Professional Documents
Culture Documents
Import of
Parts
Drive chains,
engine
components,
transmissions etc.
Auto
Component
Manufacturer
300+ players.
castings, forgings,
tires etc.
Dealers*
2000+ dealers in
domestic market
Original
Equipment
Manufacturer
(OEM)
Domestic
Customers
Low penetration
at 7%. Lower in
rural areas
SubDealers/Touch
Points
INR 55K Cr
turnover with
13.3Mn units in
FY11
3 players account
for 80% of market
share
12000+ dealer
touch points
International
Customers
Service
Centers
Raw Material
Suppliers
Key revenue
generator for
dealers
Sheet metal,
aluminum etc
30%
TVS
Motors
9%
25%
15
20%
Yamaha
4%
Others
7%
15%
Hero
Moto
39%
10
10%
Honda
Motors
14%
5%
0%
0
-5%
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Bajaj
Auto
27%
FY12 (YTD)
Growth (%)
35%
30%
50,000
25%
40,000
20%
30,000
15%
10%
20,000
5%
10,000
0%
-5%
2006
2007
2008
2009
2010
2011
Growth (RHS)
14
30%
12
25%
10
20%
25%
20%
15%
5%
0%
-5%
15.4%
15%
10%
17.0%
12.8%
8.7%
10%
7.5%
5%
-10%
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
(YTD)
0%
% Growth (RHS)
-5%
-0.6%
2W
1.8
40%
1.4
35%
1.2
30%
25%
0.8
20%
0.6
15%
0.4
10%
0.2
5%
0%
FY06
FY07
FY08
FY09
FY10
FY11
Utility
M&HCV
PV
FY12
(YTD)
% Growth (RHS)
MPV
45%
1.6
FY05
3W
Buyer
Power
5
4
3
Threat of
Substitutes
2
1
Threat of
New
Entrants
Degree of
Rivalry
NOTE: (+) and () are represented in terms of the Sector on the whole.
Strictly Private & Confidential
31%
30%
25%
20%
15%
11%
10%
7%
7%
6%
4%
5%
1%
0%
India
China
Brazil
Korea
Mexico
Source: OECD (2008)
25%
23.1%
India is one of the lowest penetrated markets for two wheelers even
amongst emerging economies.
20.3%
20%
17.3%
15%
11.9%
10%
5%
11.5%
10.3%
2.8%
2.7%
13%
11%
11.5%
9%
8%
7%
7%
15%
14.2%
13.2%
7%
7%
2.8%
3.1%
3.2%
4.1%
5.5%
5.5%
6.3%
0%
FY05
FY06
FY07
FY08
Total 2W
FY09
FY10
FY11
FY12E
FY13E
20
1500
12
25%
18
1400
10
20%
14
16
15%
8
6
10%
14
5%
12
0%
-5%
-10%
FY05
FY06
FY07
FY08
FY09
FY10
FY11
1300
1200
1100
10
1000
FY12
(YTD)
900
FY05
% Growth (RHS)
FY06
FY07
FY08
FY09
FY10
FY11
85%
80%
80%
80%
77%
73%
75%
70%
65%
60%
2008
2009
2010
2011
High Demand, Concentrated Supply and Low Demand Elasticity Lowering Bargaining Power of Dealers and Buyers.
Source: Bloomberg, Companies, Allegro Calculations.
Exports
Auto
Component
Manufacturer
Original Equipment
Manufacturers (OEMs)
300+ players as
compared to 11+
OEMs
Dealers / Service
Centers (Replacement
Market)
Forms 10-30% of
Revenue for
Component
Manufacturer
5%
0%
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Localisation Level
Bajaj Auto
90-100%
TVS Motors
90-100%
Honda Motors
80%
Hero MotoCorp
85-90%
Fragmented, Contractual Relationship and High Localisation makes Supplier Power Moderate
Source: Bloomberg, Companies, ACE, Allegro Calculations.
2008
2009
2010
2011
HHI Index
Company
100%
10%
2%
0%
98%
100%
TVS
Hero MotoCorp
90%
80%
70%
60%
90%
50%
40%
30%
Bajaj Auto
Increasing Competition, New Players Entering the Market and Lack of Revenue Diversification shows increasing Rivalry
Source: Bloomberg, Companies, Media, Allegro Calculations.
