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21 March 2016

Asia Pacific/India
Equity Research
Auto Parts & Equipment (Automobiles & Components IN (Asia))

India Commercial Vehicles


Sector
Research Analysts
Jatin Chawla
91 22 6777 3719
jatin.chawla@credit-suisse.com
Akshay Saxena
91 22 6777 3825
akshay.saxena@credit-suisse.com

THEME

Where are we in the cycle?


Figure 1: Despite a distinct slowdown in freight movement in the economy in
last five years, road not as badly impacted due to share gains from railways
12%

68%

10%

66%

8%

64%

6%

62%

4%

60%

2%

58%

0%

56%
FY04

FY05

FY06

FY07

FY08

FY09

FY10

Total Freight transportation growth

FY11

FY12

FY13

FY14

FY15

FY16

% share of roads (RHS)

Source: MORTH, Planning Commission, Indian Railways, Credit Suisse estimates

Truck utilisations okay; weak economy offset by share gains from rail.
We have created a proprietary demand-supply model for the CV industry.
Our model suggests that despite high CV tonnage addition in the last few
years and a weak economy, truck utilisations levels are not low as road
freight has gained >5% share from railways since FY12. Apart from other
reasons, these share gains also reflect the fact that rail freight pricing is up
>50% since FY12 whilst road freight prices are flat since then.
Factors beyond the cycle equally important. Hence we expect the current
momentum in CV volumes to continue into FY17, aided by pre-buying on
account of BS-IV implementation. GST and DFC (Dedicated Freight
Corridor) are potential negatives for CVs but both have been delayed: GST
is likely only in FY18 or even later; DFC impact will be visible only in FY20.
Prefer Bosch, WABCO over Ashok Leyland. A continued momentum on
CVs is supportive of our positive stance on Tata Motors where JLR still
remains the core thesis. Ashok Leyland has both strong execution and a
favourable cycle going for it; however, valuations are just too rich for our
comfort. We continue to like the content stories in Bosch (link) and WABCO
over AL in the space. Both of these are plays on government's focus on
safety and pollution as well. We increase our FY17/18E earnings for Ashok
Leyland by 11%/7% and TP to Rs96 (from Rs86).
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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

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21 March 2016

Focus charts and table


Figure 2: Rail freight rates up >50% in last five years while

Figure 3: Railways have high share only in mined

road freight rates broadly flattish in the same period

commodities, roads better on rest

160.0

100%
80%

140.0

2%
29%

28%

40%

55%

60%

120.0

40%
100.0

85%
71%

60%

20%

80.0

45%
15%

0%
FY12

FY13

FY14

Road Freight Rates

FY15

FY16

98%
72%

Agri

Construction

Rail Freight Rates

Mining

Industry

Oil

Share of freight movement by roads

Rail

Consumer

Source: Indian Railways, IFTRT

Source: MORTH, Planning Commission

Figure 4: Roads have gained large market share in some

Figure 5: Despite sharp growth in truck tonnage supply

individual segments like mining, cement, etc.

added in, utilisations have remained under control

12%

Growth in freight Ton-km truck capacity (Supply)

20%

10%

Growth in road freight index (demand)

15%

8%

6%

10%

4%

5%

2%

0%

0%
Constr/ Cement

Agri

Mining

Industrial

-5%

Share gain by road (FY11-16)

Source: MORTH, Planning Commission, Credit Suisse estimates

Source: MORTH, Planning Commission, Credit Suisse estimates

Figure 6: Other factors that can influence CV demand over the next few years
Factor
Dedicated freight
corridor
GST

Comment
Rail also suffers from saturation on high demand routes,
Dedicated freight lines being added on the same
Trucks spend ~25% of time on check posts and other official
reasons. If state borders removed with GST, some time saved

Old Vehicles Ban

Proposal to ban >15-year-old trucks to control pollution

Emission norm
changes

Regulatory changes such as emission norms, compulsory ABS


pushes up vehicle price and leads to preponement of demand

Likely impact and timing


First phase (East + West) will add annual capacity of 150
bn ton-km (~12% of road freight). Will only come in FY20
Can free up system truck capacity by ~12% (equivalent to
year sales). Implementation likely to be delayed though
Incremental demand for ~200k trucks, implementation
big challenge as different customers of old and new CV
India moving to BS-IV in 2018 and BS-VI in 2020, hence
demand supported in FY17 and GY20 on pre-buying

Source: Company data, Credit Suisse estimates

Figure 8: We prefer Bosch and WABCO as content per

been highest in first two years of upcycle

vehicle stories over Ashok Leyland

Stock returns (indexed)

Figure 7: Ashok Leyland's stock returns have typically


Cycle1

800%

Cycle 2

Current (after
2013)

Cycle 3

36,000

24,000

After 2008

Market-share loss
but content increase
with shift to commonrail in BS4

BS6 adoption
of SCR

400%
12,000

After 2001

0%
0

200

400

600

800

1000

1200

1400

Number of days post cycle start


Source: the BLOOMBERG PROFESSIONAL service, SIAM

India Commercial Vehicles Sector

FY16E

FY17E

FY18E

FY19E

FY20E

FY21E

FY22E

M&HCV content increase (Rs/Vehicle)

Source: Company data, Credit Suisse estimates

21 March 2016

Where are we in the cycle?


Assessing the freight landscape
Most of the analysis on the CV cycle in India is a top-down analysis focusing on the
linkage between CV sales and GDP/IIP growth as there is not much data available on the
road freight sector in the country. We have attempted to construct a demand-supply model
for the CV industry in India. On the supply side, roads and railways dominate freight
carriage in the country. Whilst the share of roads has been consistently increasing at the
expense of railways, the trend has accelerated in the last five years on account of sharp
increase in railway freight costs and no significant increase on road freight pricing. We
have created a freight index for both road and railways based on the growth rates in key
segments such as mining, agriculture, industrial, consumer, etc.
Whilst overall freight growth has moderated from a 8% CAGR between FY04 and FY11 to
~4% between FY11 and FY16, road freight growth has only slowed down from 8% (FY0411) to ~6% only. Hence despite a weak economy, road freight growth has remained
reasonably strong on the back of the poor performance by railways (absolute freight
carried in FY16 will be lower than freight carried in FY12). Thus, road freight growth has
broadly remained in line with growth in freight tonnage km. This implies that, despite
strong CV growth, broadly fleet utilisations are normal and we do not see much of a risk to
the CV cycle in the next couple of years baring external factors.

Proprietary demand-supply
model for the CV industry

Despite a slowing economy


road freight growing on
share gains from railways

Factors beyond the cycle


With India moving to BS-IV emission norms on a nation-wide basis from Apr-17; FY17
demand will be boosted on account of pre-buying. Under the new government there is an
increasing focus on trying to control pollution and hence it has preponed BS-VI emission
norms (skipping BS-V completely) from FY25 to FY21 meaning FY20 demand will be
boosted by pre-buying. There is also an increased expectation that the government is likely
to ban trucks older than a certain age (12-15 years). However, our channel checks suggest
that rather than a blanket ban, the government could come up with a voluntary scrappage
scheme offering some incentive on purchase of new trucks (50% excise duty rebate).
The government is also trying to improve the performance of the Indian Railways: freight
pricing decisions have become more pragmatic and focus on railway capex bodes well for
the railway segment which has continuously been losing share to road freight. The
implementation of the western and eastern corridor of DFC by FY20 is likely to negatively
impact CV sales. The implementation of GST (whenever it happens) could result in a big
increase in freight carrying capacity. Trucks in India waste ~25% of their time on interstate borders and hence freight carrying capacity could increase dramatically if GST
allows free movement of goods between states. It could also aid a proper hub-and-spoke
model and result in a marked shift towards higher tonnage trucks where MNC players
such as Benz and Volvo have a better probability of succeeding.

Scrappage and emission


norms could have a positive
impact

whilst GST and DFC


could negatively impact CV
demand

Prefer Bosch, WABCO over AL


Given that the economy is on a gradual recovery path and the fact that any impact from
railway capex will not be felt until FY19/FY20, we believe the CV cycle is likely to remain
strong for the next couple of years. A continued momentum on CVs is supportive of our
Tata Motors call where JLR still remains the core thesis. Ashok Leyland has executed
really well in the last few years doing bothgaining share in almost every segment and
also improving cost structure since the new management team took over. However,
valuations are just too rich for our comfort. We continue to like the content stories in Bosch
and WABCO over AL in the space. As highlighted in our recent upgrade (Link), Bosch is
one of the main beneficiaries of the recent change in government's stancegreater
commitment to tackle the problem of pollution in the country. Wabco's content per vehicle
in India is a tenth of that in Europe. Its content per vehicle has been steadily growing (with
big jump in 3QFY16 on compulsory ABS implementation), and going forward too we see
increasing acceptance of Wabco's new products.

India Commercial Vehicles Sector

Expect CV cycle to remain


strong for now

21 March 2016

Sector valuation
Figure 9: Exposure by stock to domestic CV theme
Company

% revenues: domestic M&HCV's OEM

% of profits

Rating

Ashok Leyland

~75%

~75%

NEUTRAL

Target Price (Rs)


96

Eicher (Attributable)

~25%

~10%

NEUTRAL

19,200

Tata Motors

~10%

~10%

OUTPERFORM

Bharat Forge (Standalone)

~25%

~25%

NEUTRAL

Bosch

~30%

~30%

OUTPERFORM

22,500

Wabco

~50%

~60%

OUTPERFORM

6,400

Apollo Tyres

~12%

~10%

OUTPERFORM

200

470
860

Source: Company data, Credit Suisse estimates

Figure 10: Auto OEM valuation


Company

Currency

CMP

Market Cap

(LC)

(USD Bn)

P/E

EV/EBITDA

ROE

P/B

CY16/FY17 CY17/FY18 CY16/FY17 CY17/FY18 CY16/FY17 CY16/FY17

Global
Ford Motor Company

USD

14

64.7

6.9

6.6

4.7

4.4

26.9

1.6

General Motors Corp.

USD

32

49.4

5.8

5.6

2.7

2.6

21.0

1.1

Paccar Inc

USD

55

19.4

14.1

14.5

8.5

8.7

22.8

2.7

Daimler

EUR

67

81.1

7.9

7.6

3.3

3.2

16.7

1.3

Volkswagen

EUR

117

70.3

6.5

5.2

3.0

2.9

8.5

0.6

Volvo

SEK

88

17.3

13.5

11.3

5.5

4.8

16.7

1.9

Renault

EUR

86

26.5

7.1

6.2

4.1

3.7

11.7

0.8

Hyundai Motor Company

KRW

150,500

29.3

5.8

5.6

3.4

3.3

10.2

0.6

Toyota Motor

JPY

5,888

162.3

7.8

7.2

4.5

4.2

12.4

0.9

Honda Motor

JPY

3,058

49.4

9.2

8.2

3.5

3.2

7.9

0.7

Nissan Motor

JPY

1,061

39.9

7.5

6.8

3.3

3.1

11.2

0.8

Weichai Power Co. Ltd

CNY

5.0

13.5

13.1

2.6

2.2

5.7

0.9

India
Tata Motors Ltd.

INR

366

16.3

7.9

6.7

3.3

2.9

18.4

1.0

Mahindra & Mahindra

INR

1,222

11.5

17.9

15.5

12.5

10.7

17.3

2.9

Ashok Leyland Ltd

INR

97

4.4

18.8

15.5

11.6

9.8

23.6

4.2

ROE

P/B

Figure 11: Auto-components valuation


Company

Currency

CMP

Market Cap

(LC)

(USD Bn)

P/E

EV/EBITDA

CY15/FY16 CY16/FY17 CY15/FY16 CY16/FY17 CY15/FY16 CY15/FY16

Global
Continental

EUR

196

44.1

12.8

11.9

6.3

5.7

21.5

2.6

Denso

JPY

4,312

30.7

11.9

10.8

5.3

4.9

8.5

1.0

Johnson Controls Inc

USD

39

25.2

10.3

9.3

7.7

6.7

19.2

2.1

Delphi

USD

73

20.0

12.0

10.4

8.1

7.1

60.1

6.1

Magna International

USD

43

17.2

8.3

7.3

5.4

5.0

22.1

1.5

BorgWarner, Inc.

USD

38

8.3

11.7

10.5

6.9

6.4

19.3

2.2

Valeo

EUR

134

12.0

12.9

11.5

5.5

5.0

21.4

2.5

Autoliv

USD

113

9.9

16.6

15.2

8.2

7.4

16.5

2.7

CNH Industrial

EUR

9.5

19.1

15.4

7.6

7.3

5.2

1.4

Bosch Ltd.

