Ambit - Automobiles - Thematic - Stage Set For CV Upcycle - 14dec2020

Automobiles
POSITIVE
THEMATIC COMMERCIAL VEHICLES December 14, 2020
Stage set for CV upcycle Key Recommendations

Tata Motors BUY
Demand for goods M&HCVs bottomed out in 1HFY21 after declining CMP: `179 TP: `215
~70% from FY19 highs. Volumes would post ~31% CAGR in FY21-25E led Ashok Leyland* BUY
by absorption of oversupply by demand revival and lower truck
CMP: `94 TP: `128
population. Despite capital cost of trucks increasing ~20% in 1HFY21 led
by BS6 shift + lower discounts, demand improvement with rising freight Bharat Forge* BUY
rates signifies improving state of business. We upgrade AL and BHFC to CMP: `552 TP: `608
BUY as they would benefit from the domestic CV upcycle and reach *We resume coverage on AL and BHFC with BUY
upcycle RoE by FY23. We remain BUYers on TTMT with JLR turning FCF
positive and domestic business benefitting from CV upcycle. Improved CVs set for cyclical revival from FY22E
operating leverage, fixed cost reduction and limited capex needs would
be common to all, driving FCF and in turn valuation multiples. Risks: Domestic goods M&HCV volume
Covid second wave impacting CV cycle revival in India and NBFC crisis. 350
250
Replacement demand from organized fleet to drive growth on present lows
'000s
150
Domestic M&HCV market is set to touch lows of FY03-04 levels of 0.12mn units in
FY21E. In a downcycle, new trucks are purchased by organized fleet as fringe 50
truckers bleed. Average new truck sales of ~0.2mn in FY13-15 and replacement
FY22E
FY24E
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
cycle of 6-8 years would drive upcycle from FY21E lows. Led by freight demand
revival (~1.5x real GSP growth multiplier) and systemic supply reduction (FY22E new
Source: Ambit Capital research, SIAM
truck sales lower vs. FY06-08 levels), tonnage-adjusted oversupply would get
absorbed over FY22-25E. This would result in FY19 new truck sales getting restored
by FY25E and volume CAGR of ~30% over FY21-25E. We expect more profitable
Current goods M&HCV volume mix
35T+ segment for fleet owners to make a comeback from FY22E, post declining
Multi ICV,
~80% from its FY18 highs due to axle load limit enhancement. axled 22%
trucks,
AL the pure play domestic CV player; RoE to recover to ~28% by FY23E 31%
After ~30% utilisation of M&HCVs with net debt/equity of 0.4x and FY20-21E
Haulage
average RoE of almost nil, AL would double M&HCV volume in FY21-23E, improve , 10%
RoE to upcycle levels of ~28% and become net debt free. Besides M&HCV cyclical
revival, AL is set to operate at ~3x scale in LCVs vs previous cycle along with higher- Tractor,
10% Tipper,
than-portfolio EBITDAM in LCVs. Launch of new models in ICV and faster than
27%
market revival in 35T+ segment would help AL recover M&HCV market share to
~30% from ~27% now.
All key business drivers of BHFC set to enter upcycle from FY22
Business from India, US and EU truck makers along with oil & gas (O&G) segment
contribute ~60% of standalone business of BHFC. All these cyclical segments are set
for upcycle from FY22E post weak FY20-21E. US Class 8 truck order addition has
increased ~5x in the past 6 months, which would reflect in improved production for
BHFC. Revenue from O&G has already contracted by ~80% from cyclical highs.
Thus, with Brent stabilising above USD40/bbl, this segment should turn around from
FY22E. Given improved operating leverage, rising mix of higher-margin segments
(trucks/O&G) and cost restructuring at EU subs, earnings/RoE would rise ~6x/5x in
FY21-23E and BHFC would become net debt free vs ~0.25x in FY21E.
Prefer AL over TTMT; BHFC is the preferred CV derivative ancillary play
Within CV OEMs, we prefer AL vs TTMT as it is a pure play domestic CV maker with a
cleaner balance sheet, lower capex needs and facing limited competitive intensity.
Though AL has moved up ~80% in the past six months, we believe it is just the initial Research Analysts
rally for a 4-year extended upcycle post witnessing ~70% decline in FY20-21E. TTMT
is a deleveraging play with RoE in FY23E at sub-15% as depreciation + interest Basudeb Banerjee
outgo would consume ~80% of EBITDA. Against personal mobility plays in PV/2Ws, +91 22 6623 3141
we prefer CV OEMs as they are yet to reach mid-cycle valuation multiples while the basudeb.banerjee@ambit.co
former is close to upcycle multiples. We prefer BHFC over MSS (~USD3bn+ market
cap with considerable exposure to EU/US) given its deeper cyclical revival and lower Karan Kokane
risk of M&A-led cash flow uncertainty. +91 22 6623 3028
karan.kokane@ambit.co
d.sharma@1indiafamilymart.com
Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital
may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.
Automobiles
The Narrative in Charts

Exhibit 1: Rising freight rates in Sep-Nov indicate Exhibit 2: Volatility in new truck sales more a function of
improving pricing discipline and capability to pass on costs greed/fear of freight operators rather than demand
Delhi - Mumbai-Delhi freight rate (Rs) 50%
Diesel price (Rs/ltr) (RHS)

30%
145,000 80
135,000 75 10%
125,000 70
115,000 65
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22E
FY24E
105,000 -10%
95,000 60
85,000 55
50 -30%
75,000
65,000 45
-50%
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
May-19
Nov-19
May-20
Nov-20
Feb-16
Feb-17
Feb-18
Feb-19
Feb-20
Goods M&HCV growth BTKM growth
Source: Ambit Capital research, IOCL, Media reports Source: Ambit Capital research, SIAM
Exhibit 3: All set for the next upcycle from FY22 with industry volume in FY21 hitting sub-FY09 levels; replacement demand
from organised truckers to be good enough to drive demand growth in FY22E on benign FY21E base
Domestic goods M&HCV volume Goods M&HCV growth (%) (RHS)
350 40
Thousands
300 30
20
250 10
200 0
150 (10)
(20)
100 (30)
50 (40)
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
Exhibit 4: Estimated truck market constituents currently; Exhibit 5: EBITDA for M&HCV players is set to make new
expect tractors and ICVs to do better within segments highs on reduced breakeven levels and higher ASPs
AL EBITDA (Rs bn)

Multi axled ICV, 22% TTMT standalone EBITDA (Rs bn) (RHS)
trucks,
31% 70 120
60 100
50 80
40 60
Haulage, 30 40
10% 20 20
10 0
0 -20
Tractor,
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
10%
Tipper,
27%
Source: Ambit Capital research, Company data
Source: Ambit Capital research, Company data, SIAM
December 14, 2020 Ambit Capital Pvt. Ltd. Page 2
Automobiles
Exhibit 6: US shale gas rig count and Brent crude prices Exhibit 7: BHFC is set to make new high EBITDA this
are showing signs of slight uptick already from July lows upcycle led by larger and diversified scale+ lower fixed
costs
US shale gas rig count
Standalone EBITDA (Rs bn)
Brent Crude (USD/barrel) (RHS)
Standalone EBITDAM (%) (RHS)
1,200
75 30 32
1,000
65 25
800 55 29
20
600 45
15 26
400 35
10
200 25 23
5
May-19
May-20
Nov-18
Nov-19
Nov-20
Mar-19
Mar-20
Sep-19
Sep-20
Jan-19
Jul-19
Jan-20
Jul-20
0 20
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
Source: Ambit Capital research, Baker & Hughes
Exhibit 8: BHFC’s RoE is set to return to upcycle levels of Exhibit 9: Levers of AL EBITDA improvement in this upcycle
~20% by FY23E from present lows of ~4% from FY21E lows
Pre-tax ROCE %) ROE (%) 60 FY23E EBITDAM ~12.5%

