HDFC Bank Investment Advisory Group January 25, 2019

Automobile Sector – Two-Wheeler Industry

Sector Update

Sector overview
The Indian automobile industry is closely linked to country’s Gross Domestic Product (GDP) growth
and accounts for 7.1% of the GDP. The industry accounts for 49% of the country’s manufacturing
GDP and 26% of Industrial GDP. Recently, India has overtaken Germany to become the fourth
largest automobile market in the world. Automobile sales, including passenger and commercial
vehicles, in India grew by 9.5% YoY in 2017, the fastest among major global markets, to more than
4 mn units, outpacing Germany’s 3.8 mn vehicle sales, which rose by a modest 2.8% YoY in the
same period (Source: Economic Times dated: Mar 24, 2018). The automobile industry in India is
divided in four broad sub segments namely two
Segments of Indian Automobile industry
wheelers (2W), three wheelers (3W), passenger
vehicles (PV) and commercial vehicles (CV).
Within the overall automobile industry, 2W 3W, 3%
contributes the most with ~81% in volume CV, 3% Scooters -
33%
terms, followed by PV at ~13% while CV and
2W, 81%
3W contributes ~3% each. Scooters, which is Entry
Level-
more dependent on urban demand, contributes Premium - 14%
16%
PV, 13%
~33% to total 2W volumes and Motorcycles Mopeds - 4%
demand largely traverses across India, Deluxe/Mid -
33%
contributes ~63% of the total 2W volumes. Entry Source: SIAM, Heromotocorp Presentation, Media Reports
and mid-level segment in motorcycles are
largely dependent on rural areas, which hold nearly ~49% of the overall 2W volumes. However,
Premium segment of Motorcycles contributing ~14% of the total 2W volumes are dependent on
urban India. Two-wheeler industry in India grew by 14.8% YoY in FY18 with scooters outperforming
with 19.9% YoY growth as compared to 13.7% YoY growth in Motorcycle. Following are some of
the key factors, which are either currently affecting or are likely to affect the two-wheeler
industry growth going ahead
Factors affecting the two-wheeler industry
Low penetration level to drive the growth in two-wheeler industry
India has recently overtaken China to become world’s largest two-wheeler market, mainly due to
faster rate at which India’s two-wheeler market is growing as compared to China, which is
witnessing a de-growth. The two-wheeler sales in India has grown at a CAGR of ~8% during
FY14-18 period with FY18 witnessing a 14.8% YoY growth. The scooter segment grew by
19.9% YoY and motorcycle segment grew by 13.7% YoY. The faster growth in two-wheeler sales
is mainly due to rising income levels, growing
Two wheeler penetration (per ’000 people)
infrastructure in rural areas and rising trend of 350
291
scooterization (especially among women 300 281

commuters). However, despite India being the 250

world’s largest two-wheeler market, India still 200
166
has very low penetration level of two wheelers.
150
In India, about 102 out of 1000 people have 102
78
two-wheelers, which is less than half of 100
penetration levels in Indonesia (281) and 50

Thailand (291). As per HeroMoto Corp investor 0

presentation, two-wheeler penetration level in Phillipines India Malaysia Indonesia Thailand
Source: Hero Motocorp Investor Presentation - Sep 2018
Urban India is close to 40-45% while in Rural
India it is close to 20-25% resulting in to a national average of 30-40%. We believe, growing
urbanization, rising participation of women workforce and improvement in road connectivity
amongst others are key catalyst to drive improvement in penetration levels for two-
wheelers. As a result, the entire values chain in two-wheelers starting from original
equipment manufacturers (OEMs) like Bajaj Auto to component supplier like Minda
Industries, Apollo Tyres, Exide Industries etc is likely to witness steady growth in coming
times.
Improvement in discretionary spending and urbanization to drive premiumization
As Indian economy continues to grow at fastest pace as compared to other major economies of the
world, the disposable income in India is also witnessing rapid improvement, which in turn is leading
to faster rise in discretionary spending by its population. As per Eicher Motors investor
presentation, Indian population used to spend 54% of its total spending on basic goods
(necessities) in FY2000, which is expected to fall to 33% by FY20 and share of discretionary
spending is likely to increase to 67% by FY20. Similarly, trend of urbanization is also catching up
rapidly as 32% of the total population is expected to be in Urban India by 2020 as compared to
21% in 2001. This two factors are likely to be driving the demand for premium motorcycles. A sub
segment of Motorcycle, “Less than 250cc” motorcycle, has been growing at much lower rate as
compared to motorcycle in “250cc and above” segment. The 250cc and above segment has been
growing at over 28% YoY in last four years. The premium segment motorcycles are likely to do well
going ahead also as the consumer affordability improves and strong product launches and
upgrades leading to constant shift in consumer preference towards-high end bikes. A faster
growth in high end or premium bike is not only expected to drive the revenue growth but
also likely to improve margins for companies in two-wheelers space OEMs going ahead.
Rising share of discretionary spending over the year (%) Growth rate of various motorcycle segments
100% 60.0% 56.3%
52.2%
41% 46% 59% 67%
50.0%
80%
40.0%
31.7%
60% 28.6%
30.0%