INR

18,782

9.1

39.5

31.2

16.4

6.2

Motherson Sumi Systems

INR

250

5.0

18.9

15.4

7.8

6.3

36.0

6.4

Bharat Forge Limited

INR

847

3.1

21.2

17.4

12.2

10.3

21.0

4.2

Exide Industries

INR

136

1.7

17.1

15.2

10.0

8.9

14.3

2.4

Apollo Tyres

INR

177

1.4

8.3

7.6

5.5

5.2

16.5

1.3

Wabco India Ltd.

INR

5,435

1.6

35.3

28.0

24.4

19.1

23.9

7.8

India

Source: Company data, I/B/E/S Datastream. Note: All estimates are consensus estimates, 2016 refers to Mar-2017 for Indian and Japanese
companies, Dec-2016 for others. Price as of close of 18-Mar-16

India Commercial Vehicles Sector

21 March 2016

Assessing the freight landscape


Most of the analysis on the CV cycle in India is a top-down analysis focusing on the
linkage between CV sales and GDP/IIP growth as there is not much data available on the
road freight sector. We have attempted to construct a demand-supply model for the CV
industry in India. On the supply side, roads and railways dominate the freight carriage in
the country. Whilst the share of roads has been consistently increasing at the expense of
railways, the trend has accelerated in the last four years on account of sharp freight
increase in railways and no significant increase in road freight pricing. On the demand side,
the road freight carried can be broadly divided into following segments (1) mining, (2)
agriculture, (3) industrial, (4) construction, (5) consumer, (6) oil and (7) others. We have
created a freight index for both road and railways based on the growth rates in these.
Whilst overall freight growth has moderated from an 8% CAGR between FY04 and FY11
to ~4% between FY11 and FY16, road freight growth has only slowed down from 8%
(FY04 to FY11) to ~6% only. Hence, despite a weak economy, road freight growth has
remained reasonably strong on the back of the poor performance by railways (absolute
freight carried in FY16 will be lower than freight carried in FY12). Thus, road freight growth
has broadly remained in line with growth in freight tonnage km. This implies that despite
strong CV growth broadly, fleet utilisations are normal, and we dont see much of a risk to
the CV cycle in the next couple of years barring external factors.

Supply side
Freight movement in any country can be through variety of means such as railways, roads,
waterways (both inland and coastal shipping), airways among others. As per Planning
Commission's study, total freight traffic during 2007-08 amounted to 2,555 million tonnes
and 1,409 bn tonne km (which takes into account the weight of freight multiplied by
distance carried). Some of the modes have limitations waterways have geographic
limitations of operations being confined to limited pathways, movement by pipelines is
confined to liquid products while airways cater to just low volume, non-bulk high value
goods on select routes.
Hence, the two main modes in India are roadways and railways. Around 60% of freight by
weight (tonnage) is carried by roads. While trains typically ply longer distances, even on
ton-km basis, roads remain by far the biggest as >50% of the freight traffic (in ton-km) is
carried by road transport followed by railways at ~35%. This is as of FY08 and as
discussed below, road share would have further grown at cost of railways since then.
Figure 12: Road and railways dominant freight

Figure 13: both in terms of tonnage and Ton Km

movement
Shipping
2%

Pipeline
5%

Shipping
6%
Rail
31%

Road
62%

Pipeline
8%
Rail
36%

Road
50%

Share of Tonnage
Source: Planning Commission

India Commercial Vehicles Sector

Share of Ton Kms


Source: Planning Commission

21 March 2016

Railways: In India, railways is a state-owned enterprise operated by the Govt. of India


through the ministry of railways. It had an 85% share in freight traffic in 195051 which has
now come down to under 35%. One of the reasons for the same is the rail infrastructure
where expansion has been very slow. Currently, Indian trains are already running at nearfull capacity with regards to track availability. There have been severe investment
constraints which have made it difficult for the railways to cope with the continued pick-up
in freight demand, especially since 1990's when the economy opened up. Anyways,
railways output suffers as the average freight train speed in India is just ~25 km/h as
compared to over 40 km/h in the US.
Figure 14: Share of railways has come down over the

Figure 15: ..last five years have witnessed further share

years with a sharp fall particularly in the 1990s

losses as rail freight grew at only ~1% CAGR

100%

700,000

10%

650,000

5%

600,000

0%

80%

60%

40%

20%

0%

550,000
1950-51

1960-61

1970-71

1980-81

1990-91

-5%

2000-01 Current(Est)

2011

Railways share in Ton-km

2012

2013

2014

Rail Freight (NTkm)

Source: National Transport Development Policy Committee

2015

2016

YoY Growth

Source: Indian Railways

The other reason for the same is that cost competitiveness of Indian railways has also
gone down over the years. In the last five years, growth in rail freight (ton-km) has been
just ~1% CAGR. In the same period average rail freight charges (calculated as rail freight
earnings divided by freight ton-km) has increased by a whopping ~60%. Indian Railways
earns more than two-thirds of its revenue from freight traffic. Given political compulsions,
there is always a reluctance in increasing passenger fares, and hence successive
governments have chosen to increase freight rates instead.
Figure 16: Rail passenger losses have spiked and they

Figure 17: ..rail freight rates up ~60% in last 5 years

had to be subsidised by freight..


400

1,200,000

1.8

1,000,000

1.5

800,000

1.2

600,000

0.9

150

400,000

0.6

100

200,000

0.3

350
300

250
200

50

0.0
2011

0
2001

2006

2008

2010

2012

Rail Passenger services losses (Rs Bn)

Source: Indian Railways

India Commercial Vehicles Sector

2014

2012

2013

Rail freight earnings (Rs Mn)

2014

2015

2016

Freight Mn Ton-Km

Freight rate (Rs/ Ton km) (RHS)

Source: Indian Railways

21 March 2016

Figure 18: Across commodities there has been a sharp increase in rail freights
2.5

Rail Freight rate (Rs/ Ton Km)


2

1.5

0.5

0
Coal

Iron-Ore

Cement
FY11

FY12

Food-grains
FY13

FY14

Fertilizers
FY15

Oil

Container

FY16

Source: Indian Railways

Roadways: Unlike railways, the road freight sector has largely been in the hands of
private operators (of which large part is unorganised). While national highways make up
only ~3% of the overall road network by length, they account for around 40% of the road
freight traffic. We refer to studies by the Planning Commission and Ministry of road
transport and highways (MORTH) for the road freight data (both are slightly dated though
and hence we have used some extrapolation).
The road sector particularly took off in 1990s once the government started investing in
building roads (NHAI formed in 1995). In the 1990s, road freight had witnessed a ~15%
CAGR rapidly gaining share from railways. As highlighted above, in the last few years
there have been further share gain by roads. We expect road freight has now likely grown
to ~1300 bn ton-kms (~6% CAGR in the last five years versus ~1% in railways). Proportion
of roads to railways in freight (in terms of ton-Km) would now have grown to 2:1 versus
1.5:1 in FY10.
Figure 19: Road freight took off in 1990s

Figure 20: 70% of CVs are held in fleet of less than 10

1,500
25-49 trucks
7%

50+
6%

Single truck
owner
11%

1,200

900

2-4 trucks
20%

10-24 trucks
18%

600

300
5-9 trucks
38%

0
1950-51 1960-61 1970-71 1980-81 1990-91 1999-00 2004-05 201516E
Road Freight (Bn Ton-Km)

Source: MORTH

Truck ownership pattern


Source: MORTH

The Indian trucking segment is highly fragmented, with ~70% of the trucks being held in
fleet of less than 10 trucks. Between the consignor (sender) and the consignee (receiver)
of goods, there exist different intermediaries such as transport booking agents, transport

India Commercial Vehicles Sector

21 March 2016

operators, brokers and vehicle owners. Consignors give the order to transport operators
either directly or through transport agent. The transport operator may have his own fleet
but in case not or if it is occupied, he contacts other transport operators (small truck
owners) through a broker. It is ultimately these vehicle owners who actually transport the
goods from the consignor to the consignee
Figure 21: Basic model of transportation of goods by road transport

Source: MORTH

Comparison with other countries


The freight movement in a country is a function of its GDP as higher economic activity is
typically associated with greater transportation of goods. Hence freight movement is
higher in developed countries. As per Statista, among the major regions globally, freight
transportation is highest in China followed by the US (even though US has higher GDP).
One reason for this is the higher contribution of services to US GDP at ~80% (versus
~50% for China) as manufacturing and agriculture entails greater movement of bulky
goods vis-a vis services.
As for the mode of transportation, share of roadways in India is on the higher side. Both
China and USA have much greater usage of both railways and waterways indicating
greater efficiency as these modes consume lower energy, do less environmental damage
and are also cheaper in the long run.
Figure 22: Freight movement is related to GDP of the

Figure 23: Share of roadways in India on higher side as

country and share of agri, manufacturing, services

USA, China have higher share of rail and waterways

7,500

18,000

120%

Split of 2010 Freight (Ton-Km )


100%
14%
5,000

12,000

80%

23%

50%

60%
2,500

6,000

40%

45%
72%

65%

0
China

USA

Europe

Freight movement 2010 (Bn Ton Kms)

Source: Statista

India Commercial Vehicles Sector

Russia

India

Brazil

2010 Nominal GDP USD Bn (RHS)

88%

63%

20%
0

31%

37%

32%

36%

23%
9%

0%
Europe

Brazil

India
Road

Rail

USA

China

Russia

Waterways

Source: Statista, McKinsey

21 March 2016

Demand side
We look at the drivers behind freight movement by segregating it into broad categories for
both railways and roads. For railways, a detailed periodic break-up of commodity
movement (both in terms of tonnage and ton-kms) is available. There is disproportionately
high dependence on mined commodities such as coal. As discussed above, in the last five
years overall growth in ton-kms has been ~1% CAGR only. There has been a large
decline in iron-ore (function of falling production of the commodity due to mining ban),
however other commodities have also seen muted low single-digit growth only.
Figure 24: Break-up of rail freight: Higher dependence on

Figure 25: Muted growth in all categories in last few years

mined commodities like Coal


4%
Others
16%

2%

Oil
4%

0%
Coal
44%

Fertilizers
7%

-2%
-4%

Foodgrains
9%

-6%

Cement
9% Steel
6%

-8%
Iron-Ore
5%

Railways Ton kms - split (FY16)


5 year CAGR in railways (Ton-km)

Source: Indian Railways

Source: Planning Commission

Unlike railways, there is lack of sufficient data on road freight, and we refer to two different
studies by the Planning Commission and MORTH. The results of both of these
approximately match, though there is some difference as the Planning Commission
classifies larger part as miscellaneous (others). On an aggregate basis the largest freight
movement in the country is for mined commodities (coal, iron-ore, etc.) followed by
agriculture commodities and industrial goods. However for roads, industrial goods and agri
are more relevant as a large part of mined commodities movement is through railways. Ex
mining, most other commodities have a very high dependence on roads.
Figure 26: As per different government sources, road

Figure 27: with industrial goods and agri the biggest

freight split is well diversified

contributor followed by consumer goods

Consumer
13%

Others
1%

Others
18%

Agri
23%

Agri
22%

Oil
7%

Construction
17%

Mining/Industry
40%

Roadways Ton Kms - split (Source 1)


Source: MORTH

India Commercial Vehicles Sector

Consumer
13%

Construction
10%

Oil
6%

Mining
7%
Industry
23%

Roadways Ton Kms - split (Source 2)


Source: Planning Commission

21 March 2016

Choice of a mode for transport of goods is based on the nature of commodity, volume and
cost. Typically, transport of high volume bulk commodities meant for movement over long
distances tends to be through rail transport. However even for these, road transport does
play a complimentary role for last mile movement as last mile connectivity for rail is not
always available. Also whilst railways might be cheaper in terms of cost per km; given the
inflexible timing and the delays in loading/unloading, roads usually have a much higher
share for shorter distances whereas for longer distances railways are preferred.
Hence not surprisingly road has a consistently high share in movement of most
commodities, barring few such as coal, iron-ore, limestone, fertilisers among others which
are dominantly through railways; for some of these railways has last mile connectivity as
well. For consumer goods which have to be distributed to a large number of distribution
outlets; roads are the default choice.
Figure 28: Railways have high share only in mined commodities, roads better on rest
100%

