Two Wheeler Sector Re Initiating Coverage 28 January 2020 PDF

Institutional Equities
Two-wheeler Sector
28 January 2020
Shape shifting in the wake of BS-VI and Electrification View: Neutral to Positive
Indian Two Wheeler (2W) segment volumes have declined by 14% YoY in the last 12 months
due to increased cost of ownership, weak consumer sentiment amid slowdown in the Anish Rankawat
economy and subdued rural demand. With BS-VI we see further increase in cost of Research Analyst
ownership in the range of 6-15% with the commuter segment witnessing the higher end of
that range. In a rising cost scenario we see down-trading happening towards the <=125cc
anish.rankawat@nirmalbang.com
segment and hence this segment has gained 160bps YoY of motorcycle share in YTDFY20. +91 22 6273 8172
We expect this to continue post BS-VI cost increases. Secondly, our economist expects Ronak Mehta
farm income to see a sharp growth of 15% YoY in FY20 whose lag effect could support rural
sales in FY21, which will work in favour of the Motorcycle segment due to higher Research Associate
correlation. Thirdly, we believe that the rising share of scooters in the 2W space has ronak.mehta@nirmalbang.com
Re-initiating Coverage
plateaued out and we see a higher conversion to EVs in this segment. Most of the E2Ws +91 22 6273 8176
sold in India are scooters and in FY19 the sales of electric scooters were almost 1.9% of ICE
scooter sales. Currently, E2W sales are dominated by Hero Electric and start-ups like
Ampere, Okinawa and Ather but mainstream OEMs like Bajaj Auto and TVS Motor have
entered the segment this year. This could lead to a faster adoption of EVs in scooters. One-Year Indexed Performance
Rising cost scenario leads to down-trading and augurs well for Commuter segment: 2Ws had a 120
steep price increase of almost 15% post insurance cost increase in September 2018 and 110
implementation of new safety norms in April 2019. This, we believe, has led to down-trading to sub- 100
125cc segment in motorcycles, which has also compelled OEMs like Bajaj Auto to launch a 125cc 90
version of Pulsar. Sub-125cc segment has gained 160 bps YoY of motorcycle share YTDFY20 and 80
220bps over FY17 share. We believe that post BS-VI price increase this trend of down-trading will 70
continue and will work in favour of the segment leader – Hero MotoCorp. 60
Expected farm income growth to support rural sales and hence motorcycle sales: Motorcycles are Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20
S&P BSE AUTO Nifty 50
rural centric products as it’s the only mode of commute due to lack of public transport system. Also,
1/3rd of the rural households own 2W vs 1/7th of urban households and hence there is a correlation Source: Bloomberg
between farm income and Motorcycle sales growth. Our economist expects farm income to grow by
15% YoY in FY20 vs a 4% growth in FY19. This rise should reflect in rural spending in FY21 and hence
could support motorcycle sales. We believe once the BS-VI price increases settle down, rural demand
should drive motorcycle sales in FY21-22.
Scooter share seem to have plateaued out and incremental growth will come from e-scooters:
Scooter segment has had a good run as its share in 2Ws has increased from a low of 12.9% in FY06
and has peaked out at 33.3% in FY18. Since then, it has been hovering around 31-32%, which could
indicate a plateauing out of its share. At the same time, electric 2Ws, which are largely scooters, have
seen a huge jump from the sale of 55,000 units in FY18 to 126,000 units in FY19 i.e. 1.9% of the
Scooter segment. Scooters are more likely to convert to electric first as the ride quality and cost of
ownership are comparable. Plus, post BS-VI price increase the acquisition cost will be further bridged.
Currently, E2W sales are dominated by Hero Electric and start-ups like Ampere, Okinawa and Ather but
mainstream OEMs like Bajaj Auto and TVS Motor have also entered this segment this year. This could
lead to a faster adoption of EVs in scooters.
Re-initiate coverage on Hero, Bajaj and TVS: We reinitiate coverage on Hero MotoCorp with a BUY
rating as we believe that the rural revival and down-trading in a rising price scenario works well for its
motorcycle sales. We have an Accumulate rating on Bajaj Auto as all the positives like export
momentum and 3W sales growth are priced in. For TVS Motor we believe that the premium valuation is
unwarranted owing to lower volume growth and pressure on margins and hence we have a Sell rating.
We acknowledge that Bajaj and TVS have entered the EV segment with their scooters which gives them
an early mover advantage but we aren’t sure of their capacity and product acceptance yet. Hence, we
have not incorporated the same in our numbers.
Market capitalisation CMP Target (%) Up/ EPS (Rs) P/E (x) RoE (%)
Companies Rating
(Rsbn) (US$bn) (Rs) Price (Rs) (Down) FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
Hero MotoCorp Buy 490.4 6.8 2,455 3,107 27 165.0 182.9 205.6 14.9 13.4 11.9 22.9 22.4 22.2
Bajaj Auto Acc 891.0 12.4 3,079 3,195 4 162.1 179.2 200.4 19.0 17.2 15.4 19.1 18.7 18.5
TVS Motor Sell 221.0 3.1 465 394 (15) 15.7 16.5 19.4 29.7 28.2 24.0 19.2 17.7 18.2
Source: Nirmal Bang Institutional Equities Research
Table of Content
Bharat Stage Six……. …………………………………….………………………………………..…….….………...03

BS-VI Regulatory Requirement for Emission……………………………………………..……...……….03
On-Board Diagnostic - Regulatory Requirement……………………………………………..…….…….03
Changes required in the technology……………………………………………..………………..……….04
Status check……………………………………………..……...………………………..…………………..05
Electric two wheelers………………………………………………………...……………………………...…...…….07

EV start-ups………………………………………………………...………………………...…….…..……09
What are incumbents doing? ………………………………………………………....…………….….….13
E2W Models currently available for sale ………………………………………………………...………….….…..14
FAME II: Boom or Bane? ………………………………………………………...……………………..….15
State Policies on EV ………………………………………………………...………………………….….16
Understanding the Industry …………….…………………………………………………………….…….……...….17

Competitive intensity ………………………………………………………...………………………….….18
Rural recovery could drive motorcycle sales in medium term…………………………………….….…20
Comparing Hero, Bajaj and TVS – Story in Charts …...……..…………………………………………………..…21
Companies
Hero MotoCorp..……………………………………………………………….………………............................…..25
Bajaj Auto…….……………………………………………...…………………….………………...………...…..……37
TVS Motor……………………………………………………………………………………….…….……….......……49
Automobile Sector
Bharat Stage Six (BS-VI)
Indian Automobile industry is moving to Bharat Stage Six (BS-VI) emission regulation, which is equivalent to
current European standards (EU). But the way it’s different is that we are leapfrogging from BS-IV to BS-VI.
The government took this bold decision in order to reduce pollution. No country has ever done this. So, from 1st
April 2020 no new BS-IV vehicle will be registered.
Two-wheelers are the largest vehicle class in India, both in terms of vehicle population and new vehicle sales
mix. As a result, they become a significant source of pollutant emissions and have a significant impact on air
quality, predominantly in urban areas. The BS VI regulations largely align emission limits for 2Ws vehicles with
the most stringent standards adopted for similar vehicle types in the EU – Euro 5, and ensure that these
vehicles will become less polluting.
BS-VI emission standards are set for Class 1-3 two-wheelers equipped with Spark Ignition (SI) engines, which
account for the majority of the two-wheeled vehicle population in India, and separately for two-wheelers fitted
with Compression Ignition (CI) engines.
BS-VI Regulatory Requirement for Emission

When we say a motorcycle is BS-VI compliant, there are certain parameters which make it eligible to be called
so. The major deciding factor is the amount of emission of three gases – Carbon Monoxide (Co), Hydrocarbon
(HC) and Nitrogen Oxide (NOx). Now, there is a difference in the permitted quantity of emission of these gases
in BS-IV and BS-VI norms. Relative to BS-IV levels, NOX emission limits for these two-wheeled vehicle classes
are reduced by between 70% and 85%.
For an engine to be compliant with BS-IV regulations, the permitted CO, NOx and HC+NOx levels are
1.970gm/km, 0.20gm/km and 0.40gm/km, respectively. Under the BS-VI regulations, HC and NOx are
calculated separately. Here, while CO should be up to 1.0gm/km, the HC and NOx need to be under
0.10gm/km and 0.06gm/km. As can be observed, the granted levels of emission of these toxic gases are
considerably lesser under BS-VI regulations compared to BS-IV norms.
Exhibit 1: BS-IV emission requirements

HC+NOx*
Stage Class CO NOx
SHED ≤ 2 g SHED ≤ 6 g
Class 1 & 2-1 1.403 0.39 0.79 0.59
BS IV Class 2-2 1.970 0.34 0.67 0.47
Class 3-1 & 3-2 1.970 0.20 0.40 0.20
Source: ARAI, Nirmal Bang Institutional Equities Research, * Limit depends on the result of the evaporative emission test (SHED)
Exhibit 2: BS-VI emission requirements

Stage Type CO HC NMHC NOx PM
Spark Ignition engine(SI) 1.0 0.10 0.068 0.06 0.0045
BS VI
Compression Ignition engine (CI) 0.50 0.10 0.068 0.09 0.0045
Source: ARAI, Nirmal Bang Institutional Equities Research
On-Board Diagnostic - Regulatory Requirement

All vehicles manufactured in India from April 1, 2020 onwards, including two- and three-wheelers, will have to
be equipped with on-board diagnostic systems to check the level of emissions. The vehicles shall be equipped
with on-board diagnostic (BS-VI - OBD) systems for emission control, which shall have the capability of
identifying the likely area of malfunction by means of fault codes stored in computer memory as per the
procedure laid down in AIS 137 and as amended from time to time when that failure results in an increase in
emission above the limits.
Automobile Sector
BS-VI OBD requirements will be introduced in two phases, with preliminary OBD thresholds (BS-VI-1 OBD)
applicable for all vehicles manufactured on or after April 1, 2020, and final thresholds (BS-VI-2 OBD) applicable
from April 1, 2023. Proposed threshold values for BS-VI-1 OBD and BS-VI-2 OBD are equivalent to preliminary
and final Euro 6 threshold limits, respectively.
Exhibit 3: OBD requirements

OBD stage I (BSVI) OBD stage II (BSVI)
Monitoring items
1st April, 2020 1st April, 2023
Circuit continuity for all emission related power train component (if
equipped)
 
Distance travelled since MIL (Malfunction indicator lamp) ON  
Electrical disconnection of Electronic evaporative purge control device (if
equipped and if active)
 
Catalytic converter monitoring  
EGR system monitoring  
misfire detection  
Oxygen sensor deterioration  
Source: ARAI, Nirmal Bang Institutional Equities Research
Changes required in the technology
How to achieve BS-VI emission regulations
 For achieving the eligibility criteria set under BS-VI emission regulations, motorcycle manufacturers
need to employ certain equipment such as electronic fuel-injection(EFI, in place of carburetors) and
larger catalytic converters. There is a chance that Electronic Carburetors can also be used to meet the
emission requirement and it could be far cheaper than an EFI.
 However, this will result in slight drop in performance of the two-wheelers, owing to the more restricted
set-up for the consumption of fuel. For tackling the same and retaining (or increasing) the power
output, OEMs are opting to increase the displacement of the engine.
Exhibit 4: Comparing EFI and carburetors

Fuel Injection Carburetors
Typically maintenance free and does not break down Cost less, are simple in operation
Optimized air-fuel mixture and atomization allows for

Allow customization as per requirements
more cleaner and efficient combustion
Advantages
Better fuel efficiency Can be easily serviced or replaced
Sharper throttle response and more power -
Substantially more expensive Relatively lower efficiency

Complex servicing requirement, usually have to be
Relatively slow throttle response
replaced, which is expensive.
Disadvantages Difficult to customize, unless you go for custom ECU Certain components like diaphragm are relatively
maps, which again is expensive delicate and prone to damage
Air fuel mixture fluctuates, affecting engine
-
smoothness
Automobile Sector
BS-VI fuel
 The technical changes in the motorcycles have also resulted in the need to upgrade to BS-VI fuel,
which is different than the gasoline suitable for BS-IV power plants.
 The major difference between the existing BS-IV norms and forthcoming BS-VI norms is the presence
of sulphur in fuel. While the BS-IV fuels contain 50 parts per million (ppm) sulphur, the BS-VI grade
fuel only has 10 ppm sulphur content.
 Notably, while BS-IV engine can run on BS-VI fuel without any hiccup, a BS-VI motor is bound to face
issues such as higher emission and lesser fuel economy if run on BS-IV fuel.
Status check
Most OEMs except Bajaj Auto have launched a few BS-VI models so far. To comply with the upcoming
regulation there are some changes made in the engine and exhaust side. The most important change in the
models is the use of Electronic Fuel Injection (EFI) system instead of carburetor. Cost of an EFI is 5x-10x of a
carburetor and for an entry level bike it becomes a significant cost increase. We have seen that the models
launched with EFI and other BS-VI updates have taken a price increase of 12-15% on the ex-showroom price.
Models that already came with EFI saw a price increase of 2-3%. Along with the BS-VI update, OEMs have
refreshed and updated features in the models and hence some of the price increase pertains to the feature
enhancements.
Automobile Sector
Exhibit 5: BS-VI model launched so far
BS-IV BS-VI
OEM Model Diff % diff Difference – BS-IV Vs. BS-VI
Price Price
New LED daytime running light. Silent start system. Light weight & low friction
Honda Activa
components. Increased efficiency (fuel efficiency claimed to increase by 13%).
HMSI 125 Drum 61,858 70,990 9,132 14.8%
Power & Torque reduced by 0.34 hp & 0.24 Nm. Updated instrument console
Alloy
(top 2 models).
13mm longer, 18mm higher and 23mm wider. Wheelbase - stretched by 19mm.
Honda SP
HMSI 63,857 72,900 9,043 14.2% 0.57PS and 0.6Nm more powerful. LED headlamp and a fully digital instrument
125
cluster. silent starts. Fuel efficiency claimed to have increase by 16%.
Torque reduced by 0.24Nm to 8.79Nm whereas Power reduced by ~0.3PS to
8.2PS. It gets an Alternating Current Generator (ACG) starter, which eliminates
HMSI Activa 6G 55,934 63,912 7,978 14.3% the need for a separate starter. It also gets an offset cylinder for reduced friction
and tumble flow technology for improved combustion. It is 10% more fuel-
efficient.
Hero Wheelbase up by 35mm, ~113cc engine (~109cc engine earlier). Torque up by
Hero
Splendor 57,430 64,900 7,470 13.0% 10%. Engine power lower by 0.41hp to 9.1hp. Diamond frame for better safety &
MotoCorp
ismart stability and front suspension is up by 15mm.
9 per cent better fuel efficiency and better acceleration. Engine power lower by
Hero Hero HF
48,575 55,925 7,350 15.1% ~0.42hp to 7.94hp. all-new graphics and two new colour schemes of Techno
MotoCorp Deluxe
Blue and Heavy Grey with Green.
Yamaha Power reduced by 0.8 hp, Torque increased by 0.8 Nm. Two new colours
Yamaha FZ 96,680 99,200 2,520 2.6%
Motors schemes – Metallic Red and Dark night.
Yamaha 1,01,20 Power reduced by 0.8 hp, Torque increased by 0.8 Nm. Two new colours
Yamaha FZS 98,600 2,600 2.6%
Motors 0 schemes – Metallic Red and Dark night
Peak torque has gone down slightly, from 10.2Nm to 10Nm at 5500rpm, which
Suzuki Suzuki is 500rpm later than the BS4 model. LED headlamp, digital meter, long seat,
58,323 64,800 6,477 11.1%
Motors Access 125 enlarged floorboard, larger under-seat storage, eco assist illumination in digital
meter and external fuel refilling lid.
New LED headlamp, new decals, dual-tone seat. Power & Torque lower by
TVS TVS Apache 0.77PS and 0.68Nm, respectively under new BS6 engine. One new feature -
92,306 99,950 7,644 8.3%
Motors RTR 160 4V GTT (Glide Through Traffic) which works as low RPM assist and helpful in
urban riding conditions.
Fuel Injection, new LED headlamp, new mirrors and graphics. Gets new coded
TVS TVS Apache 1,11,84 1,24,00 keys which are difficult to duplicate. One-touch start system, GTT (Glide
12,155 10.9%
Motors RTR 200 4V 5 0 Through Traffic), Bluetooth connectivity & rear Pirelli radial tyre. Torque reduced
by 1.3Nm to 16.8Nm
TVS TVS Jupiter Only drum brakes (instead of front disc brake), USB charging port, redesigned,
59,990 67,911 7,921 13.2%
Motors Classic SBT dual-tone seat and a tinted windscreen. Ecothrust Fi’ technology.
Fuel Injection; Choke replaced by chrome cover; redesigned exhaust system;