FY21E EBITDAM ~1%
50
25% 27.7 38.3
21% 40
19% 19% 20% 30
20% 2.5
Rs bn
17% 17% 17% 4.5

15% 14% 20
13% 14% 2.5
15% 10 1.1
10% 8% 0
LCVs
Cost savings
Mix/ASP
AL FY21E EBITDA
AL FY23E EBITDA
Scale benefit
4%
5%
0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Source: Ambit Capital research, Company data Source: Ambit Capital research, Company data
Exhibit 10: AL retuning to ~28%+ RoE levels by FY23E to Exhibit 11: BHFC is still below its rolling 3-year P/B
push P/B (x) at premium to 3-year rolling mean levels multiple; improving RoE in the upcycle to push the multiple
up
8
7 Rolling P/BVPS(x) 3 - Yr moving avg P/B
6
5 8
4 7
3 6
2 5
1 4
- 3
2
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
May-19
Nov-19
May-20
Nov-20
1
0
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
May-19
Nov-19
May-20
Nov-20
Feb-14
Feb-15
Feb-16
Feb-17
Feb-18
Feb-19
Feb-20
Rol. P/BV (x) 3-Yr moving avg P/B (x)
Source: Ambit Capital research, Bloomberg, Company data

Source: Ambit Capital research, Bloomberg, Company data
Automobiles
On the cusp of CV cycle reversal

Post declining ~48% in FY20 and ~35% in FY21E (1HFY21 down ~75% YoY),
monthly new goods M&HCV sales in India fell ~70% from FY19 highs. We
believe replacement demand would alone be sufficient to help the industry
grow on its present base with 40-45% of the road freight market being
catered to by organized players. Demand is solely driven by organized
truckers’ replacement cycle of 6-8 years during CV downcycles. Thus, the
industry would need ~60% volume growth in FY22E to reach FY13-15
average annual volume of 0.19mn units. We are factoring in ~50% industry
growth in FY22E and expecting FY19 volume levels only by FY25E, implying
~31% volume CAGR in FY21-25E.
Our analysis suggests cumulative oversupply creation in the road freight market to
the tune of ~26% in FY17-21E. This was led by a combination of weaker demand vs.
higher discounting-led new truck sales, axle load limit enhancement, steep price hike
of 12-15% led by BS6 transition and Covid-led disruption. Thus, we expect oversupply
to get absorbed by the system in FY22-25E with freight demand reviving (rail freight
demand up 17% YoY in October and down ~9% in 1HFY21) and tonnage adjusted
supply significantly shrinking in FY22-23. Also, we do not foresee any major cost
escalation driver for fleet owners in the coming years amidst freight rates stabilizing
currently post Covid-led turbulence in April-June.
Exhibit 12: State of oversupply set to start getting absorbed in the market from FY22E
FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E
Total freight carried (BTKM) 3,005 3,222 3,507 3,515 3,164 3,638 4,147 4,562 4,927
Road freight carried (BTKM) 2,165 2,319 2,490 2,496 2,183 2,510 2,862 3,102 3,350
Road freight share (%) (RHS) 72% 72% 71% 71% 69% 69% 69% 68% 68%
Growth 7% 7% 7% 0% -13% 15% 14% 8% 8%
Goods M&HCV population (mn) 3.07 3.28 3.49 3.50 3.44 3.37 3.38 3.53 3.67
Population growth 6% 7% 7% 0% -2% -2% 0% 4% 4%
New truck tonnage change -1% 9% -8% -11% 3% 10% 6% 5% 5%
Old truck tonnage change 4% 4% 4% 3% 3% 3% 3% 3% 3%
Blended tonnage change 4% 4% 3% 2% 2% 3% 3% 3% 3%
Supply growth (adjusting for axle load) 10% 11% 16% 6% 0% 1% 3% 8% 7%
Demand growth 7% 10% 12% 0% -13% 15% 14% 8% 8%
Demand-supply spread cycle -3% -1% -4% -6% -13% 14% 11% 1% 1%
Source: Ambit Capital Research, Media reports, IOC
Exhibit 13: Revival in real GDP growth from FY22E to drive Exhibit 14: New truck sales volatility is much more than
road freight growth demand growth as it is more driven by supply dynamics
2.5 50%
2.0
30%
1.5
10%
1.0
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22E
FY24E
0.5 -10%
0.0 -30%
FY03
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
FY21E
FY23E
FY25E
-50%
BTKM growth/Real GDP growth (x) Goods M&HCV growth BTKM growth
Source: Ambit Capital research, SIAM Note: Factored FY22-25E 6.5% real Source: Ambit Capital research, SIAM
GDP CAGR
Automobiles
Axle-load limit rise led to decline in blended tonnage

In mid-FY19, the ~20-25% increase in axle load limit helped truckers carry loads on
existing trucks higher by similar extents, thus proportionately enhancing systemic
supply of existing trucks too. This resulted in sharp decline in demand for ~25-35T
GVW models and correspondingly the demand shifted towards the 12-25T category.
We believe, on thin volumes in 1HFY21, reversal in mix of higher tonnage trucks
would be driven by demand coming from tippers for infra/mining sector. As per our
interactions at the field level with various truckers, demand is currently driven by
consumable/perishable goods, electronics/consumer discretionary, cement/metals,
mining/infra projects and rising auto demand.
In times of steady demand, profitability/payback period for a fleet owner is favorable
for a higher tonnage truck as fixed cost/ton is lower. Thus, post the decline in
blended tonnage coinciding with CV downcycle, we expect blended tonnage mix for
industry to slowly improve back towards 23-25T in the next 2-3 years. With no major
regulatory change-led cost escalation in the next 2-3 years, ~12% demand CAGR in
FY21-24E would result in disciplined freight rates vs. steady TCO amidst lower
interest rates, steady fuel and tyre prices. Also, introduction of mandatory fast-tags at
highway toll centers would also put a cap on expenses and save time.
Exhibit 15: ICVs on a weak footing vs. reviving demand for Exhibit 16: Blended tonnage to revive from FY22E post
higher tonnage trucks basing out in FY20-21 led by impact of axle load limit
FY15 FY16 FY17 FY18 FY19 FY20 1HFY21
7.5-12 T 19% 17% 17% 19% 22% 29% 20% Blended tonnage
12-16 T 17% 17% 18% 12% 12% 16% 15% Blended tonnage growth (RHS)
16-25 T 25% 22% 25% 18% 22% 23% 24%
25 15%
25-35 T 27% 27% 26% 29% 27% 20% 25% 23 10%
35 T + 12% 16% 15% 23% 18% 12% 16% 21 5%
19 0%
17 -5%
15 -10%
13 -15%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
FY22E
FY23E
FY24E
FY25E
Exhibit 17: Under stable conditions, payback period decreases with GVW of the truck
Gross vehicle weight 37T 25T 16T 12T
Capital cost (Rs) 4,000,000 3,200,000 2,400,000 1,900,000
Trips/month 2.5 3.0 3.8 4.0
Freight revenue/trip (Rs) 133,200 100,000 67,200 54,000
Blended return utilisation 80% 82% 85% 90%
Revenue p.a. (Rs) 3,196,800 2,952,000 2,604,672 2,332,800
Trip return distance (km) 1,900 1,900 1,900 1,900
Trip mileage (km/lt) 3.5 3.8 4.5 5.0
Diesel cost/Ltr (Rs) 75.0 75.0 75.0 75.0
Diesel cost/annum (Rs) 1,221,429 1,350,000 1,444,000 1,368,000
% of revenue 38% 46% 55% 59%
Maintenance, misc. p.a. (Rs) 290,950 253,000 220,000 200,000
Driver + Toll (Rs) 416,588 362,250 315,000 300,000
Annual principal payment 900,000 720,000 540,000 427,500
Average annual interest outgo @9%, 4yrs (Rs) 175,000 140,000 105,000 86,000
Earnings 192,834 266,750 85,672 37,300
Payback period (yrs) 3.7 3.8 4.6 5.0
Automobiles
FY22E revival to be led by replacement demand