80%

2%
29%

28%

40%

55%
60%

85%
98%

40%

71%

72%

60%

45%

20%
15%
0%

Agri

Construction

Mining

Industry

Share of freight movement by roads

Oil

Consumer

Rail

Source: Company data, Credit Suisse estimates

Figure 29: Share of railways is higher for longer distances


120%

120%

Cement split by distance slab


100%

120%

Fertilizer split by distance slab


100%

Rice split by distance slab


100%

15%
29%

80%

60%

51%
79%

60%

40%

71%
49%

20%

39%

80%

60%

79%
85%

40%

93%

40%
64%

20%

20%

21%

0%

0%
Upto 200 kms 200-500 kms

500+ kms

% share road

80%

61%

21%

% share Rail

36%

80%

7%

0%
Upto 200 kms 200-500 kms

% share Rail

500+ kms

20%

Upto 200 kms 200-500 kms

% share road

% share Rail

500+ kms

% share road

Source: Planning Commission

Bottom-up analysis of freight generating sectors


We also attempt to do a bottom-up analysis of these core freight generating sectors and
how growth in each of these correlate to CV demand. For each of these sectors, we take a
quantifiable parameter which either gives the direct growth in that category (cement

India Commercial Vehicles Sector

10

21 March 2016

production) or acts as a proxy (such as IIP or the relevant GDP parameter). We have tried
to eliminate the pricing impact and just look at the volume data (which is more relevant)
wherever possible hence the usage of real GDP growth parameters.
Figure 30: Overview of road transportation demand by segment
Category

Measurable parameters

Agri

Agri GDP growth

Industrial Goods

GFC (Gross fixed capital) growth

Mining

Coal and Iron-Ore production (including imports)

Construction

Cement production

Consumer

GDP (Consumption) growth

Oil

Petroleum Products

Source: MORTH, Credit Suisse estimates

Using the actual freight data for roads in FY10 as per MORTH and adding the rail freight
data to that, we arrive at the total freight industry data for FY10. Then based on the
movement in above parameters, we construct time-series of freight movement in the
economy. Given that actual data for railways is anyways available, we just deduct the
same from total freight movement to arrive at the roads freight data.
Figure 31: As expected freight growth for economy has

Figure 32: While consumer has held up well, decline in

slowed from FY11-16 (compared to FY04-11)

other segments

12%

16.0%

Total Freight growth by


segment

10%
12.0%

8%
8.0%

6%
4%

4.0%

2%
0.0%

0%
FY04

FY06

FY08

FY10

FY12

Total Freight transportation growth

Source: Company data, Credit Suisse estimates

FY14

FY16

Constr/
Cement

Agri
FY04-11 (CAGR)

Mining

Industrial

Consumer

FY11-16 (CAGR)

Source: Company data, Credit Suisse estimates

There has been a distinct slowdown in the overall freight transportation growth in the
country reflecting the economic slowdown. From an ~8% CAGR growth in FY04-11, it
slowed down to ~4% CAGR from FY11-16. However, there has been variance in growth
between road and rail (while growth rates were similar in FY04-11 period, since then road
freight has grown at 6% CAGR versus 1% growth in railways.)

India Commercial Vehicles Sector

11

21 March 2016

Figure 33: Wide variance in growth between road and rail

Figure 34: Road has gained ~500 bps share in last five

in the last five years

years

9.0%

68%

Freight growth

66%
64%

6.0%

62%
60%

3.0%

58%
56%

0.0%

54%
Total

Roads
FY04-11 (CAGR)

Railways

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

FY11-16 (CAGR)

% share of roads (RHS)

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Railways losing share over the years has been a function of two parameters
(1) Slower growth in segments such as mining where rail has high share versus higher
growth in consumer where it has lower share
(2) Roads gaining share in individual segments most prominently in mining. One of the
reasons why the share in mining has switched is the switch in coal and iron ore from
domestic usage to imports as rail connectivity is in place only for domestic production.
Figure 35: Rail losing share function of lower growth in

Figure 36: and road also gaining share in some

segments which have high contribution to it..

individual segments like mining, cement, etc.

60%

8.0%
7.0%

50%

12%
10%

6.0%
40%

5.0%

30%

4.0%

8%
6%

3.0%

20%

2.0%
10%

1.0%

0%

0.0%
Mining

Industrial

Contribution to rail (FY11)

Constr/
Cement

Agri

Consumer

Segment growth - FY11-16 (CAGR)

Source: Company data, Credit Suisse estimates

4%
2%
0%
Constr/ Cement

Agri

Mining

Industrial

Share gain by road (FY11-16)

Source: Company data, Credit Suisse estimates

Industry commentary suggests that the rapid growth in M&HCV in last two years has
largely been the function of replacement demand coming to fore as freight operator's had
postponed replacement in downcycle years of FY13-14. Growth was initially fuelled by
consumer goods which led to higher growth in haulage trucks with tippers continuing to
suffer as mining activity slowed down. Recently, tippers have also started to grow in
anticipation of infrastructural activity picking up.

India Commercial Vehicles Sector

12

21 March 2016

Going forward, the outlook of most of these freight generating sectors is stable to positive,
hence that spells well for continued buoyancy in CV demand ahead. However, we note
that replacement demand contribution (which was key demand driver in each of FY15 and
FY16) may moderate slightly.
Figure 37: Outlook of most freight generating sectors is stable to positive
Segment

Strength

Comments

Agri output in the last two years has been weak as crop yield got impacted with two consecutive years of poor
monsoon; early weather forecasts indicate good monsoon this year which should result in higher crop output.
However, monsoon forecasts have not always been accurate and that remains a wild-card

Indian investment cycle has been weak for past several years and as per our capital goods team it is poised
to recover on the back of more favourable macro-economic conditions and policy direction. However, current
momentum is still relatively weak particularly private industrial investment. While smaller projects may start,
big ticket investments in sectors such as power and metals will take two to three years

Some commodities such as iron-ore have seen a sharp drop in last few years due to mining bans imposed in
various states by courts, even though coal (which is bigger contributor) has held up well. Our metals team
expects Coal India production to increase driven by better rake availability, de-bottlenecking of mines and
opening up of new mines; while iron-ore will also normalise as mining ban is gradually being freed

Construction

Slowdown in last few years as cement demand growth (proxy for construction activity) had slowed to 3% in
last three years versus long-term average of 8%. CS expects recovery in FY17/18 with higher government
infrastructural spending (already pick-up in public sector investments like roads) along with higher allocation
for rural and urban housing; implementation of pay commission should also provide housing boost

Consumer

Agri

Industrial Goods

Mining

Oil

Consumption had also slowed in FY13-15 especially durables (discretionary), even though volume growth in
non-durables (staples) has held up well. Expect pick-up ahead: already signs of green-shoots in categories
like autos; pay commission implementation in FY17 will also be a big driver.
Oil consumption in volume terms has been strong this year helped by sharp drop in oil prices. While growth
rates could fall due to high base, we expect demand to remain steady supported by higher consumption of
both diesel (gradual economic recovery) and petrol (shift to scooters in 2W's), along with OMC's driving
penetration of LPG dealers in East. Already strong so no significant delta here.

Source: Company data, Credit Suisse estimates

Tonnage addition has been much ahead of sales growth


In the last two years in the CV cycle recovery there has been a much faster growth in
heavy trucks (>25T). While M&HCV volumes for the industry have witnessed a 22%
CAGR over FY14-16E, there has been ~60% CAGR in >25T trucks. Whilst the downturn
years of FY13 and FY14 also saw a sharper fall in heavy trucks, the recovery post that has
been much sharper in them as compared to the industry. The current share of >25T trucks
in the M&HCV industry is well beyond its peak level in the last 15 years.
Figure 38: This cycle has seen sharp growth in heavy

Figure 39: ..which is by far the highest ever in last 15

trucks with big increase in share of >25T trucks..

years

100%

40%

13%

22%

27%

23%

22%

80%

60%

33%

35%
37%
30%

51%
46%

40%

38%

25%

38%
35%

34%

40%

20%

15%
18%

21%

17%

19%

18%

15%

14%

17%

FY10

FY11

FY12

FY13

20%

21%

16%

15%

19%

16%

15%

FY14

FY15

FY16YTD

10%
5%
0%

0%
Buses

ICV (7.5-12T)

Source: SIAM

India Commercial Vehicles Sector

12T-25T

FY02

FY04

FY06

FY08

FY10

FY12

FY14

FY16YTD

Share of >25T within M&HCV's

>25T

Source: SIAM

13

21 March 2016

This also implies that growth of tonnage addition in the system (Volumes multiplied by
weight of truck) has been well ahead of the volume growth. We assume a 15-year lifecycle
to find the current population of trucks plying on Indian roads. Considering that on an
average they ply ~50k kms a year, we calculate the freight carrying capacity by trucks in
the system or in other words the supply. This parameter has seen slight acceleration in the
last two years given the pick-up in volumes and greater sales of heavy trucks.
Figure 40: In both of the last two years tonnage addition

Figure 41: Assuming a 15-year life, steady growth has

growth has been well ahead of volume growth

continued in system capacity addition

50%

3,200

16%

2,400

12%

1,600

8%

800

4%

40%
30%
20%

10%
0%
-10%

-20%
-30%

-40%
FY10

FY11

FY12

FY13

M&HCV tonnage added growth

FY14

FY15

M&HCV volumes growth

Source: SIAM, Credit Suisse estimates

FY16E

0%
FY05

FY07

FY09

FY11

FY13

Bn TKM CV capacity (Assuming 15 year old life)

FY15

FY17E
YoY growth

Source: SIAM, Credit Suisse estimates

but utilisations levels still remain OK


While some of the factors discussed above high truck tonnage growth even though the
economy had slowed down may be a potential cause of concern, the fact that roads have
gained share from railways means that utilisations have remained under control. From
FY11 to FY16, the growth in system supply (Ton-km of trucks) would be ~8% CAGR. This
is not too different from the road freight transportation growth rate at ~6% CAGR in the
period. Given expectations ahead of further pick-up in freight generating sectors (Figure
37), CV volumes should continue to grow for the next two years barring external factors.
Figure 42: Despite sharp growth in truck tonnage supply added in last few years, the fact
that utilisations have remained under control means no cause of concern
20%

Assuming pick-up in freight


demand in FY17

15%

10%

5%

0%

-5%

Growth in freight Ton-km truck capacity (Supply)

Growth in road freight index (demand)

Source: MORTH, Planning Commission, Indian Railways, SIAM, Credit Suisse estimates

India Commercial Vehicles Sector

14

21 March 2016

Factors beyond the cycle


With India moving to BS-IV emission norms on a nation-wide basis from Apr-17, FY17
demand will be boosted on account of pre-buying. Under the new government, there is an
increasing focus on trying to control pollution, and hence it has preponed BS-VI emission
norms (skipping BS-V completely) from FY25 to FY21 meaning FY20 demand will be boosted
by pre-buying. There is also an increased expectation that the government is likely to ban
trucks older than a certain age (12 to 15 years). However, our channel checks suggest that
rather than a blanket ban, the government is likely to come up with a voluntary scrappage
scheme offering some incentive on purchase of new trucks (50% excise duty rebate).
The government is also trying to improve the performance of the Indian Railways freight
pricing decisions have become more pragmatic, and focus on railway capex bodes well for
the railway segment which has continuously been losing share to road freight. The
implementation of the western and eastern corridors of DFC by FY20 is likely to negatively
impact CV sales. The implementation of GST (whenever it happens) could result in a big
increase in freight carrying capacity. Trucks in India waste ~25% of their time on interstate borders, and hence freight carrying capacity could increase dramatically if GST
allows free movement of goods between states. It could also aid a proper hub and spoke
model and result in a shift in the market towards more higher tonnage trucks.

#1. Dedicated freight corridor


As discussed in the previous section, share of Indian railways in freight transportation is on
the lower side compared to global average. Moreover, it has been losing share to roads
over the years due to lack of enough track capacity and lower competitiveness vis--vis
roads (on account of rail freight having to subsidise passenger losses). This also makes
for higher inefficiency in the system, as railways in general consume lower energy, do less
environment damage and are also cheaper.
One project which has for long been expected to change this is the Dedicated Freight
Corridor (DFC), an ambitious plan aimed at supplementing the rail transport capacity. This
project envisions the construction of two dedicated freight railway lines along the two busy
(Eastern and Western) trunk routes. The existing trunk routes of Howrah-Delhi on the
Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated with line
capacity utilization well exceeding 100%. The two main routes planned include:
Western DFC (1,550 kms): From Mumbai to Delhi. This would cater to transport
requirements between emerging ports on west coast and the northern hinterland.

Eastern DFC (1,850 kms): From Ludhiana in Punjab to Kolkata. This route is expected
to largely fulfill coal and steel transport requirements.