10
Investment
Type of
Expansion
Capacity
(units)
Time
Bajaj Auto
INR 75 Cr
Brownfield
600,000
6-9 Months
1250
Greenfield
2,500,000
18-24 Months
2000
Brownfield
600,000
6-9 Months
1000
Yamaha
INR 60 Cr
Touch Points
Dealership Network
6000
1000
5000
800
600
400
200
0
Hero MotoCorp
Bajaj Auto
TVS Motors
4000
3000
2000
1000
0
Honda Motors
Hero MotoCorp
Bajaj Auto
TVS Motors
While investment and time is not very high, access to a distribution network make entry difficult.
11
Honda Motors
9125
9125
Average Mileage
50
15
183
608
70.03
70.03
12780
42602
1.4
4.7
Cost per KM
<90K
41%
90K-200K
42%
200K-500K
10%
Above 500K
2%
Source: McKinsey
3.0%
2.6%
2.5%
Railways
15%
2.0%
1.5%
1.0%
0.7%
0.4%
0.5%
Roadways
85%
South Korea
Source: MoRTH (2008)
Source:Lower
MoRTH (2008)
running
0.1%
0.1%
Taiwan
India
0.0%
China
Indonesia
costs, larger addressable market and lack of public transport make two wheelers attractive.
12
Destination
Hero MotoCorp
Bajaj Auto
TVS Motors
AFRICAN COUNTRIES
Low Per Capita Income (In USD)
Nigeria accounts for 40% of all two wheelers sold with
annual demand of 1.2mn.
Nascent stage where two wheelers are used mostly for
commercial purposes Hence skewed towards low cost
products.
Huge export opportunity for Indian OEMs as economy
and affordability levels grow.
LATIN AMERICA
14000
Others,
2%
12000
10000
Suzuki,
8%
8000
6000
4000
Yamaha,
37%
2000
Honda,
53%
0
CY04
CY05
CY06
Indonesia
CY07
CY08
Thailand
CY09
CY10
CY11E
Vietnam
3%
6%
3% 7%
<100cc
101cc - 150cc
151cc - 250cc
251cc - 400cc
>401cc
40%
23%
20%
20%
30%
17%
15%
12%
10%
10%
11%
3%
11%
20%
11%
7%
7%
6%
6%
5%
4%
3%
3%
3%
3%
13%
9%
8%
7%
7%
5%
15%
14%
13%
10%
0%
FY05
FY06
FY07
FY08
FY09
Total 2W
FY10
FY11
0%
FY12E FY13E
Rural
Towns
Tier III
Tier II
Metros
60%
25%
40000
82%
80%
20%
79%
15%
78%
15%
14%
19%
17%
77%
16%
21%
20%
22% 80%
50%
78%
40%
30000
76%
76%
75%
6%
6%
6%
6%
6%
5%
30%
25000
74%
74%
10%
6%
20%
73%
72%
5%
5%
0%
0%
68%
FY09
FY10
FY11
FY12E
FY13E
FY14E
15000
FY07
FY15E
FY08
FY09
Scooters
Mopeds
Motorcycles (RHS)
Source: Bloomberg, McKinsey, Company Data, RBI, Allegro Calculations
Strictly Private & Confidential
20000
10%
70%
FY08
35000
15
FY10
FY11
30%
17
20%
14
10%
11
0%
8
5
-10%
FY08
FY09
FY10
FY11
FY12E
FY13E
FY14E
FY15E
% Growth
Two wheeler manufacturers are showing an increased focus on exports to contribute to their top line.
Source: Bloomberg, Media, Company Data
Strictly Private & Confidential
16
100%
30%
17
6%
6%
6%
6%
6%
6%
5%
5%
14%
15%
16%
17%
19%
20%
21%
22%
80%
79%
78%
77%
76%
75%
74%
73%
FY08
FY09
FY10
FY11
FY12E
FY13E
FY14E
FY15E
80%
20%
60%
14
10%
11
40%
0%
8
5
20%
-10%
FY08
FY09
FY10
FY11
FY12E
FY13E
FY14E
0%
FY15E
% Growth
Motorcycles
17%
19%
20%
21%
23%
Mopeds
100%
13%
Scooters
24%
80%
60%
53%
59%
64%
64%
64%
64%
64%
62%
17%
16%
15%
14%
14%
40%
20%
34%
27%
19%
Bajaj Auto
29%
Others
25%
0%
FY08
FY09
FY10
Economy
FY11
Executive
Premium
17
Hero
MotoCorp
36%
TVS
Motors
10%
EXPORT MARKETS
POSITIVES
POSITIVES
!Low penetration of two wheelers in India Lower in
rural and semi rural towns.
