Bajaut1 20101012

RESEARCH
TWO-WHEELER INDUSTRY Sector View - Positive
FMCG Model At A Discount 12 October 2010
The Indian two-wheeler industry has undergone a complete

makeover over the last two decades with entry of Japanese
manufacturers. The geared scooters, which used to dominate
the industry, have been totally replaced by fuel efficient and Two-Wheelers Industry Growth
stylish motorcycles. In the last couple of years the industry
2-w heeler Sales (mn units) Grow th %
seems to be entering a maturing phase with rationality in players'
10.0 30
behaviour and improvement in profitability. This evolvement of
the two-wheeler industry is on the line of FMCG industry. Two- 7.5 20
wheelers has attained a status of essentials due to the need for .
personal mobility and inadequate public transportation system 5.0 10
in the country. Despite an overall household penetration level of
45%, the industry continues to grow in double digits due to 2.5 0
demand from under penetrated rural markets and shortening
0.0 (10)
replacement cycle. Indian two-wheeler industry has lots of
H1FY11
FY01
FY03
FY05
FY07
FY09
FY1995
FY1997
FY1999
similarity to FMCG business and despite that they trade at a
INDUSTRY OVERVIEW
significant discount to the companies in FMCG industry.

Branding is the key: Branding plays a major role in product
differentiation in an industry where there are marginal differences Valuation Gap
in the products based on technology and features. 32
Low capex requirement: Two-wheeler industry like FMCG, is
low on capex requirement and due to this, companies have 24
impressive cash accruals which they are using to reward the
shareholders through dividends. 16
Negative working capital: Vendors are important part of the
8
business and besides raw materials they also provide working
capital to the business. Due to this, two-wheeler industry works 0
HERO HONDA
on negative working capital like their counterparts in FMCG
HUL
ITC
DABUR
NESTLE
COLGATE
BAJAJ AUTO
TVS MOTOR
sector.
High return ratios: Low capex requirement, negative working
capital coupled with high dividend payout provide high return on
equity for the two-wheeler industry.
Wide differential in valuations: Despite a lot of similarities in
the business model, there is a wide gap in valuations of two-
wheeler companies as compared to FMCG industry. While
FMCG companies have been trading at a multiple of 22-23x one Vineet Hetamasaria, CFA
year forward P/E ratio, two-wheeler stocks are trading in the vineet.hetamasaria@pinc.co.in
range of 15-16x one year forward P/E ratio. We believe that this Tel: +91-22-6618 6388
differential will gradually narrow down with two-wheeler industry Nikhil Deshpande
moving up on the valuation matrix. Our top picks in the sector nikhil.deshpande@pinc.co.in
are Hero Honda and Bajaj Auto. Tel: +91-22-6618 6339
Sector Summary
KEY FINANCIALS
CMP Mkt Cap Net sales (Rs mn) EPS (Rs) P/E (x) TP
Company Rating
(Rs) (USD mn) FY11E FY12E FY11E FY12E FY11E FY12E (Rs)
Bajaj Auto 1,522 9,879 161,510 188,161 88.8 103.0 17.1 14.8 1,854 BUY
Hero Honda 1,874 8,393 176,083 197,714 113.6 128.1 16.5 14.6 2,305 BUY
TVS Motor 75 797 61,670 69,633 4.5 5.3 16.6 14.1 85 HOLD
PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO>
RESEARCH
FMCG model at a discount

Two-wheeler business The Indian two-wheeler sector is fast changing its DNA and is emerging as more of marketing
evolving as a brand play… play with companies selling products based on brand equity. The dividing lines between
competitors based on technology are dissolving swiftly with a brand-based theme evolving
across the sector. This theme has been well demonstrated by HH through the positioning
of its Splendor and Passion brands. Splendor is the largest selling motorcycle in India and
this brand has been built over the past 14 years. The brand has almost managed to
dissociate itself from HH. Borrowing from the Splendor experience, BJAUT is creating two
separate brands, Pulsar and Discover. Both have been positioned independently, targeting
specific customer segments.
The two-wheeler population in India is currently estimated at ~100mn units. This presents
a large replacement market especially in a scenario of a shortening replacement cycle.
Despite a large two-wheeler population, there is an ample scope for growth in the industry
due to lack of an efficient public transportation system in the country. Even in cities with a
good public transportation system, two-wheelers continue to retain their importance for
last mile connectivity. Rural India is another opportunity for the industry, where the penetration
levels are quite low, indicating further scope for growth.
2-wheeler business - Evolving as a FMCG play
Over the past few years, the Indian two-wheeler business has evolved along the lines of an
FMCG business. There are a number of similarities between the two businesses.
Capex requirement reduced z Low capex requirement: Similar to FMCG, the two-wheeler industry has adopted
for two-wheeler industry… an asset-light model with a significant portion of value addition happening at the vendor's
end. This has led to low capex requirement for two-wheeler manufacturers and greater
reliance on component suppliers. Over the past five years, BJAUT and HH have invested
only 2.45% and 3.18% of their top line, respectively, in capex. During the same period,
net sales for the companies grew at a CAGR of 14.9% and 16.3% respectively. In
comparison, Maruti Suzuki in the passenger car segment recorded an average capex
of 7.5% of net sales over the past four years.
Capex as Percentage of Sales (5 years avg.)

12
6
(%)
0
HONDA
HUL
ITC
DABUR
NESTLE
COLGATE
MOTOR
BAJAJ
AUTO
HERO
TVS
Source: Company, PINC Research
vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in 2
RESEARCH
Working capital negative due z Negative working capital cycle: With a distribution model in place and a strong supply
to credit provided by chain, two-wheeler OEMs have been able to maintain a negative working capital cycle
vendors… akin to FMCG players. Average working capital for BJAUT and HH over the past five years
has been at net payables of 25 days and 11 days respectively. Net working capital for
Nestle, Hindustan Uniliver, and Colgate is above 50 days payable.
Net Working Capital (5 years avg.)