Organized truckers own in excess of ~50 trucks and cater to industries like FMCG,
cement, metals, autos etc. and have a defined replacement cycle of 6-8 years as per
corporate contracts. Their cost pass-through clauses help them to face tough times so
that they can sail through lower utilization. These truckers constitute ~40% of the
market. Led by sheer high capital cost of the 25+ GVW trucks, the higher-end trucks
are in majority owned by organized fleets. So we believe bulk of the oversupply in the
system has been created in the 7-16T segment with lower capital cost and, thus,
affordable by many small fleet owners. Our FY22E industry volume assumption of
0.18mn is same as average of FY14-15 new truck sales, indicating replacement
demand would be good enough to drive a revival.
FY22-23E new truck sales expected to be lower than the industry figures in FY07-08
would help in supply absorption, lowering truck fleet population and in turn
improving utilization. As per industry practices, large/organized fleet owners typically
outsource additional truck needs from fringe truckers post fully utilizing their owned
trucks. Thus, with 40% of the fleet supply being fully utilized through the organized
route, the rest 60% of the fleet gets utilized by ~50% at its peak, making systemic
fleet utilization of ~70% in the best of days. During downcycles, the utilization of
fringe truckers fall to levels of sub-20% with hardly any need for outsourcing as large
truckers operate on owned assets.
Exhibit 18: FY22E goods M&HCV sales to be lower than FY06-08 average levels, helping systemic supply reduction
Domestic goods M&HCV volume Goods M&HCV growth (%) (RHS)
350,000 40
300,000 30
20
250,000 10
200,000 0
150,000 (10)
(20)
100,000 (30)
50,000 (40)
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
Exhibit 19: Tractor-trailers, ICVs multi-axled models to revive to post cyclical downturn
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E
ICV 26% 19% 17% 17% 18% 20% 19% 22% 23%
Haulage 11% 10% 12% 13% 8% 10% 14% 12% 11%
Tipper 21% 19% 17% 21% 19% 20% 20% 25% 21%
Tractor 8% 12% 15% 16% 18% 15% 9% 9% 12%
Multi-axled trucks 33% 40% 39% 33% 37% 35% 38% 32% 33%
Source: Ambit Capital Research, SIAM, Company data
During the FY20-21E cyclical downturn, reduction in demand of consumable goods

resulted in lower demand of ICVs and ~12-16T haulage trucks and led to higher mix
of tippers. Tractor-trailers got impacted by axle-load limit increase as demand shifted
towards multi-axled trucks in the ~26-37T segment. In the current upcycle, we expect
revival in demand for ICVs with consumable/perishable goods demand reviving with
reducing impact of Covid. Also, with axle-load limit increase getting absorbed in the
market in the past couple of years, demand for 37T+ tractor-trailers (higher RoCE
generating segment) is also set to revive.
Automobiles
Systemic fleet utilization trends in past 2 years:

 Best days of systemic utilization were in FY19: During 1HFY19, blended
systemic utilization levels were at ~65-70%, with truck outsourcing constituting
close to ~50% of the market demand and organized fleet utilization at 80-90%.
Moderate purchases were made by fringe truckers with normal replacement
demand in the organized segment.
 Moderation in utilization in FY20: In 2HFY19-2HFY20, overall utilization levels
were at 55-60%, with outsourcing need further reducing as demand started
declining in sync with the economy. Thus, fringe truckers were bleeding profusely
and demand from them came to standstill in this period. Replacement demand
from organized truckers was slightly impacted by supply of 1-2 year old used
trucks despite hefty discounts of 20-25% by players to liquidate BS4 inventory.
 Bottoming of demand led by Covid: 1QFY21, systemic utilization declined to
as low as ~15%, with nil demand for outsourcing and organized players
operating at 25-30% of capacity. Subdued demand coincided with very limited
supply of laborers (reverse migration), resulting in abrupt rise in freight rates by
1.5-2x. Thus many large fleet owners made profits, despite weak demand, till
June.
 Gradual improvement in demand from 2QFY21: Since July, demand has
slowly started normalizing, with utilization improving to ~45% levels now and
nominal usage of outsourced trucks usage. Freight rates have stabilized, laborers
are back, fuel prices have stabilized and demand is improving every passing
month. Discounts post BS6 transition have shrunk from ~25% to 8-10% levels
and there is 10-12% price hike led by BS6 shift.
 Fringe truckers to return with a lag: Our channel/expert interactions suggest
road freight market cannot sustain without presence of fringe truckers in the
longer run as organized fleet owners would not wish to be asset-intensive beyond
a certain level in order to minimize leverage risk. Thus, with demand cycle
improving, organized fleet owners would again start outsourcing excess needs to
the fringe truckers at optimum pricing. Though, gradually across cycles we expect
the mix of fringe truckers to reduce from ~60% and converge to global standards
of 20-25%.
Automobiles
VECV gaining share in adverse times on low base

Among the leaders in the goods M&HCV space, TTMT and AL, the former has been
regaining market share in the 35T plus segment continuously from the lows of FY19
along with maintaining steady market share in the 25-35T segment. In the rest of the
segments, VECV has been gaining share during the time the industry has been hit
hard by Covid. We see AL’s market share reviving to ~30% from ~27% now, largely
at the cost of VECV share normalization as AL has a far better portfolio in the tractor
trailer segment. VECV is more of an ICV/MDV player and thus would underperform
on an overall basis during an upcycle when demand would be driven by tippers,
tractor-trailers and multi-axle models.
Exhibit 20: Market-share gains of AL in FY17-19 got reversed in FY20-21; expecting it
to inch up back towards ~30% from lows of ~26-27% now through new launches
80 TTMT AL VECV
60
40
20
0
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Source: Ambit Capital Research, SIAM
Exhibit 21: VECV gaining traction in the 7.5-12T segment Exhibit 22: TTMT’s loss is VECV’s gain in MDVs; higher
with AL/TTMT focusing more on HCVs discount-led push mode to stabilize in upcycle for VECV
45% 70%
40% 60%
35% 50%
30%
40%
25%
30%
20%
15% 20%
10% 10%
0%
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
TTMT AL VECV
TTMT AL VECV
Exhibit 23: Leaders are losing out share with VECV gaining Exhibit 24: TTMT is recovering lost share in 35T+ models
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
TTMT AL VECV TTMT AL VECV
Source: Ambit Capital research, SIAM Source: Ambit Capital research, SIAM
Automobiles
LCVs more resilient in downcycles