40% 20.0% 12.7%

10.0% 2.3%
1.4%
20%
0.0%
59% 54% 41% 33%
0% -10.0% -2.1%
FY92 FY00 FY10 FY20f* FY15 FY16 FY17 FY18
Basic Discretionary spending Less than 250 CC 250 CC and Above
*F: D&B forecast |Source: Eicher motors investor presentation Nov 2018, Mospi, D&B India Source: Eicher motors investor presentation Nov 2018

Improvement in rural india to drive demand for motorcycles especially for entry level
segment
Rural India has been one of the main sources of consumption demand in India, mainly due to a
large population residing in this area. In two-wheeler segment, motorcycle sales are predominantly
dependent on Rural India, as people living in rural area prefer motorcycle to scooters given its
sturdy structure, superior performance, and lower costs, especially in the economy segments. With
government keen on improving the standard of living of rural population, in particularly of farmers, it
has been announcing various schemes and increasing budget allocation, which is targeted towards
increasing the rural income levels. In addition to rising penetration level of two-wheelers and
rising income levels driving the sales growth of motorcycle companies particularly strong in
entry-level motorcycle segment, improving road connectivity is also resulting in driving the
demand for two-wheelers in Rural India. The government is progressing very rapidly in terms of
improving the road connectivity as it had constructed 9829 kilometers (km) of national highway in
FY18 and targeted to construct 16420 km in FY19. The government has also increased allocation
to Pradhan Mantri Gram Sadak Yojana (PMGSY) scheme to Rs.190 bn as per the FY19 Budget
compared with Rs.169 bn in FY18. Further, OEMs have been offering heavy discounts on models
in entry-level segment like Bajaj CT100 and Bajaj Platina, which is targeted towards Rural
India/commuter segment, in order to gain market share. With the government's push for
improvement in rural road infrastructure and improvement in last mile connectivity coupled
with two-wheeler OEMs focusing on grabbing market share, the long-term growth prospects
for two-wheeler industry looks bright.
Recent correction in commodity prices may help in improving margins
In two-wheeler industry, raw material cost is close to 70-75% of overall revenue of OEMs and as a
result, it is a key variable impacting their profitability. During CY18, the prices of key raw materials
such as steel, aluminum and crude-based materials like plastic have seen sharp volatility, which
resulted in variation in profitability of these companies despite favorable demand scenario and
improvement in realizations. A majority of two-wheeler OEMs have seen their raw material cost
inching up in last four quarters, which has affected their operating margins, which fell by ~200 bps
between Q2FY18 to Q2FY19. However, many companies have resorted to partial pass on of
inflation in raw material cost to consumers as the demand momentum was strong until the changes
in regulation related to insurance and liquidity crunch owing to an NBFC default impacted the
demand scenario. However, many commodities, which are direct raw material like steel and
aluminum to the industry, has seen sharp correction towards the end of CY18. Similarly, prices of
indirect raw materials like Brent crude oil, lead and rubber also witness correction in CY18. We
believe, the recent price hike taken by companies coupled with moderation in raw material
prices are likely to help two-wheeler companies to improve its operating performance and
thereby their overall profitability.
Trend in major direct and indirect raw material prices Trend in raw material cost as a percent of revenue
120.0 80.0
115.0 70.0
110.0
(Indexed to 100)

