in FY07 to 11% in FY15.
EIMs JV with Volvo adds the heavyduty truck segment to its portfolio
Fig 32 - Market share of VECV at ~11% currently

(Companywise
market share)
TTMT
AL
VECV
Others
100%
90%
80%
70%
60%
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
50%
In Dec13, EIM unveiled its planned Pro series trucks and buses. These included 11
products in the range of 5-49t Gross Vehicle Weight (GVW) which offered higher power
and durability, greater comfort and value-added features at economical costs tapping
into the surging demand for such products in the emerging mid-to-premium market
segment.
In 2014, it began commercialising the Pro series range in a phased manner, starting with
the Light Medium Duty (LMD) segment Pro 1000 and Pro 3000 trucks. Thereafter, the
company launched the heavy-duty Pro 6000 and Pro 8000 to a very encouraging
response. The Pro range of products became available across EIMs distribution points in
the country from the start of FY16. The company commercialised a modern medium-duty
engine manufacturing facility in mid-2013 and invested Rs 5.2bn in CY14, mainly towards
commercialising these new products.
Fig 33 - Eicher PRO series of trucks and buses
Source: Company
9 September 2015
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Fig 34 - Split of VECV sales indicates pickup in MHCV

cargos above 12t
(%)
50
45
40
35
30
25
20
15
10
5
0
FY14
45.0
Company Initiation
Fig 35 - Pro series has raised market share for VECV in the
7.5-12t category
(%)
FY15
FY14
FY15
45
41.8
37.7
40
40.3
35
30
19.4
16.6
10.7
12.3 13.7
10.6
15.4 14.4
25
20
16.8
18.0
15
10
MHCV goods MHCV goods
(7.5-12T)
(above 12T)
MHCV
passenger
(above 7.5T)
LCV
Passenger
(below 7.5T)
LCV Goods
(below 7.5T)
5
0
7.5-12T Passenger carriers
7.5-12T Goods Carriers
VE Powertrain to be global hub for

Volvos engine requirement
VE Powertrain to serve as global engine hub

VECV rolled out a new powertrain plant in Pithampur, Madhya Pradesh, in CY13. The
plant has an initial capacity of 25,000 engines that can be ramped up to 100,000 units
depending on demand. Importantly, it is expected to serve as a global hub catering to
global engine requirements for VECV. It manufactures two main variants at present 4cylinder 5-litre and 6-cylinder 8-litre engines, with output of 180-350hp capable of
meeting Euro 6 norms, Japanese PNLT and US EPA norms. We expect volumes to ramp
up to 48,000 engines in FY18, a CAGR of 52% over CY14-FY18.
Upsides from EicherPolaris JV

In CY13, EIM signed a 50:50 JV with Polaris to manufacture personal vehicles in India. The
first of these called Multix was launched in June15 and has the unique feature of
functioning as a people carrier, a goods carrier for business and a power generator. The
closest rivals are entry-level LCVs that can match Multixs 1,918ltr luggage space. EIMs
target audience is small business owners, farmers, skilled workers, contractors and small
factory owners, basically tier III and IV markets. Capacity stands at 60,000 vehicles
initially which can be scaled up depending on demand. We have not built any estimates
for Multix into our financial assumptions.
In a 50:50 JV with Polaris to

manufacture personal vehicles in India
Fig 36 - Multix in seating for four and open loading bay

configuration
Fig 37 - Multix in closed loading bay configuration
9 September 2015
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High operating leverage pays off in an upcycle

Past CV cycles suggest that companies with a higher fixed cost structure are worst hit
during periods of downcycle because falling utilisation levels weaken their operating
leverage and hence margins. The opposite holds true in an upcycle when CV companies
benefit from significant leverage gains amid rising volumes and utilisation. We expect
VECV to expand margins to 12.7% in FY18 from 6.7% in CY14 as new launches support a
volume CAGR of 19% over this period.
Fig 38 - VECV margins and return ratios to improve with
volume recovery
(%)
ROE
EBITDA (R)
High operating leverage for the sector

due to large fixed costs implies
stronger margin gains in an upcycle
Fig 39 - we expect a similar sharp rebound for peer,

