RESULTS REVIEW 3QFY17 10 FEB 2017

SML Isuzu
BUY

INDUSTRY AUTOS Steady performance continues

CMP(as on 10 Feb 2017) Rs 1,272 Although moderately below our expectations, SML Highlights of the quarter
reported strong numbers in 3QFY17. The top-line
Target Price Rs 1,536 Market share trend: SMLs market share in the bus
stood at Rs 2.3bn (+18%), aided by 12% volume
segment increased to 8.1% vs 7.5% in 3QFY16. Its
Nifty 8,794 growth and 5% increase in net ASP. The EBITDA
Sensex 28,334 margin stood at 4% (+264bps YoY), driven by an volume in the cargo segment also jumped by 24% in
improvement in the product mix (cargo: bus mix 9mFY17 to 4.93k(vs. 3% industry growth) as the
KEY STOCK DATA
64:36 vs 67:33 in 3QFY16) company witnessed strong growth in the 7.5-10 MT
Bloomberg SM IN
category, with an increasing acceptance of its Super
No. of Shares (mn) 14 The company has upgraded its product range to stay
Supreme trucks.
MCap (Rs bn) / ($ mn) 18 / 275 relevant and competitive as against larger peers. The
6m avg traded value (Rs mn) 79 outlook for the passenger carrier segment is more New launches: SML launched two news buses
encouraging ahead of the peak season for buses in executive Ex Coach and Ecomax bus in 3Q. Ecomax bus,
STOCK PERFORMANCE (%)
the school/college segment. Improved capacity designed for tours and travel operators and staff
52 Week high / low Rs 1,434 / 639
utilisation, expanding dealership network and new shuttle operations, is gaining good traction. This bus is
3M 6M 12M product launches (with focus on improved cabin and
competing with Force Traveler, Tata Motors City Ride
Absolute (%) (1.1) (2.9) 54.9 fuel efficiency) bode well for the growth of SML in
and Mahindra Tourister.
Relative (%) (4.1) (5.0) 35.6 times to come.
SHAREHOLDING PATTERN (%) We have rolled our numbers to Dec-18 and upgrade Near-term outlook: Expect strong volume growth in
Promoters 43.96 our SOTP-based TP to Rs 1,536 based on 20x Dec-18E Q4 owing to peak season for school buses and pre-
FIs & Local MFs 3.58 EPS. Maintain BUY. buying demand ahead of BSIV norms.
FIIs 3.95 Financial Summary
Public & Others 48.51 (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E
Source : BSE Net Sales 2,298 1,942 18.3 3,046 (24.6) 11,643 13,848 16,134 19,214
EBITDA (adj.) 91 26 255.5 179 (49.1) 848 1,165 1,505 1,985
Abhishek Jain APAT 31 (9) NA 97 (67.5) 512 696 886 1,189
abhishekkumar.jain@hdfcsec.com Diluted EPS (Rs) 2.2 (0.6) NA 6.7 (67.5) 35.4 48.0 61.2 82.0
+91-22-6171-7320
P/E (x) 35.6 26.2 20.6 15.4
EV / EBITDA (x) 21.7 16.3 12.7 9.6
Sneha Prashant
sneha.prashant@hdfcsec.com RoE (%) 15.1 17.0 17.9 20.6
+91-22-6171-7336 Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 SML ISUZU : RESULTS REVIEW 3QFY17

Quarterly Financials Snapshot: Standalone

Despite the demonetisation
(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
affect, topline grew by 18%
Volume (Mn Units) 2,635 2,344 12.4 3,427 (23.1)
aided by growth in volumes
Net ASP (Rs) 865,731 822,483 5.3 884,389 (2.1)
(12%) and ASP(5%)
Net Sales 2,281 1,928 18.3 3,031 (24.7)
Other Operating Income 17 14 21.0 15 9.9
Net sales (incl OOI) 2,298 1,942 18.3 3,046 (24.6)
Material Expenses 1,587 1,347 17.9 2,229 (28.8)
Net ASP improved YoY owing
Employee Expenses 352 323 9.0 360 (2.2)
improvement in product mix
Other Operating Expenses 267 246 8.4 278 (4.0)
(bus mix increased to 36% vs
EBITDA 91 26 255.5 179 (49.1)
33% YoY)
Depreciation 59 51 15.8 56 6.6
EBIT 32 (26) NA) 123 (74.4)
Other Income 17 19 (12.6) 16 1.8
The company witnessed
Interest Cost 10 10 (6.9) 7 28.4
strong growth in the 7.5-10
PBT 39 (17) NA 132 (70.7)
MT categories, with growing
Tax 7 (8) (197.3) 35 (79.3)
demand of Super Supreme APAT 31 (9) NA 97 (67.5)
and Sartaj trucks. Adj EPS 2.2 (0.6) NA 6.7 (67.5)
Source: Company, HDFC sec Inst Research