Figure 43: Dedicated freight corridor details of western and Eastern corridor
Phase

Section

Length (kms)

Original completion date

Latest Status

Phase I

Rewari - Vadodara

930

2011-2017

June-2018

Phase II

Vadodara - JNPT

430

2012-2018

Oct-2019

Phase III

Rewari - Dadri

140

2013-2018

Mar-2019

Western Corridor

Western Corridor total

1,500

Eastern Corridor
Phase I-APL1

Khurja - Kanpur

343

2011-2017

Mar-2018

Phase II-APL2

Kanpur - Mughalsarai

402

2013-2018

Dec-2018

Phase III-APL3

Khurja - Ludhiana, Khurja-Dadri

447

2014-2019

Dec-2019

Dankuni - Sonnagar

538

2014-2019

Not finalized

118

2010-2016

Dec-2017

Phase IV
Phase IVa

Sonnagar - Mughalsarai

Eastern Corridor total

1,850

Source: Company data, Govt of India, Credit Suisse estimates

India Commercial Vehicles Sector

15

21 March 2016

In the recent rail budget, India's rail minster also announced three more freight corridors:
North-South, East-West and East Coast. DFC once finished can be a game changer for
railways. Other than its ability to handle more volumes with higher capacity it will also bring
more predictability (currently rail transport takes inordinate time with no guarantees as
passenger trains always get priority on tracks). While the original plan was to complete the
DFC by 2017, it is running with a lag (delays with land acquisition, awarding of projects,
etc.) and is expected to be completed with a two-year lag. We expect the railways to start
regaining some of the lost share to roads once the DFC becomes operational by FY20.
The immediate impact will be on the regions through which DFC passes.
Figure 44: While south is the biggest contributor to road freight, over ~60% of movement
in North, East and West which will be impacted by the first two phases of DFC
Central
5%

North
22%

South
32%

West
20%

Split of road freight

East
21%

Source: MORTH

New government's focus on reviving railways: While Indian railways has suffered from
years of neglect, in the last two years with the new government there has been a step-up
in investments. The government is cognizant of weak growth in freight business (in volume
terms or Ton-km) in the last few years and that is why in the recent rail budget there was
no rise in freight rates despite stretched finances.
In FY16, there was a sharp 70% YoY increase in capex spend by railways to Rs1 tn,
though our industrials team has highlighted that it possibly contained some non-cash
spend pertaining to Metro project. The expenditure on construction of new lines, doubling
and gauge conversion has risen significantly compared with previous years, as the
process for tendering and other approvals have been streamlined. Dedicated freight
corridor (DFC) spend, while lower than budgeted, was also up 245% YoY.
However even with large increase in nominal capex, physical targets (electrification, gauge
conversion, new lines, rolling stock) have been flattish over the last several years. Unit
costs particularly for new lines/doubling have gone up 200-300% driven by land acquisition
costs.

India Commercial Vehicles Sector

16

21 March 2016

Figure 45: Sharp increase in capex spend on railways in FY16, will continue in FY17
(INR bn)

2012

2013

2014

2015

2016 BE

2016 RE

% yoy

2017 BE

New lines (construction)

53

53

58

71

128

135

88.9

156

% yoy
15.6

Gauge conversion/ doubling

57

60

67

83

263

145

74.1

307

111.6

Rolling stock

42.9

164

184

175

165

193

191

15.8

273

Locomotives

64

79

91

81

95

89

10.0

103

15.0

Carriages

45

54

52

55

44

41

(26.0)

91

122.7

Wagons

44

50

31

27

45

36

31.0

59

67.0

Others

11

10

25

2,343.7

19

(22.9)

Leased Assets

35

42

50

54

63

63

15.5

70

11.2

Road safety, track renewals

69

73

74

80

82

86

6.6

138

61.2

Electrification, S&T

17

19

22

24

33

31

30.1

44

39.6

Inv. in DFC, IRFC, RVNL, others

26

34

47

51

158

70

35.9

111

58.3

13

12

15

93

53

245.1

76

42.9

10

12

10

20

234

2,251.3

14

(94.0)

DFC
Metro transport projects
Others

19

28

38

47

59

46

(3.9)

58

27.7

Total

451

504

540

587

1,000

1,000

70.3

1,170

17.0

Source: Indian Railways, Credit Suisse research. BE Budget estimate, RE Revised estimate

Figure 46: Investment plan (physical targets) in FY17E


2010

2011

2012

2013

2014

2015 2016BE 2016RE 2017BE

Electrification (kms)

1,117

975

1,165

1,317

1,350

1,375

1,600

1,600

2,000

Track renewals (kms)

3,841 3,465

3,300

3,296

2,100

2,424

2,500

2,350

1,500

258

709

727

501

450

313

300

500

400

1,516

837

856

575

404

527

500

800

800

Locomotives

498

527

582

678

675

605

636

710

747

- Diesel

258

267

284

348

375

355

375

430

467

- Electric

240

260

298

330

300

250

261

280

280

3,637

4,023

4,085

3,731

3,390

3,592

3,431

Construction of new lines (kms)


Gauge conversion (kms)
Rolling stock

Coaches

3,494 3,660

Wagons

13,068 14,703 18,357 16,894 15,666 11,151 16,800 12,814 12,000

Source: Indian Railways, Credit Suisse research. BE Budget estimate, RE Revised estimate

#2. GST
While there is lot of uncertainty surrounding the timing of GST (Goods and Service tax), its
implementation is likely to be structurally negative for CVs. It will result in a reduction in
truck prices; however, the proposal to remove the 1% CST if accepted could result in free
movement of trucks across states, which would improve the productivity of trucks and
result in excess fleet capacity and may impact truck demand for a couple of years.
Currently, there is lot of inefficiency in the road freight system in the country on an
average a truck covers a distance of 50-70k kms per year versus 100-150k kms in
advanced countries. As per MORTH study the total round trip time varies from 21 hours
for a trip of 100-499 km, to about 50 hours for a trip of 500-999 km, and 110 hours for a
trip of over 1,000 km. However, the actual running time as a percentage of total time for
the same trips is only 33%, 36% and 43%, respectively (40% overall). The major reason
for this is the large time lost at check posts and for other official reasons (works out to
~25% of total time spent), on account of existence of inter-State barriers.
If state borders are removed with GST, then trucks can ply a lot more distance in a day;
recent measures like trying to convert all toll nakas into electronic toll nakas could also help
with that. This would mean an increase in fleet capacity in the system. It might also have an
indirect impact on market structure, as this would lead to a preference for higher powered and
faster trucks with focus on optimising logistics (helping MNC players such Bharat Benz and

India Commercial Vehicles Sector

17

21 March 2016

hurting incumbent Indian players). So not only will industry volumes go down for a couple of
years, market share of Indian players will also be negatively impacted by GST.
Assuming that with GST the total time spent on check posts and for other official reasons,
comes down from 25% to 20% (some of the stops will still be there for general checks,
etc.) it will result in 12% increase in running time (from current 40% of total time to 45%).
This translates into freeing up of system capacity by 12%, which at current population of 3
mn trucks works into 360k units (or more than a year of truck sales). Hence it can have an
adverse impact on demand for a couple of years.
Figure 47: Trucks in India on an average ply much lower

Figure 48: ..Actual running time as % of time spent on trip

distance than global average..

is only 40%due to time loss at check posts, etc.

150,000

Check posts
16%
Running time
40%

100,000

Other official
stoppages
8%
Repairs en
route
5%

50,000

Fuelling en
route
6%
Other halts
3%
Traffic hurdles
9%

0
India

Developed countries

Rest and meals


13%

Average distance covered per year by trucks (kms)

Source: MORTH

Source: MORTH

#3. Ban on old vehicles


There has been an expectation for some time that in a bid to control pollution the
government is planning to ban CVs more than 15 years old from plying on roads.
Theoretically, if this proposal were to come through, it can be a big driver of CV sales.
Given the lack of population data, varied estimates are available on the number of trucks
in the country which might have to go off the road with this measure. For this purpose, we
assume that the lifecycle of a truck is 20 years old and hence all the trucks which were
sold 15 to 20 years back will be impacted. Current fleet of M&HCV trucks between 15 and
20 years old is ~400K (or in other words addition of sales of trucks sold from FY-1997 to
FY-2001).

India Commercial Vehicles Sector

18

21 March 2016

Figure 49: Assuming 20 year life-cycle there will be ~400k

Figure 50: FY17/18 can be big years for CV demand with

M&HCV trucks more than 15 years old which might have

this ban, leading to ~30% incremental volumes over

to go off the road if ban comes through

normal ~12% growth, though FY19 will go back to normal

3,500,000

500,000

500,000

35%

2,800,000

400,000

400,000

28%

2,100,000

300,000

300,000

21%

1,400,000

200,000

200,000

14%

700,000

100,000

100,000

7%

0
FY10

FY11

FY12

FY13

FY14

FY15

FY16E

0%
FY16

FY17E

FY18E

FY19E

Sales of M&HCV trucks in last 15 years

Normal M&HCV volumes (if ~12% growth)

Sales of M&HCV trucks in last 20 years

With scrappage (100k extra in both FY17 and FY18)

Trucks between 15-20 years (Assuming 20 years lifecycle) (RHS)

Incremental Volumes (RHS)

Source: SIAM, Credit Suisse estimates

Source: SIAM, Credit Suisse estimates

While 400k units is no doubt a big number considering that annual M&HCV sales in the
country are 300k units, some other factors to consider:(1) Some of this trucks might already have been scrapped.
(2) These trucks are likely operating at lower utilisations (compared to nation-wide fleet
utilisation) hence lower amount of trucks will needed to be replaced. Alternatively
new M&HCV might not be required and LCV can do the same job.
(3) These trucks are likely plying in rural areas, so all will not be able to be replaced
because of lower ability of people in these areas to afford a new vehicle.
Considering the above factors, we can assume that 50% of these 15-20 year old trucks
will need to be replaced or ~200k units. Assuming this happens over two years (over FY17
and FY18) given capacity constraints and also the fact that government will give time,
FY17 and FY18 M&HCV volumes for the industry will be ~30% higher than normal ~15%
growth, in our view. However, normal cycle should resume from FY19, as this will be a
one-time replacement which is required.
Implementation will be bigger challenge: We feel that even if the government were to
come up with something on these lines, the biggest challenge will be in implementing the
same. Given that most of these trucks would be lying on smaller routes, their owners
would not be that well-off (larger freight operators anyways replace after 5-6 years).
The government can come up with measures such as cash for clunkers (which in past has
been very successful in stimulating demand in developed countries after the crisis). There
have been talks about a 50% excise rebate on new vehicle, if someone scraps a greater
than 15-year old truck. But given that these customers would have anyways gone for a
second hand truck purchase only (say a 10-year old truck), there is limited utility of such a
move.
Overloading ban: One of the other banes of the Indian truck industry is the prominence of
overloading. Typically freight operators engage trucks to much greater freight than the
authorised tonnage to cut costs and increase effective margins. This however leads to
greater environment damage pollution, faster deterioration of roads and is also harmful
on safety grounds (leads to more road fatalities).
The Supreme Court had in November 2005 given a judgement against overloading; at that
time golden tokens were issued that allowed overloading of trucks after payments of fixed

India Commercial Vehicles Sector

19

21 March 2016

charges which Supreme Court had stopped. This led to a sales surge from Dec-2005 as
after a 3% growth in CY05, M&HCV industry grew at 32% in 2006. However even today
overloading continues to exist and if the government were to come up on tough measures
on this front, it can be a driver of CV sales.

#4. Emission norm changes


If some regulatory impacts lead to increase in price of trucks (emission norm changes,
compulsory ABS), then in anticipation of the same there is heavy pre-buying before the
deadline. Like Europe saw a surge in truck sales on 4QCY13 (which was last quarter
before Euro-VI norms were introduced). Even in India there was surge in M&HCV sales
growth to 45% in 2QFY16 (last quarter before compulsory ABS) versus normal growth
trend of ~25%.
Going forward, in India on the emission norms front there will be rapid changes. While
normally there has been a five-year cycle of change in norms (nationwide BS II in 2005,
BS III in 2010, etc.), BS-IV has been delayed to 2017. To make up for the lost time, India
is now moving forward two stages in a period of just three years and shifting directly to BS
VI in 2020 itself. Both of these stages will lead to big increase in vehicle prices (common
rail required in BS IV and after-treatment systems like SCR required in BS-VI). Hence we
expect shift accordingly preponement of demand in FY17 followed by moderation in
FY18 and same cycle repeating with preponement of demand in FY20 followed by a weak
FY21.
Figure 51: Regulatory requirements can have impact on

Figure 52: In India two big events on emission norms

timing of demand as seen in Europe's case

front in next 4 years


Indian emission Standard

60%

Last quarter before


Euro 6 change

30%

Deadline

Bharat Stage I

2000

Bharat Stage II

2005

Bharat Stage III

2010

Bharat Stage IV

2017

Bharat Stage V

Skipped

Bharat Stage VI

2020

0%

4QCY15

3QCY15

2QCY15

1QCY15

4QCY14

3QCY14

2QCY14

1QCY14

4QCY13

3QCY13

2QCY13

1QCY13

4QCY12

3QCY12

2QCY12

1QCY12

-30%

Europe HCV sales growth (>16T)

Source: ACEA

India Commercial Vehicles Sector

Source: Company data, MORTH

20

21 March 2016

Prefer Bosch and Wabco over AL


Given that the economy is on a gradual recovery path and the fact that any impact from
railway capex won't be felt till FY19/FY20; we believe the CV cycle is likely to remain
strong for the next couple of years. A continued momentum on CVs is supportive of our
Tata Motors call where JLR still remains the core thesis. Ashok Leyland has executed
really well in the last few years doing both gaining share in almost every segment and
also improving cost structure since the new management team took over. However,
valuations are just too rich for our comfort. We continue to like the content stories in Bosch
(Link) and WABCO over AL in the space.