Ashok Leyland
(%)
(%)
ROE
(%)
EBITDA (R)
30
14
30
14
25
12
25
12
10
20
15
FY18E
FY17E
FY15
FY16E
FY14
15M FY17E FY18E

FY16E
FY13
CY09 CY10 CY11 CY12 CY13 CY14
0
FY12
FY11
0
FY10
FY09
5
FY08
FY07
10
6
10
FY06
FY05
15
10
FY04
20
9 September 2015
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Financials
Revenue/PAT CAGR of 30%/50% over CY14-FY18E
We build in consolidated revenue CAGR of 30% over CY14-FY18, supported by a robust
33% volume CAGR in RE and 19% CAGR in CVs during the same period. While we expect
RE to form 41% of overall revenues by FY18, the business is likely to contribute 62% of
operating profits by then.
Fig 40 - RE volume growth to normalise to 20% in FY18,
VECV to turnaround in FY16
(%)
RE
80
Fig 41 - PAT growth higher than revenues due to expansion

in overall margins
(%)
CV
57.0
54.0
56.0
60
37.4
40
20.2 19.6
12.8
20
44.9
50
31.5
30
71.8
68.0
70
50
34.5
40
29.8
28.3
30
21.7
10
20.8
20
0
(10)
PAT
Revenues
80
69.9
70
60
Volume momentum to support strong

topline
(1.1)
(15.5)
10
(20)
CY13
CY14
15MFY16E
FY17E
FY18E
6.6
0
CY13
15MFY16E
CY14
FY17E
FY18E
Source: Company, RCML Research | Growth normalized for 15-month FY16
Source: Company, RCML Research | Growth normalized for 15-month FY16
Fig 42 - RE has gained prominence in overall revenues
Fig 43 - contributing 66% of operating profits in CY14
Revenues
(%)
RE
100
100
90
90
80
83.6
74.8
65.3
59.6
60.1
59.0
60
50
40
40
30
30
20
16.4
25.2
34.7
40.4
39.9
41.0
34.2
32.3
38.4
38.4
65.8
67.7
61.6
61.6
CY14
15MFY16E
FY17E
FY18E
73.5
45.5
20
10
VECV & Others
54.5
70
50
10
RE
80
70
60
EBITDA
(%)
VECV & Others
26.5
0
CY12
CY13
CY14
15MFY16E
FY17E
FY18E
CY12
CY13
Margin expansion ahead

EIMs operating margins have remained best-in-class over the past few years as REs
resurgence led to a more than doubling of the segments margins over CY10-CY14, from
10.3% to 24.2%. Going forward, we expect margin gains from both businesses, with a
more prominent contribution from VECV, as a CV recovery would support VECV margins
of 12.7% in FY18 from 6.7% in CY14. Overall, we expect consolidated margins to increase
to 19.2% in FY18 from 12.8% in CY14.
CV recovery to take VECV margins to

12.7% in FY18 from 6.7% in CY14
9 September 2015
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Fig 44 - RE margins to improve steadily; VECV margins to

near-double between CY14-FY18E
(%)
RE
VECV
(%)
25
35
30
28.3
26.4
24.2
Fig 45 - Pick-up in VECV volumes will boost consolidated

margins along with contribution from RE
RE
VECV
28.7
18.3
19.2
7.0
7.4
10.6
11.3
11.8
15MFY16E
FY17E
FY18E
20
15.7
25
19.0
5.1
10.5
11.9
15
10
12.8
15
20
7.7
Consol
12.7
6.7
4.4
10
8.8
5.7
5
8.4
4.8
0
0
CY13
CY14
15MFY16E
FY17E
CY13
FY18E
CY14
Fig 46 - Key metrics