60.0
105.0
50.0
100.0
40.0
95.0
90.0 30.0
85.0 20.0
80.0 10.0
Dec-17

Dec-18
Sep-17

Feb-18

Jun-18

Sep-18
Apr-18
Oct-17

May-18
Jan-18

Mar-18

Jul-18

Oct-18
Aug-18

Jan-19
Nov-17

Nov-18
0.0
Hero MotoCorp Bajaj Auto Eicher Motors TVS Motor
LME Aluminum Steel Rubber India Lead Q3FY18 Q4FY18 Q1FY19 Q2FY19
Source: Bloomberg Source: Capitaline

Regulatory concerns impacting the industry growth

Indian two-wheeler industry has been
Growth trend in monthly Two wheeler sales (% YoY)
witnessing ups and down in recent past, mainly 45.0
40.0
due to changes in regulatory requirements. In 35.0 Improvement in sales post GST
related hiccups subsides
March 2017, the Supreme Court ruled to stop 30.0
Volatility due to change Sales once again hit the
selling vehicles, which are not compliant with 25.0 in emission norm and slow lane due to rise in
20.0 GST implementation insurance cost
BS-IV emission standards after 31 March 2017 15.0
that coupled with GST implementation related 10.0
hiccups led to slowdown in demand for two 5.0
0.0
wheelers post March 2017. In order to reduce -5.0
the old inventory in the system, companies
May-17

May-18
Jul-17

Jan-18

Jul-18
Apr-17

Dec-18
Dec-17

Apr-18

Jun-18
Jun-17

Aug-17

Oct-17

Mar-18

Aug-18

Oct-18
Nov-17

Nov-18
Sep-17

Feb-18

Sep-18
resorted to heavy discounts, which affected
Source: Bloomberg, Media Reports
their profitability. As the hiccups related to GST
started subsiding, two-wheeler industry started to see strong growth momentum with monthly sales
growing over 15% YoY for six consecutive months. However, two-wheeler sales once again hit the
slow lane, as there was a mandate that third-party insurance to be increased to five years and
premium to be collected upfront for two-wheelers. In addition to this, the Insurance Regulatory and
Development Authority of India (IRDAI) in a circular dated September 20, 2018 had made
mandatory increase in the compulsory personal accident cover for two-wheelers from Rs.0.1 mn to
Rs.1.5 mn. As per media report, these two changes led to over three fold jump in insurance cost for
two wheelers. However, effective from January 1, 2019, IRDAI has unbundled the compulsory
personal accident (CPA) cover and permitted the issuance of a stand-alone policies, which is likely
to reduce the cost of ownership of a vehicle. The change in insurance norms, which was unknown
to everyone, has led to sharp deceleration in two-wheeler sales growth in recent times. However, it
would be important to monitor, how trend shapes up post the relief announced by IRDAI. The two-
wheeler industry is also likely to see another change in regulation, where all existing models of two-
wheelers having an engine capacity higher than 125cc are mandatory to have anti-lock braking
system (ABS) and for two-wheelers below that capacity are mandatory to have combined braking
system (CBS) from April 1, 2019. This move is also likely to increase the cost of a two-wheeler
going ahead as a result we may witness some pre-buying ahead of implementation of this norm,
which may drive the volume growth for two-wheeler companies in near term. In recent times, the
two-wheeler industry has seen ad-hoc changes in policy environment, which has resulted in
disruption in demand scenario and thereby affecting the profitability of these companies. If
the uncertainty in policy environment continues for longer period then the industry may
witness subdued interest for new investments and may affect the long-term sustainable
growth of industry.