1,07,78 1,26,65 Speedometer has white background instead of black & comes with fuel engine
Piaggio SXL 150 ABS 18,869 17.5%
1 0 indicator; new ‘150’ badge on the apron, full LED headlamp from April'20
onwards.
Fuel Injection; Choke replaced by chrome cover; Speedometer has white
Aprilia SR
Piaggio 74,027 95,039 21,012 28.4% background instead of black & comes with fuel engine indicator. Full LED
125
headlamp from April'20 onwards.
Vespa Notte / Fuel Injection; Choke replaced by chrome cover; Speedometer has white
Piaggio Urban Club 74,831 93,035 18,204 24.3% background instead of black & comes with fuel engine indicator. Full LED
125 headlamp from April'20 onwards.
Source: Company, Nirmal Bang Institutional Equities Research
Automobile Sector
EV – The Future is here

The future is electric but electric 2Ws have been around for some time now in India courtesy companies like
Hero Electric. It started manufacturing E2Ws in 2007 and launched the first electric scooter in India which ran
on Lead Acid battery. This was the only battery technology used until 2016 when the company launched India’s
first Lithium Ion battery E2W. Over the years, we have seen multiple start-ups in the E2W business with a
range of models in both Low Speed (LS) and High Speed (HS) category.
With the intention to move away from internal combustion engines, the government is focusing on introducing
electric vehicles in India. Under Faster Adoption and Manufacturing of Hybrid and Electric vehicles in India
(FAME) I and the recently launched FAME II norms, the government is offering incentives for electric vehicles.
Many two wheeler OEMs have adopted to the changing landscape and are:- 1)Developing their electric vehicle
manufacturing capabilities like Bajaj Auto (Chetak) and TVS (iQube). 2) Making strategic investments in electric
vehicle start-ups like Hero MotoCorp (in Ather Energy).
Exhibit 6: EV – Regulatory Timeline
Automobile Sector
Currently, E2W sales are estimated at 126k in FY19 (0.6% of two wheeler sales and 1.9% of scooter
sales).This is likely to increase significantly in the coming years aided by favourable cost of ownership, lower
battery prices, initial government subsidy, and product launches by key OEMs.
Exhibit 7: EV sales in India
(Unit '000)
134
140
4
120 101
100 1
80
56
43 130
60
1
100
40 1 22 25
17 22
2 55
20 42 1 2
2
21 15 20 23
0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
2-Wheelers 4-Wheelers
Source: SMEV, Media articles, Nirmal Bang Institutional Equities Research
Further, it is expected that scooters will adapt to electrification earlier than motorcycles. Main reasons being:
 Firstly, is because cost of ownership in case of an electric two-wheeler (e2W) will be less than that for
Internal Combustion Engine (ICE) scooter and will cover for the premium paid. However, e-
motorcycles will be more expensive as compared to ICE motorcycles both in terms of cost of
ownership and premium on cost of acquisition.
 Secondly, the ride experience is also expected to not change much in case of scooters as compared
to motorcycles, as the former are gearless where as the latter are geared, rugged, bold and sporty in
driving experience.
 Lastly, scooters are mainly used for short distances and within city limits only due to which range
anxiety for e-scooters will not be concern. Hence most E2Ws currently available on sale are scooters.
Scooter segment has had a good run as its share in 2Ws has increased from a low of 12.9% in FY06 and has
peaked out at 33.3% in FY18. Since then, it has been hovering around 31-32%, which could indicate a
plateauing out of its share. At the same time, electric 2Ws, which are largely scooters, have seen a huge jump
from the sale of 55,000 units in FY18 to 126,000 units in FY19 i.e. 1.9% of the ICE Scooter sales in the year..
Exhibit 8: E2W sales in proportion to ICE scooter sales in India
(%)
2.5
1.9
2.0
1.5
1.0 0.8
0.5 0.3 0.4 0.4
-
FY15
FY16
FY17
FY18
FY19
Electric 2-wheelers as a % of ICE scooters
Source: SMEV, CRISIL, Nirmal Bang Institutional Equities Research
Automobile Sector
EV – Start-ups
We highlight some of the key E2W startups below
Hero Electric
About – Hero Electric is a pioneer and market leader in the Indian electric two wheeler industry. It has been the
front runner for electric mobility for the last 10 years. It launched its 1 st e-scooter in 2007, while the 1st Li-ion e-
scooter was launched in 2016. The company started its own manufacturing of electric bikes in 2007 and has
state-of-the-art manufacturing facility near Punjab.
Strategy – Hero Electric operates majorly in LS electric scooters with maximum speed around 45 kmph. It
operates both Li-ion battery as well as lead acid battery e-scooters. The company in Nov’19 announced the
plan to invest Rs7,000mn in developing new products, expanding dealer network and increasing the production
capacity of its manufacturing units. The company was looking for more locations to set up another
manufacturing unit that can produce 80-90K units of electric two-wheelers per annum. However, in Jan’2020,
Hero Electric pushed back this investment as the company’s strategy to manufacture low power electric
vehicles did not align with FAME II, as FAME II policy does not provide subsidy on LS electric two-wheelers.
Region – 500+ dealerships across the country (across 25+ states).
Launches – Its product range includes - HS Li-ion battery scooters like Optima e5, Flash e5, NYX e5 to LS Li-
ion battery operated scooter like Hero Photon LP. It also operates in lead acid battery operated scooters like
Hero Flash LA / Optima LA & Hero Photon 72V.
Ather Energy
About – Founded in 2013, Ather is one of the leading electric vehicle companies in India. Ather is
focused on developing, designing and selling premium electric two-wheelers. It manufactures the electric
scooter Ather 450. It has also established electric vehicle charging infrastructure Ather Grid. In October 2016,
Hero MotoCorp invested US$30mn in Ather and held 32.31% stake in Ather as a strategic investor.
Strategy – Ather focuses only on premium electric scooters. It has an online-only purchase model for selling
the product with doorstep service. Its strategy is to gain dominance in the region it operates and then expand to
other markets. It creates an ecosystem by setting up its own charging network in the market it operates to gain
regional dominance.
Region – After having operated in Bangalore since it was founded, Ather expanded to Chennai in 2019.
Currently, it has 2 experience centres, AtherSpace – one at Bangalore and Chennai each and aims to increase
product understanding, providing customer education and giving a first-hand experience of the product to
consumers. Test rides are provided at these centres and electric vehicles can be booked online via the
company’s website. Ather has set up over 31 fast charging points in Bangalore and 10 charging points in
Chennai and plans to set up 6,500 charging points across India by 2022.
Launches – Ather 450
Specifications – The Ather 450 is constructed using an all-aluminium frame, comes with a 5.4 kW (7.2 BHP)
Brushless DC electric motor, and a 2.4 kWh lithium-ion battery pack. The scooter can accelerate to 40 km/h in
3.9 seconds, attain a top speed of 80 km/h, and can travel 75 km on one charge in city-riding conditions. The
scooter features a 7-inch touch screen dashboard, and comes with features like on-board navigation,
diagnostics, all-LED lighting, auto-cancelling indicators, Smartphone integration and cloud connectivity to send
and receive data from Ather's servers.
Ampere Vehicles
About – Ampere Vehicles Pvt Ltd designs and manufactures a wide range of reliable, cost-effective and quality
electric two wheelers and three wheelers for providing economical, comfortable, stylish and well performing
electric mobility solutions. Ampere has sold over 50,000+ electric vehicles till now. It is owned by Greaves
Cotton Ltd.
Strategy – Ampere operates in mass segment of e-scooters which are suitable for all types of riders, from
young to old, youthful trendy buyers, comfort seekers to busy business riders. It aims to produce affordable
Automobile Sector
range of e-scooters. Currently, it operates via a network of 350+ retail outlets in 220 cities and towns across
India and intends to expand further. The company’s core strategy is to build affordable high performance
scooters for mass market, expand the current product basket and service offerings along with distribution
network.
Region – 350+ retail outlets in 220 cities & towns across India.
Launches – Ampere’s e-scooters range includes hi-speed ‘Zeal’ - along with medium to low-speed models V-
48 LA, Magnus 60, Reo LA and REO Li.
Okinawa
About – Okinawa Autotech Pvt. Ltd. is an Indian electric two wheeler manufacturing company that was
established in 2015 with a mission to create two wheelers that can drive the present towards a sustainable
future. Founded by Jeetender Sharma and Rupali Sharma, Okinawa’s headquarter is located in Gurugram,
while the manufacturing facility is located in Bhiwadi, Rajasthan.
Strategy – Okinawa operates across all the price points in electric scooters – LS to HS scooters, lead acid
battery to Li-ion battery scooters. The company is also planning to launch electric motorcycle “Oki100” in
1Q2020, which will be 125cc equivalent motorcycle and will take on the Revolt RV400 in this space with a
range of 150 km and a top speed of 100 kmph. Also, currently the company has over 300 dealerships across
India, which it plans to increase to 500 by the end of 2020.
Region – 300+ dealerships across the country (across 26 states & UTs)
Launches – Its product range includes - HS Li-ion battery scooters like Praise-Pro, iPraise+, Ridge Plus to LS
Li-ion battery operated scooter like Okinawa Lite. It also operates in lead acid battery operated scooters.
Revolt Intellicorp
About – Revolt Motors, a start-up founded by Micromax co-founder Rahul Sharma, produces electric bikes,
being billed as India’s first AI-enabled electric motorcycle and has many industry first features. Headquartered
in Gurugram, the company has a production facility in Manesar, which has a capacity of 120,000 bikes
commissioned for the first phase. Rahul Sharma has reportedly said to have invested Rs4,000-5,000mn into
the company.
Strategy – The electric bikes will be brought to India via the CKD route but will get a high degree of localisation
from the onset. Revolt’s future plans include complete localisation of its products to make prices very
competitive. It will start operations in Delhi first followed by six other cities.
Region – 6 dealerships across Delhi and Pune.
Launches – It has two motorcycles – RV400 & RV300.
Nexzu Mobility (erstwhile Avan Motors)

About – Founded in 2015, Avan Motors India is an electric scooter start-up company, which aims to offer
stylish and futuristic eco-friendly vehicles to consumers at an affordable price. One of the key aspects that Avan
Motors emphasises upon is strong after-sales-service, which it aims to achieve by setting up 100+ dealerships
across the country.
Strategy – In Jan’2020, the company rebranded itself as Nexzu Mobility, in pursuit of its goal to establish itself
as one of the leading mobility entities in the country. The transformation will encompass not only the brand
name and logo, but also its product portfolio and general market proposition. The company will also introduce a
dedicated B2B programme with the aim to fortify its pursuit of holistic e-mobility. Under this programme, Nexzu
Mobility will offer customized electric mobility solutions for ride-sharing/rental companies, corporates, catering
to corporate leasing, corporate purchase, employee preferential programmes and government/private tenders
for EVs.
Region – Around 60 dealerships across India (across 13 states).
Automobile Sector
Launches – The company’s current product portfolio consists of three electric scooters - Xero, Xero+ and
Trend E. In Jan’2020, it announced the launch of two new electric scooters - Dextro & Dextro Plus and three
new e-cycles.
Specifications – Xero is an entry-level offering while Xero+ comes with a more powerful motor. On the other
hand, Trend E is currently the company’s flagship model, offering more premium parts along with a longer
range and higher top speed.
Twenty Two Motors

About – Twenty Two Motors in partnership with KYMCO of Taiwan specializes in developing advanced,
connected electric scooters. KYMCO holds a 25% stake in Twenty Two Motors and has invested US$15mn,
with a plan to invest another US$50mn in the next three years. KYMCO is one of the largest 2 wheeler
companies in the world that manufactures scooters, motorcycles and ATVs for worldwide distribution. KYMCO
also supplies engines and range extenders to Kawasaki and BMW. It has a state-of-the-art manufacturing
facility in Bhiwadi, Rajasthan having the capacity to roll out 50,000 vehicles per year with an investment of
about US$70mn over two-and-a-half years.
Strategy – The company currently has only 1 electric scooter 22 KYMCO iFlow, which is priced at Rs90,000.
The company does not sell the scooter with the battery but leases the battery at Rs500 a month for one battery.
Scooter maintenance costs are included in the cost of battery.
Region – Currently, it has around 10 dealerships in Delhi-NCR for product display and sales booking and on
the service part, it does on-door servicing. The company plans to expand to Gurugram, Jaipur, Hyderabad,
Pune and Bangalore.
Launches – The company’s current product portfolio consists of one electric scooter – 22 KYMCO iFlow
electric; and two petrol-powered scooters - Like 200i & X-Town 300i (both in premium segment).
Specifications – The 22 KYMCO iFlow is powered by an electric motor with a maximum power of 2100W. The
scooter is not sold with a battery but the batteries are leased to the buyer by 22 KYMCO. It will cost the buyer
Rs500 a month to lease one battery. The iFlow has a capacity of two batteries but can run perfectly fine with
even one battery. The 22 KYMCO iFlow has a claimed top speed of around 60km/h and a range of 40-
kilometres with just one battery. The range doubles when 2nd battery is added. 2 KYMCO offers a 5-year
warranty on the iFlow and the scooter's maintenance costs are included in the lease for the batteries. The iFlow
comes with features like LED lights, combined braking system, regenerative braking to charge the batteries,
cloud connectivity and ride modes (Reverse, Cruise and Drag). Reverse mode can be used to go backwards
while cruise is normal use and drag is for extremely slow speeds.
Automobile Sector
Exhibit 9: E2W start-ups and their details
Year of Product
Company Product Segment Notes
launch range
Operates in Bangalore and Chennai. It has set up over 40 charging station across the
two cities. Hero MotoCorp holds 32.31%. Ather 450 has integrating features like Google
Ather Premium Li-ion;
2013 Ather 450 maps on the vehicle’s 7’ touchscreen dashboard, seamless charging, over-the-air (OTA)
Energy segment HS
updates, etc. It will soon be launching 450x in Hyderabad, Mumbai, Delhi-NCR, Pune,
Chennai and Bengaluru, followed by Ahmedabad, Kochi, Coimbatore and Kolkata.
Optima e5, Flash e5,
Li-ion & It operates 500+ dealerships across the country (across 25+ states). It looking to invest
Hero NYX e5, Photon LP,
2007 Mass market Lead acid; ~Rs 7bn over next three years to ramp up production capacity of its electric scooters to
Electric Flash LA / Optima LA
LS 500,000 units annually from about 100,000 units..
& Photon 72V
Operates 300+ dealerships 26 states & UTs. Company is also planning to launch electric
Praise-Pro, iPraise+, Premium as Li-ion &
motorcycle “Oki100” in Q1 of 2020 which will be 125cc equivalent motorcycle. Okinawa
Okinawa 2015 Ridge Plus, Lite, well as Mass Lead acid;
is setting up a new plant in Alwar, Rajasthan. The new plant will have production
Ridge, Praise, Raise market HS & LS
capacity of 5 lakh units per annum. Current capacity is 1,80,000 units pa.
Li-ion & It operates via network of 350+ retail outlets in 220 cities and towns across India.
Ampere Zeal, Reo, V-48,
2008 Mass market Lead acid; Company's core strategy is to build affordable high performance scooters for mass
Vehicles Magnus
HS & LS market, expand product basket & service offerings along with distribution network.
It operates 6 dealerships across Delhi and Pune and has a production facility in Manesar
Premium
Revolt Li-ion; which has a capacity of 1,20,000 bikes. The electric bikes will be brought to India via the
2019 RV400 & RV300 segment -
Intellicorp HS CKD route but will get a high degree of localisation from the onset. Future plans include
motorcycle
complete localisation to make it competitive.
Currently testing the vehicle in labs and on the road for pre-commercialization
Premium
Tork T6X (yet to be Li-ion; certification. Tork plans to target both B2B and B2C markets & plans to sell 5,000-6,000
2009 segment -
Motors launched) HS motorcycles in its first year of operations and expects to be profitable at such levels. Will
motorcycle
be launched in Pune, Ahmedabad, Bengaluru, and Chennai initially.
Nexzu Operates around 60 dealerships across 13 states. Company plans to introduce a
Mobility Li-ion; dedicated B2B programme where it offer customized electric mobility solutions for ride-
2015 Xero+ and Trend E Mass market
(Avan LS sharing/rental companies, corporates, catering to corporate leasing, corporate purchase,
Motors) employee preferential programmes, and government/private tenders for EVs.
Operates 10 dealerships in Delhi-NCR for product display and sales booking. It does
only on-door servicing. Plans to expand to Gurgaon, Jaipur, Hyderabad, Pune and
Twenty 22 KYMCO iFlow Premium Li-ion;
2016 Bangalore. It does not sell the scooter with the battery but leases the battery at Rs 500
Two Motors electric segment HS
per month for one battery. Scooter maintenance costs are included in the cost of battery.
Kymco has invested USD 15mn in the start-up.
Premium
Ultraviolette Li-ion; It currently operates only in Bangalore with national expansion planned for next year.
2015 F77 market -
Automotive HS TVS motors holds 25.33% stake in the company.
motorcycle
Polo Classic, Polo EZ,
Premium as Li-ion & Currently it operates a flagship showroom in Delhi and plans to open 100 plus
Evolet Derby Classic, Derby
2019 well as Mass Lead acid; dealerships across India by March, 2020.. Company is also planning to establish a
Electric EZ, Pony Classic and
market HS & LS lithium-ion battery manufacturing facility in India.
Pony EZ
Yet to launch a Chinese E2W maker with over 25 yrs experience in the electric motorcycles industry.
product. It showcased The company will initially assemble them from a leased facility in Telangana. It plans to
DAO Li-ion;
2019 at the EV Technology Mass market invest up to $100 million in India over the next 3 years for setting up new manufacturing
EVTech LS
Expo held in Delhi in complex in Andhra Pradesh. It plans to roll out first electric scooter, LS in Feb'20
Dec’19. beginning from Andhra pradesh & Telangana and eventually expanding across India.
Li-ion & Company has presence in cities like Jammu, Punjab, Pant Nagar, Bijnor, Trivandrum,
Crayon
2019 Zeez & Envy Mass market Lead acid; Shahjahanpur, Agra, among others. Company plans to add another 100 dealers over
Motors
LS next year.
Company has presence in around 20+ cities across India via network of around 60+
dealers. It is present in mainly in Maharashtra with some presence in Gujarat, Karnataka,
Jitendra Jet 250XL, Jet Li-ion &
AP, Telangana, Tamil Nadu, Orissa, West Bengal, Delhi & MP. A pilot plant to
New EV 2016 250XL+, JMT1000 & Mass market Lead acid;
manufacture about 250 Rickshaws and 750 Scooters was built and is currently used to
Tech JMT1000HS LS
assemble the homologated products. A 18,000 sqmt. Industrial Plot has been acquired in
Industrial Area of Nasik to put up integrated manufacturing facilities.
Devot Yet to launch a
2019 N.A N.A Product expected to be showcased at Auto Expo 2020.
Motors product
Premium Li-ion; Based out of New Delhi, M2GO sources its e-scooters from Chinese manufacturer
M2GO 2019 Civitas and X-1
segment HS Wangye Motorcycle.
EeVe Your, EeVe Li-ion &
The Company has four products and claims to manufacture 15 new models. It plans to
Omjay EV 2018 Wind, EeVe 4U & Mass market Lead acid;
open 250 dealership in select states.
EeVe Xeniaa LS
Automobile Sector
What are incumbents doing?
Exhibit 10: Status of existing 2W OEMs on E2Ws
Company Actions taken Current status
Invested in Ather Energy Pvt Ltd Hero MotoCorp owns 32.31% in Ather purchased for ~Rs2,050mn
Hero MotoCorp It showcased an electric scooter - Duet-E, at Auto Expo 2016. It has opened a
tech centre in Germany which is focusing on Evs and has an ongoing project
Developing in-house electric vehicles
exclusively dedicated to develop EVs at its Centre of Innovation and Technology
(CIT) in Jaipur. Timeline for EV launch is not shared.
Invested in Ultraviolette Automotive Pvt Ltd
TVS Own ~25.33% in UV for Rs110mn.
(UV)
TVS Motors TVS recently launched its new electric scooter, the iQube, at Rs 115k (on-road,
Bengaluru). The iQube scooter can be booked through the Company’s website,
Developing in-house electric vehicles
and via 10 dealerships in Bengaluru, from January 27 onwards. It will go on sale
in other metros at a later date.
Bajaj launched e-Chetak priced around Rs1.08-1.1 lacs (ex-showroom, after