Margin Analysis: Standalone

3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Material Expenses % Net Sales 69.1 69.3 (27) 73.2 (408)
The EBITDA margin expanded Employee Expenses % Net Sales 15.3 16.7 (131) 11.8 350
by 264bps YoY, positively Other Expenses % Net Sales 11.6 12.7 (106) 9.1 249
impacted by operating EBITDA Margin (%) 4.0 1.3 264 5.9 (191)
leverage Tax Rate (%) 18.8 NA NA 26.6 (781)
APAT Margin (%) 1.4 (0.5) 185 3.2 (181)
Source: Company, HDFC sec Inst Research

Page | 2
 SML ISUZU : RESULTS REVIEW 3QFY17

Volume Assumptions
(in units) FY15 FY16 FY17E FY18E FY19E
Buses 7,759 6,789 7,962 8,545 9,618
Expect 15% CAGR volume
% YoY 23.9% -12.5% 17.3% 7.3% 12.6%
growth for SML in FY16-19E
Trucks 3,692 5,408 6,380 7,793 9,402
as the company regains
% YoY 18.0% 46.5% 18.0% 22.2% 20.6%
market share in the school
bus segment and expanding Domestic volumes 11,451 12,197 14,342 16,338 19,020
its presence in the cargo % YoY 22.0% 6.5% 17.6% 13.9% 16.4%
segment Exports 370 503 490 489 522
% YoY -0.3% 35.9% -2.6% -0.2% 6.7%
Total sales 11,821 12,700 14,832 16,827 19,542
The companys existing range % YoY 21.1% 7.4% 16.8% 13.4% 16.1%
Source: SIAM, HDFC sec Inst Research
spans 5.5-12 tonners in cargo
and upto 16 tonnes in buses.
The long-term game plan is to
become a player in the 5.5-49
tonne range, with Isuzu will
provide technical inputs for
the above 12-tonne category

Peer Valuations
Mcap CMP Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%)
Reco TP
(Rs bn) (Rs/sh) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Maruti Suzuki 1,846 6,112 BUY 6,428 188.8 242.3 312.2 32.4 25.2 19.6 17.5 14.6 10.9 24.2 22.7 24.8
Tata Motors 1,730 510 BUY 573 37.7 54.8 55.5 13.5 9.3 9.2 6.8 5.4 3.3 14.8 18.4 15.9
Bajaj Auto 810 2,801 BUY 3,400 135.2 159.8 176.2 20.7 17.5 15.9 14.9 11.9 10.4 30.0 31.5 30.0
M&M 755 1,278 BUY 1,450 62.0 75.8 86.4 20.6 16.9 14.8 12.3 10.5 8.2 15.7 17.3 17.5
Hero Motocorp 653 3,269 BUY 3,704 162.2 187.4 213.2 20.2 17.4 15.3 14.2 11.1 9.8 34.9 38.8 37.8
Eicher Motors 651 24,013 BUY 28,603 624.3 804.9 1,010.0 38.5 29.8 23.8 28.4 22.3 17.8 36.4 34.2 33.9
Ashok Leyland 265 93 BUY 100 3.9 5.3 6.9 23.9 17.5 13.6 13.0 10.2 8.4 19.1 23.4 26.5
Force Motors 56 4,212 BUY 4,952 136.5 193.3 256.6 30.8 21.8 16.4 19.5 12.9 9.6 10.7 14.4 16.6
SML Isuzu 18 1,272 BUY 1,536 45.6 61.2 82.0 27.9 20.8 15.5 16.5 12.8 9.7 19.1 21.1 23.9
Atul Auto 9 428 BUY 507 19.2 26.2 31.1 22.3 16.3 13.8 13.6 9.5 7.9 23.1 28.5 27.7
Source: SIAM, HDFC sec Inst Research