Overall View: The Indian automobile industry is closely linked to country’s GDP growth and
accounts for 7.1% of the GDP. Two-wheeler industry is major sub-segment of the overall
automobile industry in terms of volumes and is likely to report a volume CAGR of 7-8% in
medium term, as per rating agency ICRA. We believe, positive structural factors like low
penetration, rising discretionary spending, improving participation of women in workforce
and rapid urbanization are likely to bring steady growth for the industry. Improvement in
rural demand driven by strong government push would also aid to growth profile of the
industry. Recent correction in commodity prices may help in improving margins for two-
wheeler companies in near term. While the industry may be able to prepare itself for
regulatory changes that are well known in advance, any black swan event like changes in
regulation related to insurance may displace the ongoing growth momentum and thereby
affect the motivation level for companies planning to make new investments. We maintain
our long-term positive stance on the two-wheeler industry and have a Buy rating on Bajaj
Auto in our model portfolio, which is holding ~20% market share in domestic motorcycle
segment. Within two-wheeler value chain, we have Apollo Tyres, Exide Industries and Minda
Industries with the Buy rating.
Apollo Tyres Ltd. CMP: Rs.217, Mkt Cap: Rs.124 bn
Background
Apollo Tyres Ltd. is in the business of manufacture and sale of tyres. Over the years, the company has grown
manifold, establishing its footprint across the globe. The company has manufacturing units in India and the
Netherlands. It is also setting up a new manufacturing facility in Hungary. The company markets its products
under its two global brands - Apollo and Vredestein, and its products are available in over 100 countries
through a vast network of branded, exclusive and multi-product outlets.

Shareholding Pattern (%) on 31 December 2018

Key Details Promoter 40.81
52 week H/L(Rs) 307/192 Institutions 42.61
Book Value (Rs) YTD 176
Public 16.58
FV (Rs) 1
Total 100.00
PE (X) (TTM) 13.4
Dividend Yield (%) 1.4
Valuations and Chart
PE (X) Daily closing price for last 3 years of Apollo Tyres
350
FY18 FY19E FY20E 300
250
16.2 12.5 9.2
200
150
100
50
0
Jul-16

Jul-17

Jul-18
Mar-16

Nov-16

Mar-17

Nov-17

Mar-18

Nov-18
Sep-16

Sep-17

Sep-18
May-16

May-17

May-18
Jan-16

Jan-17

Jan-18

Jan-19
Source: Bloomberg

Earnings Summary
Y/E Revenue Growth EBITDA Margin Net Profit EPS Growth P/E Div. Yield
31-Mar Rs Bn (%) Rs Bn (%) Rs Bn Rs % X %
17A 131.8 11.2 18.5 14.0 11.0 21.6 (2.1) 10.1 1.4
18A 148.4 12.6 16.5 11.1 7.2 13.4 (37.9) 16.2 1.4
19E 172.0 15.9 21.5 12.5 10.0 17.4 30.1 12.5 1.4
20E 201.4 17.1 27.2 13.5 13.5 23.7 35.7 9.2 1.4

View: Apollo Tyre is one of leading tyre-manufacturing company with well-diversified product portfolio
and geographical presence. It has a large distribution network of ~5000 dealers in India and ~5800
dealers in Europe and America. In India, it is one of the leaders in Truck tyres with ~25% market share.
The market share in Passenger Car segment and Farm (Tractor Rear) tyre segment is close to 15% and
19%, respectively. Going ahead, ramp up of newly added capacity in both India and Europe, increasing
trend of radialization in Indian truck tyre segment, entry into two-wheeler segment in India, reduction
in Chinese tyre import in both India as well as in Europe and supplying to OEM customers and entry in
to TBR segment in Europe is likely to drive volume growth in medium to long term. We remain positive
on the long-term potential of the company, as it is likely to be better placed to capitalize on the
upcoming opportunity arising from expected economic recovery. However, margin is likely to be one
of the key monitorable in the wake of expected rise in contribution of OEM sales in Europe, focus of
the company to create brand by increasing advertisement expenses and volatility in raw material
prices. Currently, we have a Buy rating on the stock with the target price of Rs.331 at 14x (maintaining
earlier multiple) on FY20E EPS of Rs.23.7 per share. Any earning/target price revision would depend
on the changes in margin, delay in ramping up of new capacities, competition intensity in the
domestic market and changes in market share and in general business momentum.
Bajaj Auto Ltd. CMP: Rs.2648, Mkt Cap: Rs.766 bn
Background
Bajaj Auto Limited is an India-based manufacturer of motorcycles, three-wheelers and parts. The Company's
business segments include Automotive, Investments and Others. The Company's vehicles include two-
wheelers and commercial vehicles. Its two-wheelers include Bajaj V, Bajaj V Avenger, Avenger Cruise 220,
Pulsar RS 200, Pulsar FOS, Pulsar 200 NS, Pulsar 220, Pulsar 180, Pulsar 150, Pulsar 135 LS Discover, New
Discover 125, New Discover 150S, New Discover 150F, Platina 100, Platina 100 ES, CT 100, CT 100 Ninja,
Ninja 650R and Ninja 300. Its products also include CT 100B, Boxer BM150X, Avenger 220 Cruise, Avenger
220 Street, Avenger 150 Street, Pulsar AS 150 and Maxima-Cargo. The Company's geographic segments
include India and Rest of the world. The Company's plants include Waluj plant, Chakan plant and Pantnagar
plant. The Company's subsidiaries include PT. Bajaj Auto Indonesia and Bajaj Auto International Holdings BV.