18
Company
MCAP
EPS Growth
P/E
EV/EBITDA
ROE
Target
INR CMP
FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E Price
(cr)
Upside
Rating
Bajaj Auto
50,000
1723
-10%
9%
16.2
14.8
15.2
11.8
53%
47%
1755
Neutral
Hero MotoCorp
41,600
2059
5%
18%
21.1
17.9
16.4
13.5
49%
48%
2078
Underweight
TVS Motors
2,731
58
78%
31%
12.0
9.2
15.9
6.1
29%
31%
73
Overweight
Bajaj Auto
INR (Cr)
Hero MotoCorp
TVS Motors
FY12E
FY13E
FY14E
FY12E
FY13E
FY14E
FY12E
FY13E
FY14E
Sales
19,759
22,389
25,251
23,149
27,437
NA
7,687
8,913
10,205
Sales Growth
24%
13%
13%
22%
19%
NA
24%
16%
14%
EBITDA
3,832
4,193
4,693
3,441
4,136
NA
512
606
687
EBITDA Margin
19%
19%
19%
15%
15%
NA
7%
7%
7%
Adj PAT
3,093
3,385
3,569
2,296
2,871
NA
231
292
344
PAT Margin
16%
15%
14%
10%
11%
NA
3%
3%
3%
PAT Growth
18%
9%
6%
19%
20%
NA
19%
27%
18%
19
1723
1754
2%
11.8
14.8
50,000
49,796
1723
1822
1166
14.4
18.0
Promoter
Group
50%
Segment
Motorcycles
35%
2,414,633
972,437
Economy
25%
NA
NA
Executive
21%
NA
NA
Premium
48%
NA
NA
NA
NA
NA
55%
205,603
Scooters
Three Wheelers
Non Institutions
2W
3W
Capacity Capacity
1.5 Mn
540K
1.2 Mn
1.2 Mn
231,281
markets.
Domestic
3W
10%
Exports
28%
Waluj,
Maharashtra
Chakan,
Maharashtra
Pantnagar,
Uttarakhand
Institutions
24%
Area
POSITIVES:
REVENUE MIX:
Domestic
2W
56%
Spares
6%
Bajaj Auto
Profit & Loss (INR Cr)
Mar-08
Mar-09
Mar-10
Mar-11
Total Volumes(Units)
2,451,407
2,194,154
2,852,520
8,663
8,437
11,509
35,340
38,452
40,345
7,753
7,619
9,328
EBITDA
911
818
2,180
Other Income
506
496
535
Depreciation
174
130
136
1,242
1,184
2,579
21
Extraordinary Items
(102)
(205)
(162)
PBT
1,135
958
2,411
Tax
379
302
708
Net Income
756
656
1,704
26
23
59
Net Sales
Avg Realisation
Total Expenditure
EBIT
Interest
EPS
Key Ratios
Mar-08
Mar-09
Sale Growth
Net Income Growth
Mar-10
Mar-08
Mar-09
Mar-10
Mar-11
145
145
145
289
1443
1725
2784
4621
1588
1870
2928
4910
13
24
1327
1570
1326
302
1334
1570
1339
325
1269
1542
1480
1483
35
22
42
70
1857
1809
4022
4795
1594
2188
4317
7110
56
137
101
556
1877
2438
5692
8749
-228
-112
-1274
-1083
Mar-11
-3%
36%
39%
-13%
160%
96%
Du Pont
Mar-08
Mar-09
Mar-10
Mar-11
Tax Burden
0.48
0.55
0.65
0.62
Interest Burden
0.99
0.97
1.00
1.00
Depreciation Burden
0.81
0.84
0.94
0.96
EBITDA Margin
11%
10%
19%
17%
EBITDA Margin
11%
10%
19%
17%
EBIT Margin
14%
14%
22%
1.80
1.48
1.16
1.14
PAT Margin
9%
8%
15%
3.03
3.05
3.40
2.85
0.84
0.84
0.46
0.07 ROE
54%
46%
64%
53%
Debt / Equity
Source: ACE Equity, Bloomberg.