CY13
CY14
FY16E
FY17E
FY18E
178.1
302.6
582.3
640.0
769.3
17.1
30.3
59.3
67.9
84.5
3.2
7.3
15.6
19.2
24.3
19.0
24.2
26.4
28.3
28.7
2.9
5.6
11.4
14.3
18.4
Volumes (000s)
41.3
40.8
57.5
60.5
72.4
Revenues (Rs bn)
51.3
57.6
87.8
102.7
121.7
EBITDA (Rs bn)
4.0
3.8
7.7
12.3
15.5
EBITDA Margin (%)
7.7
6.7
8.8
11.9
12.7
PAT (Rs bn)
2.9
1.9
3.9
7.7
10.2
68.1
87.4
146.9
170.4
205.8
7.1
11.1
23.1
31.2
39.4
10.5
12.8
15.7
18.3
19.2
3.9
6.2
12.9
17.8
23.1
Royal Enfield
Volumes (000s)
Revenues (Rs bn)
EBITDA (Rs bn)
EBITDA Margin (%)
PAT (Rs bn)
VECV
EIM (Consolidated)
Revenues (Rs bn)
EBITDA (Rs bn)
EBITDA Margin (%)
PAT (Rs bn)
Sharp upswing in return ratios

With a strong operating performance, ROE/ROCE should improve dramatically from
21%/24% in CY13 to 38%/41% in FY18. The company plans to incur capex of Rs 20bn over
the next two years for capacity expansion and R&D. With healthy operating cash flows
despite the capex, we model for robust free cash flows of Rs 30bn in the next
two years.
Fig 47 - Return ratios likely to rise dramatically by FY17
(%)
50
ROE
44.8
45.4
45
41.1
40
42.4
35
40.9
37.7
27.7
30
24.0
25
26.9
20
15
20.7
CY13
CY14
15MFY16E
Fig 48 - Expect Rs 30bn of FCF in FY16-FY17
FY17E
FY18E
35
30
25
20
15
10
5
0
(5)
(10)
(15)
Capex
CFO
(Rs mn)
ROCE
ROE/ROCE to improve dramatically

from 21%/24% in CY14 to 38%/41% in
FY18
Free Cashflow to Firm

32.2
26.8
22.2
22.5
17.3
10.5
7.2
12.3
0.8
0.0
(7.1)
CY13
(9.7)
(9.9)
(9.5)
(9.8)
CY14
15MFY16E
FY17E
FY18E
9 September 2015
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Valuations plenty of steam left

Peer Comparison (FY17)
Initiate with BUY
(%)
We initiate coverage on EIM with a Sep16 TP of Rs 22,500, offering 30% upside. Using
the SOTP method, we value RE at 33x one-year forward P/E (Rs 19,450) a premium to
peers due to its robust earnings profile, superior margins and solid return ratios expected
over the next 2-3 years.
60
For VECV, we assign a 10x forward EV/EBITDA multiple, in line with Ashok Leyland as the
company is well positioned to (a) deliver strong volume growth and margin gains in both
domestic sales and exports, (b) benefit from engine export potential as VECVs global
engine hub, and (c) maintain a superior debt-free balance sheet.
20
Fig 49 - One-year forward P/E

P/E
+ 1 s.d
(x)
80
70
60
50
40
30
20
10
0
50
EBITDA
40
30
ROE
ROCE
52.1
47.1
31.4 31.2
28.3
39.4
34.3
20.6
14.9
10
0
RE
Bajaj
Hero
Source: RCML Research
Fig 50 - Valuation summary

5-yr Avg
3-Yr Avg.
SOTP Valuation
- 1 s.d
1 yr forward
Standalone (RE)
EPS (Rs)
590.5
P/E Multiple (x)
33
RE Value per share (Rs)
19,450
VECV
3 year Avg: 30x
EBITDA (Eicher share 54.4%) (Rs bn)
Sep-15
Mar-15
Sep-14
Mar-14
Sep-13
Mar-13
Sep-12
Mar-12
Sep-11
Mar-11
Sep-10
Mar-10
EV/EBITDA multiple (x)
10
EV (Rs bn)
75.5
Net Debt (Rs bn)
(7,6)
Equity Value of VECV (Rs bn)
83.1
No of Shares (units mn)
27.1
VECV Value per share (Rs)
3,050
Target Price (Rs)