Key Details Shareholding Pattern (%) on 31 December 2018

52 week H/L(Rs) 3473/2425 Promoter 49.30
Book Value (Rs) YTD 704 Institutions 24.27
FV (Rs) 10 Public 26.43
PE (X) (TTM) 17.1 Total 100.00
Dividend Yield (%) 2.3
Valuations and Chart
PE (X) Daily closing price for last 3 years of Bajaj Auto
4000
FY18 FY19E FY20E 3500
3000
18.8 17.6 15.1 2500
2000
1500
1000
500
0
Jul-16

Jul-17

Jul-18
Mar-16

Nov-16

Mar-17

Nov-17

Mar-18

Nov-18
Sep-16

Sep-17

Sep-18
May-16

May-17

May-18
Jan-16

Jan-17

Jan-18

Jan-19
Source: Bloomberg

Earnings Summary
Y/E Revenue Growth EBITDA Margin Net Profit EPS Growth P/E Div. Yield
31-Mar Rs Bn (%) Rs Bn (%) Rs Bn Rs (%) X (%)
17A 217.7 (3.6) 44.2 20.3 38.3 132.3 (2.6) 20.0 2.1
18A 251.6 15.6 47.8 19.0 40.7 140.6 6.3 18.8 2.3
19E 303.3 20.5 51.6 17.0 43.6 150.7 7.2 17.6 2.3
20E 353.3 16.5 62.2 17.6 50.7 175.2 16.2 15.1 2.3

View: Bajaj Auto continued to gain market share in domestic business with exports business
continuing its improvement journey in H1FY19. The management expects overall growth momentum
to continue in FY19 driven by higher growth in entry-level segment that is likely to drive market share.
While Bajaj Auto might see some pressure on the margin in near term on YoY basis, absolute EBITDA
may improve owing to operating efficiency and strong sales growth. We maintain our long-term
positive stance on Bajaj Auto considering its focus on increasing market share in domestic
Motorcycle industry, strong R&D capabilities, robust balance sheet with huge cash and cash
equivalent of ~Rs.162 bn (as on Sept’18) and strong return ratios with ROE of over 20% and ROCE of
over 30% for past four years. We maintain our positive stance on the stock and have Buy rating on the
stock with the target price of Rs.3278 at 18x (maintaining earlier multiple) FY20E EPS of Rs.175.2 and
adding Rs.125 per share for 48% stake in KTM AG of Austria (at 18x CY17 Bajaj’s share of EPS of
Rs.10 after 30% holding company discount). Any earning/target price revision would depend on the
performance of new launches, improvement in overall EBITDA, rollover to the next financial year and
changes in general business momentum.
Exide Industries Ltd. CMP: Rs.233, Mkt Cap: Rs.198 bn
Background
Exide Industries Ltd. (Exide) is a manufacturer of lead acid storage batteries for automotive and industrial
applications. The Company's business segments include Storage Batteries & allied products, Solar Lantern &
Homelights, and Life Insurance business. The Storage batteries & allied products segment manufactures lead acid
storage batteries and allied products. The Life Insurance business segment is engaged in life insurance business
carried by one of its subsidiaries. The Company sells automotive batteries in the domestic market under brand
names Exide, SF and Sonic. The Company markets its industrial batteries to the domestic market, under Exide, SF
and CEIL brands, and its international brands for industrial batteries include CEIL, Chloride and Index.