Strictly Private & Confidential
21
2059
2077
9%
13.5
17.9
41,600
43,019
2059
2250
1376
19.7
17.9
Segment
POSITIVES:
Motorcycles
48%
5,040,971
46%
NA
NA
Executive
68%
NA
NA
Premium
22%
NA
NA
17%
361,473
NA
NA
NA
Three Wheelers
Institutions
52%
Non Institutions
Gurgaon, Haryana
Dharuhera,
Haryana
Haridwar,
Uttrakhand
NA
Export
Sales
2%
Domestic
Sales
98%
1.95 Mn
1.95 Mn
2W
3W
Capacity Capacity
2.25 Mn
Promoter
Group
9%
Economy
Scooters
REVENUE MIX:
39%
Hero MotoCorp
Profit & Loss (INR Cr)
Mar-08
Mar-09
Mar-10
Mar-11
Total Volumes(Units)
3,337,142
3,722,000
4,600,130
Net Sales
10,332
12,319
15,758
Avg Realisation
30,960
33,098
34,256
Total Expenditure
9,032
10,691
13,146
EBITDA
1,300
1,628
2,612
Other Income
272
337
414
Depreciation
160
181
191
1,412
1,784
2,834
Interest
Extraordinary Items
PBT
1,410
1,781
2,832
Tax
442
500
600
Net Income
968
1,282
2,232
48
64
112
EBIT
EPS
Key Ratios
Mar-08
Sale Growth
Mar-09
Mar-10
Mar-11
Mar-10
Mar-11
40
40
40
40
2946
3761
3425
2916
2986
3801
3465
2956
132
78
66
1491
132
78
66
1491
1156
1574
1659
4080
392
121
48
125
2567
3369
3926
5129
806
794
975
1433
131
220
1907
72
1825
2053
4831
6145
-888
-1039
-1949
-4640
Mar-08
Mar-09
Mar-10
Mar-11
0.61
0.65
0.75
0.76
Interest Burden
1.00
1.00
1.00
0.99
Depreciation Burden
0.88
0.89
0.93
0.83
EBITDA Margin
13%
13%
17%
13%
2.04
2.03
1.85
1.78
14%
1.69
1.60
2.46
3.67
0.02
0.50 ROE
32%
34%
64%
68%
19%
28%
22%
13%
32%
74%
-14%
EBITDA Margin
13%
13%
17%
13%
EBIT Margin
14%
14%
18%
PAT Margin
9%
10%
0.04
0.02
Mar-09
Tax Burden
4%
Debt / Equity
Du Pont
Mar-08
23
58
73
26%
7.3
9.2
2700
3480
58
78
44
11.6
12.4
Promoter
Group
Institutions
21%
632,150
204,681
Economy
27%
NA
NA
Executive
2%
NA
NA
Premium
8%
NA
NA
Scooters
22%
1,145,526
24,451
Three Wheelers
6%
22,357
17,503
Auto.
Exports
8%
3 Wheelers
3%
Motorcycles
14%
Spares
14%
Scooters &
Mopeds
61%
2W
3W
Capacity Capacity
500K
Nalagarh,
Himachal Pradesh
Motorcycles
POSITIVES:
59%
Non Institutions
Area
No:
Models
Segment
REVENUE MIX:
TVS Motors
Profit & Loss (INR Cr)
Mar-08
Mar-09
Mar-10
Mar-11
Total Volumes(Units)
1,277,000
1,346,000
1,534,000
3,220
3,671
4,363
25,211
27,273
28,443
3,178
3,552
4,243
41
119
120
Other Income
100
80
134
Depreciation
95
103
103
EBIT
47
96
152
Interest
11
65
75
PBT
35
31
76
Tax
(12)
32
31
88
1.3
1.3
3.7
Net Sales
Avg Realisation
Total Expenditure
EBITDA
Extraordinary Items
Net Income
EPS
Key Ratios
Mar-08
Mar-09
Mar-10
Mar-10
Mar-11
24
24
48
798
786
842
952
822
810
865
999
453
622
830
566
214
287
173
219
666
909
1003
785
1016
996
956
938
27
40
27
57
339
478
739
661
771
852
864
1196
42
101
506
550
667
885
269
343
298
316
Du Pont
Mar-11
14%
19%
42%
-2%
183%
121%
Mar-09
Mar-10
Mar-11
1.06
1.00
0.79
0.49
Interest Burden
1.22
-3.08
-3.24
0.60
-1.29
0.13
0.15
0.62
1%
3%
3%
5%
1.49
1.52
1.62
2.16
2.63
2.97
3.11
2.86
4%
4%
10%
19%
Depreciation Burden
1%
3%