CV growth to remain robust for next couple of years;


implementation at railways key risk in medium term
M&HCV cycle will cross the previous peaks in FY17E
Given the near-term outlook of most freight generating sectors is stable to mildly positive
(Figure 37) and the fact that road freight growth has broadly tracked the freight tonnage
addition, we expect M&HCV demand to remain robust in FY17 with further support coming
from pre-buying before BS-IV implementation. Whilst FY18 volumes could be slightly
weaker given the impact of pre-buy in FY17; we dont expect the cycle to turn negative in
FY18, especially if the anticipated economic recovery comes through in FY17. The key
risk to the CV industry in FY18 could be GST implementation in which case the industry
might show a double-digit decline in FY18. If the recent aggressiveness in terms of track
expansion at Railways were to materialise by FY19, we could start seeing some share
gains from FY19. FY20 onwards railways is most likely to start regaining some of the lost
market share once DFC capacity comes on stream.
Figure 53: Historical cycles in M&HCV trucks
Period

Length of cycle

CAGR cycle (Volume terms)

FY81-FY83

23%

FY83-FY85

-5%

FY85-FY86

5%

FY86-FY87

-10%

FY87-FY91

14%

FY91-FY93

-17%

FY93-FY97

29%

FY97-FY99

-31%

FY99-FY00

41%

FY00-FY01

-29%

FY01-FY07

27%

FY07-FY09

-22%

FY09-FY12

26%

FY12-14

-14%

FY14-18E

21%

Source: Company data, Credit Suisse estimates

India Commercial Vehicles Sector

21

21 March 2016

Figure 54: M&HCV volumes will cross previous peak in FY17E; we expect the cycle to go
higher if the economy picks up pace
350

'000 units

M&HCV trucks sales

280

210

140

70

0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017E

Source: Company data, Credit Suisse estimates

Within our coverage there are three OEM's exposed to M&HCV space Ashok Leyland,
Tata Motors and Eicher Motors which combined enjoy ~95% market share. Amongst these,
CV cycle is by far the most relevant for Ashok Leyland (given that Tata Motors is largely
JLR play and Eicher is Royal Enfield play).
Other than these there are auto ancillaries also but very few of them are pure CV OEM
plays having varied exposure to replacement, exports or other vehicle segments (cars,
tractors etc) also. The largest exposure to domestic M&HCV OEM space is for Wabco.
Figure 55: Indian auto stocks exposed to M&HCV space
% revenues from domestic M&HCV's OEM

% of profits

Ashok Leyland

~75%

~75%

Eicher (Attributable)

~25%

~10%

Tata Motors

~10%

~10%

Bharat Forge (Standalone)

~25%

~25%

Bosch

~25%

~30%

Wabco

~50%

~60%

Apollo Tyres

~12%

~10%

Source: Company data, Credit Suisse estimates

Ashok Leyland good execution but too pricey


On the market share front, AL has executed really well gaining ~900 bp market-share from
FY12 lows and ~700 bp in the last two years. The company has traditionally been stronger
in Southern India followed by West. However, in the last few years, it has had share gains
across regions - further consolidating on its leadership position in South and building up
presence in its weaker regions of North and East (its market-share has now crossed 20%
in each region).

India Commercial Vehicles Sector

22

21 March 2016

Figure 56: AL has had impressive share gains..

Figure 57: ..which have been spread across regions


60%

35%

AL's market-share
50%
40%

30%

30%
20%

25%

10%
0%

20%
2002

2004

2006

2008

2010

2012

2014

North

2016

East
FY12

Ashok Leyland market-share in M&HCV's

Source: Company data, Credit Suisse estimates

South

West

FY16

Source: Company data, Credit Suisse estimates

Similarly in terms of vehicle segments AL has had share gains across segments.
Maximum gains have been in ICV (7.5-12T) segment where the company was traditionally
weaker (Eicher and Tata used to dominate with combined 80%+ share), but with the
launch of new range of vehicles (Boss in end 2013) it has now reached ~15% share. The
company anyways had much higher share in buses and heavy trucks (faster growth in this
segment also contributed to overall share gains). AL has also seeded its own captive
financing arm Hinduja Leyland finance. In the past five years, AL's investments in the
entity has grown from negligible to Rs~8 bn.
Another reason for the market-share gain has been the higher production from Uttaranchal
plant. Many auto companies had set up plants in Uttarakhand to avail tax sops (ten year
excise duty exemption, complete income tax exemption for five years, and 30% income
tax exemption for another five). For Ashok Leyland: >40% of production this year has been
from the Uttaranchal plant. As per our dealer checks, this allows the company to give
higher discounts than peers. These benefits are still there for some time as they expire in
FY20 only. However, in medium term post that, there will either be some hit to margins or
market-share for the company, as these benefits expire.
Figure 58: AL has gained share across vehicle classes

Figure 59: while Tata has lost share everywhere


75%

50%

Tata market-share

AL's market-share
40%

60%

30%

45%

20%

30%

10%

15%

0%

0%
7.5-12T

12T-25T
FY12

>25T
FY16

Source: Company data, Credit Suisse estimates

India Commercial Vehicles Sector

Buses

7.5-12T

12T-25T
FY12

>25T

Buses

FY16

Source: Company data, Credit Suisse estimates

23

21 March 2016

On the other side, Tata Motors has had share loss across segments. Tata Motors and
Ashok Leyland have always enjoyed ~80% share combined in M&HCV's, hence share
gains for AL have largely been at the cost of Tata. Eicher Motors, the third-largest player,
has maintained its market-share but Asia Motor Works (AMW), which was the fourthlargest player in FY12 with ~3% market share, has completely collapsed now. AMW has
been traditionally stronger in the mining segment, hence the big decline in construction
trucks (tipper etc) volumes impacted the company. AL has managed to capture this entire
share lost by AMW.
Figure 60: While AL has had bulk of gains from Tata...

Figure 61: ...it has also captured the entire ~3% share of
AMW which has collapsed due to financial troubles
1,200

60%

1,000

48%

800

36%
600

24%
400

12%

200

0%

AL

Eicher

Tata Motors
FY12 share

M&M

AMW

Others

Apr-11 Nov-11 Jun-12 Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15

FY16 share

Asia Motor Works M&HCV monthly volumes

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Given our positive stance on CV cycle for next cycle, AL is theoretically the best play given
its highest exposure to India M&HCV among all stocks. However, valuations are high for
the stock with AL now trading at ~11.5x one year forward EV/EBITDA (consensus)
compared to historic average of ~9x. Even on 24 month forward basis (by when it would
be four years of up-cycle and hence closer to peak), it is trading at 9.5x EV/EBITDA
versus historic average of ~7.5x
Figure 62: AL trading well above historic valuations...

Figure 63: even on 2 year forward basis by when we will


have four years of upcycle valuations are rich

20

15

15
10
10
5
5

0
Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Ashok Leyland EV to 12M fwd EBITDA

Source: I/B/E/S Datastream

India Commercial Vehicles Sector

0
Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Ashok Leyland EV to 24M fwd EBITDA

Source: I/B/E/S Datastream

24

21 March 2016

The other thing to note is that in the past, stock returns have been highest only in the initial
two years of the cycle. After that, even though the CV cycle may continue for more years,
returns are gradual at best. Hence, we maintain our NEUTRAL rating on Ashok Leyland.
Figure 64: Stock returns have typically been highest in first two years of upcycle
Cycle1

Cycle 2

Cycle 3

800%

Current (after 2013)

Stock returns (indexed)

600%

After 2008
400%

200%

After 2001
0%
0

100

200

300

400

500

600

700

800

900

1000 1100 1200 1300 1400

Number of days post cycle start


Source: the BLOOMBERG PROFESSIONAL service, SIAM, Credit Suisse estimates

Along with Ashok Leyland gaining market share (as highlighted above), one other reason
for higher stock returns in this cycle, is due to the fact that there has been a pick-up in
free-cash flow (FCF). From FY11 to FY14, Ashok Leyland had made significant
investments in its JVs/ subsidiaries (Nissan LCV, financing arm, foundry, etc.). The
company also incurred significant capital expenditure on capacity expansion and product
development. In the last two years there has been a clear moderation in the same,
resulting in a significant improvement in companys cash flows. From a high of ~Rs16 bn
in FY13, total spends on capex + investments has moderated to only ~Rs4 bn in FY16
(which has also contributed to large reduction in debt).
Figure 65: Pick-up in FCF generation for Ashok Leyland given improvement in operating
performance along with scale-down in investments and capex
10,000

20,000

Rs Mn

8,000

15,000

6,000

10,000

4,000

5,000

2,000

-5,000

-2,000

-10,000

Negative because of disposals

-4,000
FY10A

FY11A
Capex

FY12A

FY13A

FY14A

FY15A

Incremental investments in subs

FY16E

-15,000

FY17E

FCF (RHS)

Source: Company data, Credit Suisse estimates

India Commercial Vehicles Sector

25

21 March 2016

Tata Motors CV recovery will support the JLR story


For Tata Motors, LCV (light commercial vehicle) space is also important. LCVs had very
strong growth from FY12-14 due to aggressive financing especially by some NBFCs. This
led to a spike in NPAs in certain segments, following this financiers pulled out greatly from
the LCV space leading to big decline in demand here too. LCVs generally follow M&HCVs
with a lag, and in the last few months growth has turned positive here too. In the longer
run, LCVs are more of a secular growth track given the expanding hub and spoke model
increasing usage on short haul routes. Also penetration is lower in India currently
LCV:MHCV ratio in India is ~1.25:1, this ratio is at ~2:1 in China and ~4:1 in Europe
Figure 66: LCV's have started to recover, following

Figure 67: Over longer term, LCVs should grow faster

M&HCV's with a lag

given the lower penetration

50%

40%
4

30%
20%

10%
0%

-10%

-20%

-30%
0

-40%
2003

2005

2007
LCV's growth

2009

2011

2013

2015

India

China

Europe

LCV to M&HCV ratio

M&HCV growth

Source: SIAM

Source: SIAM, ACEA

Tata Motors is considered more of a JLR play and our bullish thesis is primarily based on
recovery in both JLR volumes and margins (See Link to report). The standalone (domestic
India business) contributes to just ~17% of consolidated revenues (FY17E) and ~8% of
consolidated EBITDA. However we note while the cars business contributes to ~25% of
volumes for the company, it is actually loss making. Hence the entire Indian profit is
actually attributable to CVs only.
Figure 68: Given that cars is loss-making, entire India profits attributable to CVs only
120%

Contribution for Tata Motors standalone


100%
80%
60%
40%
20%
0%
Volumes

Revenues
M&HCV

Profits

LCV

Source: Company data, Credit Suisse estimates

India Commercial Vehicles Sector

26

21 March 2016

Moreover given the higher multiple which we ascribe to Indian business in SOTP valuation
for Tata Motors (8x EV/EBITDA for India versus 3.5x EV/EBITDA for JLR), its contribution
to stock price is higher than profit contribution. While ~8% of consolidated profit
contribution, India CV contribution (given no value for the car business) to target price is
~20%. Contribution to current stock price is even higher at ~30%.
Figure 69: The India business (entirely CV's) contributes to ~20% of our SOTP valuation
for JLR and ~30% to current stock price
Domestic Business

Basis of valuation

Multiple

Value per share (Rs)

EV/ Dec-17 EBIDTA (x)

8.0

103

EV/ Dec-17 EBIDTA (x)

3.50

341

PER (Dec 17E, x)