LCVs contribute 6-8% of domestic road freight and, if combined with goods pick-ups,
would contribute ~10% of freight demand. Catering to intra-city/town distribution
mainly for spaces like perishables and FMCG, LCVs witness lower volatility across the
CV cycle than M&HCVs. We are building in ~20% volume CAGR in FY21-24E,
implying that FY19 volume levels would be back by FY24E. Within LCVs, the trend of
rising mix of 2-3.5T models is picking up, with M&M being the leader and AL trying to
expand its share through new launches. ASPs form ~20% of M&HCVs and volumes
are similar to M&HCVs. So the value mix of LCVs in the CV space is ~10%, which is
why they don’t cushion industry revenue size during adverse times.
Exhibit 25: LCVs hardly contribute ~6-8% of overall road freight demand
FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Goods M&HCV population (units) 2,762,985 2,950,673 3,143,643 3,152,449 3,097,928 3,036,002 3,039,9082
Utilization 65% 60% 60% 55% 40% 52% 55%
Goods M&HCV BTKM 2,109 2,305 2,535 2,414 1,902 2,496 2,653
Goods LCV population (units) 3,100,000 3,800,000 4,350,000 4,350,000 4,300,000 4,300,000 4,350,000
Utilization 60% 60% 60% 55% 55% 55% 60%
Goods LCV BTKM 112 137 157 144 156 156 172
Goods M&HCV BTKM (%) 95% 94% 94% 94% 92% 94% 94%
Goods LCV BTKM (%) 5% 6% 6% 6% 8% 6% 6%
Exhibit 26: Goods LCV market volatility is much lower than Exhibit 27: Shifting trend towards higher tonnage LCVs in
M&HCVs last couple of years; AL is targeting the 2T+ LCVs
Goods LCV domestic market Growth (RHS) 70%

60%
600,000 40%
550,000 30% 50%
500,000 20% 40%
450,000 10%
400,000 0% 30%
350,000 -10% 20%
300,000 -20%
10%
250,000 -30%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
200,000 -40%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
Upto 2 tonnes 2 to 3.5 tonnes
Source: Ambit Capital research, SIAM Source: Ambit Capital research, SIAM
Exhibit 28: MM is the leader in the 2T+ LCV segment by a large margin
M&M Tata Motors Ashok Leyland
80% 75% 66% 73% 69%

66% 62% 63% 65% 66%
70% 64%
60% 54%
50%
40%
30% 18% 14% 14% 15% 15% 16% 18% 18% 17%
20% 7%
10% 0%
0%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
1HFY21
Automobiles
Exhibit 29: Comparative study of key variables between the two domestic CV leaders; AL is in a better state in terms of RoE
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
TTMT goods M&HCV market share 57% 55% 51% 51% 52% 53% 54% 54% 54%
AL goods M&HCV market share 27% 31% 32% 34% 33% 29% 29% 30% 32%
TTMT pass M&HCV market share 40% 34% 39% 37% 37% 36% 37% 37% 37%
AL pass M&HCV market share 35% 45% 38% 39% 41% 45% 44% 43% 43%
Overall TTMT LCV market share 43% 39% 38% 40% 41% 39% 40% 40% 40%
Overall AL LCV market share 7% 7% 8% 8% 9% 9% 9% 10% 10%
TTMT CV ASP/unit (Rs) N.A. N.A. N.A. 1,082,175 1,086,769 989,701 811,089 876,923 930,460
AL ASP/unit (Rs) 1,292,821 1,340,970 1,393,407 1,501,661 1,483,326 1,408,179 1,431,823 1,466,646 1,550,331
TTMT CV EBITDAM N.A. N.A. N.A. 10.9% 11.0% 4.2% -1.5% 10% 12.8%
AL EBITDAM 7.6% 11.5% 11.0% 11.2% 10.8% 6.7% 0.7% 10.3% 12.4%
TTMT CV EBITDA/unit (Rs) N.A. N.A. N.A. 118,231 119,941 41,523 (16,222) 87,692 120,960
AL EBITDA/unit (Rs) 97,864 154,318 153,311 168,847 160,087 94,616 10,411 151,741 191,777
TTMT standalone capex/sales 7.5% 16.4% 5.1% 7.4% 7.0% 10.3% 3.8% 3.3% 4.6%
AL capex/sales 1.6% 0.9% 4.3% 2.0% 3.1% 10.3% 3.0% 3.5% 2.5%
TTMT standalone CFO (Rs bn) (26) 23 14 70 31 6 (31) 60 84
AL CFO (Rs bn) 18 17 30 54 (7) 17 7 27 39
TTMT standalone RoE -24.4% 1.6% -9.4% -0.3% 11.5% -22.4% -35.9% -11.9% 10.4%
AL RoE 5.7% 24.7% 30.5% 28.1% 27.9% 6.3% -9.5% 17.0% 27.7%
TTMT standalone net debt/equity (x) 1.4 0.6 0.9 0.8 0.7 0.9 1.8 1.8 1.4
AL net debt/equity (x) 0.6 0.2 0.1 (0.1) (0.1) 0.3 0.4 0.1 (0.3)
Source: Company, SIAM, Ambit Capital research
Exhibit 30: FY21-23E business assumptions for Tata Motors, Ashok Leyland and Bharat Forge
Consolidated revenue (Rs bn) EBITDA margin EPS (Rs) FCF (Rs bn)
Company
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Tata Motors 2,357 2,966 3,489 7.8% 11.6% 12.2% (39) 3 18 (313) 185 242
Tata Motors standalone 395 540 650 -1.0% 7.5% 10.6% (15) (4) 3 (46) 42 54
Ashok Leyland* 150 221 309 0.7% 10.3% 12.4% (2) 4 8 3 20 32
Bharat Forge 60 85 108 12.2% 19.2% 20.7% 5 20 29 9 7 11
Source: Ambit Capital Research, Company data, Note:* Standalone financials for Ashok Leyland
Exhibit 31: Taking mid-cycle multiples on FY23E for the three cyclical plays
Existing Revised CMP Upside/
Company FY23E based implied valuation multiples
TP TP (Rs) (Down)
Tata Motors 185 215 179 20% 3.2/7x FY23E EV/EBITDA of JLR/India
Ashok Leyland 54 128 94 36% ~10x EV/EBITDA
Bharat Forge 343 608 552 10% 21x P/E
Source: Ambit Capital Research, Company data
Target prices imply mid-cycle valuation multiples on FY23E

We currently factor in ~35% decline in the domestic goods M&HCV space in FY21E
vs. ~45% earlier given improving demand outlook for the CV cycle. We also factor in
~50% growth in FY22E vs ~40% earlier, which combined, result in EBITDA estimate
increase of 10-12% for the related entities. Besides, as we are entering an upcycle,
our valuation is on FY23E-based mid-cycle implied multiples (factoring in the
business cyclicality over the long term in our DCF assumptions). We believe the
upcycle is set to last till FY25 this time, a tenure similar to the previous upcycle (FY15-
19). Thus scope for further re-rating to upcycle multiple does exist ahead, which
would get initiated by positive fundamental surprises in the space like superior
economic growth, pick-up in EXIM, favorable scrappage policy contours, disciplined
freight rate movement for a prolonged period etc. We believe the recent rally in the
space is the initial spurt led by expectations of bottoming of fundamentals, with huge
scope for re-rating still left on the table.
Automobiles
Exhibit 32: AL moved up EBITDA curve across the upcycle Exhibit 33: AL traded at ~12-14x forward EV/EBITDA
period of FY15-19 during upcycle period, factoring in mid-cycle multiple of
~10x
AL EBITDA (Rs bn) Pre-tax RoCE (RHS) 32