60
30
Days
HONDA
HUL
ITC
DABUR
NESTLE
COLGATE
BAJAJ
MOTOR
AUTO
HERO
TVS
(30)
(60)
z Zero debt and strong cash accruals from operations: Most of the FMCG and two-
wheeler companies have zero debt and strong cash flow accruals from the business,
which enable them to reward shareholders through high dividend payout. Over the
years, two-wheeler companies have created a huge amount of cash reserves on their
balance sheets.
High dividend payout z High and consistent dividend payout: Two-wheeler companies have consistently
maximising shareholders maintained a high dividend payout ratio, in line with the FMCG companies.
return… Consequently, these companies have been able to maintain a high return on equity
(RoE). Multinational FMCG players such as Nestle, Hindustan Unilever and Colgate
have been able to maintain superior RoE of ~100% due to a high payout ratio of more
than 70% over the past five years. Companies such as Dabur and Marico, which are
in an aggressive expansion phase, have moderate dividend payouts of ~50% and
delivered RoE of ~50%. In the two-wheelers sector, BJAUT and HH, with a payout
ratio of ~45%, have sustained RoE at 40-60%.
Dividend Payout Ratio and ROE (5 years Avg.)

Div idend Pay out Ratio ROE
120
90
60
(%)
30
0
HONDA
HUL
ITC
DABUR
NESTLE
COLGATE
MOTOR
BAJAJ
AUTO
HERO
TVS

RESEARCH
Two-wheeler growth in-line z Similarity in growth rates: FMCG has a matured business model with steady growth
with FMCG… rates given the essential nature of the products. Similarly, two-wheelers in the Indian
markets have emerged as a crucial product since they offer a quicker mode of
transportation. Over the past five years, comparing sales growth of major FMCG
companies with that of two-wheeler players indicates that growth in both industries
are in a similar range although FMCG rates are steadier.
Net Sales Growth

NESTLE HUL ITC COLGATE
DABUR BAJAJ AUTO HERO HONDA TVS MOTOR
40
25
(%)
10
(5)
(20)
FY04 FY05 FY06 FY07 FY08 FY09 FY10
z Wide gap in valuations: Despite similar business models, growth rates, and returns,
valuations of the two-wheeler sector have always been at a steep discount to those of
the FMCG sector. While the FMCG sector trades at 22-23x one-year forward earnings,
the two-wheeler sector has traded at ~15-16x one-year forward earnings. We believe
that given the consistency in the two-wheeler business, the sector appears set for a
re-rating, leading to higher valuations.
P/E Ratio
32
24
16
(x)
0
HONDA
HUL
ITC
DABUR
NESTLE
COLGATE
MOTOR
BAJAJ
AUTO
HERO
TVS
Source: Bloomberg Estimate, PINC Research
RESEARCH
Trends in the Indian two-wheeler industry
Volumes - Robust growth across segments

Two-wheeler industry back on Following a brief pause during FY07-09, the Indian two-wheeler industry has made a strong
growth track post comeback during the past 18 months with growth of more than 25%. Besides domestic
disappointment during
FY08-09… demand, exports have been a significant contributor to the growth of the Indian two-wheeler
industry. The past five years have been eventful with significant changes in customer
preference and industry macro trends. Some of these major trends include the following:
z Scooters have made a strong comeback with growth outperforming overall two-wheeler
sector growth
z In motorcycles, the economy segment has taken a back-seat, giving way to executive
and premium segments.
z Reliance of the two-wheelers industry on financing has seen a significant dip.
z Indian companies have been able to expand their global footprint, taking on competition
from Japan and China.
z Strong demand and capacity constraints are helping the industry avert undercutting,
engendering high profitability.
Motorcycles retain their dominance, but scooters make a strong comeback

Scooters outperforming The Indian two-wheeler industry was dominated by scooters until late-1990s. In mid-1980s,
industry growth… Japanese two-wheeler companies entered the Indian market with fuel-efficient motorcycles,
which changed the face of the industry. By the turn of the century, motorcycles overtook
scooters and now constitute more than 80% of two-wheeler composition. However, over
the past five years, scooters have made a strong comeback as a second vehicle with a
strong customer base in teenage and female groups. The product itself has undergone a
complete makeover with geared scooters giving way to non-geared ones.
2-Wheeler Market Composition

Mopeds Scooters Motorcy cles Scooter Contribution % (RHS)
100% 60
75% 45
50% 30
25% 15
0% 0
H1FY11
FY1993
FY1995
FY1997
FY1999
FY01
FY03
FY05
FY07
FY09
Source: SIAM
RESEARCH
Entry of new players in Scooter - Emulating the Activa

scooter segment stimulating
demand… The scooter segment has seen strong traction with increasing options for customers. In
H1FY11, scooter sales have grown at an incredible 44.4% compared with 25.9% for two
wheelers. HMSI, the market leader, has been facing severe production constraints and the
waiting period for its flagship product Activa has reached six months.
The revival of the segment was solely led by Activa following the era of BJAUT's geared
scooters. However, lately, competitors have had a good run in the light of Activa's production
constraints. Products benefiting the most have been TVSL's newly launched Wego and
M&M's Rodeo and Duro. In H1FY11, M&M has been able to garner 7.3% market share.
While TVSL has been able to maintain market share at 21%, HMSI's share declined
645bps to 45.2%.
Scooter Sales Growth

Scooter Sales Grow th (RHS)
1,600 50
1,200 35
(Units '000s)
800 20
(%)
400 5
0 (10)
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 H1FY11
Source: SIAM
Scooter Marketshare (%)

HH HMSI TVSM Kinetic Motor/M&M Others
80
Bajaj Auto Dominance

60
(%)
40
20
0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 H1FY11
Source: SIAM
RESEARCH
BJAUT made a strong come Motorcycle - BJAUT presses the accelerator

back with new branding
With the economy turning a new leaf in H2FY10, motorcycle sales have seen strong
strategy…
uptick. During H2FY10, motorcycle sales were up 38% to 3.8mn units. In H1FY11,
motorcycle sales have grown by 22.5% with BJAUT being a major contributor with a 61%
growth. Compared with BJAUT, market leader HH has seen a growth of 7.0%, and in the
process, it ceded 776bps market share. BJAUT and HMSI have been beneficiaries of this
loss of market share with both of them gaining 666bps and 167bps respectively.
However, for BJAUT, this increase is basically covering the ground it lost after FY07; when
its market share peaked at 31.8% with volumes of 2mn units while that of HH hit a low of
48.1%. In FY08-09, BJAUT went through a rough patch, losing market share to HH even
as the combined share remained constant at ~80% levels. For BJAUT, recovery started in
H2FY10.
In FY03, TVSL was looking to challenge BJAUT for the second spot with a product portfolio
of Victor and Fiero. However, successive products failed to make much impact and, in the
current year, the company was relegated to the fourth spot with HMSI moving up the
ladder.
Motorcycle Sales Growth