Page | 3
 SML ISUZU : RESULTS REVIEW 3QFY17

Net ASP Witnessed Improvement YoY On Slightly

Volume Growth On The Rise
better Mix
Dealers typically look to build Volume (units) % YoY - RHS Net ASP (Rs '000) % YoY - RHS
stock in the fourth quarter, 5,000 50% 1,050,000 15.0
ahead of the peak season for 4,500 1,000,000 10.0
school buses between April 4,000 30% 950,000 5.0
and June. 3,500 900,000 -
3,000 10%
850,000 (5.0)
2,500
800,000 (10.0)
2,000 -10%
750,000 (15.0)
1,500
700,000 (20.0)
1,000 -30%

2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Bus segment has risen by 25%
YoY and truck segment by
13% YoY
Product Mix Improved YoY Tonnage Mix Was Adverse On YoY Comparison
Total buses Total trucks HCV LCV
100% 100%

32 27 32
80% 37 80% 43 55
44 43 34 44 39 39 47
52 55 43 45 54
67 64
60% 60%

40% 40%
68 73 68
63 57 57
56 66 56 61 61 53
48 45 20% 57 55 46
20% 36
33 45

0% 0%

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

Source: SIAM, HDFC sec Inst Research Source: SIAM, HDFC se Inst Research

Page | 4
 SML ISUZU : RESULTS REVIEW 3QFY17

Income Statement Standalone Balance Sheet Standalone

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 11,055 11,643 13,848 16,134 19,214 SOURCES OF FUNDS
Growth (%) 25.4 5.3 18.9 16.5 19.1 Share Capital - Equity 145 145 145 145 145
Material Expenses 8,106 8,479 10,109 11,810 14,027 Reserves 2,884 3,257 3,749 4,364 5,280
Employee Expenses 1,201 1,249 1,367 1,504 1,730 Total Shareholders Funds 3,029 3,401 3,894 4,508 5,426
Other Operating Expenses 1,093 1,068 1,206 1,315 1,473 Long Term Debt - - 500 500 500
EBITDA 655 848 1,165 1,505 1,985 Short Term Debt 223 550 550 550 550
EBITDA Margin (%) 5.9 7.3 8.4 9.3 10.3 Total Debt 223 550 1,050 1,050 1,050
EBITDA Growth (%) 106.9 29.4 37.4 29.2 31.9 Net Deferred Taxes 26 56 56 56 56
Depreciation 198 196 236 322 372 Long Term Provisions & Others 844 869 1,043 1,251 1,501
EBIT 458 652 929 1,183 1,613 TOTAL SOURCES OF FUNDS 4,122 4,876 6,042 6,866 8,034
Other Income (Including EO Items) 88 83 105 120 122 APPLICATION OF FUNDS
Interest 58 52 95 89 84 Net Block 1,378 1,711 2,575 3,453 3,881
PBT 487 684 940 1,214 1,651 CWIP 266 403 700 300 500
Tax (Incl Deferred) 118 172 244 328 462 Investments - - - - -
APAT 369 512 696 886 1,189 LT Loans & Advances 326 378 403 428 453
APAT Growth (%) 112.2 38.6 35.9 27.4 34.2 Total Non-current Assets 1,971 2,492 3,679 4,181 4,834
Adjusted EPS (Rs) 25.5 35.4 48.0 61.2 82.0 Inventories 2,859 3,385 3,654 4,258 5,070
EPS Growth (%) 112.2 38.6 35.9 27.4 34.2 Debtors 1,044 1,028 1,308 1,524 1,815
Source: Company, HDFC sec Inst Research Other Current Assets - - - - -
Cash & Equivalents 878 361 294 224 196
Total Current Assets 4,780 4,775 5,256 6,006 7,080
Creditors 2,003 1,719 2,154 2,510 2,989
Other Current Liabilities & Provns 626 671 738 812 893
Total Current Liabilities 2,629 2,390 2,892 3,322 3,882
Net Current Assets 2,151 2,384 2,364 2,684 3,198
Total Application of Funds 4,122 4,876 6,042 6,866 8,034
Source: Company, HDFC sec Inst Research