Formed a new vertical 'Urbanite' which would subsidy). It is powered by 3kWh Li-ion battery, with range of 95kms and full
Bajaj Auto
look into electric mobility related business. charge time of 5 hours. Deliveries will commence from February and will be
available in Pune & Bangalore.
Commenced development of an all new
Yamaha electric vehicle platform for India and other The company is expected to launch electric vehicle by FY2021-22.
global markets.
Committed to invest Rs17,000Mn towards EV
in India along with partners Denso and
Suzuki Expected to launch an electric scooter in 2020.
Toshiba. Setting up a battery product facility in
Gujarat.
Plans to do a study for its existing electric
HMSI had showcased the PCX electric scooter, in concept form, at the Auto
scooters from the Q1FY2021. It will use the
Honda Motorcycle Expo 2018. The product had its market debut in Japan in November 2018 but as
EV technology of Honda which will be used to
a lease-only model. It remains a lease-only model even today.
study EVs in India.
Automobile Sector
E2W Models currently available for sale
Exhibit 11: Key High speed E2Ws available in the market
Ather 450 Bajaj Chetak TVS iQube Ampere Zeal Okinawa iPraise+ Revolt RV400
Type Scooter Scooter Scooter Scooter Scooter Motorcycle
Range (Kms) 55-75 85-95 75 70-75 160 80-150
Top Speed (Kmph) 80 70-80 78 55 70 80
Li-ion, three
Battery type Li-ion, single Li-ion, single Li-ion Li-ion Li-ion
packs
Battery capacity (kWh) 2.4 3.0 2.2 1.8 3.3 3.24
Power n.a. 4080W 4400 1200W 1000W n.a.
8 Years/
3 Years/ 3 Years/
Warranty 3 Years/unlimited km 3 Years/50,000kms 3 Years/20,000kms 150,000kms for
50,000kms 20,000kms
battery
Full charge time 4-5 hrs 5 hrs 5 hrs 5-6 hrs 3-4 hrs 3-4.5 hrs
Front & rear brakes Disc Disc & Drum Disc & Drum Drum Disc Disc
Speedometer /
Digital Digital Digital Digital Digital Digital
Odometer
Front Telescopic Front telescopic &
Front Telescopic & Front Leading-link Front - Upside
& Rear Hydraulic Rear double
Suspension Rear Progressive Suspension & Rear n.a. down forks, Rear -
twin tube shock shocker with dual
Mono-shock Monoshock Monoshocks
absorber tube tech
Ex showroom price
106.9 100.0 115.0 69.6 108.7 99.0
(Rs’000)
Q-park assist, Smartphones
Regenerative connectivity with
Smartphone Braking, Geo- Smartphone
Yes. On-board 'MyRevolt'app.
connectivity, along fencing, connectivity with
navigation, 4G-enabled SIM
with a Bajaj Chetak Navigation Assist, the ‘Okinawa Eco’
diagnostics, communicates
mobile app that gives app, geofencing,
smartphone Remote charge with Revolt’s cloud
Connectivity access to navigation, No virtual speed limit
integration, and cloud status, Smart ride servers,
tracking features, control, battery’s
connectivity to send statistics, Range Geofencing, in-
vehicle and battery health monitoring,
and receive data from Indication, built navigation,
statistics, and safety an in-built GPS
Ather's servers Battery charge voice command
features, etc. etc
status, Over- with Google
speed alert Assistant.
In-built charger. No Home charging
Yes (Ather Dot). Fast Micro Charger
Charger fast charging unit & a portable Portable Charger RV400 charger
charging available with Auto Cut
available charger
Automobile Sector
Exhibit 12: Key Low Speed E2Ws available in market
Hero Optima ER / NYX ER Hero Photon LP Ampere Reo / V48 Okinawa Ridge Plus
Type Scooter Scooter Scooter Scooter
Range (Kms) 100-110 80 55-60 90-100
Top Speed (Kmph) 42 45 25 55
Battery type Li-ion, double Li-ion, single Li-ion Li-ion
Battery capacity (kWh) 1.3 1.9 1.2 1.75
Power 1200-1300W 1200W 250W 800W
Warranty 3 Years/20,000kms 3 Years/20,000kms 2 Years 3 Years
Full charge time 4-5 hrs 5 hrs 5-6 hrs 2-3 hrs
Front & rear brakes Drum Drum Drum Drum
Speedometer / Odometer Digital Digital Digital Digital
Front telescopic & Rear
Front Telescopic & Rear
Suspension Front Telescopic Front Telescopic double shocker with dual
Coil Spring
tube tech
Ex showroom price (Rs’000) 68.7 / 69.7 73.0 54.6 / 52.2 73.4
Connectivity No No No No
Charger rating 6A,
Intelligent charger with
Charger Fan-cooled Charger Portable Charger Micro Charger with Auto Cut
advance tech like voltage
and temperature protection
FAME II: Boom or Bane?

The Ministry of Heavy Industry and Public Enterprise, through a notification on March 28, 2019, laid out the
eligibility criteria for electric buses, PVs, 3Ws and 2Ws to avail the ‘Faster Adoption and Manufacturing of
Hybrid and Electric Vehicles in India’, or FAME-II, incentives. The criteria is based on minimum top speed,
minimum range per charge, minimum acceleration, regenerative braking and energy consumption efficiency of
electric tow wheelers (EVs).
Incidentally, ~90% of the vehicles that availed the incentives under the previous FAME I scheme, which was
operational between April 1, 2015, and March 31, 2019, were electric scooters and most of them were Low
Speed (LS). One of the criteria of FAME-II is that the vehicle should be high speed and hence as the product
portfolios of key EV manufacturers like Hero Electric, Ampere etc are low speed, the electric 2-wheeler
segment could be impacted the most by FAME-II rules. More than 95% of the electric 2-wheeler models being
produced were not eligible for incentive under FAME-II.
FAME-II excludes lead acid battery-powered 2-wheelers. Additionally, eligibility criteria requires E2Ws to have
a minimum range of 80km per charge and minimum top speed of 40kmph, along with requirements of energy
consumption efficiency, minimum acceleration and higher number of charging cycles. This excludes more than
90% of the remaining lithium ion battery-driven models from the subsidy.
Under FAME-I, the incentive for lithium ion battery-based 2-wheelers stood at Rs17,000 or Rs22,000, based on
the fuel savings potential. FAME-II has linked the demand incentive to the size of the battery, providing
Rs10,000 per kWh of battery used for a E2W. As the average size of a lithium ion battery in electric scooters
sold during FAME-I was around1.5kWh (average subsidy of ~Rs15,000 per vehicle), it reduced the average
subsidy per vehicle by Rs2,000 to Rs7,000.
It seems that demand of Low speed E2Ws is sustaining in FY20 without the FAME-II subsidy due to lower cost
of ownership. Demand for high speed E2Ws are expected to rise with OEMs like Bajaj and TVS entering in the
segment with their scooters.
Automobile Sector
State Policies on EV
Along with FAME, Ministry of Road Transport and Highways have directed State governments to take initiatives
to support EVs. Some states have formulated their EV policy and we highlight the regulations around E2Ws.
Exhibit 13: State level E2W policy
State Policies currently in force
Reimbursement of registration charges and road tax on sale of EVs until 2024.
Andhra Pradesh
Registration of EVs will be done online immediately
Bihar Exemption from road tax and registration fees 'for Electric Vehicles.
Karnataka Exemption from all taxes incl road tax and registration fees 'for Electric Vehicles.
First 70,000 Electric 2-wheelers registered in the State, private transporter and individual buyer to get end user subsidy over
policy period of 5 years. 15% subsidy (maximum limit of Rs.5,000 for 2 wheeler) per vehicle, on base price will be paid to buyer.
Maharashtra Subsidy will be transferred to buyer’s bank account within 3 months of purchase date. This Scheme is now no more operational
Exemption from road tax and registration fees for Electric Vehicles.
Madhya Pradesh Exemption from road tax and registration fees for Electric Vehicles.
Kerala The newly registered EVs will get a three-year exemption in road tax.
Buyer gets Rs.5500 incentive directly in bank account within 4-5 mths. However this policy on hold & will get implemented after
elections based on new govt
Delhi
Road tax, registration fees & MCD one-time parking fee will be waived for all electric two-wheelers with an Advance Battery
100% road tax exemption will be provided ll 30.12.2022.

Tamil Nadu
Waiver on registration charges/fees will be done as per Government of India's notification.
100% exemption of road tax on Transportation EVs purchased within Uttar Pradesh. Other buyers will be fully exempted from
paying Vehicle registration fees of EVs manufactured within the State.
Uttar Pradesh
30% subsidy on road price of EV in form of reimbursement to Individual families with Single-girl child in the State on purchase
of EVs, applicable over the period of this policy.
Uttarakhand 100% exemption from road tax. Registration charges are lower than that for ICEs.
Gujarat Road tax and registration charges are to be paid but road tax is at subsidized rate than for ICEs
Rajasthan Exemption from road tax and registration fees for Electric Vehicles (nominal rate)
Source: Respective State EV Policies, Dealer checks, Nirmal Bang Institutional Equities Research
Automobile Sector
Understanding the Industry
Shift between the segments
India was predominantly a Scooter and Moped market until late 90’s when more efficient, lower cc motorcycles
emerged and started gaining share. At the same time, Honda launched its Activa scooter model in 1990 which
was a pivotal event as its ease of riding due to gearless technology gave it a unisex appeal. Automatic scooters
helped the industry to move towards the segment from 2007 onwards till today. Scooters sales have grown at
19.3% CAGR in the last decade vs 8.8% for Motorcycles and 7.4% for mopeds. Scooters’ share improved from
15.5% in FY09 to 31.6% in FY19.
Exhibit 14: 2W sales mix
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
YTDFY20
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Motorcycles Scooters Mopeds
Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research
Shift between the motorcycles segments

Indian motorcycle industry is dominated by the commuter segment i.e. powered by up to 125cc engine mainly
due to better fuel economy. This segment was over 90% of total motorcycles in FY02. Over the years and with
the launch of models with bigger engines (Bajaj Pulsar, TVS Apache, Royal Enfield Classic etc), the commuter
segment shrunk to 65% in FY17. The segment has now gained back owing to slowdown in the last 18 months.
2Ws had a steep price increase of almost 15% post insurance cost increase in September 2018 and
implementation of new safety norms in April 2019. In a short span we have seen the steepest price increase
ever. This, we believe, has led to down-trading to sub-125cc segment, which has also compelled OEMs like
Bajaj Auto to launch a 125cc version of Pulsar. Sub-125cc segment has gained 130 bps YoY of motorcycle
share YTDFY20 and 220bps over FY17 share. Its contribution has reached 78% YTDFY20, which indicates
that consumers are down-trading. We believe that post BS-VI price increase this trend of down-trading will
continue and will work in favour of the segment leader – Hero MotoCorp.
Exhibit 15: CC wise mix in motorcycles
100%
95%
90%
85%
80%
75%
70%
65%
YTD'20
2013
2014
2015
2017
2018
2019
2016
75cc <= 125cc 125cc <= 250cc >250cc
Automobile Sector
Competitive intensity
Hero MotoCorp dominates the motorcycle segments with its mass market models like Splendor, HF Delux and
Passion whereas Honda dominates the scooter segment with the Activa. Hero MotoCorp’s market share has
been 50% plus for the last 12 years but has dropped from 60% in FY19 to 50.7% in FY19. For YTDFY20, its
market share is 51%. Hero MotoCorp is followed by Bajaj Auto with a market share of 18.8% in FY20. Bajaj
Auto has always been the no.2 player but its market share has been constantly eroding – from a high of 32% in
FY07 to 15.6% in FY18 but has recovered from that. The emerging players in the last decade are Honda
Motorcycles and Scooters India (6.2% share in FY09 to 14.7% in YTDFY20) and Royal Enfield (0.7% share in
FY09 to 5.5% in YTDFY20). Hero MotoCorp dominates the sub-125cc segment with a market share of 64.8%
YTDFY20. Bajaj Auto dominates the 125-250cc segment with the help of its Pulsar range. Royal Enfield
dominates the 250cc plus segment with 95%+ market share YTDFY20 led by its Classic 350 model.
Exhibit 16: 2W Market share

(%)
100.0
0.4 0.4 0.5 0.6 0.5 0.5 0.6
0.5 0.9 1.4 2.0 3.0 3.7 4.0 3.8 3.6
90.0
23.2 17.3 19.1 14.2 11.1 11.5 9.8
26.7 20.5 19.1 17.9 11.4 12.0 12.0
80.0 23.7 26.3
11.8 13.1 13.4 14.2 14.2
70.0 15.3 14.5 12.8 14.8 14.3
15.9 15.0 14.1
60.0 18.0 17.9 18.1
13.7 12.7 24.0 26.6
50.0 12.0 13.2 14.9 18.9 26.0 26.9 28.6 26.1 27.1
8.3 8.0 8.8
40.0
30.0
44.8 48.9 48.0 44.8 45.1
20.0 41.2 41.2 41.1 42.9 41.3 40.3 39.0 36.9 36.5 35.9 35.5
10.0
-
YTDFY20
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Hero Motocorp Honda Motorcycle TVS Motors Bajaj Auto Royal Enfield Others
Exhibit 17: Motorcycle Market share