Motorcy cle Sales Grow th (RHS)
8,000 45
6,000 30
(Units '000s)
4,000 15
(%)
2,000 0
0 (15)
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 H1FY11
Source: SIAM
Motorcycle Marketshare
HH TVSM BJAUT OTHERS
80
60
(%)
40
20
0
Source: SIAM
RESEARCH
Economy segment losing its Market Share

charm due to low
profitability… Economy Segment - To be or not to be
The economy or the entry level segment accounts for ~20% of domestic motorcycle volumes.
However, leading manufacturers devote less effort to the segment owing to its low margins.
In 2008, BJAUT took a stance to exit the segment and consequently the company's
market share currently stands at ~23%, from the high 30% levels in 2008. TVSL too
discontinued Max and currently has only a single product, i.e. Star, in the segment. The
company plans to re-launch Max, especially for the rural segment. HH's model, CD Dawn,
is the market leader in the segment; its market share has gone up to 50% benefiting from
slack competitors.
Economy Segment Market Share

BJAUT HH TVSL
60
45
(%)
30
15
0
Oct-08
Dec-08
Oct-09
Dec-09
Apr-10
Aug-08
Sep-08
Jan-09
Feb-09
Apr-09
Mar-09
Jun-09
Jul-09
Aug-09
Sep-09
Jan-10
Feb-10
Mar-10
Jun-10
Jul-10
Aug-10
Nov-08
May-09
Nov-09
May-10
Source: Crisil Research
Executive Segment - Bajaj 'Discovering' growth
BJAUT posing serious The executive segment, which accounts for two third of the motorcycle market, has been
challenge to HH’s a stronghold for HH. The company with two powerful brands, Splendor and Passion, has
stronghold… been a dominant player in the segment. With its much hyped XCD platform, BJAUT had
aimed to challenge HH in the executive segment. However, after initial success, the product
failed to retain interest. The other BJAUT brand in the segment Discover 135cc then enjoyed
a limited share of ~5%. Inline with its two brand policy the company made Discover its
flagship brand in the executive segment and translating into a slow death for XCD platform.
Discover 100cc, launched in Aug-09, drove the company's market share over the 20%
mark.
HMSI is the third largest player in the segment with a 10% market share. The company
has three products in the segment: Shine, Stunner and Twister. TVSL has marginal presence
in the segment as Flame has failed to generate any significant interest.
RESEARCH
Executive Segment Market Share

BJAUT HH HMSI
100
75
(%)
50
25
Oct-08
Dec-08
Oct-09
Dec-09
Aug-08
Sep-08
Jan-09
Aug-09
Sep-09
Jan-10
Aug-10
Feb-09
Mar-09
Apr-09
Jun-09
Jul-09
Feb-10
Mar-10
Apr-10
Jun-10
Jul-10
Nov-08
Nov-09
May-09
May-10
Premium Segment - Challenging the Pulsar
Product innovation remains Since its launch in the 2001, Pulsar, the flagship brand of BJAUT, has maintained its
critical for premium numero uno spot in the premium segment. The brand has a 50% market share in the
segment… segment. BJAUT through launch of facelifts and variants has been able to retain the product's
aspiration levels. CBZ (HH), Apache (TVSL) and Unicorn (HMSI) have been major
competitors for the brand over the years. HH continues to have a 20% market share while
TVSL and HMSI each hold on to ~8-9%. Yamaha's FZ16 is the newest challenge to the
Pulsar. After its launch in Oct'08, when it received good initial reviews, the FZ had managed
to grab market share from Pulsar reducing it to 45% levels. BJAUT's latest gamble on the
Pulsar brand was the launch of the 135cc variant. Initial scepticism of brand dilution passed
away as the model pushed BJAUT's market share back above the 50% level.
Premium Segment Market Share

BJAUT HH TVSL HMSI OTHERS
60
45
30
(%)
15
0
Oct-08
Dec-08
Oct-09
Dec-09
Jul-08
Aug-08
Sep-08
Jan-09
Feb-09
Mar-09
Apr-09
Jun-09
Jul-09
Aug-09
Sep-09
Jan-10
Feb-10
Mar-10
Apr-10
Jun-10
Jul-10
Aug-10
Nov-08
Nov-09
May-09
May-10
RESEARCH
Financiers taking a cautious approach

Financing for the two-wheeler Two-wheeler finance has seen various hurdles such as low ticket size, high operating
business remains low… costs and higher delinquency. After a bitter experience in FY07-08, financiers have taken
a more cautious approach this time around. Two-wheeler finance penetration had dipped
to an all-time low of 15% for a brief period during FY09, from a high of 56% in FY08.
Currently lenders have started coming back into the market but with a more rational
approach. Financing levels have risen to 25% but continue to be low. The growth achieved
in the past 12 months has been sans high financing penetration and hence is more
sustainable.
Finance Penetration for Two Wheelers

Finance Penetration (%) LTV (%)
80
60
(%)
40
20
0
FY08E FY09E FY10E FY11P FY12P
Source: Crisil, PINC Research
Beyond Indian Shores
Indian companies are BJAUT is a pioneer in taking the Indian two-wheeler industry beyond domestic markets.
extending their presence in The company started exports with the SAARC countries and moved on to South East
global two-wheeler market… Asia, Africa and Latin America. Currently, it exports one out of every three motorcycles it
produces. In Africa, the company competed against the Japanese OEMs and Chinese
manufacturers to create a space for itself. More than 50% of its exports are currently to
Africa. Latin America is the next big opportunity, where the company is moving into bigger
markets of Brazil and Argentina. It also has plans for Europe where it would develop products
in association with KTM.
Indonesia is the third largest market for two-wheelers. Both BJAUT and TVSL have
established subsidiaries in the country and have major plans. BJAUT primarily markets its
premium product Pulsar while TVSL has presence with Apache in the premium segment.
TVSL has also launched a step-thru product, which is the preferred type of 2-wheeler in
Indonesia.
RESEARCH
Two Wheeler Exports