8.0

37

Net debt

-35

JLR
China JV
Subsidiaries

25

Target Price

470

Source: Company data, Credit Suisse estimates

Prefer Bosch and Wabco to play the CV cycle


To play the Indian CV cycle, we prefer content stories - Bosch and Wabco. As highlighted
in our recent note (Link), Bosch is one of the main beneficiaries of the recent change in
government's stancegreater commitment to tackle the problem of pollution in the
country, with a focus on automobiles sector (advancement of BS-VI norms, etc.).
Normally, with each change in the stage of an emission norm (which happens every five
years or so), there is an increase in content, leading to Bosch's outperformance in the
industry. With India now leapfrogging two norms ahead in a period of just three years,
there would be accelerated increase in content (and outperformance) post FY20 for the
company. Particular to CVs, BS-IV will entail shift from mechanical injection systems to
common-rail while BS-VI will entail setting up of after-treatment systems such as SCR
(Selective Catalytic reduction) both of which will result in large content increase.
Figure 70: Bosch to see big content increase in CV's with

Figure 71: Company's revenue growth to accelerate to

both BS-IV and BS-VI

~20% compared to historic ~15% levels

36,000

Market-share loss
but content increase
with shift to commonrail in BS4

60%

BS6 adoption
of SCR
40%

24,000

20%

12,000

0%

0
FY16E

FY17E

FY18E

FY19E

FY20E

M&HCV content increase (Rs/Vehicle)

Source: Company data, Credit Suisse estimates

FY21E

FY22E

Non-Autos

Exports (ex
S&G)

Replacement India OEM (ex


S&G)

Current share of revenue

Overall

Growth FY16-22E

Source: Company data, Credit Suisse estimates

Wabco globally has a proven track record of outperformance over the market, particularly
in emerging economies there is strong opportunity in increasing content per vehicle (See
our initiation report and Global Investor Day Takeaways). This played out in 3QFY16 with
the compulsory ABS (Anti-Lock braking system) implementation from Oct-15 resulting in
large increase in content per vehicle. The companys top line grew 44% YoY with ~70%

India Commercial Vehicles Sector

27

21 March 2016

growth in domestic OEM revenues (compared to ~20% growth in M&HCV production


during the quarter).
Figure 72: Sharp increase in Wabco's outperformance

Figure 73: For Wabco - India has among the lowest

over market in 3Q16with compulsory ABS implementation

content per vehicle globally; catch-up should happen in


the next few years

60%

Regional
Western Europe

45%

30%

15%

Average heavy
Content per
truck price (US$) vehicle (US$)

Content as a %
of vehicle price

130k

>3000

2.3%

South America

65k

<1500

2.3%

Japan & Korea

80k

<1000

1.3%

North America

80k

<1000

1.3%

Eastern Europe

70k

<500

0.7%

China

30k

~300

1.0%

India

30k

~300

1.0%

0%

-15%
1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16
Wabco's outperformance in India

Source: Company data, Credit Suisse estimates

India Commercial Vehicles Sector

Source: Company data, Credit Suisse estimates

28

21 March 2016

Ashok Leyland Ltd ASOK.BO / AL IN


Price (18 Mar 16): Rs97.30, Rating:: NEUTRAL, Target Price: Rs96.00, Analyst: Jatin Chawla
Target price scenario
Scenario
TP

%Up/Dwn Assumptions
Acceleration in reforms leads to continued robust CV
Upside
120.00
23.33
growth
Central Case
96.00
(1.34)
Investment cycle remains sluggish leading to
Downside
65.00
(33.20)
slowdown in CV growth
Income statement (Rs mn)
3/15A
3/16E
3/17E
3/18E
Sales revenue
135,622
186,832
227,945
252,149
Cost of goods sold
99,652
131,436
160,359
177,387
SG&A
14,905
18,203
21,040
23,312
Other operating exp./(inc.)
10,799
15,275
18,141
19,539
EBITDA
10,266
21,918
28,405
31,911
Depreciation & amortisation
4,163
4,381
4,542
4,902
EBIT
6,103
17,537
23,863
27,009
Net interest expense/(inc.)
3,935
2,750
1,950
1,750
Non-operating inc./(exp.)
1,245
1,182
1,301
1,431
Associates/JV

Recurring PBT
3,413
15,970
23,214
26,690
Exceptionals/extraordinaries
1,009

Taxes
1,074
4,871
7,196
8,274
Profit after tax
3,348
11,099
16,018
18,416
Other after tax income

Minority interests

Preferred dividends

Reported net profit


3,348
11,099
16,018
18,416
Analyst adjustments

Net profit (Credit Suisse)


3,348
11,099
16,018
18,416
Cash flow (Rs mn)
3/15A
3/16E
3/17E
3/18E
EBIT
6,103
17,537
23,863
27,009
Net interest

Tax paid

Working capital

Other cash & non-cash items


4,163
4,381
4,542
4,902
Operating cash flow
10,266
21,918
28,405
31,911
Capex

(2,500)
(3,000)
(4,000)
Free cash flow to the firm
10,266
19,418
25,405
27,911
Disposals of fixed assets

Acquisitions

Divestments

Associate investments

Other investment/(outflows)

Investing cash flow

(2,500)
(3,000)
(4,000)
Equity raised

Dividends paid
(1,541)
(3,245)
(3,894)
(4,868)
Net borrowings

Other financing cash flow

Financing cash flow


(1,541)
(3,245)
(3,894)
(4,868)
Total cash flow
8,725
16,173
21,510
23,043
Adjustments

Net change in cash


8,725
16,173
21,510
23,043
Balance sheet (Rs mn)
3/15A
3/16E
3/17E
3/18E
Cash & cash equivalents
7,513
10,340
13,835
24,758
Current receivables
12,577
17,915
22,482
24,869
Inventories
13,985
19,963
24,980
27,633
Other current assets
18,795
19,570
20,385
21,240
Current assets
52,870
67,788
81,682
98,501
Property, plant & equip.
53,757
51,876
50,334
49,432
Investments
26,488
27,488
29,488
31,988
Intangibles

Other non-current assets

Total assets
133,115
147,153
161,505
179,921
Accounts payable
28,283
38,963
47,537
52,584
Short-term debt

Current provisions
3,347
3,681
4,049
4,454
Other current liabilities
11,698
12,868
14,155
15,570
Current liabilities
43,328
55,512
65,741
72,609
Long-term debt
33,497
27,497
19,497
17,497
Non-current provisions

Other non-current liab.


5,103
5,103
5,103
5,103
Total liabilities
81,928
88,112
90,341
95,209
Shareholders' equity
51,187
59,041
71,164
84,712
Minority interests

Total liabilities & equity


133,115
147,153
161,505
179,921

Key earnings drivers


Total Volumes sold
Margins

3/15A
3/16E
3/17E
77,660 109,045 133,235
7.6
11.7
12.5

Per share data


Shares (wtd avg.) (mn)
EPS (Credit Suisse) (Rs)
DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Key ratios and valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)

3/18E
145,306
12.7

3/15A
2,846
1.18
0.54
18.0
3.6
3/15A

3/16E
2,846
3.90
1.14
20.7
7.7
3/16E

3/17E
2,846
5.63
1.37
25.0
10.0
3/17E

3/18E
2,846
6.47
1.71
29.8
11.2
3/18E

36.4
390
1,038
969

37.8
187
232
232

22.0
36
44
44

10.6
13
15
15

7.6
4.5
2.5
2.47

11.7
9.4
8.5
5.94

12.5
10.5
10.2
7.03

12.7
10.7
10.6
7.30

82.7
5.41
0.56
27.0
2.23
29.5
49.6

24.9
4.69
1.17
12.6
1.57
13.4
16.8

17.3
3.89
1.41
9.7
1.24
9.9
11.8

15.0
3.27
1.76
8.7
1.07
8.4
10.0

7.0
5.0
1.02
0.56
0.76
2.60

20.1
15.9
1.27
0.91
0.70
2.49

24.6
21.5
1.41
0.97
0.69
2.27

23.6
24.2
1.40
0.99
0.69
2.12

50.8
2.53
1.6

29.1
0.78
6.4

8.0
0.20
12.2

(8.6)
(0.23)
15.4

Source: Company data, Thomson Reuters, Credit Suisse estimates.


12MF P/E multiple
80
70
60

50
40
30
20

10
0
2011

2012

2013

2014

2015

2016

2015

2016

12MF P/B multiple


6
5

4
3
2
1
0
2011

2012

2013

2014

Source: IBES

India Commercial Vehicles Sector

29

21 March 2016

Tata Motors Ltd. TAMO.BO / TTMT IN


Price (18 Mar 16): Rs365.90, Rating:: OUTPERFORM, Target Price: Rs470.00, Analyst: Jatin Chawla
Target price scenario
Scenario

TP

Upside

600.00

Central Case

470.00

Downside

300.00

Income statement (Rs mn)


Sales revenue
Cost of goods sold
SG&A
Other operating exp./(inc.)
EBITDA
Depreciation & amortisation
EBIT
Net interest expense/(inc.)
Non-operating inc./(exp.)
Associates/JV
Recurring PBT
Exceptionals/extraordinaries
Taxes
Profit after tax
Other after tax income
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Net profit (Credit Suisse)
Cash flow (Rs mn)
EBIT
Net interest
Tax paid
Working capital
Other cash & non-cash items
Operating cash flow
Capex
Free cash flow to the firm
Disposals of fixed assets
Acquisitions
Divestments
Associate investments
Other investment/(outflows)
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Other financing cash flow
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Balance sheet (Rs mn)
Cash & cash equivalents
Current receivables
Inventories
Other current assets
Current assets
Property, plant & equip.
Investments
Intangibles
Other non-current assets
Total assets
Accounts payable
Short-term debt
Current provisions
Other current liabilities
Current liabilities
Long-term debt
Non-current provisions
Other non-current liab.
Total liabilities
Shareholders' equity
Minority interests
Total liabilities & equity

%Up/Dwn Assumptions
XE big success, Domestic business too
63.98
revives fast
28.45
Global macro environment turns adverse;
(18.01)
slowdown in China luxury spend
3/15A
3/16E
3/17E
3/18E
2,627,963
2,765,769
3,004,004
3,205,566
2,044,262
2,211,562
2,379,934
2,526,237
125,865
123,970
136,922
146,727
36,699
41,976
43,318
45,607
421,138
388,262
443,830
486,995
133,886
171,370
204,446
242,949
287,252
216,892
239,385
244,045
49,676
43,979
27,562
17,089
(18,703)
(22,955)
(24,505)
(25,648)

218,872
149,958
187,318
201,308
(1,847)

76,429
28,492
41,210
44,288
140,596
121,466
146,108
157,020
134
3,887
12,950
16,730
867.8
867.8
867.8
867.8

139,863
124,485
158,190
172,883

139,863
124,485
158,190
172,883
3/15A
3/16E
3/17E
3/18E
287,252
216,892
239,385
244,045
(48,615)
(44,381)
(31,066)
(23,042)
(82,582)
(28,492)
(41,210)
(44,288)
122,503
(23,934)
16,730
14,619
140,293
184,276
227,403
270,991
418,851
304,361
411,240
462,326
(327,338)
(392,000)
(385,000)
(385,000)
91,513
115,324
224,640
274,726

(46,501)

(373,839)
(392,000)
(385,000)
(385,000)
(187,480)
75,000

(3,956)
(7,913)
(11,869)
195,259
(49,132)
868
(49,132)

7,779
21,912
(7,045)
(61,002)
52,791
(65,727)
19,195
16,324

52,791
(65,727)
19,195
16,324
3/15A
3/16E
3/17E
3/18E
321,158
222,991
210,311
194,761
125,792
189,947
206,831
220,973
292,723
306,145
329,666
350,063
295,012
320,706
348,971
380,061
1,034,685
1,039,789
1,095,779
1,145,858
576,353
680,244
765,265
832,155
153,367
153,367
153,367
153,367
594,843
711,581
807,115
882,276

2,359,248
2,584,982
2,821,526
3,013,656
574,073
612,951
653,844
685,136
153,837
153,837
153,837
153,837
211,703
232,873
256,160
281,776
192,897
212,186
233,405
256,746
1,132,509
1,211,847
1,297,245
1,377,494
582,267
532,267
532,267
482,267

77,519
77,519
77,519
77,519
1,792,295
1,821,633
1,907,032
1,937,280
562,619
758,148
908,425
1,069,439
4,333
5,201
6,069
6,937
2,359,248
2,584,982
2,821,526
3,013,656

Key earnings drivers


Dom CV volumes
Dom PV volumes
Dom gross margins
JLR volumes
JLR gross margins

3/15A
3/16E
3/17E
364,539 382,399 470,895
137,616 134,486 147,656
(1.35)
6.12
7.46
470,523 538,847 638,906
18.9
14.6
15.9

Per share data


Shares (wtd avg.) (mn)
EPS (Credit Suisse) (Rs)
DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Key ratios and valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)

3/18E
529,376
162,144
7.79
698,966
16.5

3/15A
3,219
43.5

175
130
3/15A

3/16E
3,396
36.7
1.16
223
90
3/16E

3/17E
3,396
46.6
2.33
267
121
3/17E

3/18E
3,396
50.9
3.50
315
136
3/18E

12.9
9.1
(0.0)
(0.0)

5.2
(24.5)
(11.0)
(15.6)

8.6
10.4
27.1
27.1

6.7
1.9
9.3
9.3

16.0
10.9
8.33
5.32

14.0
7.8
5.42
4.50

14.8
8.0
6.24
5.27

15.2
7.6
6.28
5.39

8.4
2.09

2.81
0.56
3.49
5.12

10.0
1.64
0.32
4.08
0.55
3.91
7.01

7.9
1.37
0.64
3.02
0.51
3.45
6.40

7.2
1.16
0.96
2.69
0.47
3.08
6.14

23.0
19.1
1.11
0.76
0.65
4.16

18.9
15.9
1.07
0.69
0.81
3.39

19.0
14.3
1.06
0.78
0.78
3.09

17.5
13.1
1.06
0.82
0.78
2.80

73.2
0.99
5.8

60.7
1.19
4.9

52.0
1.07
8.7

41.0
0.91
14.3

Source: Company data, Thomson Reuters, Credit Suisse estimates.