3%
5%
EBIT Margin
1%
3%
3%
PAT Margin
1%
1%
2%
5% Asset Turnover
3% Financial Leverage
0.81
1.12
1.16
EBITDA Margin
0.79 ROE
25
Mar-08
Tax Burden
EBITDA Margin
Mar-09
24
Sale Growth
Debt / Equity
Mar-08
Companies - Summary
Operating Leverage
ROCE
ROA
Dividend Payout
Cash Conversion Cycle
(Days)
Bajaj Auto
Hero MotoCorp
TVS Motors
FY10
2.9
1.9
1.5
FY11
1.0
-0.2
1.6
FY10
64.7%
76.5%
8.7%
FY11
91.6%
60.7%
17.6%
FY10
44.2%
60.2%
4.9%
FY11
70.3%
48.3%
10.7%
FY10
34.0%
98.4%
32.4%
FY11
34.7%
108.8%
26.9%
FY10
-26
-15
-16
FY11
-32
-17
-14
Valuations
Current Price
1723
2059
58
Target Price
1754
2077
73
Upside
2%
9%
26%
FY13E EV/EBITDA
11.8
13.5
7.3
FY13E P/E
14.8
17.9
9.2
26
Appendix
27
Public / Institutions
(49%)
Bahadur Chand
Investments P Ltd
(7%)
Honda Motorcycles
(26%)
Public / Institutions
(49%)
Bahadur Chand
Investments P Ltd
(7%)
Deal Features:
Hero Group agreed to buy out Honda Motors stake for a lump-sum payment of Rs. 3800 Cr (Approx Rs 730 / share of Hero Honda).
Hondas stake was transferred to Hero Investments Pvt Ltd (HIPL)
In addition Honda would get a fixed payment of Rs. 2450 Cr for the use of the Honda brand name on the existing product line of
Hero. New products using Honda technology or branding would attract a royalty of 3% - 5%.
HIPL buys the stake using a bridge finance initially. HIPL got an approval to raise Rs. 4000 Cr worth of FCCBs to finance the deal.
HIPL gets Government Investment Corporation of Singapore (GIC) and Bain Capital to buy 30% stake in HIPL. The deal was for an
amount close to $830 million (Approx Rs 1400 / share of Hero Moto Corp)
28
Bajaj Auto
Hero MotoCorp
25
25
20
20
15
15
30
25
20
15
10
10
5
May-08
Nov-08
May-09
P/E
Nov-09
May-10
Nov-10
Mean
+1
-1
May-11
Nov-11
10
5
May-08
5
Nov-08
May-09
P/E
Nov-09
Mean
May-10
Nov-10
+1
May-11
Nov-11 May-08
May-09
P/E
-1
2500
3000
2000
2500
120
2000
100
1500
Nov-08
Nov-09
May-10
Mean
Nov-10
+1
May-11
Nov-11
-1
140
80
1500
1000
60
1000
500
40
500
0
May-08
Nov-08
Price
May-09
11x
Nov-09
14x
May-10
16x
Nov-10
18x
May-11
21x
Nov-11
0
May-08
20
Nov-08
Price
May-09
7x
Nov-09
May-10
Nov-10
12x
14x
17x
29
May-11
22x
Nov-11
0
May-08
Nov-08
May-09
Price
Nov-09
10X
May-10
15X
Nov-10
20X
May-11
25X
Nov-11
Bajaj Auto
Hero MotoCorp
150%
40%
100%
20%
50%
0%
0%
-20%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-50%
-40%
-100%
May-08
Nov-08
May-09
Prem/Disc
Nov-09
May-10
Mean
Nov-10
+1
May-11
-60%
May-08
Nov-11
Nov-08
May-09
Prem/Disc
-1
Nov-09
May-10
Mean
Nov-10
+1
May-11
Nov-11
-60%
May-08
Nov-08
-1
May-09
Prem/Disc
Nov-09 May-10
Mean
Nov-10
+1
May-11
-1
20
15
25
30
20
25
15
20
10
15
10
10
5
May-08
Nov-08
May-09
EV/EBITDA
Nov-09
May-10
Mean
Nov-10
+1
May-11
-1
Nov-11
0
May-08
Nov-08
May-09
Nov-09
EV/EBITDA
May-10
Mean
30
Nov-10
+1
May-11
-1
Nov-11
5
Jul-08
Jan-09
Jul-09
EV/EBITDA
Jan-10
Mean
Jul-10
Jan-11
+1
Jul-11
-1
Nov-11