Ex ports (LHS) Grow th % (RHS) Contribution % (RHS)
1.2 80.0
0.9 60.0
Units mn
0.6 40.0
(%)
0.3 20.0
0.0 0.0
Source: SIAM
Pressed for Capacity

Capacity constraints Due to high demand, the two-wheeler industry is facing severe capacity constraints. All
restricting undercutting in the the major manufacturers are currently facing problems in meeting the demand as there
industry…
has not been any major capex by the industry in last two years. The problem is aggravated
further due to constraints being faced by leading auto component suppliers. The suppliers
have been under severe financial strain in the last few years due to falling profitability and
low utilisation levels. Liquidity crisis increased the problems for vendors further thus restricting
investment in the business.
The silver lining out of this scenario is the pricing discipline which is being maintained in
the two-wheeler market. Due to paucity of capacity, there is no incentive for any player to
undercut thus leading to higher profitability for the industry.
Monthly Capacity and Production (6 months Avg.)

Capacity Production (YTD Av g)
500
375
Units '000s
250
125
0
HH BJAUT TVSL HMSI
Source: SIAM, Company, PINC Research
Sector: Auto
BSE Sensex: 20,203
RESEARCH
BUY
BAJAJ AUTO CMP Rs1,522
TP Rs1,854
Rise of the Pheonix 12 October 2010

Vineet Hetamasaria, CFA
After a tumultuous FY08-09, Bajaj Auto (BJAUT) appears to vineet.hetamasaria@pinc.co.in
have got its act together. Its new brand strategy with Pulsar +91-22-6618 6388
and Discover is falling in place and the company seems to
Nikhil Deshpande
have found its Midas touch. Three-wheelers and exports are
nikhil.deshpande@pinc.co.in
adding to its volume and helping it to maintain over 20%
+91-22-6618 6339
margins.
Product portfolio revamp: Over the last ten years, BJAUT has VOLUMES (Unit ‘000s)
metamorphosed under the new leadership. It shed its scooter image FY10 FY11E FY12E
to emerge as a motorcycle manufacturer. The transition hasn't been Dom estic
smooth, with hiccups on the way, as the company was hard pressed 2-Wheelers 1,786 2,459 2,803
to roll out products that would challenge the market leader. Now it 3-Wheelers 176 198 222
seems to have 'Discovered' the recipe to challenge the leader. Total Dom estic 1,962 2,657 3,025
Exports
New strategy tasting success: The company’s market share after 2-Wheelers 726 1,051 1,199
touching a high of 37% in FY07 witnessed a steep fall and halved to
Company Update
3-Wheelers 165 223 249

18% over the next two years. During the period, the company decided Total Exports 891 1,274 1,448
to exit the low-margin entry segment while the much hyped XCD Total Sales 2,853 3,931 4,473
platform proved to be a damp squib. In FY10, the company migrated YoY Gr. (%) 29.9 37.8 13.8
to a new dual brand strategy: the commuter focused Discover and
the sports-imaged Pulsar. With multiple products under each brand,
STOCK DATA
market share has recovered to 30% in September 2010.
Market Cap Rs440.4bn
3-wheelers demand across markets: Strong replacement demand Book Value per share Rs101.2
and abolition of permit system in states such as TamilNadu is helping Eq Shares O/S (F.V. Rs10) 289.4mn
the industry to post strong growth. Export demand is robust too, Free Float 50.4%
leaving the company struggling to meet demand. Avg Traded Val. (6 mnts) Rs882.6mn
52 w eek High/Low Rs1611/684
Exports a hedge: The company exports one in three motorcycles Bloomberg Code BJAUT IN
and every other 3-wheeler it manufactures. In H1FY11, exports have Reuters Code BAJA.BO
grown at 56.7% to 0.6mn units and the company should comfortably
eclipse its target of 1mn for FY11. With the company looking at
expanding into newer markets, including Europe, in partnership with PERFORMANCE (%)
KTM, exports should act as a cushion to any disturbance in domestic 1M 3M 12M
markets. Absolute 4.3 26.3 86.2
Relative (3.2) 14.0 67.5
Outlook: We expect the company to achieve volumes of 3.9mn
units in FY11 and 4.5mn units in FY12. The product mix has
RELATIVE PERFORMANCE
substantially moved in favour of high-margin products such as Pulsar
and Discover. 3-wheelers too are expected to maintain robust BJAUT BSE
performance. This would help the company maintain over 20% 2,000
margins in FY11 and FY12. We expect the company to record
1,600
earnings of Rs89 and Rs103 in FY11 and FY12 respectively.
1,200
VALUATIONS AND RECOMMENDATION
The stock trades at 17.1x and 14.8x FY11E and FY12E earnings 800
respectively. We maintain our 'BUY' rating with a target price of 400