Key Details
Shareholding Pattern (%) on 31 December 2018
52 week H/L(Rs) 305/193
Promoter 45.99
Book Value (Rs) YTD 64
Institutions 34.16
FV (Rs) 1
Public 19.85
PE (X) (TTM) 26.6
Total 100.00
Dividend Yield (%) 1.0

Valuations and Chart

PE (X) Daily closing price for last 3 years of Exide Inds.
350
FY18 FY19E FY20E 300
250
27.9 22.5 18.6
200
150
100
50
0
Jul-16

Jul-17

Jul-18
Mar-16

Nov-16

Mar-17

Nov-17

Mar-18

Nov-18
Sep-16

Sep-17

Sep-18
May-16

May-17

May-18
Jan-16

Jan-17

Jan-18

Jan-19
Source: Bloomberg

Earnings Summary
Y/E Sales Growth EBITDA Margin Net Profit EPS Growth P/E Div. Yield
31-Mar Rs Bn (%) Rs Bn (%) Rs Bn Rs % X %
17A 75.8 10.5 10.8 14.3 6.9 8.2 11.1 28.6 1.0
18A 91.9 21.1 12.4 13.5 6.7 8.4 2.4 27.9 1.0
19E 107.5 17.0 14.9 13.9 8.8 10.4 24.1 22.5 1.0
20E 125.8 17.0 17.7 14.1 10.6 12.5 20.8 18.6 1.0
View: Exide is India’s largest manufacturer of lead acid storage batteries and power storage solutions
provider with strong presence in automotive, power, telecom, infrastructure projects, computer industries,
railways, mining, renewable energy and defence sectors. Going ahead, the steady demand for Automobile in
India especially in passenger vehicle bodes well for Exide’s Original Equipment Manufacturers (OEM)
segment. Further, the strong market share in Industrial segments of Solar, Backup Power, Manufacturing
and Project sector may drive the volume growth with the expected recovery in industrial capex cycle over
the long term. The company is working on expanding its portfolio for emerging requirements like electric
vehicles, hybrid cars and start-stop batteries and has recently added e-rickshaw battery and completely
sealed and maintenance-free battery in its portfolio. Recently, the management had highlighted that the
company would be manufacturing lithium-ion batteries at the facility of Tudor India in Gujarat in
collaboration with Swiss company, ‘Leclanché’. The company expects module and battery-pack assembly
line to be operational by Q2CY19 and a lithium-ion cell production plant is expected to be operational by
mid-CY20. Further, it is focusing on capturing market share from the unorganized commercial vehicles and
tractor battery markets with target to enhance customer outlet and launch of nine new products in the
aftermarket segment across categories and price points. The company is also expanding its reach in
overseas markets like GCC (Gulf Co-operation Council) countries, South East Asian countries and select
African nations. The lead prices (key raw material) had been very volatile and would be the key parameter to
watch out for in the near term. However, the management is working on various cost cutting initiatives and
improving the product mix to maintain its margins. Currently, we have a Buy rating on the stock with the
target price of Rs.301 at 22x (maintaining earlier multiple) FY20E EPS of Rs.12.5 and adding Rs.25 per share
for the embedded value in Insurance business (as of March 2018). Any earning/target price revision would
depend on the improvement in margin, changes in market share, implementation of GST and its tax
structure, value in Insurance business and changes in general business momentum.
Minda Industries Ltd CMP: Rs.299; Mkt Cap: Rs.78 bn

Background
Established in 1958, by Late Shri S L Minda, Minda Industries Limited (MIL) is the flagship Company of UNO
MINDA Group and one of the leading suppliers of proprietary automotive solutions to OEMs. The Company is
one of the oldest and most respected players in the Indian auto components industry. Headquartered at
Manesar, Gurgaon, the Company has 32 plants across India and R&D centres spread across across the
globe in six locations. The Company offers a wide range product across different verticals of auto component
like Switching systems, Lighting systems, Acoustic systems and Alloy Wheels among others. With more than
five decades of existence, the Company has expanded its product portfolio from one product in 1958 to more
than 10 products in 2017, thus serving customers across the automotive value chain.