(%)
100.0
0.5 0.5 0.6 0.7 0.7 0.6 0.8 1.2 5.6
0.6 1.9 3.0 4.7 5.9 6.3 5.9
90.0
21.9 24.3 26.8 25.5 24.4 20.0 16.5
80.0 30.1 28.7 17.7 18.0 15.6 18.7 18.7
27.1 31.8
70.0 7.9 5.5 6.2 7.3
6.7 5.5 6.7 7.0 7.5 7.0
7.0 6.2
8.7 6.2 6.2 16.3
60.0 12.9 13.0 7.3 7.7 11.8 15.8 14.0 13.8 15.5 14.4
12.9 4.4 13.5
50.0 1.3 1.7 2.5
40.0
30.0 59.8 58.5 55.9
51.5 49.8 54.5 54.7 53.2 51.8 53.0 52.4 51.3 51.5 50.7 51.3
48.1
20.0
10.0
-
YTDFY20
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Hero MotoCorp Honda Motorcycle TVS Motors Bajaj Auto Royal Enfield Other
Automobile Sector
Exhibit 18: Scooter Market share
(%)
100.0 -
- 7.5 - - 2.1 4.9 4.8 6.3 7.9 6.2 5.4 4.7
- 2.3 -
90.0 21.6 9.6 11.3 8.2 6.1 4.4 5.0 6.3 9.2 11.3
27.3 9.8 9.8 11.2 11.2
13.3
80.0 -
1.7 14.3 16.7 16.3 14.1 13.1 10.7 7.9
16.7 16.2 19.2
70.0 - 23.8 18.8
26.6 20.9
25.7 15.1 15.4 14.7 16.4 18.5 19.3
60.0 23.8 20.5 12.7
19.4 14.5
21.2
50.0
40.0
30.0 56.1 58.9 57.0 55.6 55.4 56.9 56.9 55.7
51.0 50.6 52.8 54.9
48.9 47.9 48.6
20.0 43.4
10.0
-
YTDFY20
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Honda Motorcycle TVS Motors Hero MotoCorp Suzuki Motorcycle Yamaha Motors Others
Exhibit 19: Sub-125cc motorcycle market share

(%)
100.0 0.8 0.5 0.8 0.8 0.7 0.6 0.3
0.6
12.5 13.1 11.9 11.5 14.8 14.9
90.0 16.7
21.4 5.3
5.3 5.3 5.7 5.2 4.8
80.0 4.9
5.2 16.5 15.2 14.8 16.0 13.6 14.9
70.0 14.8
10.3
60.0
50.0
40.0
61.3 63.5 64.7 66.5 66.3 65.8 65.1
30.0 60.5
20.0
10.0
-
YTDFY20
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Hero MotoCorp Honda Motorcycle TVS Motors Bajaj Auto Yamaha Motors Others
Automobile Sector
Rural recovery could drive motorcycle sales in medium term
Motorcycles are rural centric products as it’s the only mode of commute due to lack of public transport system.
Also, 1/3rd of the rural households own a 2W vs 1/7th of urban households and hence there is a correlation
between farm income and Motorcycle sales growth. Our economist expects farm income to grow by 15% YoY
in FY20 vs a 4% growth in FY19. This rise should reflect in rural spending in FY21 and hence could support
motorcycle sales. We believe once the BS-VI price increases settle down, rural demand should drive
motorcycle sales in FY21-22
Exhibit 20: Correlation between farm income growth (in subsequent year) and motorcycle sales growth
(%)
40
30
20
10
-10
-20
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
Farm Income growth Motorcycle growth
Source: CRISIL, Nirmal Bang Institutional Equities Research
Automobile Sector
Comparing Hero, Bajaj and TVS – Story in Charts

Cost Structure
Exhibit 21: Bajaj has the leanest cost structure
(%)
80.0 76.0
71.5
69.3
70.0
60.0
50.0
40.0
30.0
20.0 17.3
14.7
6.3 7.3 7.9
10.0 5.1 4.1 5.1 4.1 3.6
2.4 1.9 1.2 1.3 1.2
-
RM/sales Employee Adspend/sales R&D/sales Others/sales EBITDA Margin
cost/sales
Hero MotoCorp Bajaj Auto TVS Motors
Distribution network
Exhibit 22: Hero leads in network and reach
Customer touch
OEM 2012 2015 2019
points - 2019
Hero MotoCorp 700 800 880-890 6500+

TVS Motor Company 650 650 985-995 3500+
Bajaj Auto 600 675 710-720 4000+
Honda Motorcycle & Scooter India 400 768 960-970 5800+
Mahindra Two Wheelers 370 500 505-515 1500+
India Yamaha Motor 450 410 655-665 2300+
Suzuki Motorcycle India 200 330 600-610 1137+
Royal Enfield 249 500 685-695 ~1495
Piaggio-Vespa n.a. n.a. 70-80 250+
Source: Crisil, Company, Nirmal Bang Institutional Equities Research
Key Focus Area

Exhibit 23: Key focus areas
Company Focus Area
Hero MotoCorp Commuter motorcycle segment
Bajaj Auto Entry level, Sports motorcycle, 3Ws and exports
TVS Motor Company Scooters, Sports motorcycle, Mopeds
Automobile Sector
Financials
Exhibit 24: Revenue and PAT last 5 yr CAGR
(%)
25.0
20.7
20.0 18.0
15.0
9.9
10.0 8.5
5.9 5.5
5.0
-
Revenue PAT
Exhibit 25: Margin trend

(%)
25.0
20.0
15.0
10.0
5.0
-
FY15
FY16
FY18
FY19
FY17
Exhibit 26: Valuation Summary

Market Div
CMP EPS CAGR ROE (%) P/E (x) P/B (x)
cap Yield
Company
FY19-
Rs Rs. Bn FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY19 %
FY22E
Hero 2,455 490.4 6.7 22.9 22.4 22.2 14.9 13.4 11.9 3.4 3.0 2.6 3.5
Bajaj 3,079 891.0 10.2 19.1 18.7 18.5 19.0 17.2 15.4 3.6 3.2 2.8 1.9
TVS 465 221.0 11.1 19.2 17.7 18.2 29.7 28.2 24.0 5.7 5.0 4.4 0.9
Automobile Sector
Company Section
Automobile Sector
This page has been intentionally left blank
Automobile Sector
Hero MotoCorp
28 January 2020
Reuters: HROM.BO; Bloomberg: HMCL IN

Seeing light at the end of the tunnel BUY
Hero MotoCorp is a leader in sub-125cc motorcycle segment and in the rural segment. We
believe that there are reasonable tailwinds in favour of both the segments that will drive Hero’s Sector: Automobile
demand recovery. With BS-VI, we see increase in the cost of ownership in the range of 6-15%
with the commuter segment witnessing the higher end of that range. In a rising cost scenario,
CMP: Rs2,455
we see down-trading happening towards the <=125cc segment and hence this segment has Target Price: Rs3,107
gained 160bps YoY of motorcycle share YTDFY20. We expect this to continue post BS-VI cost
increases. Secondly, we expect farm income to see a sharp growth of 15% YoY in FY20 whose Upside: 26.6%
lag effect could support rural sales in FY21, which works in favour of the Motorcycle segment
due to higher correlation. We have re-initiated coverage on Hero MotoCorp with a one-year Anish Rankawat
target price of Rs3107, up 26.6% from the current market price. Our target price is based on 16x Research Analyst
Sep 21E EPS of Rs185. The stock currently trades at 13x Sep 21E EPS earnings i.e. at a anish.rankawat@nirmalbang.com
discount to its long-term average P/E of 17x. We believe that the current market price offers a +91 22 6273 8172
good entry point as we expect demand recovery, owing to reasons mentioned above.
Rising cost scenario leads to down-trading and augurs well for Commuter segment: 2Ws had a Ronak Mehta
steep price increase of almost 15% post insurance cost increase in September 2018 and Research Associate
implementation of new safety norms in April 2019. In a short span we have seen the steepest price ronak.mehta@nirmalbang.com
increase ever. This, we believe, has led to down-trading to sub-125cc segment, which has also +91 22 6273 8176
compelled OEMs like Bajaj Auto to launch a 125cc version of Pulsar. Sub-125cc segment has gained
160bps YoY of motorcycle share YTDFY20 and 220bps over FY17 share. We believe that post the BS-
VI price increase this trend of down-trading will continue and will work in favour of the segment leader – Key Data
Hero MotoCorp. Current Shares O/S (mn) 199.7
Expected farm income growth to support rural sales and hence motorcycle sales: Motorcycles
Mkt Cap (Rsbn/US$bn) 496.8/7.0
are rural centric products as it’s the only mode of commute due to lack of public transport system. Also,
1/3rd of the rural households own a 2W vs 1/7th of urban households and hence there is a correlation 52 Wk H / L (Rs) 3,023/2,226
between farm income and Motorcycle sales growth. Our economist expects farm income to grow by Daily Vol. (3M NSE Avg.) 768,766
15% YoY in FY20E vs a 4% growth in FY19. This rise should reflect in rural spending in FY21 and
hence could support motorcycle sales. We believe once the BS-VI price increases settle down, rural
demand should drive motorcycle sales in FY21-22 and since Hero MotoCorp has the reach and brand Share holding (%) 3QFY20 2QFY20 1QFY20
recall here we expect it to post volume growth in FY21-22E.
Promoter 34.6 34.6 34.6
Volume and margin decline are priced in, re-initiate with a BUY: YTDFY20, the 2W segment has
declined by 15% YoY but Hero MotoCorp has done a tad better with a 13.7% decline. Also, its margin Public 65.4 65.4 65.4
has declined in FY20 so far and is expected to decline by 40bps in FY20 and 50bps in FY21. We Others - - -
believe that these are priced in the stock as it has declined by ~7% in the last 1 year vs ~4% decline in
TVS Motor and 18% rise in Bajaj Auto. The latter two have done better due to their diverse product
portforlios and exports. We expect Hero MotoCorp’s volume to grow by 4.6% and 6.5% in FY21 and One -Year Indexed Stock Performance
FY22, a 5% CAGR and 7% CAGR in Revenue and PAT over FY19-22. We expect margin to recover in
120
FY22. We have re-initiated coverage on Hero MotoCorp with a one-year target price of Rs3107, up
110
26.6% from the current market price. Our target price is based on 16x Sep 21E EPS of Rs185. The
100
stock currently trades at 13x Sep 21E EPS earnings i.e. at a discount to its long-term average P/E of
17x. We believe the current market price offers a good entry point as we expect demand recovery, 90
owing to reasons mentioned above. 80
70
Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E 60
Net Sales 3,22,305 3,36,505 3,08,352 3,50,407 3,90,299 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20
% Growth 13.2 4.4 -8.4 13.6 11.4 HERO MOTOCORP LT Nifty 50
EBITDA 52,802 49,301 44,094 48,356 54,642

EBITDA margin (%) 16.4 14.7 14.3 13.8 14.0
Adj PAT 36,974 33,849 32,957 36,525 41,063 Price Performance (%)
EPS (Rs) 185.1 169.5 165.0 182.9 205.6
1M 6M 1 Yr
EPS growth (%) 9.5 -8.5 -2.6 10.8 12.4
P/E (x) 13.3 14.5 14.9 13.4 11.9 Hero MoroCorp 1.8 0.8 (6.9)
EV/Sales (x) 1.3 1.3 1.4 1.2 1.0 Nifty Index (0.5) 8.0 13.1
EV/EBITDA (x) 7.8 8.7 9.5 8.5 7.2
P/BV 4.2 3.8 3.4 3.0 2.6 Source: Bloomberg
Dividend yield (%) 3.9 3.5 3.5 3.5 3.9
RoCE (%) 42.8 37.5 29.5 29.0 28.8
RoE (%) 31.4 26.3 22.9 22.4 22.2
Valuation/stock price performance
Hero MotoCorp is a leader in sub-125cc motorcycle segment and in the rural segment. We believe that there
are reasonable tailwinds in favour of both the segments that will drive Hero’s demand recovery. With BS-VI,
we see increase in the cost of ownership in the range of 6-15% with the commuter segment witnessing the
higher end of that range. In a rising cost scenario, we see down-trading happening towards the <=125cc
segment and hence this segment has gained 160bps YoY of motorcycle share YTDFY20. We expect this to
continue post BS-VI cost increases. Secondly, we expect farm income to see a sharp growth of 15% YoY in
FY20 whose lag effect could support rural sales in FY21, which works in favour of the Motorcycle segment due
to higher correlation. We have re-initiated coverage on Hero MotoCorp with a one-year target price of Rs3107,
up 26.6% from the current market price. Our target price is based on 16x Sep 21E EPS of Rs185. The stock
currently trades at 13x Sep 21E EPS earnings i.e. at a discount to its long-term average P/E of 17x. We
believe that the current market price offers a good entry point as we expect demand recovery, owing to
reasons mentioned above.
Exhibit 27: One-year forward P/E band

(x)
24
22
20
18
16
14
12
10
8
Apr-10
Apr-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Apr-17
Apr-18
Apr-19
Oct-10
Oct-11
Oct-16
Oct-17
Oct-18
Oct-19
PE 10 yr Mean 1SD -1SD 2SD -2SD
Source: Bloomberg, Nirmal Bang Institutional Equities Research
Exhibit 28: Top five institutional shareholders of Hero MotoCorp

Name Holding (%)
Life Insurance Corp of India 5.5
Standard Life Aberdeen PLC 3.4
SBI Funds Management Pvt Ltd 3.1
BlackRock Inc 2.4
Franklin Resources Inc 2.0
Source: Bloomberg
Exhibit 29: Peer valuation

FY19-22 ROE (%) PER (x) EV/EBITDA (x)
Company
EPS CAGR FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
Hero MotoCorp 6.7 22.9 22.4 22.2 14.9 13.4 11.9 9.5 8.5 7.2
Bajaj Auto 10.2 19.1 18.7 18.5 19.0 17.2 15.4 13.2 11.4 9.6
TVS Motors 11.1 19.2 17.7 18.2 29.7 28.2 24.0 13.7 12.5 10.7
Hero MotoCorp
Investment rationale
Economy and executive segments to gain post BS-VI
Hero MotoCorp rules the commuter segment with almost 65% market share in the sub-125cc motorcycle
segment YTDFY20. This segment contributes 78% to sales in the motorcycle mix. As a result, Hero
MotoCorp’s market share in motorcycles is 51% this year and has been above 50% for the last 12 years.
The economy segment once used to be more than 65% of total 2W sales during FY03-FY07. Post that it kept
losing share to the rising scooter and premium segments until FY17, reaching a low of 47.8% share. Since
then, we have seen saturation coming in scooter penetration while competitive intensity has increased in the
commuter segment. At the same time, the cost of ownership has also increased owing to rising fuel prices and
vehicle price increase due to insurance and safety regulations. During this period, we have seen a recovery in
the commuter segment’s share, which has reached 51.6% YTDFY20. We believe that in an increasing price
scenario and slowdown period the commuter segment will gain more traction, benefitting Hero MotoCorp.
Exhibit 30: <=125cc motorcycle segment gaining share due to lower cost of ownership
86
83.6 83.2
84
81.5
82
79.4
80
78.2
78 76.8 76.5
75.8
76
74
72
70
YTDFY20
FY14
FY15
FY16
FY17
FY19
FY13
FY18
Share of 75cc <= 125cc in motorcycles (%)
Exhibit 31: …also in the overall 2W industry

70
64.8
65
61.9
60 57.4
54.0
55 52.2
51.3
50.4 50.1
50
45
40
YTDFY20
FY14
FY15
FY16
FY17
FY19
FY13
FY18
Share of 75cc <= 125cc in 2Ws (%)
Hero MotoCorp
Exhibit 32: …which helps Hero MotoCorp to gain share in motorcycles
65
59.8
60 58.5
55.9
54.5 54.7
55 53.2 53.0 52.4
51.8 51.3 51.5 50.7 51.3
50 48.1
45
40
YTDFY20
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY17
FY18
FY11
FY16
FY19
Hero - Motorcycle market share (%)
Exhibit 33: Sales trend of key Hero MotoCorp models