Rs1,854 discounting FY12E earnings 18x. Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
RESEARCH
Bajaj Auto
Year Ended March (Figures in Rs mn)
Income Statem ent FY08 FY09 FY10 FY11E FY12E Cash Flow Statement FY08 FY09 FY10 FY11E FY12E
Net sales 86,633 84,369 115,085 161,510 188,161 Pre-tax profit 11,685 10,258 24,644 35,693 40,817
Growth (%) (6.8) (2.6) 36.4 40.3 16.5 Depreciation (2,186) 818 918 1,502 1,826
Operating profit 9,170 8,295 21,835 29,495 33,977 Total tax paid (3,928) (3,889) (7,506) (9,775) (10,809)
Other operating income 3,588 3,456 3,917 5,190 5,519 Chg in w orking capital (2,445) (555) 8,111 (7,150) (205)
EBITDA 12,758 11,751 25,752 34,685 39,496 Other operating activ ities (2) (20) (9) - -
Growth (%) (12.5) (7.9) 119.2 34.7 13.9 Cash flow from oper. (a) 3,125 6,612 26,158 20,270 31,629
Depreciation (1,740) (1,298) (1,365) (1,502) (1,826) Capital ex penditure 1,983 (3,428) (485) (1,835) (1,950)
Other income 1,404 1,389 1,399 2,580 3,217 Chg in inv estments 58,150 (1,622) (17,237) (3,200) (2,500)
EBIT 12,423 11,842 25,786 35,763 40,887 Other inv esting activ ities (44,075) - - - -
Interest paid (52) (210) (60) (70) (70) Cash flow from inv. (b) 16,058 (5,050) (17,722) (5,035) (4,450)
PBT (before E/o items) 12,371 11,632 25,726 35,693 40,817 Free cash flow (a+b) 19,183 1,562 8,436 15,235 27,179
Tax prov ision (4,126) (3,693) (7,608) (9,994) (11,020) Equity raised/(repaid) 435 - - - -
E/o Income / (loss) (686) (1,374) (1,082) - - Debt raised/(repaid) (2,911) 2,357 (2,314) (1,326) (1,193)
Net profit 7,560 6,565 17,036 25,699 29,797 Chg in Minorities int. - - - - -
Adjusted net profit 8,245 7,939 18,118 25,699 29,797 Div idend (incl. tax ) (4,735) (3,386) (3,724) (6,749) (7,618)
Growth (%) (35.3) (3.7) 128.2 41.8 15.9 Other financing activ ities - (1,833) 2,141 - -
Diluted EPS (Rs) 28.5 27.4 62.6 88.8 103.0 Cash flow from fin. (c) (7,211) (2,862) (3,897) (8,074) (8,811)
Diluted EPS Growth (%) (54.7) (3.7) 128.2 41.8 15.9 Net chg in cash (a+b+c) 11,972 (1,300) 4,539 7,161 18,368
Balance Sheet FY08 FY09 FY10 FY11E FY12E Key Ratios FY08 FY09 FY10 FY11E FY12E
Equity capital 1,447 1,447 1,447 2,894 2,894 OPM (%) 14.1 13.4 21.6 20.8 20.4
Reserves & surplus 14,429 17,250 27,837 44,470 65,804 Net margin (%) 9.5 9.4 15.7 15.9 15.8
Shareholders' funds 15,876 16,864 29,283 47,364 68,698 Div idend y ield (%) 0.7 0.7 1.3 1.5 1.6
Preference Share Capital - - - - - Net debt/Equity (x ) 0.0 0.2 (0.1) (0.2) (0.4)
Total Debt 13,343 15,700 13,386 12,060 10,867 Net Working Capital (day s) (15) (8) (39) (14) (14)
Capital Employed 29,219 32,564 42,669 59,424 79,565 Asset turnov er (x ) 1.3 1.7 1.8 2.0 1.8
Net fix ed assets 13,034 15,644 15,211 15,544 15,668 ROCE (%) 23.9 36.5 65.4 67.4 57.0
Cash & Cash Eq. 12,807 11,507 16,046 23,207 41,575 RoE (%) 23.2 48.5 78.5 67.1 51.3
Net other Current Assets (2,836) (2,492) (13,754) (7,501) (8,141) EV/Net sales (x ) 5.1 5.3 3.8 2.7 2.2
Inv estments 6,325 7,947 25,184 28,384 30,884 EV/EBITDA (x ) 34.6 37.8 17.0 12.4 10.4
Net Deferred Tax Assets (110) (42) (17) (209) (420) PER (x ) 53.4 55.5 24.3 17.1 14.8
Total assets 29,219 32,564 42,669 59,424 79,565 Price/Book (x ) 27.7 26.1 15.0 9.3 6.4
P/E Band EV/EBIDTA
2,000 480,000
12X
18X
1,500 360,000 10X
15X
12X 8X
1,000 240,000
9X 6X
6X 4X
500 120,000
0 0
May -08 Dec-08 Jul-09 Mar-10 Oct-10 May -08 Dec-08 Jul-09 Mar-10 Oct-10
vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in
Sector: Auto
BSE Sensex: 20,203
RESEARCH
BUY
HERO HONDA MOTORS CMP Rs1,874
TP Rs2,305
Will The Party End? 12 October 2010

Hero Honda (HH) has been the most stable player in the 2- vineet.hetamasaria@pinc.co.in
wheeler sector over the past two years with a stable product +91-22-6618 6388
profile. The company has been in the limelight recently
Nikhil Deshpande
regarding a possible end to the JV with Honda. With no in-
nikhil.deshpande@pinc.co.in
house R&D, question marks are being raised over the +91-22-6618 6339
company’s ability to maintain its leadership in case of a break-
up between the partners. However, we expect HH to overcome
these overhangs and maintain its numero uno position.
End of the road for the JV? The JV agreement with Honda, Japan
VOLUMES (Unit ‘000s)
is due to end in 2014. The media is abuzz with news and speculation
FY10 FY11E FY12E
on the possible end of the JV and different combinations following
Motorcycles 4,386 4,956 5,452
such an event. We believe given the aspirations of Honda and its
YoY Gr. (%) 22.4 13.0 10.0
experience in India through its wholly owned subsidiary will lead it Scooters 214 257 288
to have an independent presence in India and hence this JV is unlikely YoY Gr. (%) 54.9 20.0 12.0
Company Update
to be renewed beyond 2014 when the current agreement ends. Total Sales 4,600 5,213 5,740
YoY Gr. (%) 23.6 13.3 10.1
Concerns on technology: HH has no in-house R&D, which is a
major concern being raised. However, we do not expect this to be a
major hurdle as two-wheeler business is not technology intensive. STOCK DATA
Further we expect that Indian promoters will demand technology
Market Cap Rs374.2bn
continuity for some years and this will give HH time to develop its in- Book Value per share Rs173.5
house R&D capabilities. Eq Shares O/S (F.V. Rs2) 200mn
Opening of export frontiers: HH is currently restrained from Free Float 47.8%
Avg Traded Value (6 mnths) Rs0.93bn
exporting due to the JV agreement and has access to only three
overseas markets. Following the break-up we expect HH to emerge
Bloomberg Code HH IN
as a strong player in the exports. Success of other Indian two-wheeler
Reuters Code HROH.BO
manufacturers in the overseas market support this.
Robust performance even during the downturn: In the 2-wheeler
PERFORMANCE (%)
pack, HH was the least affected during the downturn of FY08-09.
1M 3M 12M
Lesser dependence on finance and a stable product range shielded
Absolute 8.2 (5.3) 14.9
HH from the meltdown in the 2-wheeler market. Following flat sales
Relative 0.7 (17.6) (3.7)
in FY08, HH's volumes were up 11.5% in FY09 even as the industry
grew only 5%.
Outlook: We expect HH to achieve volumes of 5.2mn and 5.7mn RELATIVE PERFORMANCE
units in FY11 and FY12 respectively. We expect the company to
HH BSE
maintain margins of ~15.5% over FY11-12. We maintain our earning 2,200
estimates for FY11 and FY12 at Rs113.8 and Rs128.1 respectively.
1,950
1,700
The stock currently trades at 16.5xFY11E and 14.6xFY12E earnings.
We maintain 'BUY' on the stock with a target price of Rs2,305, 1,450
discounting FY12E earnings 18x. 1,200
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
RESEARCH
Hero Honda Motors