12MF P/E multiple
10
9
8
7
6
5
4
3
2
1
0
2011

2012

2013

2014

2015

2016

2015

2016

12MF P/B multiple


3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2011

2012

2013

2014

Source: IBES

India Commercial Vehicles Sector

30

21 March 2016

Bosch Ltd. BOSH.BO / BOS IN


Price (18 Mar 16): Rs18,782, Rating:: OUTPERFORM, Target Price: Rs22,500, Analyst: Akshay Saxena
Target price scenario
Scenario
Upside

TP
27,000.00

Central Case
22,500.00
Downside
13,500.00
Income statement (Rs mn)
Sales revenue
Cost of goods sold
SG&A
Other operating exp./(inc.)
EBITDA
Depreciation & amortisation
EBIT
Net interest expense/(inc.)
Non-operating inc./(exp.)
Associates/JV
Recurring PBT
Exceptionals/extraordinaries
Taxes
Profit after tax
Other after tax income
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Net profit (Credit Suisse)
Cash flow (Rs mn)
EBIT
Net interest
Tax paid
Working capital
Other cash & non-cash items
Operating cash flow
Capex
Free cash flow to the firm
Disposals of fixed assets
Acquisitions
Divestments
Associate investments
Other investment/(outflows)
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Other financing cash flow
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Balance sheet (Rs mn)
Cash & cash equivalents
Current receivables
Inventories
Other current assets
Current assets
Property, plant & equip.
Investments
Intangibles
Other non-current assets
Total assets
Accounts payable
Short-term debt
Current provisions
Other current liabilities
Current liabilities
Long-term debt
Non-current provisions
Other non-current liab.
Total liabilities
Shareholders' equity
Minority interests
Total liabilities & equity

%Up/Dwn Assumptions
Faster auto growth, higher delta from
43.75
emission norms
19.79
(28.12) Slowdown in key auto segments like CV's
3/15A
3/16E
3/17E
3/18E
97,972
106,647
114,000
138,030
79,125
85,041
88,431
106,473
3,186
3,441
3,854
4,317

15,661
18,165
21,714
27,240
4,603
4,005
4,606
5,158
11,058
14,160
17,109
22,082
155.8
60.0

4,415
4,150
5,230
6,015

15,317
18,250
22,339
28,097
(280.0)

4,923
5,895
7,149
8,991
10,114
12,355
15,191
19,106
280.0

10,394
12,355
15,191
19,106

10,394
12,355
15,191
19,106
3/15A
3/16E
3/17E
3/18E
11,058
14,160
17,109
22,082
4,415
4,150
5,230
6,015
(4,923)
(5,895)
(7,149)
(8,991)
1,350
(1,440)
(644)
(2,271)
4,323
4,005
4,606
5,158
16,223
14,980
19,152
21,993
(3,090)
(6,240)
(7,000)
(7,500)
13,133
8,740
12,152
14,493

(3,090)
(6,240)
(7,000)
(7,500)
2,442

(3,212)
(3,779)
(4,535)
(5,290)
(617.0)
(105.0)

(155.8)
(60.0)

(1,543)
(3,944)
(4,535)
(5,290)
11,590
4,797
7,618
9,203

11,590
4,797
7,618
9,203
3/15A
3/16E
3/17E
3/18E
18,960
23,757
31,374
40,577
11,877
12,929
13,820
16,733
12,762
13,892
14,850
17,980
15,205
15,885
15,885
18,028
58,804
66,463
75,929
93,318
9,676
12,671
15,566
17,908
28,896
28,896
28,896
28,896

6,932
6,172
5,672
5,672
104,308
114,202
126,063
145,794
16,061
17,483
18,688
22,628

13,172
13,172
13,172
15,148
29,233
30,655
31,860
37,776
1,605
1,500
1,500
1,500

30,838
32,155
33,360
39,276
73,470
82,047
92,703
106,518

104,308
114,202
126,063
145,794

Key earnings drivers


Revenue growth (%)
Margins (%)

3/15A
11.5
16.0

3/16E
9.0
17.0

3/17E
6.5
19.0

3/18E
21.1
19.7

Per share data


Shares (wtd avg.) (mn)
EPS (Credit Suisse) (Rs)
DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Key ratios and valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)

3/15A
31.4
331
85
2,340
517
3/15A

3/16E
31.4
393
100
2,613
477
3/16E

3/17E
31.4
484
120
2,952
610
3/17E

3/18E
31.4
608
140
3,392
700
3/18E

11.1
21.9
17.5
17.5

8.9
28.1
18.9
18.9

6.9
20.8
22.9
22.9

21.1
29.1
25.8
25.8

16.0
11.3
15.6
10.6

17.0
13.3
17.1
11.6

19.0
15.0
19.6
13.3

19.7
16.0
20.4
13.8

56.7
8.03
0.45
36.4
5.84
36.5
51.8

47.7
7.19
0.53
39.4
5.32
31.2
40.1

38.8
6.36
0.64
30.8
4.91
25.8
32.7

30.9
5.54
0.75
26.8
3.99
20.2
24.9

15.2
14.0
0.94
1.39
0.67
1.42

15.9
16.5
0.93
1.29
0.68
1.39

17.4
19.0
0.90
1.31
0.68
1.36

19.2
23.1
0.95
1.27
0.68
1.37

(23.6)
(1.11)
71

(27.1)
(1.23)
236

(32.2)
(1.38)

(36.7)
(1.43)

Source: Company data, Thomson Reuters, Credit Suisse estimates.


12MF P/E multiple
70
60
50
40
30
20
10
0
2011

2012

2013

2014

2015

2016

2015

2016

12MF P/B multiple


12
10

8
6
4
2
0
2011

2012

2013

2014

Source: IBES

India Commercial Vehicles Sector

31

21 March 2016

Wabco India Ltd. WABC.BO / WIL IN


Price (18 Mar 16): Rs5,434.65, Rating:: OUTPERFORM, Target Price: Rs6,400.00, Analyst: Jatin Chawla
Target price scenario
Scenario
Upside

TP
7,680.00

Central Case
6,400.00
Downside
4,800.00
Income statement (Rs mn)
Sales revenue
Cost of goods sold
SG&A
Other operating exp./(inc.)
EBITDA
Depreciation & amortisation
EBIT
Net interest expense/(inc.)
Non-operating inc./(exp.)
Associates/JV
Recurring PBT
Exceptionals/extraordinaries
Taxes
Profit after tax
Other after tax income
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Net profit (Credit Suisse)
Cash flow (Rs mn)
EBIT
Net interest
Tax paid
Working capital
Other cash & non-cash items
Operating cash flow
Capex
Free cash flow to the firm
Disposals of fixed assets
Acquisitions
Divestments
Associate investments
Other investment/(outflows)
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Other financing cash flow
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Balance sheet (Rs mn)
Cash & cash equivalents
Current receivables
Inventories
Other current assets
Current assets
Property, plant & equip.
Investments
Intangibles
Other non-current assets
Total assets
Accounts payable
Short-term debt
Current provisions
Other current liabilities
Current liabilities
Long-term debt
Non-current provisions
Other non-current liab.
Total liabilities
Shareholders' equity
Minority interests
Total liabilities & equity

%Up/Dwn Assumptions
Faster recovery in CV space and more
41.32
new products launched by WABCO
17.76
(11.68) CV recovery delays
3/15A
3/16E
3/17E
3/18E
13,480
18,221
24,489
29,911
7,929
10,796
14,326
17,498
3,517
4,272
5,494
6,563

2,034
3,153
4,669
5,850
466.6
583.3
670.8
771.4
1,567
2,570
3,998
5,079
3.6

203.0
304.5
365.4
438.5

1,766
2,874
4,363
5,517

560
776
1,178
1,490
1,207
2,098
3,185
4,028

1,207
2,098
3,185
4,028

1,207
2,098
3,185
4,028
3/15A
3/16E
3/17E
3/18E
1,567
2,570
3,998
5,079
199.4
304.5
365.4
438.5
(557)
(776)
(1,178)
(1,490)
(167)
(1,167)
(1,250)
(1,128)
466.6
583.3
670.8
771.4
1,509
1,514
2,606
3,671
(715)
(1,000)
(1,200)
(1,200)
794
514
1,406
2,471

(715)
(1,000)
(1,200)
(1,200)
(13.4)

(114.7)
(199.7)
(266.3)
(266.3)

(128.0)
(199.7)
(266.3)
(266.3)
666
314
1,140
2,205

666
314
1,140
2,205
3/15A
3/16E
3/17E
3/18E
2,601
2,915
4,054
6,259
2,992
4,044
5,435
6,638
1,180
1,595
2,143
2,618
927
1,093
1,311
1,573
7,699
9,646
12,944
17,088
3,237
3,654
4,183
4,612
22.0
22.0
22.0
22.0

176.3
176.3
176.3
176.3
11,135
13,498
17,325
21,898
2,012
2,412
3,241
3,959

327.4
392.9
471.5
565.8

2,340
2,805
3,713
4,525
0.30

164.5
164.5
164.5
164.5
2,504
2,969
3,877
4,689
8,630
10,529
13,448
17,209

11,135
13,498
17,325
21,898

Key earnings drivers


Revenue growth (%)
Margins (%)

3/15A
21.4
15.1

3/16E
35.2
17.3

3/17E
34.4
19.1

3/18E
22.1
19.6

Per share data


Shares (wtd avg.) (mn)
EPS (Credit Suisse) (Rs)
DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Key ratios and valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)

3/15A
19.0
64
5.0
455
80
3/15A

3/16E
19.0
111
9.0
555
80
3/16E

3/17E
19.0
168
12.0
709
137
3/17E

3/18E
19.0
212
12.0
907
194
3/18E

21.4
16.9
2.7
2.7

35.2
64.0
73.9
73.9

34.4
55.6
51.8
51.8

22.1
27.0
26.4
26.4

15.1
11.6
13.1
9.0

17.3
14.1
15.8
11.5

19.1
16.3
17.8
13.0

19.6
17.0
18.4
13.5

85.4
11.9
0.09
68.3
7.45
49.4
64.1

49.1
9.8
0.17
68.1
5.50
31.8
39.0

32.4
7.7
0.22
39.6
4.04
21.2
24.8

25.6
6.0
0.22
28.1
3.24
16.6
19.1

14.9
18.5
1.21
1.13
0.68
1.29

21.9
27.5
1.35
1.12
0.73
1.28

26.6
34.3
1.41
1.09
0.73
1.29

26.3
36.4
1.37
1.09
0.73
1.27

(30.1)
(1.28)
434

(27.7)
(0.92)

(30.2)
(0.87)

(36.4)
(1.07)

Source: Company data, Thomson Reuters, Credit Suisse estimates.