29
26
35 35% 23
30 30% 20
17
25 25% 14
20% 11
20 8
15% 5
15
10%
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
10 5%
5 0%
0 -5% Rol. EV/EBITDA (x)
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
3-Yr moving avg EV/EBITDA (x)
Source: Company, Ambit Capital research Source: Company, Bloomberg, Ambit Capital research
Exhibit 34: TTMT FCF/debt is more driven by JLR; expect Exhibit 35: TTMT is consolidating in terms of EV/EBITDA
both JLR/standalone to be FCF positive from FY22E multiples with improving EBITDA outlook and falling debt
TTMT consol. FCF (Rs bn) 9

8
Net debt/equity (x) (RHS) 7
100 4.0 6
3.5 5
0 4
3.0
3
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
(100) 2.5 2
2.0
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
(200) 1.5
1.0
(300)
0.5 Rol. EV/EBITDA (x)
(400) - 3-Yr moving avg EV/EBITDA (x)
Source: Company, Ambit Capital research

Source: Company, Bloomberg, Ambit Capital research
Exhibit 36: BHFC has been building up in terms of EBITDA Exhibit 37: With improving EBITDA/BS, BHFC witnessed
despite small intermediate downcycles re-rating to ~20x rolling forward EV/EBITDA pre-
meltdown
BHFC EBITDA (Rs bn) Pre-tax RoCE (RHS) Rol. EV/EBITDA(x)

35 3 - Yr moving avg EV/EBITDA
25 25%
30
20 20%
25
15 15% 20
15
10 10%
10
5 5%
5
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Apr-14
Apr-15
Dec-13
Apr-16
Dec-14
Apr-17
Dec-15
Apr-18
Dec-16
Apr-19
Dec-17
Apr-20
Dec-18
Dec-19
Dec-20
0 0%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20

Automobiles
Exhibit 38: Auto OEM coverage universe – Valuation comparison; prefer CV plays vs. personal mobility ones now
Mkt Cap Target P/E (x) EV/EBITDA (x)
FY23E core
Company Rating (USD bn) CMP (Rs) TP (Rs) FY21E FY22E FY23E FY21E FY22E FY23E
P/E (x)
Bajaj Auto SELL 13.1 3,328 3,169 14.0 22.2 18.0 15.7 18.9 14.8 13.0
Eicher Motors BUY 9.2 2,471 2,668 21.0 45.5 24.0 19.4 35.6 19.5 15.6
Hero MotoCorp SELL 8.6 3,185 3,020 13.9 21.6 16.8 15.3 13.5 10.5 9.5
TVS Motor Company BUY 3.1 484 571 18.7 42.5 23.4 17.3 18.2 12.3 9.8
2W OEMs median 16.3 32.4 20.7 16.5 18.6 13.6 11.4
Maruti Suzuki BUY 31.7 7,734 8,677 26.0 44.8 25.2 20.0 34.5 18.1 14.9
Mahindra and Mahindra BUY 12.3 728 747 13.7 51.3 20.5 13.2 10.6 8.3 7.0
Tata Motors BUY 8.0 179 215 12.1 N.M. 66.3 10.1 7.9 4.2 3.4
Ashok Leyland BUY 3.8 94 128 16.6 N.M. 25.0 12.2 247.8 11.9 7.1
ex-2W OEMs median 15.1 48.0 25.1 12.7 22.5 10.1 7.0
Overall OEMs median 15.3 43.6 23.7 15.5 18.6 12.1 9.6
Source: Ambit Capital research, Company, Bloomberg
Exhibit 39: DCF assumptions; FY25-30E revenue CAGR in line with long-term cross-cyclical mean levels
Average Average
Revenue CAGR Revenue CAGR Average EBITDA Average EBITDA
Company capex/sales capex/sales
FY21-24E FY25-30E margin FY21-24E margin FY25-30E
FY21-24E FY25-30E
Tata Motors standalone 24.5% 8.9% 6.9% 9.3% 4.6% 6.0%
JLR 17.6% 8.1% 11.6% 12.6% 11.2% 10.9%
Ashok Leyland* 37.9% 7.7% 9.1% 7.9% 3.0% 2.5%
Bharat Forge 29.8% 4.8% 18.3% 20.9% 5.8% 3.3%
Source: Ambit Capital research, Company * Note: Standalone financials for Ashok Leyland
Exhibit 40: Ambit vs Consensus

Ambit estimates Consensus Delta vs Consensus
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Tata Motors
Revenue (Rs bn) 2,357 2,966 3,489 2,437 2,895 3,203 -3% 2% 9%
EBITDA margin (%) 7.8% 11.6% 12.2% 9.9% 12.1% 12.8% -210 bps -50 bps -60 bps
EPS (Rs) (39) 3 18 (17) 9 16 N.M. -68% 9%
Ashok Leyland*
Revenue (Rs bn) 150 221 309 140 208 264 7% 6% 17%
EBITDA margin (%) 0.7% 10.3% 12.4% 4.8% 9.2% 10.7% -410 bps 110 bps 170 bps
EPS (Rs) (2) 4 8 (0) 3 5 N.M. 29% 51%
Bharat Forge
Revenue (Rs bn) 60 85 108 64 82 99 -5% 3% 9%
EBITDA margin (%) 12.2% 19.2% 20.7% 11.6% 17.3% 19.5% 60 bps 190 bps 120 bps
EPS (Rs) 5 20 29 3 14 22 53% 36% 30%
Source: Ambit Capital research, Company, Bloomberg * Note: Standalone financials for Ashok Leyland
Prefer AL vs TTMT/BHFC; prefer CVs over personal mobility driven businesses

Within the domestic CV upcycle beneficiaries, we prefer AL vs TTMT/BHFC. This is
because AL is a pure domestic CV play, while TTMT has higher dependence on JLR,
and ~20% of BHFC’s standalone revenue comes from domestic CVs. Additionally,
AL’s capability to operate at superior fixed-asset turns, maintain lean balance sheet
and ability to operate at optimum cost structure give it an edge over TTMT. With AL
operating at less than a third of its M&HCV capacity in FY21E, we see limited need for
capex for capacity addition in this upcycle. For AL, a mature LCV portfolio with scale
~3x that of the last business cycle and margin superior to portfolio level would add
strength to its EBITDA this time. Led by our estimate of ~36% volume CAGR in FY21-
24E for goods M&HCVs vs ~15% for personal mobility segments, we prefer CV cycle
beneficiaries. Also, majority of personal mobility plays are trading close to their up-
cycle multiples on FY23E and CV plays below mid-cycle valuations.
Automobiles
Actual earnings delivery by the companies vs. estimated a year back

Exhibit 41: Ashok Leyland has delivered earnings ahead of consensus estimates across upcycles
7 AL Trailing 12m EPS (Rs) AL 1 Yr fwd EPS (Rs)
-1
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
-3
-5
Exhibit 42: Earnings for Tata Motors got severely impacted by falling EBITDA and rising depreciation and interest outgo
since FY19
70
50
30
10
-10
-30
-50
-70
-90
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
TTMT Trailing 12m EPS (Rs) TTMT 1 Yr fwd EPS (Rs)
Exhibit 43: BHFC delivered ahead-of-consensus estimates in FY15 upcycle and was largely in sync with consensus in FY17-
19 upcycle
35
30 BHFC Trailing 12m EPS (Rs) BHFC 1 Yr fwd EPS (Rs)
25
20
15
10
5
0
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
-5
Automobiles
Risks for the CV sector in India

 Major second wave of Covid in India, impacting FY22 CV industry revival.
 India real GDP growth at sub-5% for a prolonged period post FY22.
 Major increase in interest rates in FY22-23E post being benign in FY21.
 More than ~10% increase in key input commodity prices post the 10-15% rise in
raw material cost vs 1HFY21 levels.
 Worsening of availability of finance.
Catalysts for the CV sector in India