Incom e Statement FY08 FY09 FY10 FY11E FY12E Cash Flow Statem ent FY08 FY09 FY10 FY11E FY12E
Net sales 103,318 123,191 157,582 176,083 197,714 Pre-tax profit 14,091 17,815 28,317 28,012 31,576
Growth (%) 4.4 19.2 27.9 11.7 12.3 Depreciation 1,474 1,600 1,496 2,203 2,481
Operating profit 13,537 17,037 26,682 26,479 29,916 Total tax paid (4,420) (4,866) (5,622) (5,434) (5,847)
Other operating income 313 629 979 1,006 1,068 Chg in w orking capital 3,675 2,225 4,975 (7,204) 161
EBITDA 13,850 17,666 27,660 27,485 30,983 Other operating activ ities - - - - -
Growth (%) 13.1 27.6 56.6 (0.6) 12.7 Cash flow from oper. (a) 14,820 16,774 29,166 17,578 28,371
Depreciation (1,615) (1,807) (1,915) (2,203) (2,481) Capital ex penditure (3,567) (2,895) (1,623) (4,849) (11,300)
Other income 1,876 1,980 2,593 2,751 3,094 Chg in inv estments (59) (263) - - -
EBIT 14,111 17,840 28,338 28,032 31,596 Other inv esting activ ities - - - - -
Interest paid (20) (25) (21) (20) (20) Cash flow from inv. (b) (3,627) (3,158) (1,623) (4,849) (11,300)
PBT (before E/o items) 14,091 17,815 28,317 28,012 31,576 Free cash flow (a+b) 11,193 13,616 27,543 12,729 17,071
Tax prov ision (4,424) (4,997) (5,999) (5,322) (5,999) Equity raised/(repaid) - - - - -
E/o Income / (loss) - - - - - Debt raised/(repaid) (332) (535) (125) (333) (150)
Net profit 9,667 12,818 22,318 22,690 25,576 Chg in Minorities int. - - - - -
Adjusted net profit 9,667 12,818 22,318 22,690 25,576 Div idend (incl. tax ) (3,972) (4,439) (4,973) (25,376) (8,177)
Growth (%) 12.7 32.6 74.1 1.7 12.7 Other financing activ ities (67) - - - -
Diluted EPS (Rs) 48.4 64.2 111.8 113.6 128.1 Cash flow from fin. (c) (4,370) (4,974) (5,097) (25,709) (8,327)
Diluted EPS Growth (%) 12.7 32.6 74.1 1.7 12.7 Net chg in cash (a+b+c) 6,823 8,642 22,446 (12,980) 8,744
Equity capital 399 399 399 399 399 EBITDA margin (%) 13.4 14.3 17.4 15.5 15.6
Preference Share Capital - - - - - Net debt/Equity (x ) (0.9) (0.9) (1.7) (0.9) (0.8)
Total Debt 1,320 785 660 327 177 Net Working Capital (day s) (9) (10) (18) (2) (2)
Cash & Cash Eq. 26,885 35,527 57,973 44,993 53,736 RoE (%) 35.4 37.8 61.4 54.1 44.2
Net other Current Assets (10,191) (12,589) (38,560) (13,896) (14,057) EV/Net sales (x ) 3.4 2.8 2.0 1.9 1.6
Inv estments 94 357 357 357 357 EV/EBITDA (x ) 25.2 19.2 11.5 12.0 10.3
Net Deferred Tax Assets (1,254) (1,444) (1,528) (1,679) (1,831) PER (x ) 38.7 29.2 16.8 16.5 14.6
P/E Band EV/EBIDTA
2,800 480,000
14X
2,100 18X 360,000 12X
15X
10X
1,400 12X 240,000 8X
9X
6X
700 6X 120,000
0 0
Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10
Sector: Auto
BSE Sensex: 20,203
RESEARCH
HOLD
TVS MOTOR CMP Rs75
TP Rs85
12 October 2010
Riding On The Wego
TVS Motors (TVSL) in FY08-09 was a pale shadow of its heydays vineet.hetamasaria@pinc.co.in
of FY03-04. With the product portfolio in disarray, it was hit +91-22-6618 6388
hard by the downturn. FY10 was a year of consolidation and
the company expects to build on it in FY11. New launches in Nikhil Deshpande
the two-wheeler segment and ramp up in 3-wheelers are nikhil.deshpande@pinc.co.in
expected to give it the much needed profitability boost. +91-22-6618 6339
Overcoming the Victor shadow: Within a year of its break-up
with Suzuki, Japan, TVSL launched the Victor. Positioned in the
VOLUMES (Unit ‘000s)
executive segment, Victor to date has been TVSL's most successful
model and the nearest challenger to HH's Splendor. Post Victor, FY10 FY11E FY12E
TVSL failed to repeat the performance with other products in the Motorcycles 492 640 704
segment. Apache and Star City in the premium and economy Scooters 300 435 500
segments respectively have helped the company to hold on to 8% Mopeds 565 635 667
market share. Although, the company is nearing its peak monthly 2-Wheelers 1,357 1,710 1,871
performance of 65K motorcycles it has been unable to take its market 3-Wheelers 13 29 34
share back in double digits. Total Dom estic 1,370 1,740 1,905
Company Update
Wego leading the way: The company has been a consistent Exports 167 237 275
performer in the scooter segment with a market share at 20% levels. Total Sales 1,537 1,976 2,180
However, success of the Activa and similar products (large scooters) YoY Gr. (%) 15.2 28.6 10.3
from HH and Suzuki resulted in a market share declining to early
20% levels. TVSL has tried to plug this gap in its scooter portfolio
STOCK DATA
by launching Wego in Jan'10. In H1FY11, scooters grew 41.5%,
managing to keep up with the industry growth rate. Market Cap Rs35.5bn
Book Value per share Rs17.6
Mopeds moving out of South: Mopeds have traditionally been in
Eq Shares O/S (F.V. Rs1) 475mn
demand only in the souther region. However in the recent past, moped
Free Float 39.6%
demand has started emerging from other markets too. In H1FY11,
Avg Traded Val. (6 mnts) Rs326.4mn
TVSL's moped volumes have grown at 23.7% to 341k units.
3-wheeler business taking roots: TVSL has been a late entrant Bloomberg Code TVSL IN
into the 3-wheeler segment. The company started dispatches only Reuters Code TVSM.BO
in Apr'08. Having made a countrywide launch, the company is
consistently clocking volume of 2k in the domestic market and 1k in
the export market. We expect TVSL to achieve annual volumes of PERFORMANCE (%)
50k by FY12.
1M 3M 12M
Indonesian operations: The Indonesian subsidiary has run rate of Absolute (2.7) 27.0 164.5
2,000 units per month. TVSL expects this to increase to 5,000 units Relative (10.2) 14.7 145.8
during the current year with support from local financiers. At these
levels, this subsidiary is expected to achieve cash break-even.
RELATIVE PERFORMANCE
Outlook: We expect the company to achieve volumes of 2mn units
in FY11 and 2.18mn units in FY12. The company is expanding
TVSL BSE
capacity to 2.7mn units to cater to this demand. Margins are expected 80
to be maintained near the 7% mark, significantly lower compared
with peers. We expect the company to post earnings of Rs4.5 and 60
Rs5.3 in FY11 and FY12 respectively.
40
The stock trades at 16.6x FY11E and 14.1x FY12E standalone 20
earnings. We maintain a 'HOLD' rating on the stock with a price
0
target of Rs85, discounting FY12E earnings at 16x.
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10
RESEARCH
TVS Motor
Incom e Statement FY08 FY09 FY10 FY11E FY12E Cash Flow Statement FY08 FY09 FY10 FY11E FY12E
Net sales 32,195 36,709 43,631 61,670 69,633 Pre-tax profit 354 311 899 2,681 3,145
Growth (%) (16.5) 14.0 18.9 41.3 12.9 Depreciation 886 949 840 1,151 1,224
Operating profit 440 1,211 2,094 3,683 4,130 Total tax paid (168) 30 (220) (569) (668)
Other operating income 507 665 670 704 739 Chg in w orking capital (1,014) (412) 982 248 141