12MF P/E multiple
60
50
40
30
20
10
0
2011

2012

2013

2014

2015

2016

2015

2016

12MF P/B multiple


14
12
10
8
6
4
2
0
2011

2012

2013

2014

Source: IBES

India Commercial Vehicles Sector

32

21 March 2016

Companies Mentioned (Price as of 18-Mar-2016)


American Axle & Manufacturing Holdings Inc. (AXL.N, $15.48)
Apollo Tyres (APLO.BO, Rs177.45)
Ashok Leyland Ltd (ASOK.BO, Rs97.3, NEUTRAL, TP Rs96.0)
Astra International (ASII.JK, Rp7,450)
Autoliv (ALV.N, $112.82)
BAIC Motor Corporation Limited (1958.HK, HK$6.25)
BMW (BMWG.DE, 81.58)
Bajaj Auto Limited (BAJA.BO, Rs2301.85)
Bharat Forge Limited (BFRG.BO, Rs847.15)
BorgWarner, Inc. (BWA.N, $37.97)
Bosch Ltd. (BOSH.BO, Rs18782.15, OUTPERFORM, TP Rs22500.0)
Brilliance China Automotive Holdings Limited (1114.HK, HK$7.28)
Continental (CONG.DE, 195.65)
DELPHI Automotive PLC (DLPH.N, $72.64)
Dana Holding (DAN.N, $14.03)
Denso (6902.T, 4,312)
Dongfeng Motor Group Company Limited (0489.HK, HK$9.66)
Eicher Motors (EICH.BO, Rs18403.1)
Exide Industries (EXID.BO, Rs136.05)
Faurecia (EPED.PA, 33.5)
Ford Motor Company (F.N, $13.64)
Geely Automobile Holdings Ltd (0175.HK, HK$3.42)
General Motors Corp. (GM.N, $31.96)
Great Wall Motor (2333.HK, HK$6.86)
Guangzhou Automobile Group (2238.HK, HK$7.58)
Hero Motocorp Ltd (HROM.BO, Rs2832.9)
Honda Motor (7267.T, 3,058)
Hyundai Motor Company (005380.KS, W150,500)
Johnson Controls Inc (JCI.N, $38.86)
Kia Motors (000270.KS, W47,600)
Lear Corp (LEA.N, $111.91)
Magna International (MGA.N, $42.78)
Mahindra & Mahindra (MAHM.BO, Rs1222.2)
Maruti Suzuki India Ltd (MRTI.BO, Rs3629.55)
Motherson Sumi Systems Limited (MOSS.BO, Rs249.9)
Nissan Motor (7201.T, 1,061)
PSA Peugeot Citroen (PEUP.PA, 15.43)
Paccar Inc (PCAR.OQ, $55.18)
Plastic Omnium (PLOF.PA, 29.66)
Renault (RENA.PA, 85.75)
SAIC Motor Corp Ltd (600104.SS, Rmb19.83)
Suzuki Motor (7269.T, 3,018)
TRW Automotive Holdings Corp. (TRW.N, $105.46)
Tata Motors Ltd. (TAMO.BO, Rs365.9, OUTPERFORM[V], TP Rs470.0)
Toyota Motor (7203.T, 5,888)
Valeo (VLOF.PA, 134.3)
Volkswagen (VOWG_p.DE, 116.5)
Volvo (VOLVb.ST, Skr87.65)
Wabco India Ltd. (WABC.BO, Rs5434.65, OUTPERFORM, TP Rs6400.0)
Weichai Power Co. Ltd (000338.SZ, Rmb8.12)

Disclosure Appendix
Important Global Disclosures
Jatin Chawla and Akshay Saxena each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed
in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation
was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

India Commercial Vehicles Sector

33

21 March 2016

3-Year Price and Rating History for Ashok Leyland Ltd (ASOK.BO)
ASOK.BO
Date
03-Apr-13
13-May-13
17-Jul-13
07-Nov-13
19-May-14
26-May-14
28-Jul-14
11-Sep-14
04-Nov-14
02-Feb-15
13-May-15
13-Aug-15
05-Nov-15
12-Feb-16

Closing Price
(Rs)
22.30
22.10
16.10
16.80
29.10
31.90
32.75
41.90
46.50
66.10
69.60
88.45
86.80
83.20

Target Price
(Rs)
25.00
24.00
17.00
15.00
32.00
37.00
39.00
48.00
48.00
63.00
65.00
80.00
83.00
86.00

Rating
N

N
N EU T RA L
O U T PERFO RM

* Asterisk signifies initiation or assumption of coverage.

3-Year Price and Rating History for Bosch Ltd. (BOSH.BO)


BOSH.BO
Date
29-Apr-13
28-Jan-14
23-Nov-15
15-Mar-16

Closing Price
(Rs)
8994.55
9115.10
19008.85
18146.90

Target Price
(Rs)
10020.00
15300.00
22500.00

Rating
O
NR
U*
O

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM
N O T RA T ED
U N D ERPERFO RM

3-Year Price and Rating History for Tata Motors Ltd. (TAMO.BO)
TAMO.BO
Date
03-Apr-13
10-Sep-13
11-Nov-13
09-Jan-14
10-Feb-14
22-Apr-14
19-May-14
29-May-14
11-Aug-14
23-Sep-14
17-Nov-14
26-Mar-15
04-May-15
18-May-15
27-May-15
03-Aug-15
12-Feb-16

Closing Price
(Rs)
254.87
345.50
373.16
364.25
360.15
424.51
439.65
419.31
442.66
512.32
539.33
520.58
506.70
520.25
471.65
388.15
298.65

Target Price
(Rs)
361.14
395.77
435.34
445.24
460.08
465.02
494.71
474.92
504.60
633.22
643.12
640.00
620.00
610.00
490.00
470.00

Rating
O

O
R
O

O U T PERFO RM
N EU T RA L
REST RICT ED

* Asterisk signifies initiation or assumption of coverage.

India Commercial Vehicles Sector

34

21 March 2016

3-Year Price and Rating History for Wabco India Ltd. (WABC.BO)
WABC.BO
Date
04-Nov-14
04-Mar-15
29-Jul-15
29-Jan-16

Closing Price
(Rs)
3584.10
5313.60
5406.85
5606.10

Target Price
(Rs)
4820.00
6200.00
6300.00
6400.00

Rating
O*

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts stock rating are defined as follows:


Outperform (O) : The stocks total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are bas ed on a stocks total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stocks total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst withi n the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings
are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Can adian
ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiv eness of a stocks total return potential within
an analysts coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated ris ks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July
2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or
valuation of the sector* relative to the groups historic fundamentals and/or valuation:
Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:


Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy*
57%
(39% banking clients)
Neutral/Hold*
31%
(26% banking clients)
Underperform/Sell*
11%
(45% banking clients)
Restricted
1%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

India Commercial Vehicles Sector

35

21 March 2016

Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer
to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot
be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating
Valuation Methodology and Risks: (12 months) for Ashok Leyland Ltd (ASOK.BO)
Method: Our target price of Rs96 for Ashok Leyland is based on P/E (price-to-earnings); we value the stock at 14x Mar-18E earnings (10%
premium to historic average given the upcycle) and we give a Rs5/share value for the unlisted subs. We have Neutral rating on Ashok
Leyland as even with strong earnings momentum, we believe the current stock price already reflects that.
Risk:

Key downside risks to our target price of Rs96 and Neutral rating for Ashok Leyland is a slower than expected recovery in the economy
leading to lower CV growth going forward. Upside risk is company continuing to outperform the industry.

Target Price and Rating


Valuation Methodology and Risks: (12 months) for Bosch Ltd. (BOSH.BO)
Method: Our target price of Rs22,500 for Bosch Ltd is based on DCF. We use a three stage DCF valuationinitial high growth phase of ~20% in
the first seven years driven by content increase with emission norm changes, 10% growth for the next seven years, and a terminal growth
rate of 5%. We use a WACC of 11.5%. We have an OUTPERFORM rating as we believe Bosch is one of the main beneficiaries of the
recent change in government's stancegreater commitment to tackle the problem of pollution in the country with a focus on automobiles
sector (advancement of BS-VI norms, inclusion of vehicle classes such as 2Ws etc.).
Risk:

Key risks to our target price of Rs22,500 and OUTPERFORM rating for Bosch Ltd include: delay in implementation of changes in
emissions norms and localisation challenges.

Target Price and Rating


Valuation Methodology and Risks: (12 months) for Tata Motors Ltd. (TAMO.BO)
Method: We set a sum-of-the-parts (SOTP)-based target price of Rs470 for Tata Motors. We value the domestic business (Rs103/share) at 8x
Dec-17E EBIDTA (earnings before interest, depreciation, tax and amortisation). We value JLR (Rs341/share) at 3.5x Dec-17E EBIDTA,
Rs 37 for China JV, along with other subsidiaries (Rs25/share) and net of debt (Rs35/share). We have Outperform rating as believe that
JLR is now entering a phase of volume acceleration, even with poor mix margins should expand on platform consolidation and operating
leverage.
Risk:

The key risks that could impede achievement of our Rs470 target price and Outperform rating for Tata Motors include: a slowdown in the
Chinese luxury car market and a crackdown by the Chinese authorities on JLR's premium pricing in China which could have a significant
impact on its margins

Target Price and Rating


Valuation Methodology and Risks: (12 months) for Wabco India Ltd. (WABC.BO)
Method: We value Wabco India Ltd. at a target price of Rs6,400 using a DCF (discounted cash flow) methodology. We assume a 8% CAGR in
content per vehicle and ~12% growth in domestic CV volumes driving ~20% growth in domestic revenue for the company. We assume a
risk-free rate of 8% for the Indian market and 15% as the market return which gives us a cost of equity of 12%. We have an
OUTPERFORM rating as we view Wabco as a strong structural story on the back of a multi-year rise in content per vehicle.
Risk:

Risks to our Rs6,400 target price and OUTPERFORM rating for Wabco India Ltd. include: a slowdown in CV which would put pressure on
both volumes as well as content per vehicle. Knorr so far has been a weak second player in the market; if Knorr is able to scale up faster
than expected, that too will have a significant negative impact on WABCO

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names

The subject company (ASOK.BO, TAMO.BO, CONG.DE, EPED.PA, JCI.N, AXL.N, VLOF.PA, MOSS.BO, 7267.T, VOWG_p.DE, MAHM.BO,
1114.HK, 005380.KS, RENA.PA, 2238.HK, F.N, BMWG.DE, 0489.HK, 600104.SS, GM.N, 000270.KS, PCAR.OQ, VOLVb.ST) currently is, or was
during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

India Commercial Vehicles Sector

36

21 March 2016

Credit Suisse provided investment banking services to the subject company (ASOK.BO, TAMO.BO, AXL.N, VLOF.PA, 1114.HK, 2238.HK, F.N,
BMWG.DE, 0489.HK, 600104.SS, GM.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (VOWG_p.DE, 005380.KS, BMWG.DE, GM.N, 000270.KS,
VOLVb.ST) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (ASOK.BO, TAMO.BO, AXL.N, VLOF.PA,
2238.HK, F.N, BMWG.DE, GM.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (ASOK.BO, TAMO.BO, AXL.N, VLOF.PA, 1114.HK,
2238.HK, F.N, BMWG.DE, 0489.HK, 600104.SS, GM.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ASOK.BO, TAMO.BO,
WABC.BO, EPED.PA, BWA.N, JCI.N, AXL.N, VLOF.PA, ALV.N, MOSS.BO, 7201.T, 7203.T, 7267.T, 2333.HK, MAHM.BO, 1114.HK, 005380.KS,
RENA.PA, 2238.HK, 0175.HK, F.N, BMWG.DE, 0489.HK, 600104.SS, GM.N, 000270.KS, HROM.BO, PCAR.OQ) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (VOWG_p.DE,
005380.KS, BMWG.DE, GM.N, 000270.KS, VOLVb.ST) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (LEA.N, DLPH.N, BWA.N, JCI.N, AXL.N, ALV.N,
7201.T, 7203.T, 7267.T, F.N, GM.N, PCAR.OQ).
Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India
(Research Analysts) Regulations, 2014
Credit Suisse may have interest in (BOSH.BO, ASOK.BO, TAMO.BO, WABC.BO, BFRG.BO, EXID.BO, EICH.BO, MOSS.BO, APLO.BO, MAHM.BO,
MRTI.BO, BAJA.BO, HROM.BO)
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (VLOF.PA, APLO.BO,
2333.HK, MAHM.BO, PEUP.PA, 0489.HK).
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures


Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse
does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events.
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.creditsuisse.com/sites/disclaimers-ib/en/canada-research-policy.html.
The following disclosed European company/ies have estimates that comply with IFRS: (CONG.DE, VLOF.PA, ALV.N, 7201.T, VOWG_p.DE,
PEUP.PA, RENA.PA, F.N, BMWG.DE, VOLVb.ST).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ASOK.BO, TAMO.BO,
CONG.DE, AXL.N, VLOF.PA, 7267.T, VOWG_p.DE, 005380.KS, 2238.HK, F.N, BMWG.DE, GM.N) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
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To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important
disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research
analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the
NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a
research analyst account.
Credit Suisse Securities (India) Private Limited...................................................................................................... Jatin Chawla ; Akshay Saxena
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

India Commercial Vehicles Sector

37

21 March 2016

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can
be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a
seller, you will be requested to pay the purchase price only.

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India Commercial Vehicles Sector

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