 Used 1-2 year-old truck supply in the market post moratorium period ended
largely got absorbed as per our interactions with fleet owners.
 Fixed cost restructuring by focusing on digital marketing and less
travelling/marketing expenses helping CV players to improve EBITDAM.
 Gradual revival in industrial/mining/infra activities along with shrinking supply of
trucks to bode well for fleet utilization.
 Discipline in freight rate movements amidst falling discounts, rising fuel rates and
sub-50% overall fleet utilization levels currently.
 Scrappage policy, if at all, with favorable contours.
Reverse DCF analysis of AL and BHFC
For AL, reverse DCF analysis signifies revenue CAGR of ~11% in FY22-32E vs. ~9.5%
in the past ten years. Our estimated revenue CAGR of ~14% in FY22-32E (FY22E
base being ~22% lower vs. FY19 revenue) seems justified with LCVs coming into the
portfolio on a larger scale along with 26T+ GVW truck mix being higher. Our
assumed mean EBITDAM in FY22-32E is at par with last decade’s mean of ~9%. For
BHFC, reverse DCF analysis implies revenue CAGR of ~11.4% in FY22-32E vs ~11%
in the last decade. We factor in ~12% revenue CAGR in FY22-32E (on a low base of
FY22E), with expansion of revenue from new segments like aerospace, locomotives,
light weighting, EV parts etc. EBITDAM of ~20% is in sync with margins it executed
with improved product mix in FY15-19.
Exhibit 44: All set for the next upcycle from FY22 with industry volume in FY21 hitting sub-FY09 levels
Revenue Average Average Terminal
FY22-32E Cost of equity WACC CMP
CAGR EBITDAM capex/sales growth rate
BHFC 11.4% 20.3% 3.8% 15.0% 12.5% 5% 542
AL 11.0% 9.3% 2.4% 15.0% 13.5% 5% 94
Comparative important fundamental aspects of the three cyclical businesses

Though all the three companies are set to witness the bottoms of their current cycles
in FY21E, we prefer AL given superiority across the parameters we have compared
them on. Ability of AL to operate at cross-cyclical fixed asset turn of ~2.5x, far higher
than ~1x for the rest, helps it generate far superior cross-cyclical mean RoE of 18-
20% vs. 12-14% for the rest. In terms of technological complexity needs, the domestic
CV industry’s requirements are far lower than that of the global luxury car market or
domestic car market. Thus, post BS6 transition, R&D-led capex needs for AL would be
limited to 1-1.5% of revenue vs continued R&D needs of 7-8% for JLR. Also, AL has
the lowest exposure to EV transition-related risks.
Exhibit 45: Comparative study of parameters to cyclical
AL TTMT BHFC
Ability to handle complexity in terms of innovation needs
Ability to handle EBITDA margin across cycle
Ability to keep balance sheet lean
Cross cycle fixed asset turns
Automobiles
Tata Motors – JLR + India business moving

up the hill
(TTMT IN, BUY, Upside 20%)
We upgraded TTMT to BUY in March-20 at Rs90 with valuations factoring in
bankruptcy for JLR and down cycle in domestic CVs. Since then, JLR improved
retails and reduced fixed costs/capex significantly and turned FCF positive in
2QFY21. In addition, the domestic PV business gained ~300bps market share
and turned EBITDA positive in 2Q. In FY22-23E, TTMT should continue to focus
on debt reduction (present auto net debt at ~Rs600bn), with both JLR and
India business generating FCF. In terms of volume, our FY23E estimated
volume is same as JLR delivered in FY17-18, asking for monthly average of
~50k units (including CJLR). 5% increase in FY22E consolidated EBITDA is led
by combination of increase in M&HCV volume by ~15% along with ~100bps
increase in standalone EBITDAM. TP increase of ~16% is led by increase in
EBITDA, shift in GBP/INR from 95 to 98 and roll-over.
Deleveraging key for JLR; de-stocking largely done to push wholesale
We believe JLR is currently strategizing to repair its balance sheet by reducing debt
through FCF generation instead of chasing volume. Thus continuous cost/capex
reduction initiatives and focus on selling higher margin models are the key objectives.
From being precariously placed in terms of liquidity in 1QCY20, JLR is now well-
positioned with cash of ~GBP3bn and is generating FCF. Thus, it does not need
incremental debt or any equity infusion for business continuity. We believe, as bulk of
the global de-stocking of JLR was largely done in 1HFY21, wholesale/retail volume
convergence will happen in 2H. As a result, we expect wholesales to inch up 30-35%
QoQ in 3Q towards ~0.1mn units, resulting in improved operating leverage and FCF
generation over 2Q. JLR is well-positioned to take care of EU emission norm
demands in CY21 through its PHEV portfolio and would focus on product
development/EVs using the ~GBP2.5bn annual capex in FY21-22E.
Standalone business at cusp of cyclical turnaround; PVs adding to revival
For the standalone business, we expect FCF of ~Rs75bn in FY22-23E with CV cycle
set to revive from FY22, stringent cost/capex cutting initiatives and improved
performance by the PV segment. From negative EBITDAM levels during this
downcycle, we expect scaling up and cost management initiatives will help the
standalone business move towards 8-10% levels this upcycle. The PV business is
witnessing a major turnaround given doubling of overall monthly volume (~22-24k
units) led by models like Nexon, Tiago and Altroz and is already EBITDA positive vs
negative 5-10% EBITDAM. TTMT has cut the capex outlook for its standalone business
to Rs15bn (at least for FY21-22E) vs. Rs40bn earlier, thus adding traction to FCF
generation with the reviving CV cycle.
Maintain BUY with TP of Rs215
Our DCF-based TP of Rs215 (vs Rs185 earlier) implies JLR valuation multiple
(adjusting for R&D expensing) of ~3.2x, ~0.3x FY23E EV/EBITDA and EV/sales. For
the standalone business, implied FY23E EV/EBITDA is ~7x. TTMT multiple is at a
discount to AL’s implied FY23E EV/EBITDA of ~10x led by net debt/equity of ~1.4x
for TTMT standalone (vs net debt-free AL) impacting its capital efficiency and
earnings. Thus, we believe there is huge scope of re-rating for the standalone
business with PV stake sale being be a potential trigger. Positive surprises in terms of
deleveraging across JLR and standalone are the key drivers for further increase in
TTMT equity valuation.
Risks to our view: Continuation of Covid-led intermittent lockdowns across FY22
and subsequent impact on developed market economies. Focus on cost and capex
control to reduce debt for a prolonged period, resulting in JLR losing out market
share further in the luxury car space to peers from an already benign level of ~4%.
High levels of net debt/equity on both JLR/standalone books to raise liquidity risk if
Covid impacts FY22 demand and, in turn, cash flows.
Automobiles
Exhibit 46: Improving volume combined with cost/capex Exhibit 47: Controlled capex of ~GBP2.5bn in FY21-22E to
cuts to drive FCF generation de-lever balance sheet; focus on EVs to remain
unperturbed
Volume ('000 units) (incl. CJLR)
Capex (GBP mn) Capex/sales (RHS)
FCF (GBP bn) (RHS)
700 2 4,500 17%
4,000 15%
600 1 3,500
500 0 3,000 13%
400 -1 2,500 11%
2,000 9%
300 -2 1,500
200 -3 1,000 7%
500 5%
FY21E
FY22E
FY23E
FY24E
FY25E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
Exhibit 48: JLR to operate at ~12-13% EBITDAM with lower Exhibit 49: TTMT SOTP valuation
scale this cycle led by stringent cost management Parameter (Rs mn) Value
Standalone (WACC of 12%, Tg of 5%)
JLR EBITDAM TTMT standalone EBITDAM (RHS)
PV of FCF until FY30E 170,510
15% Terminal value 309,033
19%
Standalone Enterprise Value 479,544
17%
10%
15% JLR (GBP mn) (WACC of 15%, Tg of 3.5%)
13% PV of FCF until FY30E 4,412
5%
11% Terminal value 4,781
9% 0% Enterprise Value 9,193
7% GBP/INR 98
5% -5%
JLR Enterprise Value (Rs mn) 900,876
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
Enterprise Value of other subsidiaries 136,608