EBITDA 947 1,875 2,764 4,387 4,869 Other operating activ ities - - - - -
Growth (%) (48.8) 97.9 47.4 58.7 11.0 Cash flow from oper. (a) 57 878 2,502 3,510 3,842
Depreciation (965) (1,033) (1,044) (1,151) (1,224) Capital ex penditure (1,287) (883) (304) (1,230) (850)
Other income 486 115 145 185 210 Chg in inv estments (258) (1,273) (460) - -
EBIT 468 957 1,865 3,421 3,855 Other inv esting activ ities - - - - -
Interest paid (115) (646) (754) (740) (710) Cash flow from inv. (b) (1,545) (2,156) (764) (1,230) (850)
PBT (before E/o items) 354 311 1,111 2,681 3,145 Free cash flow (a+b) (1,488) (1,278) 1,737 2,281 2,992
Tax prov ision (36) (0) (19) (536) (629) Equity raised/(repaid) - - - - -
E/o Income / (loss) - - (212) - - Debt raised/(repaid) 328 2,396 973 (633) (1,300)
Net profit 318 311 880 2,145 2,516 Chg in Minorities int. - - - - -
Adjusted net profit 318 311 1,092 2,145 2,516 Div idend (incl. tax ) (42) (195) (389) (301) (333)
Growth (%) (52.1) (2.2) 251.3 96.5 17.3 Other financing activ ities 58 (426) 424 190 110
Diluted EPS (Rs) 0.7 0.7 2.3 4.5 5.3 Cash flow from fin. (c) 344 1,776 1,007 (744) (1,523)
Diluted EPS Growth (%) (52.1) (2.2) 251.3 96.5 17.3 Net chg in cash (a+b+c) (1,144) 498 2,745 1,537 1,468
Equity capital 238 238 238 475 475 EBITDA margin (%) 2.9 5.0 6.2 7.0 6.9
Preference Share Capital - - - - - Net debt/Equity (x ) 0.8 1.1 0.7 0.4 0.1
Total Debt 6,663 9,060 10,033 9,400 8,100 Net Working Capital (day s) (2) (7) (16) (9) (9)
Cash & Cash Eq. 759 1,257 4,002 5,539 7,007 RoE (%) 4.2 4.1 13.9 22.9 21.9
Net other Current Assets 2,043 2,358 1,301 1,014 873 EV/Net sales (x ) 1.3 1.2 1.0 0.6 0.5
Inv estments 2,668 3,941 4,401 4,401 4,401 EV/EBITDA (x ) 43.7 23.1 15.0 9.0 7.5
Net Deferred Tax Assets (1,549) (1,481) (1,146) (1,106) (1,067) PER (x ) 111.8 114.3 32.5 16.6 14.1
P/E Band EV/EBIDTA
160 80,000
30X
15X
120 24X 60,000
12X
18X 9X
80 40,000
12X 6X
40 20,000
6X 3X
0 0
Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10
RESEARCH
T E A M
EQUITY DESK
Sadanand Raje Head - Institutional Sales sadanand.raje@pinc.co.in 91-22-6618 6366
Technical Analyst
RESEARCH
Vineet Hetamasaria, CFA Auto, Cement vineet.hetamasaria@pinc.co.in 91-22-6618 6388
Nikhil Deshpande Auto, Auto Ancillary, Cement nikhil.deshpande@pinc.co.in 91-22-6618 6339
Vinod Nair Construction, Power, Capital Goods vinod.nair@pinc.co.in 91-22-6618 6379
Ankit Babel Capital Goods ankit.b@pinc.co.in 91-22-6618 6551
Hitul Gutka Power hitul.gutka@pinc.co.in 91-22-6618 6410
Subramaniam Yadav Construction subramaniam.yadav@pinc.co.in 91-22-6618 6371
Madhura Joshi Power madhura.joshi@pinc.co.in 91-22-6618 6395
Satish Mishra Fertiliser, Engineering satish.mishra@pinc.co.in 91-22-6618 6488
Rohit Kumar Anand IT Services rohit.anand@pinc.co.in 91-22-6618 6372
Namrata Sharma Media namrata.sharma@pinc.co.in 91-22-6618 6412
Karan Taurani IT Services karan.taurani@pinc.co.in 91-22-6618 6382
Bikash Bhalotia Metals, Mining bikash.bhalotia@pinc.co.in 91-22-6618 6387
Harleen Babber Metals, Mining harleen.babber@pinc.co.in 91-22-6618 6389
Dipti Vijaywargi Metals, Mining dipti.vijaywargi @pinc.co.in 91-22-6618 6393
Chirag Dagli Pharma, FMCG, Fertiliser chirag.dagli@pinc.co.in 91-22-6618 6462
Naveen Trivedi Pharma, FMCG naveent@pinc.co.in 91-22-6618 6384
SALES
Anil Chaurasia Equities anil.chaurasia@pinc.co.in 91-22-6618 6483
Rajeev Gupta Equities rajeev.gupta@pinc.co.in 91-22-6618 6486
Shailesh Kadam Derivatives shaileshk@pinc.co.in 91-22-6618 6349
Ganesh Gokhale Derivatives ganeshg@pinc.co.in 91-22-6618 6347
DEALING
Mehul Desai Head - Sales Trading mehul.desai@pinc.co.in 91-22-6618 6303
Naresh Panjnani Co-Head - Sales Trading naresh.panjnani@pinc.co.in 91-22-6618 6333
Amar Margaje amar.margaje@pinc.co.in 91-22-6618 6327
Ashok Savla ashok.savla@pinc.co.in 91-22-6618 6321
Raju Bhavsar rajub@pinc.co.in 91-22-6618 6322
Manoj Parmar manojp@pinc.co.in 91-22-6618 6326
Hasmukh D. Prajapati hasmukhp@pinc.co.in 91-22-6618 6325
Sajjid Lala sajjid.lala@pinc.co.in 91-22-6618 6337
Chandani Bhatia chandani.bhatia@pinc.co.in 91-22-6618 6324
DIRECTORS
Gaurang Gandhi gaurangg@pinc.co.in 91-22-6618 6400
Hemang Gandhi hemangg@pinc.co.in 91-22-6618 6400
Ketan Gandhi ketang@pinc.co.in 91-22-6618 6400
COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400
Infinity.com
Financial Securities Ltd
bright thinking SMALL WORLD, INFINITE OPPORTUNITIES
Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211
1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195
Disclaimer: This document has been prepared by the Research Desk of M/s Infinity.com Financial Securities Ltd. (PINC) and is meant for use of the
recipient only and is not for public circulation. Each recipient of this document should make such investigations as it deems necessary to arrive at
an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and
should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be
suitable for all investors
The information contained herein is obtained and collated from sources believed reliable and PINC has not independently verified all the
information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or
fairness of the information and opinions contained in this document.
The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as
endorsement of the views expressed in the report. The opinion expressed or estimates made are as per the best judgement as applicable at that
point of time and PINC reserves the right to make modifications and alternations to this statement as may be required from time to time without any
prior approval
PINC, its affiliates, their directors, employees and their dependant family members may from time to time, effect or have effected an own account
transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment
banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis
of PINC. The views expressed are those of analyst and the PINC may or may not subscribe to all the views expressed therein
This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to
any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into
the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed
in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose
possession this document comes should inform themselves about, and observe, any such restrictions
Neither PINC, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special
or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
Copyright in this document vests exclusively with PINC and this document is not to be reported or circulated or copied or made available to others.
Our reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO>