Units '000
300
250
200
150
100
50
0
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Feb-16
Feb-17
Feb-18
Feb-19
Oct-18
Apr-19
Oct-19
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Splendor HF Passion Glamour
Hero MotoCorp
Failed to spark interest in scooters and premium segment
Hero MotoCorp has constantly lost share in the scooter segment despite its attempt like introducing new
models which are competitive in terms of pricing and features. Its market share in FY13 was 18.8% and fell to
8% YTDFY20. The company changed its strategy to focus on the 125cc segment with the launch of Destini
125 and Maestro Edge 125 in 2018 but seems to have not made any impact.
Exhibit 34: New/refresh launches in Scooter
New Launched Year
Launched refreshed versions of Hero Pleasure 2015
Launch of Duet, Maestro Edge 2016
Launched new Hero Pleasure 2017
Launched Maestro Edge 125, Duet 125 2018
Launched Destini 125 2019
Exhibit 35: Hero MotoCorp’s scooter sales declining from FY18
Units '000
1,000
884
900 819 790
752
800 719
690
700
600 550
453
500 414
400 343
300 208
153
200 92 102
100
-
FY20E
FY07
FY08
FY10
FY11
FY12
FY13
FY16
FY17
FY18
FY09
FY14
FY15
FY19
Similarly to scooters, Hero MotoCorp has been struggling in its premium segment as its market share in the
125-250cc has declined from 13.5% in FY11 to 1.9% in FY19. Part of it is due to lack of exciting offerings in
the segment whereas competition has been comparatively quite active. TVS and Yamaha are the major
players who gained share at Hero MotoCorp’s expense. To address this, Hero MotoCorp launched Xtreme
and Xpulsae range last year with 200cc engines at competitive pricing. This seems to have worked a bit for
the company and it has gained some share in recent months as its market share increased by 70bpsYoY to
2.7% in YTDFY20.
Exhibit 36: New/refresh launches in premium segment
New Launched Year
Launched refreshed version of Karizma, ZMR & Xtreme 2015
No new launches 2016
Launched Achiever 150 2017
No new launches 2018
Launched X-Pulse 200, X-Pulse 200T and Xtreme 200S 2019
Hero MotoCorp
Exhibit 37: Hero MotoCorp’s premium segment sales
(%)
80.0 66.9
60.0
37.7 41.4
40.0 29.0
20.0
4.1
-2.0
-6.6
- -14.2 -16.2
-25.8 -27.5 -25.6
-20.0
-40.3 -38.5
-40.0
-60.0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
YTD'20
Hero MotoCorp
Rural revival works in favor for Hero Motocorp
Hero MotoCorp’s blockbuster products – Splendor, HF Delux and Passion are majorly rural centric products
with attributes like low cost, durable on rural terrain, higher mileage and lower maintenance cost. Hence, any
revival in the rural economy augurs well for the company. We see a correlation between Hero MotoCorp’s
sales growth and farm income growth. Farm income is expected to grow by 15% in FY20E, owing to increased
prices, inflation and expectation of better Rabi crop due to higher water levels in reservoirs. Taking the lag
effect of farm income on Motorcycle sales we see a sharp recovery in Hero MotoCorp’s commuter segment in
FY21-22.
Exhibit 38: Correlation between Hero MotoCorp sales volume and farm income
35
30
25
20
15
10
5
0
-5
-10
-15
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
Hero Sales growth (%) Farm Income growth (%)
Hero MotoCorp
Financials
YTDFY20, the 2W segment has declined by 15% YoY but Hero MotoCorp has done a tad better with a 13.7%
decline. We expect Hero MotoCorp’s volume to grow by 4.6% and 6.5% in FY21 and FY22 after a 12.7%
decline in FY20E. Volume recovery is mainly led by our expectation of growth in Motorcycles segment.
For FY19-22, we expect 5% CAGR for revenue aided by BS6 led ASP growth and 7% CAGR in PAT as we
expect margin to recover in FY22. Its EBITDA margin has declined in FY20 so far and we expect it to decline
by 40bps in FY20 and 50bps in FY21 as we don’t expect a full pass on of BS-VI cost increase.
Exhibit 39: Segmental volume summary

Volume FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Total Volume 66,31,703 66,32,152 66,64,046 75,87,193 78,20,831 68,23,789 71,39,822 76,02,199
YoY growth (%) 6.2 0.0 0.5 13.9 3.1 -12.7 4.6 6.5
Domestic volumes 64,31,686 64,21,913 64,83,655 73,82,718 76,12,775 66,57,344 69,67,560 74,23,577
YoY growth (%) 5.2 -0.2 1.0 13.9 3.1 -12.6 4.7 6.5
% of total 97.0 96.8 97.3 97.3 97.3 97.6 97.6 97.7
Motorcycle 56,79,634 56,03,136 56,93,681 64,99,051 68,93,688 62,04,319 65,14,535 69,70,553
YoY growth (%) 4.7 -1.3 1.6 14.1 6.1 -10.0 5.0 7.0
Scooter 7,52,052 8,18,777 7,89,974 8,83,667 7,19,087 4,53,025 4,53,025 4,53,025
YoY growth (%) 9.0 8.9 -3.5 11.9 -18.6 -37.0 - -
Export volumes 2,00,017 2,10,239 1,80,391 2,04,475 2,08,056 1,66,445 1,72,263 1,78,622
YoY growth (%) 52.3 5.1 -14.2 13.4 1.8 -20.0 3.5 3.7
% of total 2.1 3.0 3.2 2.7 2.7 2.7 2.4 2.4
Motorcycle 1,20,061 1,32,718 1,40,579 1,78,156 1,87,185 1,49,748 1,57,235 1,65,097
YoY growth (%) 5.5 10.5 5.9 26.7 5.1 -20.0 5.0 5.0
Scooter 79,956 77,521 39,812 26,319 20,871 16,697 15,027 13,524
YoY growth (%) 356.2 -3.0 -48.6 -33.9 -20.7 -20.0 -10.0 -10.0
Exhibit 40: We expect revenue growth in FY21-22E

(INR Mn) (%)
4,50,000 20.0
4,00,000 13.2 13.6
15.0
3,50,000 11.4
9.1
3,00,000 10.0
2,50,000 4.4
3.1 5.0
2,00,000 0.1
1,50,000 0.0
1,00,000
-8.4 -5.0
50,000
0 -10.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
Revenue YoY growth (RHS)
Hero MotoCorp
Exhibit 41: Earnings trend
(INR Mn) (%)
45,000 30.0
24.4
40,000 20.5 25.0
35,000 20.0
30,000 12.4 15.0
9.5 10.8
25,000 6.9 10.0
20,000 5.0
15,000 -2.6 0.0
10,000 -8.5 -5.0
5,000 -10.0
0 -15.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
PAT YoY growth (RHS)
Exhibit 42: We expect margins to expand in FY22E

18.0
17.0 16.3 16.4
15.7
16.0
14.7
15.0 14.3 14.0
13.8
14.0
12.8
13.0
12.0
11.0
10.0
9.0
8.0
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
EBITDA Margin (%)
Valuation
We believe that Volume and margin decline in FY20E are priced in the stock as it has declined by ~7% in the
last 1 year vs ~4% decline in TVS Motor and 18% rise in Bajaj Auto. The latter two have done better due to
their diverse product portfolios and exports. We believe the current market price offers a good entry point as
we expect demand recovery, owing to reasons mentioned above. We have re-initiated coverage on Hero
MotoCorp with a one-year target price of Rs3107, up 26.6% from the current market price. Our target price is
based on 16x Sep 21E EPS of Rs185. The stock currently trades at 13x Sep 21E EPS earnings i.e. at a
discount to its long-term average P/E of 17x.
Hero MotoCorp
Risks to our rating

If the industry revival takes longer than we expect then there is a risk to our volume growth
estimates.
Lower than expected pass-on of BS-VI cost increase would result in lower margins and lower
earnings growth than our estimates.
Lower agricultural output and lower growth in farm income posts a risk to our expectation of
Motorcycle demand recovery
Hero MotoCorp
Financials
Exhibit 44: Income statement Exhibit 45: Cash flow
Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E
Net Sales 3,22,305 3,36,505 3,08,352 3,50,407 3,90,299 OP/(loss) before tax 47,246 43,281 36,418 40,453 45,799
% Growth 13.2 4.4 (8.4) 13.6 11.4 Depreciation & amortization 5,556 6,020 7,676 7,903 8,843
Raw material 2,18,346 2,33,177 2,11,529 2,42,482 2,70,087 Other income 5,258 6,913 7,691 8,433 9,176
Staff costs 15,401 17,302 18,193 20,324 22,247 (Inc.)/dec. in working capital (27) (24,871) (702) (964) (3,568)
Selling & distribution 8,377 8,042 7,709 8,410 9,367 Direct taxes paid (14,495) (16,010) (11,086) (12,286) (13,812)
Other expenses 27,379 28,683 26,827 30,836 33,956 Extra-ordinary Items 0 0 0 0 0
Total expenses 2,69,503 2,87,205 2,64,257 3,02,051 3,35,657 Cash flow from operations (after
43,539 15,333 39,998 43,040 45,938
EBITDA 52,802 49,301 44,094 48,356 54,642 E/O)
% Growth 13.9 (6.6) (10.6) 9.7 13.0 Capital expenditure (-) (6,679) (7,895) (14,000) (14,000) (10,500)
EBITDA margin (%) 16.4 14.7 14.3 13.8 14.0 Net cash after capex 36,860 7,438 25,998 29,040 35,438
Other income 5,258 6,913 7,691 8,433 9,176 Other investing activites (16,354) 15,566 (7,500) (11,000) (15,500)
Interest costs 63 86 67 75 100 Dividends paid (-) (18,972) (17,378) (17,378) (17,378) (18,976)
Depreciation 5,556 6,020 7,676 7,903 8,843 Inc./(dec.) in total borrowings (63) (86) (67) (75) (100)
Profit before tax (before Others (1,426) (5,588) 0 0 (0)
52,442 50,107 44,043 48,811 54,875
exceptional items) Cash from financial activities (20,460) (23,052) (17,445) (17,453) (19,076)
Exceptional items 0 0 0 0 0
Opening cash balance 1,367 1,413 1,365 2,417 3,503
Tax 15,468 16,259 11,086 12,286 13,812
Closing cash balance 1,413 1,364 2,417 3,003 4,365
Adj PAT 36,974 33,849 32,957 36,525 41,063
Change in cash balance 46 (49) 1,052 586 861
% Growth 9.5 (8.5) (2.6) 10.8 12.4
Adj PAT margin (%) 11.5 10.1 10.7 10.4 10.5
EPS (Rs) 185.1 169.5 165.0 182.9 205.6
% Growth 9.5 (8.5) (2.6) 10.8 12.4 Exhibit 47:Key ratios
DPS (Rs) 95.0 87.0 87.0 87.0 95.0 Y/E March FY18 FY19 FY20E FY21E FY22E
Payout (incl. div. tax) (%) 60.0 60.1 61.7 55.7 54.1
Per share (Rs)
Source: Company, Nirmal Bang Institutional Equities Research EPS 185.1 169.5 165.0 182.9 205.6
Exhibit 46: Balance sheet EPS Growth (%) 9.5 (8.5) (2.6) 10.8 12.4
Cash EPS 213.0 199.6 203.4 222.4 249.8
Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E
Book value per share 589.3 643.7 721.7 817.5 928.1
Share capital 399 400 400 400 400
DPS 95.0 87.0 87.0 87.0 95.0
Reserves 1,17,289 1,28,172 1,43,751 1,62,898 1,84,984
Payout (incl. div. tax) % 60.0 60.1 61.7 55.7 54.1
Net worth 1,17,689 1,28,571 1,44,150 1,63,297 1,85,384
Valuation (x)
Total debt - - - - -
Deferred tax liability 5,117 5,365 5,365 5,365 5,365 P/E 13.3 14.5 14.9 13.4 11.9
Capital employed 1,22,805 1,33,936 1,49,515 1,68,662 1,90,749 Cash P/E 11.5 12.3 12.1 11.0 9.8
Gross block 74,051 78,538 92,038 1,05,538 1,15,538 EV/Sales 1.3 1.3 1.4 1.2 1.0
Depreciation 29,193 33,763 41,438 49,341 58,184 EV/EBITDA 7.8 8.7 9.5 8.5 7.2
Net block 44,859 44,775 50,599 56,196 57,353 P/BV 4.2 3.8 3.4 3.0 2.6
Capital work-in-progress 2,038 3,607 3,607 3,607 3,607 Dividend yield (%) 3.9 3.5 3.5 3.5 3.9
Intangibles 2,833 3,222 3,722 4,222 4,722 Return ratios (%)
Investments 75,252 59,686 67,186 78,186 93,686 RoCE 42.8 37.5 29.5 29.0 28.8
Inventories 8,236 10,724 9,827 11,167 11,762 RoE 31.4 26.3 22.9 22.4 22.2
Debtors 15,202 28,216 25,344 26,881 32,079 Profitability ratios (%)
Cash 1,413 1,365 2,417 3,503 4,865 EBITDA margin 16.4 14.7 14.3 13.8 14.0
Loans & advances 732 850 779 885 986 PAT margin 11.5 10.1 10.7 10.4 10.5
Other current assets 16,823 23,968 24,447 25,669 27,723 Turnover ratios
Total current assets 42,407 65,121 62,813 68,105 77,415 Debtors (days) 17 31 30 28 30
Creditors 33,188 33,553 30,746 34,939 39,565 Inventory (days) 9 12 12 12 11
Other current liabilities & provisions 11,395 8,923 7,667 6,715 6,470 Creditors (days) 38 36 36 36 37
Total current liabilities 44,583 42,476 38,413 41,654 46,035 Asset turnover (x) 2.6 2.5 2.1 2.1 2.0
Net current assets -2,176 22,646 24,401 26,451 31,380 Leverage Ratio
Application of funds 1,22,805 1,33,936 1,49,515 1,68,662 1,90,749 Debt/equity (x) 0.0 0.0 0.0 0.0 0.0
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Hero MotoCorp
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Hero MotoCorp
Bajaj Auto
28 January 2020
Reuters: BAJA.BO; Bloomberg: BJAUT IN
Firing on all cylinders, but expensive ACCUMULATE

Bajaj Auto’s share price is up 18% in the last one year on the back of strong export sales.
Exports are up 6% YoY in the last 12 months and the outlook continues to be in favour of Sector: Automobile
sustainable demand. In domestic market also, Bajaj Auto has outperformed the
CMP: Rs3,079
motorcycle industry with 13.3% YoY decline YTDFY20 and a market share gain of 40bps
in the same period. We like Bajaj Auto’s strategy to sustain in a slowing demand Target Price: Rs3,195
environment by introducing stripped-down and lower priced variants of it key models.
This has worked for the company in the last 18 months. Going forward, we see good Upside: 4%
traction in the Pulsar range with increase in demand of 125cc variant that fits in our
Anish Rankawat
down-trading theme post BS-VI price increases. In three wheelers, Bajaj Auto has a
leading share and has maintained its market share YTDFY20 at 57%. We value the core Research Analyst
business at 17x Sept 21 core EPS, which comes to Rs2,232. We add cash/share of Rs757 anish.rankawat@nirmalbang.com
and KTM investment of Rs205 per share to arrive at a target price (TP) of Rs3,195. We re- +91 22 6273 8172
initiate with Accumulate rating.
Ronak Mehta
Export markets looking strong: Bajaj Auto is the largest exporter of 2Ws and 3Ws in India with a
share of 52.8% and 59.9%, respectively YTDFY20. This is mainly because of early entry into markets
Research Associate
like Africa and South America with an aggressive pricing strategy. Today, it exports to over 79 ronak.mehta@nirmalbang.com
countries in Latin America, Africa, South Asia, the Middle East, Asia Pacific and Europe. 2W export +91 22 6273 8176
sales have been good in the last couple of years on the back of very strong growth in Africa, as large
economies like Nigeria and the Democratic Republic of Congo continued to show good demand. In
Key Data
3Ws, continued recovery in large, traditional markets such as Nigeria has helped sales lately.
However, in FY20 sales have been affected in Egypt due to regulatory changes around registrations, Current Shares O/S (mn) 289.4
reducing the monthly run-rate from highs of 8,000 units to 3,000 units in the last few months. Bajaj Mkt Cap (Rsbn/US$bn) 898.4/12.6
Auto had entered these new markets over the last four years which grew by 73% in FY19 compared
52 Wk H / L (Rs) 3,290/2,400
to the overall growth of three-wheelers and quadricycle exports of 43%.
Domestic market strategy in place: In the domestic 2W market, Bajaj Auto focuses on the entry Daily Vol. (3M NSE Avg.) 368,575
segment with its CT and Platina models and in the premium segment with the Pulsar range. In the
economy segment, CT100 has a market share of around 20% in YTDFY20. It was launched in FY15
and is the cheapest motorcycle available. In the premium segment, the Pulsar range dominates the Share holding (%) 3QFY20 2QFY20 1QFY20
segment with a 45% market share in the 125-250cc range in YTDFY20. Bajaj Auto dominates the Promoter 53.5 53.5 53.5
domestic 3W segment with a 57.2% share YTDFY20. In the last 10 years, Bajaj Auto’s sales have
Public 46.5 46.5 46.5
grown at 11.3% CAGR vs industry growth of 7.2%, mainly driven by higher share and higher growth
in passenger segment. Bajaj Auto has a 63.2% share in the segment in YTDFY20. Others - - -
Valuation: We see down-trading happening in a rising cost scenario and hence more of Pulsar 125,
CT and Platina will be in demand. As a result, we expect margin pressure in FY21 and then recovery
One-Year Indexed Stock Performance
in FY22 with scale. For FY19-22, we expect 3% CAGR in volume, 5% CAGR in ASP and 10% CAGR
in PAT. We expect margins of 16.4%/16.1%/16.4% in FY20/21/22. We value the core business at its 130
long term average one year forward PER of 17x on Sept 21 core EPS, which comes to Rs2,232. We 120
add cash/share of Rs757 and KTM investment of Rs205 per share to arrive at a target price (TP) of 110
Rs3,195. We re-initiate with Accumulate rating.
100
Net Sales 2,54,239 3,05,396 3,08,555 3,48,533 3,84,014
80
% Growth 15.4 20.1 1.0 13.0 10.2 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20
EBITDA 50,424 52,717 50,512 55,959 62,790 BAJAJ AUTO LTD Nifty 50
EBITDA margin (%) 19.8 17.3 16.4 16.1 16.4