7.5
22,500
The stock has corrected 20% from its peak and offers an attractive investment
opportunity. Our target price offers 30% upside and we see scope for EIMs share price
to more than double over a five-year period given the high earnings visibility.
Key risks
RE capacity expansion could run into trouble, leading to lower volume growth and
higher waiting periods, driving away potential customers.
New products from RE may fail to gain customer acceptance.
Failure of VECV to gain market share and deliver on volume growth.
9 September 2015
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Company profile
EIM is the flagship of the Eicher Group, responsible for production of Indias first
agricultural tractor in 1959. The company is now a leading player in the Indian
automotive space.
Fig 51 - Ownership structure of Eicher Motors (EIM)
DII
Retail
investors
4.6%
13.0%
27.5%
Corporate
Bodies
1.7%
FII
Promoter
EML
54.9%
Polaris
Industries
AB Volvo
45.6%
54.4%
100%
50%
50%
Source: Company
EIM owns the iconic Royal Enfield motorcycle business, which leads the premium
motorcycle segment in India. RE has created the mid-size motorcycle segment in India
with its unique and distinctive blend of classic modern bikes. Equipped with an enhanced
manufacturing base in Chennai, RE is able to grow production rapidly to meet the surge
in demand for its motorcycles. With 50% growth every year for the last three years, RE is
fast becoming a key player in the global mid-size motorcycle market and is working
towards reinventing this space with new innovative products.
REs product lineup includes the Bullet, Classic and Thunderbird models in both 350 and
500cc displacements, and the recently introduced Continental GT 535cc caf racer. RE
operates through 12 company-operated stores and 425 dealers in all major cities and
towns in India, and exports to over 50 countries including the USA, Japan, UK, several
European and Latin American countries, as well as the Middle East and South Asia.
EMLs joint venture with the Volvo group, VE Commercial Vehicles, began operations in
Jul08. The company includes the complete range of Eicher branded trucks and buses, VE
Powertrain, EIMs components and engineering design services businesses, the sales and
distribution business of Volvo Trucks as well as aftermarket support to Volvo Buses in
India. VECVs vision is to be recognised as the industry leader driving modernisation in
commercial transportation in India and the developing world.
In 2012, EIM signed a strategic JV agreement with US-based Polaris Industries to design,
develop, manufacture and sell a new range of personal vehicles suitable for India and
other emerging markets. The JV allows EIM to enter into a new vehicle segment. In 2013,
the JV company Eicher Polaris Pvt Ltd (EPPL) set up its manufacturing facility in Jaipur,
Rajasthan, and in 2014 launched its first vehicle Multix in the Indian market. The JV does
not have any export plans currently.
9 September 2015
Page 19 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Key management
Siddhartha Lal MD & CEO, Eicher Motors
Siddhartha Lal is the CEO of Royal Enfield, Chairman of VECV and Chairman of EicherPolaris Pvt Ltd (EPPL). He holds a Masters degree in Automotive Engineering from
University of Leeds and is a Cranfield University qualified mechanical engineer.
Lalit Malik CFO, Eicher Motors
Prior to joining EIM, Lalit worked at Max India as VP Corporate Development, where his
primary responsibility included managing the investments of Max India in the insurance
space. From Apr-Dec08, Lalit also worked at AIG as Head of Business Strategy, Business
Development & Insurance (cross sell) for the Consumer Finance Group in India. Here he
was responsible for conceptualizing and executing inorganic and organic growth of the
company through portfolio buyouts, securitisation, strategic partnerships, collaboration
and introduction of new products.
Rudratej Singh President, Royal Enfield
Rudratej Rudy Singh joined the company in Jan15 and has over 18 years of experience
in leading the Brand and Marketing mandate for well-known companies in India and
across the globe. As President of Royal Enfield, Rudy is responsible for building thought
leadership for the brand and leading the commercial business. This includes global sales
and after sales, brand and marketing, new product strategy, and creating and growing
new business opportunities such as apparel, accessories, and other adjacencies. Prior to
joining Royal Enfield, Rudy was based in Singapore with Unilever as Vice President
South Asia, HPC & Foods Marketing Operations.
B Govindarajan COO, Royal Enfield
B Govindarajan has been the Chief Operating Officer (COO) at RE since Jan13. He joined
RE in Jun11 as Senior Vice President Industry for his second stint with the company,
where he was actively involved in ramping up production at REs Thiruvottiyur facility to
100,000 units per annum. He is now spearheading the setup of REs second plant at
Oragadam near Chennai and is implementing extensive cost management in sourcing
and operations. He had joined RE as Manager Engineering in 1995 and in 2004, became
the GM Manufacturing where he was responsible for the entire manufacturing activity
and implementation of Lean and Quality Management Systems. In 2006, he was
promoted to Divisional General Manager at RE. Soon after, he moved to the Commercial
Vehicle Manufacturing unit of EIM in Pithampur as the Head of Operations.
9 September 2015
Page 20 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Per Share Data