Total Enterprise value 1,517,028
Source: Ambit Capital research, Company data Less: Consolidated Net debt 693,765
Equity Value 823,263
No. of shares (mn) 3,829
Equity value per share (Rs/share) 215
Exhibit 50: Change in estimates; enhancing FY22E standalone EBITDA by ~20% led by increase in domestic M&HCV
demand outlook and corresponding impact on EBITDAM
FY21E FY22E FY23E
Old Revised % change Old Revised % change Old Revised % change
JLR Volume (Incl. CJLR) (units) 430,500 430,500 0% 528,600 528,600 0% 607,392 607,392 0%
Standalone Volume (units) 382,859 398,391 4% 515,983 548,221 6% 594,457 642,940 8%
JLR EBITDA margin (%) 9.4% 9.4% - 12.2% 12.2% - 12.4% 12.4% -
Standalone EBITDA margin (%) -1.2% -1.0% 21 6.6% 7.5% 86 6.6% 10.6% 392
Consol revenue (Rs bn) 2,290 2,357 3% 2,867 2,966 3% 3,357 3,489 4%
Consol. EBITDA margin (%) 7.7% 7.8% 4 11.5% 11.6% 13 12.1% 12.2% 15
Consol. EBITDA (Rs bn) 177 184 3% 329 345 5% 405 426 5%
Consol. FCF (Rs bn) (262) (313) N.M. 171 185 8% 225 242 8%
GBP/INR 95.0 98.0 3% 95.0 98.0 3% 95.0 98.0 3%
Price target (Rs) 185 215 16%
Automobiles
Exhibit 51: Reversal in financial leverage from FY22E to push RoE improvement
500 70%
TTMT consol. EBITDA (Rs bn) RoE (RHS)
400 50%
300 30%
200 10%
100 -10%
0 -30%
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Exhibit 52: 3-year rolling EV/EBITDA continued to inch up as EBITDA remained depressed since FY19; with outlook for
EBITDA improving the rolling EV/EBITDA would stabilize ahead
9 Rol. EV/EBITDA (x) 3-Yr moving avg EV/EBITDA (x)
8
7
6
5
4
3
2
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Exhibit 53: Combination of increase in estimated FCF led by better outlook for domestic CVs, favourable GBP/INR move and
rollover resulting in ~16% increase in Tata Motors target price
Old Revised Change (%) Comments
a) Increased volume and EBITDAM in the CV business
b) Factoring in lower capex of Rs15bn in FY22E too
Cumulative consol. FCF in FY22-25E (Rs bn) 834 916 10%
c) Factoring in improving traction in PVs
d) Favourable move in GBP/INR adding to FCF in INR
a) Focus on cost/capex spends trickling over longer term
Cumulative consol. FCF in FY26-30E (Rs bn) 1,300 1,358 4% b) Focus on sharing of platforms, EV development with other
peers to help JLR save on capex costs structurally
Automobiles
Ashok Leyland – Key beneficiary of CV

upcycle
(AL IN, BUY, TP Rs128, Upside 36%)
We expect AL’s goods M&HCV volume to reach previous downcycle bottoms of
~35k units in FY09/FY14 post ~70% decline in FY20-21E. Through gradual
absorption of oversupply, we are factoring FY19 goods M&HCV volume for AL
getting replicated by FY25E. This implies ~30% CAGR in FY22-25E. With the
LCV portfolio maturing, we expect it to contribute ~40%/~8%/~10% of AL’s
volume/revenue/EBITDA. We expect mean EBITDAM of ~12% and EBITDA
CAGR of ~37% in FY22-24E post recent restructuring in fixed costs and
improving operating leverage. At a mere ~25% utilization, we expect AL to
operate at Rs7-8bn p.a. of capex in FY22-23E and generate cumulative FCF of
Rs50bn in F22-23E. Thus, combination of strong EBITDA CAGR, debt reduction
and recovery in RoE to ~25% would drive re-rating and help AL trade at mid
to upcycle multiples of 10-12x forward EV/EBITDA. We upgrade AL to BUY
from Under Review (and before that SELL) with DCF-based TP of Rs128
(implying ~10x FY23E EV/EBITDA).
Catalysts for AL in this upcycle beyond industry drivers
 Scaling up of the LCV portfolio through launches across the 2-7.5T segments
(including Phoenix) rather than having a mere low scale presence. This would
help add ~8-10% to absolute EBITDA rather than being just marginally EBITDA
accretive.
 The modular manufacturing system introduced through the AVTR platform would
help AL manage sourcing and pricing from vendors better other than reducing
raw material and finished goods inventory.
 Structural fixed cost restructuring initiatives during 1HFY21 – like digital
marketing/servicing initiatives, manpower productivity improvement, reduction in
discounts, focus on reduction in material wastage etc. – would help AL go back to
10-12% EBITDAM range even on lower volumes.
 Strong CFO in FY22-23 should help AL turn net cash from 0.4x net debt/equity by
FY23E and reduce net debt by ~Rs45bn (~17% of market cap). This would help
AL enhance PBT by ~Rs2bn in FY22-23E on FY22E PBT of Rs15bn.
Upgrade to BUY with TP of Rs128

We believe with CV cycle having bottomed out post contracting ~70% from its FY19
highs, AL is at the cusp of delivering ~30%/~37%/~51% goods M&HCV
volume/EBITDA/earnings CAGR in FY22-25E. Higher scale in LCVs, stricter control on
fixed costs, rising usage of flexible modular architecture in assembling would help AL
generate ~10-12% EBITDAM at relatively lower levels of M&HCV volume vs. previous
cycles. In our DCF assumption, we are factoring in ~7% M&HCV volume CAGR in
FY22-30E, with FY19 volume coming back only by FY25E. With bulk of capex related
to BS6 shift and LCV project behind and M&HCVs operating at ~35% of capacity, EV-
related product development and maintenance would be the key capex drivers in the
near term. We expect RoE to recover to FY19 levels of ~28% by FY23E itself along
with turning net debt negative too. We upgrade AL to BUY with DCF-based TP of
Rs128, implying mid-cycle multiple of ~10x FY23E EV/EBITDA. We are increasing our
FY23E overall volume/EBITDA/earnings by ~17%/~12%/~20% led by improving
demand traction for trucks along with rising traction of AL in LCVs.
Risks to our view: Large-scale second wave of Covid in India, resulting in major
lockdowns, thus delaying CV demand revival.
Automobiles
Exhibit 54: Reaching bottoms of previous couple of cycles Exhibit 55: Hinduja Leyland Finance (~69% stake held by
in FY21E; replacement demand to push growth from FY22E AL) sailing through tough times and managing NPAs well
Rs bn FY15 FY16 FY17 FY18 FY19 FY20
M&HCV Goods (units) YoY growth AUM 66 100 141 193 254 265
140,000 50% Disbursement 51 71 99 130 153 136

