during FY90-01, Harley had a dream run with double digit volume growth.

This led to a sharp PE re-

rating from ~8x in FY90 to ~32x in FY01. Chart 4: Harley - Strong volumes drive PE re-rating Chart 5:
Harley - Margin/ RoCE trajectory Source: Companies, Bloomberg, Edelweiss research % of revenues
FY10 FY11 FY12 FY13 FY14 FY15E FY16E Raw material Bajaj 68.3 72.0 72.2 72.0 68.9 69.9 69.7 Hero
68.2 73.3 73.5 73.2 72.1 71.7 71.0 RE 62.1 65.5 66.3 64.4 62.3 61.4 60.3 Employee cost Bajaj 3.4 2.8
2.8 3.2 3.6 3.9 3.8 Hero 3.6 3.2 3.1 3.5 3.7 3.8 3.7 RE 8.4 8.9 7.6 7.5 6.5 5.0 4.5 Marketing & publicity
exp Bajaj 1.7 0.8 1.1 1.2 1.5 1.6 1.6 Hero 2.5 2.0 1.6 1.9 2.2 2.1 2.1 RE 5.2 3.0 3.2 2.8 2.5 1.9 1.5
Power and fuel Bajaj 0.6 0.5 0.5 0.5 0.5 0.5 0.5 Hero 0.5 0.5 0.5 0.5 0.6 0.5 0.5 RE 1.3 1.2 1.0 1.1 1.0
0.7 0.7 Others Bajaj 5.1 4.5 4.6 4.6 4.7 4.4 4.1 Hero 8.4 8.2 6.2 7.2 7.4 7.7 7.9 RE 15.6 11.0 9.9 10.3
9.3 8.1 7.1 EBIDTA Bajaj 21.0 19.5 19.0 18.4 21.5 19.8 20.2 Hero 16.9 12.8 15.2 13.8 14.0 14.2 14.8 RE
7.4 10.3 11.9 13.9 18.4 23.0 25.9 0.0 8.0 16.0 24.0 32.0 40.0 60,000 108,000 156,000 204,000
252,000 300,000 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 PE (x) (Units) Harley Volumes Consensus PE 10.0 16.0 22.0 28.0
34.0 40.0 5.0 10.5 16.0 21.5 27.0 32.5 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03
Jan-05 RoCE(%) Margin (%) EBITDA Margin (%) RoCE (%) Automobiles 6 Edelweiss Securities Limited
Similarly, during FY96-05, HMCL reported healthy double digit volume growth with improving
margin/RoCE trajectory. PE multiples expanded from single digit to 25x during 1996-2000.
Thereafter, overall subdued market conditions led to shrinking of multiples. However, the stock price
continued to outperform broader indices. Chart 6: Volumes and growth for HMCL Chart 7: Rising
margin/ROCE trajectory Source: Edelweiss research Chart 8: HMCL stock returns versus Sensex
Source: Bloomberg, Edelweiss research 0.0 12.4 24.8 37.2 49.6 62.0 150 700 1,250 1,800 2,350 2,900
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 (% YoY) ('000) Volumes ('000 units) % YoY 0.0
3.0 6.0 9.0 12.0 15.0 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00
Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 (x) HMCL vs Sensex 24 58 92 126 160 194 3.0 6.0 9.0 12.0 15.0 18.0
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 Margin (%) ROCE (%) EBITDA Margins (%) ROCE
Eicher Motors 7 Edelweiss Securities Limited Chart 9: PE – HMCL vs Sensex Source: Bloomberg,
Edelweiss research 0.0 6.4 12.8 19.2 25.6 32.0 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 PE (x) HMCL Sensex Automobiles 8 Edelweiss
Securities Limited Commercial Vehicles: Challenging the Duopoly We believe that the Indian M&HCV
industry is still in an evolutionary phase with competitive intensity set to rise sharply.. Hence, we
believe there is strong potential for a No. 3 player in M&HCVs challenging the existing duopoly of
TTMT and AL. Globally, the M&HCV industry is fragmented with more than six players. Our analysis
of the top 3 players in India in various segments like cars, UVs and motorcycles over the past 12 years
indicates that the combined market share has declined considerably, unlike M&HCVs. Even, the LCV
segment (up to 7.5T GVW) is reasonably fragmented with ~7 players. Table 6: Emerging space for
more players across segments in India, except for M&HCVs Source: SIAM, Edelweiss research Chart
10: M&HCV industry mix - Western Europe Chart 11: M&HCV industry mix - North America Source:
Company, Edelweiss research Mkt Share (%) FY02 FY14 FY02 FY14 FY02 FY14 FY02 FY14 TTMT 65.9
58.5 MSIL 54.3 49.9 M&M 42.2 41.7 HMCL 49.0 51.8 AL 25.9 22.7 Hyundai 17.4 21.0 TTMT 23.8 5.4
Bajaj 24.0 20.0 EIM 6.4 12.7 TTMT 12.7 6.0 Toyota 24.0 13.7 TVS 15.0 5.5 Total 98.3 93.9 Total 84.4
76.9 Total 90.0 60.8 Total 88.0 77.3 M&HCV Cars Uvs Motorcycles Daimler 25% DAF 17% MAN 17%
Volvo 12% Scania 11% Renault 9% Iveco 9% W Europe Daimler 38% Navistar 18% Kenworth 14%
Peterbit 10% Volvo 8% Mack 5% Ford 5% Hino 2% N America Eicher Motors 9 Edelweiss Securities
Limited Chart 12: M&HCV industry mix - Japan Source: Company, Edelweiss research VECV: Heavy
duty (HCV) truck market share to touch 10% We believe VECV’s HCV market share can rise from the
current ~4% to ~10% by FY20E. The company has recently launched its new product range,
incorporating Volvo’s R&D expertise—Eicher Pro 1000/3000/6000 and 8000 series of trucks—roll out
of which is expected during CY14. Also, the company has been improving its dealer/service network
significantly and reach has now become comparable to that of peers (AL). Upgrading customer
profile, rising demand for higher tonnage vehicles, improving product quality and growing size of
institutional buyers can drive market share gains over the long term.