Y/E 31 Mar (INR)
CY13A
CY14A
FY16E*
FY17E
FY18E
Reported EPS
145.9
227.1
476.9
655.5
850.7
Adjusted EPS
145.9
227.1
476.9
655.5
850.7
30.0
50.0
70.0
80.0
90.0
760.1
928.4
1,323.3
1,885.2
2,630.7
CY13A
CY14A
FY16E*
FY17E
FY18E
6.7
5.3
3.1
2.7
2.2
EV/EBITDA
64.4
41.4
20.0
14.7
11.3
Adjusted P/E
118.1
75.9
36.1
26.3
20.3
22.7
18.6
13.0
9.1
6.6
CY13A
CY14A
FY16E*
FY17E
FY18E
DPS
BVPS
Valuation Ratios
Y/E 31 Mar (x)
EV/Sales
P/BV
Financial Ratios
Y/E 31 Mar
Profitability & Return Ratios (%)
EBITDA margin
10.5
12.8
15.7
18.3
19.2
EBIT margin
8.6
10.2
12.9
15.9
16.7
Adjusted profit margin
5.8
7.0
8.8
10.4
11.2
Adjusted ROAE
20.7
26.9
42.4
40.9
37.7
ROCE
24.0
27.7
44.8
45.4
41.1
Revenue
6.6
28.3
68.1
16.0
20.8
EBITDA
30.0
56.2
107.3
35.0
26.3
Adjusted EPS
21.5
55.6
110.0
37.5
29.8
Invested capital
28.6
25.7
4.8
8.7
7.2
Receivables (days)
27
23
12
16
15
Inventory (days)
40
37
29
35
38
Payables (days)
69
69
57
73
81
Current ratio (x)
1.2
1.0
1.0
1.2
1.4
Quick ratio (x)
0.3
0.2
0.3
0.4
0.7
Gross asset turnover
3.6
3.2
3.9
3.5
3.5
Total asset turnover
1.4
1.5
2.0
1.7
1.5
Net interest coverage ratio
0.0
0.0
0.0
0.0
0.0
(0.3)
(0.2)
(0.3)
(0.4)
(0.5)
CY13A
CY14A
FY16E*
FY17E
FY18E
58.8
62.0
63.6
61.0
60.8
115.0
110.9
107.5
107.6
110.2
YoY Growth (%)
Working Capital & Liquidity Ratios
Turnover & Leverage Ratios (x)
Adjusted debt/equity
DuPont Analysis
Y/E 31 Mar (%)
Tax burden (Net income/PBT)
Interest burden (PBT/EBIT)
EBIT margin (EBIT/Revenue)
8.6
10.2
12.9
15.9
16.7
Asset turnover (Revenue/Avg TA)
143.3
154.3
203.8
171.9
154.5
Leverage (Avg TA/Avg equities)
249.4
247.7
236.3
227.9
217.8
20.7
26.9
42.4
40.9
37.7
Adjusted ROAE
*FY16 is a 15-mth period due to a change in Y/E from Dec to Mar
9 September 2015
Page 21 of 25
BUY
Eicher Motors
TP: INR 22,500.00