Key Details Shareholding Pattern (%) on 31 December 2018

52 week H/L(Rs) 455/282 Promoter 70.79
Book Value (Rs) YTD 59.2 Institutions 14.97
FV (Rs) 2.0 Public 14.24
PE (X) (TTM) 24.4 Total 100.00
Dividend Yield (%) 0.9

Valuations and Chart

PE (X) Daily closing price for last 3 years of Minda Industries
500
FY18 FY19E FY20E 450
400
28.9 21.9 16.9 350
300
250
200
150
100
50
0
Jul-16

Jul-17

Jul-18
Mar-16

Nov-16

Mar-17

Nov-17

Mar-18

Nov-18
Sep-16

Sep-17

Sep-18
May-16

May-17

May-18
Jan-16

Jan-17

Jan-18

Jan-19
Source: Bloomberg

Earnings Summary
Y/E Revenue Growth EBITDA Margin Net Profit EPS Growth P/E Div. Yield
31-Mar Rs Mn (%) Rs Mn (%) Rs Mn Rs % X %
17A 33863 34.0 3740 11.0 1658 6.3 58.4 47.2 0.5
18A 44706 32.0 5338 11.9 2714 10.4 63.7 28.9 0.9
19E 56440 26.2 6942 12.3 3582 13.7 32.0 21.9 0.9
20E 72083 27.7 9010 12.5 4629 17.7 29.2 16.9 0.9

View: MIL is a well-diversified auto component company with strong presence in OEM’s Switching (65-
70% market share), Lights and Horn (45-50% market share) segment. MIL is taking various steps in
achieving its strategy of increasing the content per vehicle and improving export prospects from India
to European Union and ASEAN nations with the help of acquisition of iSYS RTS. Additionally, the
company is likely to do well also on the back of steady growth in overall automobile sector on the
back of favorable demographics and shift in customers’ preference in aftermarket segment from
Unorganized players to Organized players like MIL. The company is also likely to be benefitted from
the expected increase in premiumization in the passenger vehicle as the company is ready with
products like airbags, infotainment system, reverse parking assistance system (RPAS) and also
working on inorganic growth to expand its product portfolio with the help of entry into new products
like high end cockpit electronic etc. We maintain our long term positive view on the stock and Buy
rating on the stock with the target price of Rs.443 based on PE multiple of 25x (maintaining earlier
multiple) FY20E EPS of Rs.17.7. Any earning/target price revision would depend on the performance of
subsidiaries, improvement in market share and changes in general business momentum.
 Rating Interpretation
Rating Expected to
Buy Appreciate more than 10% over a 12 to 15 month period
Hold Appreciate below 10% over a 12 to 15 month period
Under Review Rating under review
Exit Exited out of the Model Portfolio
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not be realized. It may be noted that investments in equity and equity-related securities involve a degree of risk and
investors should not invest any funds unless they can afford to take the risk of losing their investment. Investors are advised
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Disclosures:
Research analyst or his/her relatives or HDFC Bank or its associates may have financial interest in the subject company in
ordinary course of business. Research analyst or his/her relatives does not have actual/ beneficial ownership of 1% or more
securities of the subject company at the end of the month immediately preceding the date of publication of research report:
HDFC Bank or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the
end of the month immediately preceding the date of publication of research report. Research analyst or his/her relatives or
HDFC Bank or its associates may have other potential / material conflict of interest with respect to any recommendation and
related information and opinions at the time of publication of the research report. Subject company may have been client of
HDFC Bank or its associates during twelve months preceding the date of publication of the research report. HDFC Bank or
its associates may have received compensation from the subject company in the past twelve months. HDFC Bank or its
associates may have managed or co-managed public offering of securities for the subject company in the past twelve
months. HDFC Bank or its associates may have received compensation for investment banking or merchant banking or
brokerage services from the subject company in the past twelve months. HDFC Bank or its associates may have received
compensation for products or services other than investment banking or merchant banking or brokerage services from the
subject company in the past twelve months. HDFC Bank or its associates has not received compensation or other benefits
from the subject company or third party in connection with the research report. Research analyst has not served as an
officer, director or employee of the subject company. Neither research analyst nor HDFC Bank has been engaged in market
making activity for the subject company. Three year price history of the daily closing price of the securities covered in this
note is available at www.nseindia.com and www.bseindia.com.