Bajaut1 20101012

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Bajaut1 20101012

Uploaded by

Copyright:

Available Formats

RESEARCH

TWO-WHEELER INDUSTRY Sector View - Positive

FMCG Model At A Discount 12 October 2010

The Indian two-wheeler industry has undergone a complete

significant discount to the companies in FMCG industry.

FMCG model at a discount

2-wheeler business - Evolving as a FMCG play

Capex as Percentage of Sales (5 years avg.)

Source: Company, PINC Research

Net Working Capital (5 years avg.)

Source: Company, PINC Research

Dividend Payout Ratio and ROE (5 years Avg.)

Source: Company, PINC Research

Net Sales Growth

Source: Company, PINC Research

Source: Bloomberg Estimate, PINC Research

Trends in the Indian two-wheeler industry

Volumes - Robust growth across segments

z Reliance of the two-wheelers industry on financing has seen a significant dip.

Motorcycles retain their dominance, but scooters make a strong comeback

2-Wheeler Market Composition

Entry of new players in Scooter - Emulating the Activa

Scooter Sales Growth

Scooter Marketshare (%)

Bajaj Auto Dominance

BJAUT made a strong come Motorcycle - BJAUT presses the accelerator

Motorcycle Sales Growth

Economy segment losing its Market Share

Economy Segment Market Share

Executive Segment Market Share

Premium Segment Market Share

Source: Crisil Research

Financiers taking a cautious approach

Finance Penetration for Two Wheelers

Source: Crisil, PINC Research

Beyond Indian Shores

Two Wheeler Exports

Pressed for Capacity

Monthly Capacity and Production (6 months Avg.)

Source: SIAM, Company, PINC Research

Rise of the Pheonix 12 October 2010

3-Wheelers 165 223 249

respectively. We maintain our 'BUY' rating with a target price of 400

P/E Band EV/EBIDTA

Will The Party End? 12 October 2010

Hero Honda Motors

P/E Band EV/EBIDTA

P/E Band EV/EBIDTA

You might also like