Page | 5
 SML ISUZU : RESULTS REVIEW 3QFY17

Cash Flow Standalone Key Ratios Standalone

(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 487 684 940 1,214 1,651 PROFITABILITY (%)
Non-operating & EO items 8 - - - GPM 26.7 27.2 27.0 26.8 27.0
Interest expenses 58 52 95 89 84 EBITDA Margin 5.9 7.3 8.4 9.3 10.3
Depreciation 198 196 236 322 372 APAT Margin 3.3 4.4 5.0 5.5 6.2
Working Capital Change 35 (777) 102 (206) (318) RoE 12.8 15.9 19.1 21.1 23.9
Tax Paid (68) (172) (244) (328) (462) RoIC (or Core RoCE) 11.6 14.1 14.6 15.4 18.3
OPERATING CASH FLOW ( a ) 719 (18) 1,128 1,091 1,327 RoCE 13.5 15.1 17.0 17.9 20.6
Capex (343) (664) (1,398) (800) (1,000) EFFICIENCY
Free cash flow (FCF) 376 (682) (270) 291 327 Tax Rate (%) 24.2 25.1 26.0 27.0 28.0
Investments - - - - Fixed Asset Turnover (x) 4.7 4.1 3.5 3.1 3.2
Non-operating Income (23) (59) (150) (238) (378) Inventory (days) 94.4 106.1 96.3 96.3 96.3
INVESTING CASH FLOW ( b ) (367) (723) (1,547) (1,038) (1,378) Debtors (days) 34.5 32.2 34.5 34.5 34.5
Debt Issuance/(Repaid) 223 327 500 - - Payables (days) 66.1 53.9 56.8 56.8 56.8
Interest Expenses (58) (52) (95) (89) (84) Other Current Liab & Provns (days) 20.7 21.0 19.5 18.4 17.0
FCFE 540 (407) 136 202 243 Cash Conversion Cycle (days) 42.0 63.4 54.6 55.6 57.0
Share Capital Issuance - - - - - Debt/EBITDA (x) 0.3 0.6 0.9 0.7 0.5
Dividend (51) (136) (203) (271) (270) Net D/E (x) (0.2) 0.1 0.2 0.2 0.2
FINANCING CASH FLOW ( c ) 114 140 202 (360) (354) Interest Coverage (x) 7.9 12.6 9.8 13.3 19.2
NET CASH FLOW (a+b+c) 466 (602) (218) (308) (405) PER SHARE DATA (Rs)
Closing Cash & Equivalents 877 361 294 224 196 EPS 25.5 35.4 48.0 61.2 82.0
Source: Company, HDFC sec Inst Research CEPS 39.2 48.9 64.3 83.4 107.8
Dividend 6.0 8.0 12.0 16.0 16.0
Book Value 209.2 234.9 268.9 311.4 374.7
VALUATION
P/E (x) 49.4 35.6 26.2 20.6 15.4
P/BV (x) 6.0 5.4 4.7 4.0 3.4
EV/EBITDA (x) 26.8 21.7 16.3 12.7 9.6
EV/Revenues (x) 1.6 1.6 1.4 1.2 1.0
OCF/EV (%) 4.1 (0.1) 5.9 5.7 6.9
FCF/EV (%) 2.1 (3.7) (1.4) 1.5 1.7
FCFE/Mkt Cap (%) 3.0 (2.2) 0.7 1.1 1.3
Dividend Yield (%) 0.5 0.6 1.0 1.3 1.3
Source: Company, HDFC sec Inst Research

Page | 6
 SML ISUZU : RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Date CMP Reco Target
SML Isuzu TP
1,800 8-Feb-16 920 NEU 1,014
11-May-16 1,035 NEU 1,086
1,600
2-Sep-16 1,353 BUY 1,588
1,400 9-Nov-16 1,285 BUY 1,652
1,200 5-Dec-16 1,090 BUY 1,432
10-Feb-17 1,272 BUY 1,536
1,000
800
600 Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Feb-16

Sep-16

Feb-17
Nov-16
Jun-16
May-16

Dec-16
Mar-16

Oct-16
Aug-16
Apr-16

Jan-17
Jul-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 7
 SML ISUZU : RESULTS REVIEW 3QFY17

Disclosure:
We, Abhishek Jain, MBA, & Sneha Prashant, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

Disclaimer:
This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or
arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of
warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information
purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an
offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities
Ltd or its affiliates to any registration or licensing requirement within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not
be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd .
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived
from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for,
any company mentioned in this mail and/or its attachments.
HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and
other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action
taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or
income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or
may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other
assignment in the past twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not
based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different
conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an
officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC
Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

Page | 8