Adj PAT 41,001 43,332 46,912 51,859 57,991
EPS (Rs) 141.7 149.7 162.1 179.2 200.4 Price Performance (%)
EPS growth (%) 7.1 5.7 8.3 10.5 11.8 1M 6M 1 Yr
P/E (x) 21.7 20.6 19.0 17.2 15.4
EV/Sales (x) 2.9 2.3 2.2 1.9 1.6 Bajaj Auto (4.2) 18.6 18.2
EV/EBITDA (x) 14.0 13.1 13.2 11.4 9.6 Nifty Index (0.5) 8.0 13.1
P/BV 4.7 4.1 3.6 3.2 2.8
Dividend yield (%) 1.9 1.9 2.1 2.3 2.4 Source: Bloomberg
RoCE (%) 29.9 28.5 24.9 24.5 24.2
RoE (%) 21.5 19.9 19.1 18.7 18.5
Bajaj Auto’s share price is up 18% in the last one year on the back of strong export sales. Exports are up 6%
YoY in the last 12 months and the outlook continues to be in favour of sustainable demand. In domestic
market also, Bajaj Auto has outperformed the motorcycle industry with 13.3% YoY decline YTDFY20 and a
market share gain of 40bps in the same period. We like Bajaj Auto’s strategy to sustain in a slowing demand
environment by introducing stripped-down and lower priced variants of it key models. This has worked for the
company in the last 18 months. Going forward, we see good traction in the Pulsar range with increase in
demand of 125cc variant that fits in our down-trading theme post BS-VI price increases. In three wheelers,
Bajaj Auto has a leading share and has maintained its market share YTDFY20 at 57%. We value the core
business at 17x Sept 21 core EPS, which comes to Rs2,232. We add cash/share of Rs757 and KTM
investment of Rs205 per share to arrive at a target price (TP) of Rs3,195. We reinitiate with Accumulate rating.
(x)
25
20
15
10
0
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-18
Apr-19
Oct-19
Apr-10
Oct-13
Apr-14
Oct-17
Apr-18
P/E 10Yr Mean 1SD -1SD
Exhibit 49: SOTP valuation of Bajaj Auto

Sept’21E
Bajaj Auto’s Core EPS (Rs/share) 131.3
P/E (x) 17
Bajaj Auto – Core valuation 2,232
Cash per share 757
Bajaj Auto - Standalone 2,989
Investment in KTM 205
Total 3,195
Exhibit 50: Top five institutional shareholders of Bajaj Auto

Name Holding (%)
Norges Bank - Government Pension Fund - Global 1.4
SBI Funds Management Pvt Ltd 1.1
Vanguard Group 1.1
Black Rock Inc 1.0
Source: Bloomberg

Company
Hero MotoCorp 6.7 22.9 22.4 22.2 14.9 13.4 11.9 9.5 8.5 7.2
Bajaj Auto 10.2 19.1 18.7 18.5 19.0 17.2 15.4 13.2 11.4 9.6
TVS Motors 11.1 19.2 17.7 18.2 29.7 28.2 24.0 13.7 12.5 10.7
Bajaj Auto
Investment Rationale
Exports story
Bajaj Auto is the largest exporter of 2Ws and 3Ws in India with a share of 52.8% and 59.9%, respectively
YTDFY20. This is mainly because of early entry into markets like Africa and South America with an aggressive
pricing strategy. Today, it exports to over 79 countries in Latin America, Africa, South Asia, the Middle East,
Asia Pacific and Europe.
Exhibit 52: Bajaj Auto export volume trend

(in 000's) (%)
2,500 100
75.7
80
2,000
60
40.7
1,500 35.1 31.2
24.9 24.9 40
15.3 14.0 17.8
1,000 3.7 20
-2.1 2.4
-3.7
0
-18.9
500
-20
0 -40
YTDFY20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Bajaj Auto - Export volume YoY growth (RHS)
2W Exports sales have been good in the last couple of years on the back of very strong growth in Africa, as
large economies like Nigeria and the Democratic Republic of Congo continued to show good demand. Bajaj
Auto entered new markets like Benin in FY19 and continued to enjoy leadership position in Africa. It has a
strong presence in the ASEAN region, driven by growth in the Philippines and in new markets like Malaysia.
Also, growth in South Asia and the Middle East was driven by recovery in Egypt and impressive economic
growth in Bangladesh. The company is seeing stable volume in Latin America despite economic turmoil in
Argentina and some political and trade uncertainties in Mexico.
Exhibit 53: 2W exports remain strong

(in 000's) (%)
1,800 70.8 80
1,600 61.3 70
60
1,400
50
1,200 31.4 33.9 30.4 40
1,000 21.6 30
14.6 15.0 14.5
800 8.8 20
2.0 2.3 10
600 -4.1
0
400 -16.5 -10
200 -20
0 -30
YTDFY20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Bajaj Auto - 2W export volume YoY growth (RHS)
Bajaj Auto
Exhibit 54: Bajaj Auto export market share – 2Ws
80.0
70.0 66.1
63.1 63.7 63.5 64.2 63.5 61.9
58.8 58.8
60.0
52.1 51.7 52.8
48.2 49.5
50.0
40.0
30.0
20.0
10.0
YTDFY20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Bajaj Auto - 2W export market share (%)
In 3Ws, continued recovery in large, traditional markets such as Nigeria has helped sales lately. Although in
FY20 sales have been impacted in Egypt due to regulatory changes around registrations, reducing the
monthly run-rate from the high of 8000 units to 3000 units in the last few months. It didn’t export to Egypt in 6
out of 9 months in FY20 due to this issue. Bajaj Auto witnessed strong growth in new markets, especially
Cambodia, Iraq, Myanmar and Nepal. Bajaj Auto has entered these new markets over the last four years,
which grew by 73% in FY19 compared to the overall growth of three-wheelers and quadricycle exports of
43%.
Exhibit 55: 3W exports decline in FY20 is due to regulation change in Egypt

(in 000's) (%)
400 86.9 100
350 80
300
60
250
40.2
35.0 39.2 42.3
40
200 18.6
9.2 20
150 2.0 2.7 -1.7
-3.1
0
100 -18.7 -19.3
50 -31.7 -20
0 -40
YTDFY20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Bajaj Auto - 3W export volume YoY growth (%)
Bajaj Auto
Exhibit 56: Bajaj Auto’s export market share – 3Ws
120.0
97.8 96.5
100.0 93.9 95.2
85.7 86.3 83.8
80.0 73.8
69.9 69.2 70.3 69.9 66.7
59.9
60.0
40.0
20.0
YTDFY20
FY07
FY09
FY11
FY13
FY15
FY17
FY19
FY08
FY10
FY12
FY14
FY16
FY18
Bajaj Auto - 3W export market share (%)
Domestic market
Motorcycles - Fighting back to regain lost share
In the domestic 2W market, Bajaj Auto focuses on the entry segment with its CT and Platina models and in the
premium segment with the Pulsar range. In the economy segment, CT100 has a market share of around 20%
in FY20. It was launched in FY15 and is the cheapest motorcycle available. In the premium segment, the
Pulsar range dominates the segment with a 45% market share in 125-250cc range in FY20. The range is
popular for its sporty looks and performance.
Exhibit 57: Bajaj Auto’s domestic 2W market share trend

40.0
35.0 31.8
28.7
30.0 26.8
25.5 24.4
24.3
25.0 21.9
20.0
17.7 18.0 18.7 18.7
20.0 16.5 15.6
15.0
10.0
5.0
-
YTDFY20
FY08
FY09
FY10
FY12
FY13
FY14
FY16
FY17
FY18
FY07
FY11
FY15
FY19
Bajaj Auto - Domestic motorcycle market share (%)
Bajaj Auto
Exhibit 58: CT100 market share trend
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
-
Aug-15
Aug-18
Aug-19
Aug-16
Aug-17
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Feb-19
Feb-16
Feb-17
Feb-18
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
CT100 - market share in Economy segment (%)
Exhibit 59: Pulsar market share

70.0
60.0
50.0
40.0
30.0
20.0
10.0
-
Aug-15
Aug-18
Aug-19
Aug-16
Aug-17
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Feb-19
Feb-16
Feb-17
Feb-18
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Pulsar - market share in >125 cc-<250 cc segment (%)
Bajaj Auto
Three Wheelers – Strong hold
Bajaj Auto dominates the domestic the 3W segment with a 57.2% share YTDFY20. In the last 10 years, Bajaj
Auto sales have grown at 11.3% CAGR vs industry growth of 7.2%, mainly driven by higher share and higher
growth in the passenger segment. Bajaj Auto has 63.2% share in this segment in FY20.
Although in FY20 sales have been impacted in Egypt due to regulatory changes around registrations, reducing
the monthly run-rate from the high of 8000 units to 3000 units in the last few months. It didn’t export to Egypt
in 6 out of 9 months in FY20 due to this issue. Bajaj expects sales to be better from here on.
Exhibit 60: 3W sales trend

(in 000's) (%)
900 43.1 50
800 40
700 28.1
24.2 22.3 30
600
17.9 16.0
500 20
400 3.1 10
300
-5.4 -6.8 -6.7 0
200 -10.8
100 -16.9 -10
0 -20
YTDFY20
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Bajaj Auto - 3W volume YoY growth (RHS)
Exhibit 61: Bajaj Auto dominates the 3W market

80.0
70.0 62.5 61.3

58.9 57.1 56.8 56.7 58.4
60.0 55.1 55.6 54.9 53.7 55.2
50.0
40.0
30.0
20.0
10.0
-
YTDFY20
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY14
Bajaj Auto - 3W total market share (%)
Bajaj Auto
Exhibit 62: 3W Dominance led by passenger segment
80.0
68.5
70.0 66.2 64.3 64.2 65.7
63.6 63.1 62.3 62.0 63.3 61.8
60.7
60.0
50.0
40.0
30.0
20.0
10.0
YTDFY20
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY14
Bajaj Auto - Passenger 3W market share (%)
Electric Scooter – Chetak

Bajaj Auto launched electric Chetak recently starting at Rs100k, ex-showroom after subsidies. The on road
price could be around Rs108-110k. With this, Bajaj Auto has become the first mainstream 2W manufacturer in
India to launch an electric 2W. Chetak is powered by a 3kWh battery with a range of 95+kms and a full charge
time of 5hrs. Bajaj Auto will provide a complimentary charger with the vehicle. The scooter comes with a
3yr/50,000kms warranty, 3 free services and one year free subscription of internet data that will allow users to
access the scooter’s charge status, location and remaining range via the mobile phone application. Service
requirement is once per year/12,000 kms.
Why we think EVs like Chetak can have good acceptance in India
Firstly, post BS-VI price increase, the on road price of scooters like Vespa and Aprillia have passed the
Rs100k mark. About 65,000 of these scooters were sold in the last 1 year. Similarly, the price of Suzuki
Burgman (~85,000 sales in the last 1 year) would be around Rs90k post the BS-VI transition. All these could
potentially be converted to EVs like Bajaj Chetak.
Secondly, there is a significant amount of savings that comes with E2W in the form of running cost. Assuming
usage of 20 kms a day, 5 days a week there is a potential saving of Rs12,000-15,000 per year just on fuel. So,
over the life of the battery, as claimed by Bajaj Auto, one can save Rs100 on fuel. Net saving could be about
Rs50k, assuming the rest is used to replace the battery. We’ve not considered the savings on service cost due
to lack of details.
That said, aspects like performance, durability, resale value are yet to be known.
Bajaj Auto
Financials
Bajaj Auto’s volume growth in the last 5 years has been 7.7% CAGR, which we believe will not come soon as
we see BS-VI cost increase weighing on demand in FY21. Hence, we expect volume to be under pressure in
1HFY21 and then gradually recover over a low base amid an expected rural recovery. We see down-trading
happening in a rising cost scenario and hence more of Pulsar 125, CT and Platinas will be in demand. As a
result, we expect margin pressure in FY21 and then a recovery in FY22 with scale. For FY19-22, we expect
3% CAGR volume increase, 5% ASP growth and 10% CAGR PAT growth. We expect margins of
16.4%/16.1%/16.4% in FY20/21/22.
Exhibit 63: Segmental volume trend

Volume Summary FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Total Volume 38,11,201 38,93,247 36,64,394 40,05,186 50,14,476 47,65,492 50,19,645 54,04,215
YoY growth (%) -1.5 2.2 -5.9 9.3 25.2 -5.0 5.3 7.7
Domestic volumes 20,05,123 21,53,952 22,54,617 23,44,214 29,40,146 25,89,729 26,63,546 28,19,408
YoY growth (%) -12.3 7.4 4.7 4.0 25.4 -11.9 2.9 5.9
% of total 52.6 55.3 61.5 58.5 58.6 54.3 53.1 52.2
Two wheelers 17,70,778 18,98,957 20,01,391 19,74,577 25,41,320 22,02,327 22,68,397 24,04,501
YoY growth (%) -15.6 7.2 5.4 -1.3 28.7 -13.3 3.0 6.0
Three wheelers 2,34,345 2,54,995 2,53,226 3,69,637 3,98,826 3,87,401 3,95,149 4,14,907
YoY growth (%) 25.4 8.8 -0.7 46.0 7.9 -2.9 2.0 5.0
Export volumes 18,06,078 17,39,295 14,09,777 16,60,972 20,74,330 21,75,764 23,56,098 25,84,807
YoY growth (%) 14.0 -3.7 -18.9 17.8 24.9 4.9 8.3 9.7
% of total 47.4 44.7 38.5 41.5 41.4 45.7 46.9 47.8
Two wheelers 15,21,306 14,59,295 12,18,541 13,94,757 16,95,553 18,62,081 20,11,048 22,12,153
YoY growth (%) 15.0 -4.1 -16.5 14.5 21.6 9.8 8.0 10.0
Three wheelers 2,84,772 2,80,000 1,91,236 2,66,215 3,78,777 3,13,682 3,45,050 3,72,655
YoY growth (%) 9.2 -1.7 -31.7 39.2 42.3 -17.2 10.0 8.0
Exhibit 64: Revenue trend and estimates

(INR Mn) (%)
4,50,000 25.0
20.1
4,00,000
20.0
3,50,000 15.4
3,00,000 13.0 15.0
10.2
2,50,000
7.2 10.0
2,00,000
4.3
1,50,000 5.0
1.0
1,00,000
-3.2 0.0
50,000
0 -5.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
Bajaj Auto
Exhibit 65: We expect the declining EBITDA margin trend to arrest in FY22E
24.0
21.8
21.3
22.0 20.3 19.8
20.0
17.3
18.0 16.4 16.4
16.1
16.0
14.0
12.0
10.0
8.0
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
EBITDA Margin (%)
Exhibit 66: We expect a steady earnings growth in FY19-22E