30.6%
EIM IN
Company Initiation
INDIA
AUTOMOBILES
Income Statement
Y/E 31 Mar (INR mln)
CY13A
CY14A
FY16E*
FY17E
FY18E
Total revenue
68,098
87,383
1,46,932
1,70,374
2,05,837
EBITDA
7,137
11,148
23,110
31,209
39,420
EBIT
5,837
8,950
18,911
27,049
34,382
874
977
1,409
2,067
3,517
Other income/(expenses)
Exceptional items
6,711
9,926
20,320
29,116
37,899
(1,452)
(2,909)
(5,618)
(7,863)
(10,196)
(1,314)
(864)
(1,780)
(3,488)
(4,648)
3,945
6,154
12,923
17,764
23,055
3,945
6,154
12,923
17,764
23,055
CY13A
CY14A
FY16E*
FY17E
FY18E
Accounts payables
11,914
15,127
21,025
30,949
37,873
Other current liabilities
5,699
6,750
8,034
11,585
14,075
Provisions
2,159
3,213
4,358
5,371
6,212
Debt funds
839
584
584
584
584
270
271
271
271
271
Reserves & surplus
20,284
24,888
35,591
50,819
71,020
Shareholders' fund
20,554
25,159
35,862
51,090
71,291
Total liabilities and equities
51,562
61,682
82,492
1,15,697
1,50,802
Cash and cash eq.
6,826
4,806
9,832
21,332
39,139
Accounts receivables
5,125
5,622
4,991
7,266
8,631
Inventories
5,268
6,455
8,569
12,392
14,955
Other current assets
6,695
9,135
11,562
17,035
21,021
Investments
8,255
10,777
17,230
22,521
27,845
16,561
23,093
31,014
37,753
42,466
4,636
4,188
2,000
600
600
(1,805)
(2,394)
(2,705)
(3,202)
(3,854)
Net interest income/(expenses)
EBT
Income taxes
Extraordinary items
Min. int./Inc. from associates
Reported net profit
Adjustments
Adjusted net profit
Balance Sheet
Other liabilities
Equity capital
Net fixed assets

CWIP
Intangible assets
Deferred tax assets, net
Other assets
Total assets
51,561
61,682
82,492
1,15,697
1,50,802
CY13A
CY14A
FY16E*
FY17E
FY18E
5,245
8,352
17,122
21,925
28,092
Interest expenses
79
98
78
78
78
Non-cash adjustments
(1)
(2)
1,491
2,020
4,415
3,826
2,997
Cash Flow Statement

Net income + Depreciation
Changes in working capital

Other operating cash flows
348
606
932
1,051
7,162
10,475
22,221
26,761
32,218
Capital expenditures
(7,123)
(9,720)
(9,932)
(9,500)
(9,750)
Change in investments
(1,518)
(1,778)
(6,453)
(5,291)
(5,325)
Other investing cash flows
743
625
1,488
2,145
3,595
Cash flow from investing
(7,898)
(10,872)
(14,897)
(12,646)
(11,480)
0
Cash flow from operations
Equities issued
17
79
Debt raised/repaid
610
(255)
Interest expenses
(80)
(98)
(78)
(78)
(78)
(2,854)
Dividends paid
(1,020)
(1,348)
(2,219)
(2,537)
Other financing cash flows
Cash flow from financing
(474)
(1,622)
(2,298)
(2,615)
(2,932)
(1,209)
(2,020)
5,027
11,500
17,807
6,826
4,806
9,833
21,332
39,139
Changes in cash and cash eq