(INR Mn) (%)
70,000 25.6 30.0
60,000 25.0
20.0
50,000
10.5 11.8 15.0
40,000 8.3
7.1 10.0
5.7
30,000
5.0
20,000 -2.6 0.0
-5.8
10,000 -5.0
0 -10.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
Valuation
We value the core business at 17x Sept 21 core EPS, which comes to Rs2,124. We add cash/share of Rs778
and KTM investment of Rs205 per share to arrive at a target price (TP) of Rs3,107. Out target multiple is
based on Bajaj’s long term average one year forward PER. We maintain our Accumulate rating.
Exhibit 67: SOTP valuation of Bajaj Auto
Sept’21E
Bajaj Auto’s Core EPS (Rs/share) 131.3
P/E (x) 17
Bajaj Auto – Core valuation 2,232
Cash per share 757
Bajaj Auto - Standalone 2,989
Investment in KTM 205
Total 3,195
Bajaj Auto
Risks to our rating
If the industry revival takes longer/ shorter time than we expect then there is a risk to our volume
growth estimates.
Overwhelming response to the new Electric Chetak will be a risk to our ratings as we haven’t
incorporated any assumptions around the model.
Any stress in the company’s export geographies could lead to lower volumes.
Bajaj Auto
Financials (standalone)
% Growth 15.4 20.1 1.0 13.0 10.2 Depreciation & amortization 3,148 2,657 2,486 2,881 3,155
Raw material 1,74,101 2,18,243 2,18,457 2,48,155 2,72,650 Other income 10,883 13,597 14,573 16,123 17,736
Staff costs 10,691 12,554 13,885 15,684 16,897 (Inc.)/dec. in working capital 11,663 (13,023) (1,808) (1,812) (1,477)
Other expenses 13,581 16,210 17,646 19,965 21,255 Extra-ordinary Items (320) 3,420 0 0 0
Total expenses 2,03,815 2,52,679 2,58,043 2,92,574 3,21,224 Cash flow from operations (after
55,603 38,623 47,640 52,983 59,719
EBITDA 50,424 52,717 50,512 55,959 62,790 E/O)
Capital expenditure (-) (2,056) (1,428) (4,480) (4,480) (2,500)
% Growth 7.7 4.5 (4.2) 10.8 12.2
EBITDA margin (%) 19.8 17.3 16.4 16.1 16.4 Net cash after capex 53,547 37,195 43,160 48,503 57,219
Other income 10,883 13,597 14,573 16,123 17,736 Other investing activites (28,568) (15,711) (30,000) (30,000) (30,000)
Interest costs 13 45 50 55 50 Dividends paid (-) (19,966) (19,966) (21,630) (23,293) (24,957)
Depreciation 3,148 2,657 2,486 2,881 3,155 Inc./(dec.) in total borrowings (13) (45) (50) (55) (50)
Profit before tax (before Others (18) (26) 2,821 3,038 3,255
58,146 63,612 62,549 69,146 77,321
exceptional items) Cash from financial activities (19,997) (20,036) (18,858) (20,310) (21,752)
Exceptional items (320) 3,420 0 0 0 Opening cash balance 2,798 7,780 9,228 3,529 1,722
Tax 17,145 20,280 15,637 17,286 19,330 Closing cash balance 7,780 9,228 3,529 1,722 7,189
Adj PAT 41,001 43,332 46,912 51,859 57,991
Change in cash balance 4,982 1,448 (5,699) (1,807) 5,467
% Growth 7.1 5.7 8.3 10.5 11.8
Adj PAT margin (%) 16.1 14.2 15.2 14.9 15.1
EPS (Rs) 141.7 149.7 162.1 179.2 200.4
% Growth 7.1 5.7 8.3 10.5 11.8 Exhibit 71: Key ratios
Payout (incl. div. tax) (%) 49.1 42.7 46.1 44.9 43.0 Per share (Rs)
EPS Growth (%) 7.1 5.7 8.3 10.5 11.8
Exhibit 70: Balance sheet
Cash EPS 152.6 158.9 170.7 189.2 211.3
Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E
Book value per share 660.2 752.7 849.8 959.0 1,084.4
Share capital 2,894 2,894 2,894 2,894 2,894 DPS 60.0 60.0 65.0 70.0 75.0
Reserves 1,88,145 2,14,905 2,43,009 2,74,613 3,10,902
Payout (incl. div. tax) % 49.1 42.7 46.1 44.9 43.0
Net worth 1,91,039 2,17,799 2,45,902 2,77,506 3,13,795
Valuation (x)
Total debt 0 0 0 0 0 P/E 21.7 20.6 19.0 17.2 15.4
Deferred tax liability 3,234 5,427 5,427 5,427 5,427
Cash P/E 20.2 19.4 18.0 16.3 14.6
Capital employed 1,94,273 2,23,226 2,51,329 2,82,933 3,19,222
EV/Sales 2.9 2.3 2.2 1.9 1.6
Gross block 46,527 42,956 47,437 51,917 54,397 EV/EBITDA 14.0 13.1 13.2 11.4 9.6
Depreciation 27,744 25,317 27,803 30,684 33,839
P/BV 4.7 4.1 3.6 3.2 2.8
Net block 18,783 17,639 19,634 21,233 20,558
Dividend yield (%) 1.9 1.9 2.1 2.3 2.4
Capital work-in-progress 565 480 480 480 500 Return ratios (%)
Investments 1,75,883 1,91,594 2,21,594 2,51,594 2,81,594
RoCE 29.9 28.5 24.9 24.5 24.2
Inventories 7,426 9,615 9,702 10,969 12,104
RoE 21.5 19.9 19.1 18.7 18.5
Cash 7,780 9,228 3,529 1,722 7,189
EBITDA margin 19.8 17.3 16.4 16.1 16.4
Loans & advances 369 380 437 502 577
Adj PAT margin 16.1 14.2 15.2 14.9 15.1
Total current assets 42,964 64,091 61,658 67,880 81,813
Debtors (days) 22 32 32 32 32
Creditors 32,443 37,867 38,210 43,199 47,930
Inventory (days) 11 12 12 12 12
Other current liabilities &
11,479 12,711 13,827 15,054 17,313 Creditors (days) 48 47 47 47 47
provisions
Net current assets (958) 13,512 9,621 9,626 16,570 Leverage Ratio
Application of funds 1,94,273 2,23,226 2,51,329 2,82,933 3,19,222 Debt/equity (x) 0.0 0.0 0.0 0.0 0.0
Bajaj Auto
TVS Motor Company

28 January 2020
Reuters: TVSM.BO; Bloomberg: TVSL IN

Risk-reward unfavorable, BS-VI to increase challenges SELL
TVS Motor underperformed the domestic 2W industry YTDFY20 with a decline of 18.2%
YoY vs. industry decline of 15.8% YoY, mainly due to 25% decline in mopeds and 20%
Sector: Automobile
decline in motorcycles. Scooter sales declined by 12.2% YoY vs. industry decline of CMP: Rs465
16.2% YoY. Moped sales decline is a victim of stress in the rural economy and
competitive pricing by Bajaj Auto in CT100 models which are cheaper than mopeds Target Price: Rs394
now. In motorcycles, limited offering in 125cc segment is taking the share away from
TVS Motor. In scooters, TVS has outperformed the industry but the industry is Downside: 15%
stagnated and we expect conversion of scooters to electric gradually, which is an Anish Rankawat
overhang on the segment. We expect -1.9% CAGR in total volume mainly on account of
Research Analyst
-15% CAGR in Mopeds volume, 6% CAGR in revenue and 11.1% CAGR in PAT over
FY19-22. At current valuation of 25.9x Sep 21E EPS, we believe that risk reward is
anish.rankawat@nirmalbang.com
highly unfavorable given it’s lower than industry margin. We reinitiate the coverage +91 22 6273 8172
with SELL with target price of Rs394 which is in-line with its long-term average. Ronak Mehta
Mopeds and commuter motorcycles have been a drag on volume: Structurally, low-growth Research Associate
segments of commuter motorcycle and mopeds, which contributed volume of ~14% and ~22.5%, ronak.mehta@nirmalbang.com
respectively in the domestic market in FY19, has been a drag on the company’s overall volume
growth. We however note that TVS Motor has been able to maintain its domestic market share in +91 22 6273 8176
the commuter segment on the back of strong market response to Radeon. We believe that
Key Data
domestic motorcycles (led by commuter segment) and mopeds would continue to restrict overall
volume growth for the company and decline by ~3% and ~15%, respectively over FY19-22E given Current Shares O/S (mn) 475.1
the ongoing slowdown (FY20E domestic commuter motorcycle and mopeds volume expected to Mkt Cap (Rsbn/US$bn) 226.2/3.2
decline by ~21% and 25%, respectively). This trend will continue till 1HFY21, especially given the
~13-14% rise in prices due to BS-VI. 52 Wk H / L (Rs) 532/338
Scooters and exports sales remain strong: Over FY14-19, TVS Motor’s scooter volume grew at Daily Vol. (3M NSE Avg.) 1,762,288
a CAGR of 22.1% as against a CAGR of 13.2% in volume of the entire scooter segment on the
back of stable market share of Jupiter and success of Ntorq.
Over FY14-FY19, exports posted a CAGR of 19.3%, led by both 2Ws and 3Ws. TVS Motor has Share holding (%) 3QFY20 2QFY19 1QFY19
consistently grown above industry, which has led to increase in export market share. Exports offer Promoter 57.4 57.4 57.4
strong growth visibility in Africa, Latin America and ASEAN markets, where Bajaj Auto has a strong
presence. We note that 2W export growth has slowed down recently due to slowdown in export Public 42.6 42.6 42.6
economies. We however believe that TVS Motor will continue to report low double digit volume Others - - -
growth in exports over FY19-22E on the back of expansion in newer geographies.
Margin unlikely to reach double-digit anytime soon: Volume mix has been improving in favour
of scooters, premium motorcycles and three-wheelers, which led to an increase in margin by One Year Indexed Stock Performance
190bps to 7.9% in over FY14-19. TVS has been targeting double-digit EBITDA margin and recently 120
undertook various initiatives like to reduce material costs and control fixed costs. Though these 110
measures are sustainable, double-digit margin is unlikely unless higher volume kicks in. 100
Risk-reward unfavorable: At current valuation of 25.9x Sep 21E EPS, we believe that risk reward 90
is highly unfavorable owing to lower volume growth and pressure on. We value it at 22x Sep 21E 80
EPS and initiate with SELL with target price of Rs394 in-line with its long-term average. 70
Net Sales 1,51,297 1,82,099 1,74,130 1,98,323 2,17,978 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20
TVS MOTOR CO LTD Nifty 50
% Growth 24.1 20.4 -4.4 13.9 9.9
EBITDA 11,292 14,333 15,149 16,262 18,528
EBITDA margin (%) 7.5 7.9 8.7 8.2 8.5
PAT 6,626 6,701 7,442 7,839 9,199 Price Performance (%)
EPS (Rs) 13.9 14.1 15.7 16.5 19.4 1M 6M 1 Yr
EPS growth (%) 7.7 1.1 11.1 5.3 17.3
P/E (x) 33.4 33.0 29.7 28.2 24.0 TVS Motor Co. 2.5 26.7 (4.0)
EV/Sales (x) 1.4 1.2 1.2 1.0 0.9 Nifty Index (0.5) 8.0 13.1
EV/EBITDA (x) 18.7 14.7 13.7 12.5 10.7
P/BV 7.7 6.6 5.7 5.0 4.4 Source: Bloomberg
Dividend yield (%) 0.8 0.9 1.0 1.1 1.3
RoCE (%) 23.0 21.1 19.6 19.4 20.8
RoE (%) 23.0 20.0 19.2 17.7 18.2
TVS Motor underperformed the domestic 2W industry YTDFY20 with a decline of 18.2% YoY vs industry
decline of 15.8% YoY, mainly due to 25% decline in mopeds and 20% decline in motorcycles. Scooter sales
declined by 12.2% YoY Vs industry decline of 16.2% YoY. Moped sales decline is a victim of stress in the rural
economy. Scooters and exports have done well. We expect -1.9% CAGR in total volume mainly on account of
-15% CAGR in Mopeds volume, 6% CAGR in revenue and 11.1% CAGR in PAT over FY19-22. At current
valuation of 25.9x Sep 21E EPS, we believe that risk reward is highly unfavorable given it’s lower than industry
margin. We value it at 22x Sep 21E EPS and initiate with SELL with target price of Rs394 in-line with its long-
term average.

(x)
60
50
40
30
20
10
0
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Apr-12
Oct-12
Apr-13
Oct-14
Apr-15
Oct-15
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Oct-19
Oct-11
Oct-13
Apr-14
Apr-16
Apr-19
P/E Mean 1SD -1SD
Exhibit 73: Top five institutional shareholders of TVS Motor

Name Holding (%)
ICICI Prudential Asset Management 7.7
Jwalamukhi Investment Holdings 5.7
Reliance Capital Trustee Co Ltd 3.5
Cartica Capital Ltd 2.0
Source: Bloomberg

Company
Hero MotoCorp 6.7 22.9 22.4 22.2 14.9 13.4 11.9 9.5 8.5 7.2
Bajaj Auto 10.2 19.1 18.7 18.5 19.0 17.2 15.4 13.2 11.4 9.6
TVS Motors 11.1 19.2 17.7 18.2 29.7 28.2 24.0 13.7 12.5 10.7
TVS Motor Company

Investment rationale
Continued market share gains in Scooters & premium motorcycle to offset structurally low
growth segment
TVS Motor has been able to develop two successful brands in the fast growing Scooter (Jupiter) and
Premium Motorcycle (Apache) segments.
Scooters
Over FY14-19, TVS Motor’s scooter volume grew at a CAGR of 22.1% as against CAGR of 13.2% in volume
of the scooter segment on the back of stable market share of Jupiter and success of the newly launched
Ntorq. Launched in Feb’18, Ntorq has been very well received by the market and it has already garnered
4.6% market share in the domestic scooter segment on YTD’20 basis. We note that Ntorq’s sales volume has
been on the rising trend, indicating further market share gains. TVS Motor’s scooter market share grew by
580bps over FY14-19. Honda’s scooter volume grew at a CAGR of ~14% over the same period, resulting in
210bps rise in market share. Hero MotoCorp’s Maestro, Pleasure and Duet have been struggling to maintain
market share against the likes of Activa, Jupiter and new launches like Ntorq, Suzuki Access 125, thus
resulting in a market share loss of 840bps for Hero MotoCorp over FY14-19.
Exhibit 75: Domestic Scooter market share
(%)
70
55.6 55.4 56.9 56.9 54.9 55.7
60 52.8
47.9 48.6
50
40
30
19.4 18.8 19.2 18.5 19.3
16.7 16.3 14.7 16.4
20
10 16.2 14.5 15.1 15.4

12.7 14.1 13.1
10.7
0 7.9
YTD'20
2012
2014
2015
2016
2017
2018
2013
2019
Hero MotoCorp Honda Motorcycle TVS Motors
Source: Crisil, Nirmal Bang Institutional Equities Research
Exhibit 76: Market share – Jupiter Vs Activa Vs Ntorq

(%)
60
49.0 49.2
46.9 45.2
50 44.9
40
30
20
10.7 11.0 12.1 11.8 11.3
10 3.2
0.3 4.8
0
YTDFY20
FY16
FY17
FY18
FY19
Jupiter Activa Ntorq
TVS Motor Company

We however note that though Jupiter now occupies 2nd spot in the domestic scooter segment, huge gap still
exists with the leader – Honda Activa. Thus, it will require continuous brand support and product innovation to
maintain and grow its market share. We expect a marginal de-growth in domestic scooter volume for TVS
Motor over FY19-22E, given the ongoing slowdown (FY20E domestic scooter volume expected to decline by
11%). This trend will continue till 1HFY21, especially given the ~13-14% rise in prices due to BS-VI.
Premium Motorcycles
Apache has emerged as a winner within the premium category with its market share rising 630bps over
FY16-YTD’20 to 26.1%. TVS Motor has extended its leadership position in ‘>150 cc-<200 cc’ segment with
its market share rising by 760bps over FY16-YTD’20 to 48.5%. Strong product performance and quality
together with wide product portfolio have been the key drivers. Bajaj Auto with a strong brand like Pulsar,
KTM and Avenger saw an increase in its category market share by 540bps over the same period to 24.9% on
YTDFY20 basis.
Exhibit 77: Apache has continued to gain market share and outperformed its peers
(%)
30 26.5 25.7
25 21.4
19.9 20.6
20
13.3 14.1 14.2
15 13.1
12.0
10
YTDFY20
FY16
FY17
FY18
FY19
Apache Pulsar
Exhibit 78: TVS motors has increased its dominance in >150 cc-<200cc segment
(%)
60
50.3 49.2 48.5
47.2
50
40.9
40
30 25.2 24.9
19.6 21.4
18.2
20
10
0
YTDFY20
FY16
FY17
FY18
FY19
TVS Motor Bajaj Auto
TVS Motor Company

Commuter motorcycle and mopeds
Structurally, low-growth segments of commuter motorcycle and mopeds, which contributed volume of ~14%
& ~22.5%, respectively in the domestic market in FY19, has been a drag on the company’s overall volume
growth. We however note that TVS Motor has been able to maintain its domestic market share in the
commuter segment on the back of strong market response to Radeon. We believe that domestic motorcycles
(led by commuter segment) and mopeds would continue to restrict overall volume growth for the company
and decline by ~3% and ~15%, respectively over FY19-22E given the ongoing slowdown (FY20E domestic
commuter motorcycle and mopeds volume expected to decline by ~21% and 25%, respectively). This trend
will continue till 1HFY21, especially given the ~13-14% rise in prices due to BS-VI.
Exhibit 79: Mopeds and Commuter motorcycle contributes ~36.5% to volumes (FY19)
Source: Company, Company, Nirmal Bang Institutional Equities Research
Exhibit 80: Mopeds & commuter motorcycle has been a drag & its share continue to decline
TVS Motor Company