Closing cash and cash eq
*FY16 is a 15-mth period due to a change in Y/E from Dec to Mar
9 September 2015
Page 22 of 25
RESEARCH TEAM
ANALYST
SECTOR
EMAIL
TELEPHONE
Mihir Jhaveri
Auto, Auto Ancillaries, Cement, Logistics
mihir.jhaveri@religare.com
+91 22 6766 3459
Siddharth Vora
Auto, Auto Ancillaries, Cement, Logistics
siddharth.vora@religare.com
+91 22 6766 3435
Misal Singh
Capital Goods, Infrastructure, Utilities
misal.singh@religare.com
+91 22 6766 3466
Prashant Tiwari
Capital Goods, Infrastructure
prashant.tiwari@religare.com
+91 22 6766 3485
Gaurang Kakkad
Consumer
gaurang.kakkad@religare.com
+91 22 6766 3470
Premal Kamdar
Consumer
premal.kamdar@religare.com
+91 22 6766 3469
Nitin Tiwari
Energy
nitin.tiwari@religare.com
+91 22 6766 3437
Parag Jariwala
Financials
parag.jariwala@religare.com
+91 22 6766 3442
Vikesh Mehta
Financials
vikesh.mehta@religare.com
+91 22 6766 3474
Rumit Dugar
IT, Telecom, Media
rumit.dugar@religare.com
+91 22 6766 3444
Saumya Shrivastava
IT, Telecom, Media
saumya.shrivastava@religare.com
+91 22 6766 3445
Pritesh Jani
Metals
pritesh.jani@religare.com
+91 22 6766 3467
Arun Baid
Mid-caps
arun.baid@religare.com
+91 22 6766 3446
Praful Bohra
Pharmaceuticals
praful.bohra@religare.com
+91 22 6766 3463
Arun Aggarwal
Real Estate
arun.aggarwal@religare.com
+91 22 6766 3440
Pawan Parakh
Utilities
pawan.parakh@religare.com
+91 22 6766 3438
Jay Shankar
Economics & Strategy
shankar.jay@religare.com
+91 11 3912 5109
Megha Arora
Economics & Strategy
megha.arora@religare.com
+91 22 6766 3433
9 September 2015
Page 23 of 25
RESEARCH DISCLAIMER
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9 September 2015
Page 24 of 25
RESEARCH DISCLAIMER
Research analyst or his/her relatives do not have any material conflict of interest at the time of
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Digitally signed by JHAVERI MIHIR

PANKAJ
Date: 2015.09.09 13:35:36 +05'30'
9 September 2015
Page 25 of 25

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Company Initiation

TP: INR 22,500.00

Let the good times roll! Initiate with BUY

+91 22 6766 3435

PRICE CLOSE (08 Sep 15)

INR 467.8 bln

0.1 mln / USD 27.4 mln

Revenue (INR mln)

EBITDA (INR mln)

Adjusted net profit (INR mln)

Adjusted EPS (INR)

Adjusted EPS growth (%)

Adjusted ROAE (%)

Adjusted P/E (x)

TP: INR 22,500.00

Strong upside potential

Stock has run up 55% in the past year

Fig 2 - Stock performance

Source: RCML Research, Company

Source: RCML Research, Company

Fig 3 - EIM stock up from Rs 500 to Rs 3,000 over FY09-FY13...

Fig 4 - and up a further 6 times over FY13-FY15

RE stops discounting, shifts to

Source: RCML Research, Company

Source: RCML Research, Company

TP: INR 22,500.00

Royal Enfield: A cult brand

Fig 6 - contributing 65% of operating profits in CY14

VECV & Others

VECV & Others

Owns the iconic Royal Enfield

Source: RCML Research, Company

Source: RCML Research, Company

Resurgent volume growth

RE sold 300,000 motorcycles in CY14

TP: INR 22,500.00

Fig 7 - Stellar volume growth since CY10

Growth (%) (R)

Business boomed post-CY10 as

Source: Company, RCML Research

Improvement in product mechanicals: At the end of CY10, the company had

Bullet got a Classic makeover: After improving product quality, RE introduced

Fig 8 - Royal Enfield Bullet

Fig 9 - Royal Enfield Classic 350

TP: INR 22,500.00

Fig 10 - Rapid capacity expansion

Fig 11 - along with a growing dealer network

Source: RCML Research, Company

Source: RCML Research, Company

A cult brand at affordable prices for affluent Indian masses

Engine power at an affordable price: RE is the leader in Indias lifestyle/cruiser

REs powerful brand image remains

Price (Rs '000)

Bullet Electra 350

TP: INR 22,500.00

Price (Rs '000)

Only motorcycle range in India

Source: Company, RCML Research

Fig 13 - Royal Enfield brand portfolio

Fig 14 - Royal Enfield volume split by platform

Source: RCML Research, Company

Source: RCML Research, Company

Capacity addition to strengthen volumes

RE capacity being expanded from