Exhibit 81: Hero continues to lead the market in sub-125cc motorcycle segment
(%)
80.0
70.0
65.1
60.0
50.0
40.0
30.0
20.0 14.9
14.9
10.0
4.8
-
FY20E
FY12
FY13
FY14
FY17
FY18
FY19
FY15
FY16
Hero MotoCorp Honda Motorcycle TVS Motors Bajaj Auto
Exhibit 82: Volumes trend of commuter models for TVS

(Nos)
30,000
25,000
20,000
15,000
10,000
5,000
0
Aug-17
Aug-18
Aug-19
Jun-19
Jun-17
Jun-18
Feb-18
Feb-19
Apr-17
Oct-17
Apr-18
Oct-19
Oct-18
Apr-19
Dec-18
Dec-19
Dec-17
Sport STAR CITY Radeon Victor
Exports likely to support volume growth
TVS Motor’s exports grew robustly by 32.7% YoY in FY19 on the back of strong growth in motorcycle and
three-wheeler exports. Over FY14-FY19, exports posted a CAGR of 19.3%, of which three-wheeler & two-
wheeler exports registered a CAGR of 15% & 20%, respectively, over the same period. Exports offer strong
growth visibility in Africa, Latin America and ASEAN markets, where Bajaj Auto has a strong presence. TVS
Motor has consistently grown above industry, which has led to increase in its export market share. We note
that 2W export growth has slowed down recently as most of the economies to which the company exports
are facing slowdown similar to India. We however believe that TVS Motor will continue to report low double
digit volume growth in exports over FY19-22E given that it has also entered newer geographies, which will
continue to drive export volume.
TVS Motor Company

Exhibit 83: 2W exports - TVS has consistently outperformed the industry growth…
Exhibit 84: …which led to consistent gain in export market share for 2W
Exhibit 85: 3W exports –TVS has outperformed the industry growth in most of the years
TVS Motor Company

Exhibit 86: TVS gained market share in 3W export
Margin to expand only in FY22, but unlikely to reach double-digit
Over the years, TVS Motor’s volume mix has been improving in favour of scooters, premium motorcycles and
three-wheelers, which has led to an increase in margin from around 6% in FY14 to 7.9% in FY19. The
company has been targeting double-digit EBITDA margin over the last four years and recently undertook
various initiatives like value engineering, higher localization, alternative sourcing, weight reduction etc to
reduce material costs and control fixed costs including employee costs. These measures are sustainable and
management believes that as higher volume kicks in, these benefits are likely to increase and can aid the
margins further. Though this resulted in margin expansion of 190bps to 7.9% in FY19, it is still significantly
below margin of Hero and Bajaj.
Exhibit 87: Other expense as a % of sales for TVS Vs Hero and Bajaj
TVS Motor Company

Exhibit 88: RM costs as a % of sales for TVS Vs Hero and Bajaj
We believe that though improvement in mix towards scooters, premium motorcycle and three-wheelers
segment would support the margin expansion, continued pressure on volume growth in commuter motorcycle
and mopeds (forms over 1/3rd of volume but faces high competitive intensity & lacks pricing power), given
~13-14% increase in price due to BS-VI, would impact margin in FY21. We expect ~50bps decline in EBITDA
margin in FY21 followed by 30bps expansion to 8.5% in FY22.
Exhibit 89: BSVI models launched so far

Model BS-IV Price BS-VI Price Difference % difference
TVS Apache RTR 160 4V 92,306 99,950 7,644 8.3%
TVS Apache RTR 200 4V 1,11,845 1,24,000 12,155 10.9%
TVS Jupiter Classic SBT 59,990 67,911 7,921 13.2%
Exhibit 90: Though margins have expanded over the years, it is still below peers
9.0 8.7
8.5
8.5 8.2
7.9
8.0 7.5 7.5
7.3
7.5
7.0 6.6
6.5 6.0 6.0
5.8
6.0
5.5
5.0
4.5
4.0
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
EBITDA Margin (%)
TVS Motor Company

Financials and valuation
TVS Motor underperformed the domestic 2W industry YTDFY20 with a decline of 18.3% YoY vs industry
decline of 15.8% YoY, mainly due to 25% decline in mopeds and 20% decline in motorcycles. Scooter sales
declined by 12.2% YoY Vs industry decline of 16.2% YoY. Moped sales decline is a victim of stress in the
rural economy. Scooters and exports have done well. We expect -1.9% CAGR in total volume mainly on
account of -15% CAGR in Mopeds volume, 6% CAGR in revenue and 11.1% CAGR in PAT over FY19-22. At
current valuation of 25.9x Sep 21E EPS, we believe that risk reward is highly unfavorable given it’s lower
than industry margin. We value it at 22x Sep 21E EPS and initiate with SELL with target price of Rs394 in-
line with its long-term average.
Exhibit 91: Segmental volume summary

Volume FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Total Volume 25,41,146 26,78,702 29,23,139 34,66,110 39,12,930 34,45,706 35,25,305 36,97,269
YoY growth (%) 22.2 5.4 9.1 18.6 12.9 -11.9 2.3 4.9
Domestic
21,25,302 22,24,902 25,02,050 28,91,895 31,51,192 25,89,102 25,88,227 26,68,610
volumes
YoY growth (%) 20.4 4.7 12.5 15.6 9.0 -17.8 -0.0 3.1
% of total 83.6 83.1 85.6 83.4 80.5 75.1 73.4 72.2
Motorcycle 6,67,624 7,12,002 7,73,115 9,16,811 10,12,868 8,10,899 8,55,441 9,24,294
YoY growth (%) 16.6 6.6 8.6 18.6 10.5 -19.9 5.5 8.0
Scooters 6,84,569 7,73,597 8,26,291 10,99,135 12,41,366 11,04,816 11,37,960 11,94,858
YoY growth (%) 49.8 13.0 6.8 33.0 12.9 -11.0 3.0 5.0
Mopeds 7,55,503 7,23,767 8,90,367 8,59,520 8,80,243 6,60,182 5,80,960 5,34,484
YoY growth (%) 4.5 -4.2 23.0 -3.5 2.4 -25.0 -12.0 -8.0
Three wheelers 17,606 15,536 12,277 16,429 16,715 13,205 13,865 14,974
YoY growth (%) 40.7 -11.8 -21.0 33.8 1.7 -21.0 5.0 8.0
Export volumes 4,15,844 4,53,800 4,21,089 5,74,215 7,61,738 8,56,604 9,37,078 10,28,659
YoY growth (%) 32.0 9.1 -7.2 36.4 32.7 12.5 9.4 9.8
% of total 16.4 16.9 14.4 16.6 19.5 24.9 26.6 27.8
Motorcycle 2,92,935 3,04,805 2,99,388 4,38,765 5,45,596 6,19,251 6,68,792 7,35,671
YoY growth (%) 32.7 4.1 -1.8 46.6 24.3 13.5 8.0 10.0
Scooters 22,457 38,930 44,572 35,783 59,749 56,164 62,904 69,194
YoY growth (%) 20.1 73.4 14.5 -19.7 67.0 -6.0 12.0 10.0
Mopeds 9,679 14,780 20,152 17,412 16,674 14,923 14,177 13,468
YoY growth (%) 33.5 52.7 36.3 -13.6 -4.2 -10.5 -5.0 -5.0
Three wheelers 90,773 95,285 56,977 82,255 1,39,719 1,66,266 1,91,205 2,10,326
YoY growth (%) 32.9 5.0 -40.2 44.4 69.9 19.0 15.0 10.0
TVS Motor Company

Exhibit 92: 2W volume estimates
(Units '000) (%)
4,000 21.7 25.0
18.0
3,500 20.0
3,000 11.1 11.6 15.0
2,500 5.6 10.0
4.6
2,000 1.7 5.0
1,500 0.0
1,000 -5.0
500 -13.1 -10.0
0 -15.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
2W Volume YoY growth (RHS)
Exhibit 93: 3W volume estimates

(Units '000) (%)
250 80.0
58.5
60.0
200 42.5
34.1
40.0
150 14.7 14.3 9.9 20.0
2.3
100 0.0
-20.0
-37.5
50
-40.0
0 -60.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
3W Volume YoY growth (RHS)
TVS Motor Company

Exhibit 94: Revenue & growth estimates
(INR Mn) (%)
2,50,000 26.8 30.0
24.1
20.4 25.0
2,00,000
20.0
13.9
1,50,000 15.0
10.0 9.8 9.9
10.0
1,00,000 5.0
-4.4 0.0
50,000
-5.0
0 -10.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
Exhibit 95: EBITDA margin estimates
Exhibit 96: PAT estimates

(INR Mn) (%)
10,000 40.7 45.0
9,000 40.0
8,000 32.9
35.0
7,000
30.0
6,000
25.0
5,000 18.7 17.3 20.0
4,000 14.1
11.1 15.0
3,000
2,000 5.3 10.0
1,000 1.1 5.0
0 0.0
FY20E
FY21E
FY22E
FY15
FY16
FY17
FY18
FY19
TVS Motor Company

Risks to our rating
Strong 2W market revival – If the 2W industry sees strong revival over next couple of years than then there
is a risk to our volume growth estimates.
Favorable commodity prices – Continued tailwind on commodity prices and better than expected
operational efficiency will likely be a risk to our margin estimates.
TVS Motor Company

Financials
% Growth 24.1 20.4 (4.4) 13.9 9.9 Depreciation & amortization 3,387 3,993 4,658 5,022 5,589
Raw material 1,11,330 1,38,423 1,28,682 1,47,155 1,61,522 Other income 1,448 75 70 84 101
Staff costs 8,680 9,226 9,403 10,908 11,771 (Inc.)/dec. in working capital 4,602 (2,405) (745) 806 (724)
Other expenses 7,017 8,688 7,836 9,123 9,809 Extra-ordinary Items - - - - -
Total expenses 1,40,005 1,67,767 1,58,981 1,82,060 1,99,450 Cash flow from operations 15,406 9,739 12,251 14,516 14,810
EBITDA 11,292 14,333 15,149 16,262 18,528 Capital expenditure (-) (7,956) (7,328) (6,000) (6,500) (7,000)
% Growth 23.5 26.9 5.7 7.3 13.9 Net cash after capex 7,450 2,411 6,251 8,016 7,810
EBITDA margin (%) 7.5 7.9 8.7 8.2 8.5 Other investing activites (4,474) (2,653) (3,300) (3,500) (3,500)
Other income 1,448 75 70 84 101 Dividends paid (-) (1,876) (2,005) (2,218) (2,329) (2,772)
Interest costs 566 806 896 849 747 Inc./(dec.) in total borrowings (1,048) 2,604 (1,696) (1,849) (2,747)
Depreciation 3,387 3,993 4,658 5,022 5,589 Others (29) (28) (0) 0 0
Profit before tax (before
8,786 9,610 9,665 10,476 12,293 Cash from financial activities (2,953) 572 (3,914) (4,177) (5,519)
exceptional items)
Exceptional items 0 0 0 0 0
Tax 2,161 2,908 2,223 2,637 3,094 Opening cash balance 85 109 439 (524) (185)
Adj PAT 6,626 6,701 7,442 7,839 9,199 Closing cash balance 109 439 (524) (185) (1,394)
% Growth 7.7 1.1 11.1 5.3 17.3 Change in cash balance 24 330 (963) 339 (1,208)
Adj PAT margin (%) 4.4 3.7 4.3 4.0 4.2 Source: Company, Nirmal Bang Institutional Equities Research
EPS (Rs) 13.9 14.1 15.7 16.5 19.4
% Growth 7.7 1.1 11.1 5.3 17.3 Exhibit 100: Key ratios
Payout (incl. div. tax) (%) 52.0 54.7 55.3 55.2 56.0 Per share (Rs)
EPS Growth (%) 7.7 1.1 11.1 5.3 17.3
Exhibit 99: Balance sheet
Cash EPS 21.1 22.5 25.5 27.1 31.1
Y/E March (Rsmn) FY18 FY19 FY20E FY21E FY22E Book value per share 60.6 70.5 81.5 93.1 106.6
Share capital 475 475 475 475 475 DPS 3.9 4.2 4.7 4.9 5.8
Reserves 28,329 32,998 38,223 43,733 50,160 Payout (incl. div. tax) % 52.0 54.7 55.3 55.2 56.0
Net worth 28,804 33,473 38,698 44,208 50,635 Valuation (x)
Total debt 10,370 13,779 12,979 11,979 9,979 P/E 33.4 33.0 29.7 28.2 24.0
Deferred tax liability 1,482 2,126 2,126 2,126 2,126 Cash P/E 22.1 20.7 18.3 17.2 14.9
Capital employed 40,656 49,379 53,803 58,314 62,741 EV/Sales 1.4 1.2 1.2 1.0 0.9
Gross block 45,454 50,536 56,536 63,036 70,036 EV/EBITDA 18.7 14.7 13.7 12.5 10.7
Depreciation 21,736 24,743 29,401 34,423 40,012 P/BV 7.7 6.6 5.7 5.0 4.4
Net block 23,719 25,793 27,135 28,613 30,024 Dividend yield (%) 0.8 0.9 1.0 1.1 1.3
Capital work-in-progress 1,311 2,572 2,572 2,572 2,572 Return ratios (%)
Investments 20,354 23,007 26,307 29,807 33,307 RoCE 23.0 21.1 19.6 19.4 20.8
Inventories 9,644 11,759 10,973 12,497 14,333 RoE 23.0 20.0 19.2 17.7 18.2
Cash 109 439 (524) (185) (1,394) EBITDA margin 7.5 7.9 8.7 8.2 8.5
Loans & advances - - - - - PAT margin 4.4 3.7 4.3 4.0 4.2
Total current assets 26,411 32,322 31,281 35,307 38,292 Debtors (days) 23 28 30 29 29
Creditors 25,180 29,239 27,959 31,844 34,638 Inventory (days) 23 24 23 23 24
Other current liabilities &
5,959 5,076 5,533 6,141 6,817 Creditors (days) 61 59 59 59 58
provisions
Net current assets (4,728) (1,993) (2,211) (2,678) (3,162) Leverage Ratio
Application of funds 40,656 49,379 53,803 58,314 62,741 Debt/equity (x) 0.4 0.4 0.3 0.3 0.2
TVS Motor Company

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Institutional Equities

Bharat Stage Six……. …………………………………….………………………………………..…….….………...03

Electric two wheelers………………………………………………………...……………………………...…...…….07

Understanding the Industry …………….…………………………………………………………….…….……...….17

Comparing Hero, Bajaj and TVS – Story in Charts …...……..…………………………………………………..…21

BS-VI Regulatory Requirement for Emission

Exhibit 1: BS-IV emission requirements

Exhibit 2: BS-VI emission requirements

On-Board Diagnostic - Regulatory Requirement

Exhibit 3: OBD requirements

Changes required in the technology

How to achieve BS-VI emission regulations

Exhibit 4: Comparing EFI and carburetors

Optimized air-fuel mixture and atomization allows for

Sharper throttle response and more power -

Substantially more expensive Relatively lower efficiency

Fuel Injection; Choke replaced by chrome cover; redesigned exhaust system;

EV – The Future is here

Source: Nirmal Bang Institutional Equities Research

Source: SMEV, Media articles, Nirmal Bang Institutional Equities Research

0.5 0.3 0.4 0.4

Electric 2-wheelers as a % of ICE scooters

Source: SMEV, CRISIL, Nirmal Bang Institutional Equities Research

Nexzu Mobility (erstwhile Avan Motors)

Twenty Two Motors

Company Actions taken Current status

Bajaj launched e-Chetak priced around Rs1.08-1.1 lacs (ex-showroom, after

FAME II: Boom or Bane?

Exhibit 13: State level E2W policy

State Policies currently in force

100% road tax exemption will be provided ll 30.12.2022.

Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research

Shift between the motorcycles segments

75cc <= 125cc 125cc <= 250cc >250cc

Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research

Exhibit 16: 2W Market share

Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research

Exhibit 17: Motorcycle Market share

Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research

Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research

Exhibit 19: Sub-125cc motorcycle market share

Source: CRISIL, SIAM, Nirmal Bang Institutional Equities Research

Source: CRISIL, Nirmal Bang Institutional Equities Research

Comparing Hero, Bajaj and TVS – Story in Charts

Hero MotoCorp Bajaj Auto TVS Motors

Source: Company, Nirmal Bang Institutional Equities Research

Hero MotoCorp 700 800 880-890 6500+

Key Focus Area

Hero MotoCorp Bajaj Auto TVS Motors

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 25: Margin trend

Hero MotoCorp Bajaj Auto TVS Motors

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 26: Valuation Summary

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Reuters: HROM.BO; Bloomberg: HMCL IN

owing to reasons mentioned above. 80

% Growth 13.2 4.4 -8.4 13.6 11.4 HERO MOTOCORP LT Nifty 50

EBITDA 52,802 49,301 44,094 48,356 54,642

Exhibit 27: One-year forward P/E band

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 28: Top five institutional shareholders of Hero MotoCorp

Exhibit 29: Peer valuation