RoE 12.2% 14.0% 11.2% 8.9% 10.1% 9.0%
120,000 30%
PAT 1.1 1.5 1.7 1.9 2.8 2.9
100,000
10% Shareholder's funds 9.2 10.7 14.9 21.3 27.2 32.5
80,000
Net NPA 2.9% 2.8% 3.1% 3.0% 3.0% 2.6%
-10%
60,000 Source: Ambit Capital research, HLFL
40,000 -30%
20,000 -50%
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
FY21E
FY23E
FY25E
Exhibit 56: Gradient of recovery in EBITDA is getting Exhibit 57: FCF generation to improve across the cycle with
sharper with every passing cycle; making new highs in lighter capex in FY21-23E and improving EBITDA
EBITDA
Capex (Rs mn) FCF (Rs mn) (RHS)
EBITDA (Rs mn) EBITDA margin (RHS)
20,000 60,000
70,000 14% 50,000
60,000 12% 15,000 40,000
50,000 10% 30,000
40,000 8% 10,000 20,000
10,000
30,000 6%
5,000 -
20,000 4%
(10,000)
10,000 2% - (20,000)
- 0%
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
FY21E
FY23E
FY25E

Exhibit 58: Change in estimates; enhancing FY22E earnings by ~20% led by improving volume and margin outlook
FY21E FY22E FY23E
Volume (units) 91,705 105,102 14.6% 129,202 150,761 16.7% 185,094 199,555 7.8%
Revenue (Rs bn) 146 150 3.4% 205 221 7.9% 277 309 11.8%
EBITDA (Rs bn) 3 1 -62.7% 20 23 11.6% 35 38 10.7%
EBITDA margin (%) 2.0% 0.7% (129) 10.0% 10.3% 35 12.5% 12.4% (13)
EPS (Rs) (1.2) (1.8) N.M 3.1 3.8 19.8% 6.7 7.7 14.7%
FCF (Rs bn) (8.8) 2.8 N.M 11.5 19.5 70.0% 25.3 31.5 24.6%
Price target (Rs) 54 128 136.5%
Automobiles
Exhibit 59: Cyclical revival from FY22E to help AL reduce financial leverage and enhance RoE back towards upcycle levels
AL EBITDA (Rs bn) RoE (RHS)
50 35%
40 25%
30 15%
20 5%
10 -5%
0 -15%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Exhibit 60: Improving RoE across the upcycle coincided with EV/EBITDA moving up from lows of ~8x to highs of ~16x; 3-
year rolling EV/EBITDA at ~14x prior to beginning of the downcycle from FY20
Rol. EV/EBITDA (x) 3-Yr moving avg EV/EBITDA (x)

32
29
26
23
20
17
14
11
8
5
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Source: Bloomberg, Company, Ambit Capital research
Exhibit 61: Drivers of increase in TP: Increase in estimated FCF, rollover and reduction in WACC from 14.5% to 13.5% led by
lower cost of debt and increase in financial leverage
a) Strong discipline in freight rate moves signify cycle bottoming
b) Decline in discounts from ~20-25% to ~8-10% to bode well
Cumulative FCF in FY22-25E (Rs bn) 90 129 43% c) Excess supply led by axle-load limit increase largely absorbed
d) Strong traction in LCVs to add on to the cash flows
e) Lower than pre-Covid fixed cost structure and limited capex needs
a) Outlook for longer term EBITDAM improved with lower cost structure
b) Improving mix for tractor-trailers to bode well for blended ASPs
Cumulative FCF in FY26-30E (Rs bn) 112 140 25% c) LCVs gaining traction with years should add to the overall FCF
d) Been asset-light in last decade. We do not foresee capacity addition
e) Getting prepared to grab light E-truck market by doing R&D in advance
Automobiles
Bharat Forge – Set for an all-inclusive

revival
(BHFC IN, BUY, Upside 10%)
We upgrade BHFC to BUY with revised TP of Rs608, implying ~21x FY23E
earnings, as we believe the cyclical business is set to enter upcycle phase
from FY22E and deliver 6x/5x earnings/RoE increase over FY21-23E. With key
cyclical areas of CVs and oil & gas (10-15% mix) components bottoming out
in FY21E, we believe BHFC is at the cusp of a multi-year cyclical upswing.
Domestic and US/EU heavy truck components contribute 45-50% of the
business in upcycle years vs 30-35% currently. With domestic M&HCVs
already showing signs of bottoming along with US Class 8 order book having
quadrupled in the past 6 months, production for BHFC is set to improve from
FY22E. The O&G segment contributes 15-18% to upcycle revenues. It is now
contributing 9-10% of subdued standalone revenue after having declined
~80% from its FY19 highs. We expect BHFC to scale up in areas like
aerospace, defense, railways and PVs (including EV parts).
Favorable base visible in CVs across India, US and EU for BHFC

Led by visibility of supply absorption, we expect domestic M&HCV upcycle to kick start
from FY22 and last till FY25E, delivering volume CAGR of ~31% in FY21-25E. This
would come after the ~70% decline from FY19 highs. US Class 8 truck order book
addition has increased 5-6x in the past 6 months vs YoY levels. Present production
levels are down ~30% YoY. Lag effect of higher order book will drive production
revival with a lag; we expect that to get reflected wholly in FY22. In EU, truck sales
declined ~40% in CY20 led by Covid impact and cyclical downturn. EU truck market
has been stable around ~28k per month levels of retailing in CY17-19. Thus, present
levels of ~20k units provide scope for growth next year on an extremely low base.
We expect ~34% revenue CAGR in FY21-23E led by the CV segment contributing 45-
50% of standalone revenue. Also, the CV segment operates with superior margin.
Non-autos: Revival in O&G + rising scale in aerospace and locomotives

O&G segment revenue for BHFC is set to decline in excess of ~75% (to USD30-
40mn) from its FY19 highs led by a similar quantum of decline in active shale gas rigs
in the US amidst lower crude oil prices. With Brent crude recovering to ~USD50/bbl
from lows of ~USD20-30/bbl in 1HCY20, we are looking forward to a gradual
revival in the space with a lag. The aerospace/locomotive segments were severely
jolted by Covid in FY21and thus would add to growth from the extremely low base of
FY21. The light weighting product facility at Nellore (Rs2bn capex) would start adding
to revenue with demand rationalization post impact of Covid in FY21. O&G is a high-
margin segment, thus a revival would improve margin mix.
Disciplined pricing, improving mix and revival in scale to drive profitability

In terms of profitability, BHFC has shown the capability to maintain standalone gross
profit/kg at ~Rs137-140/kg across adverse times in FY20-21E despite lower mix of
higher-margin CVs/O&G. Thus the standalone EBITDAM decline from ~28-30% to
~20-22% is led by decline in scale. From FY22E, we believe revival in scale, rising
mix of CV/O&G segments, and initiatives to cut fixed costs would push BHFC’s
EBITDAM back to 28-30%. Ongoing cost restructuring exercise in EU subsidiaries
(~40% of revenue) making aluminum/steel forgings would push EBITDAM there from
2-3% to 6-8% from FY22E.
Automobiles
Key segments witnessing cyclical bottom to drive growth in FY21-23E

We are building in standalone volume CAGR of 32% and revenue CAGR of ~37% in
FY21-23E led by a combination of demand revival in key cyclicals and mix
improvement. Combining this with EBITDAM recovering to ~30% by FY23E (from
~21% in FY21E), we expect standalone EBITDA CAGR of ~63% in FY21-23E. At the
consolidated level, we expect revenue and EBITDA CAGR of ~34%/~74% in the same
period. Consolidated EBITDA CAGR is higher than standalone CAGR as we expect EU
operations to hardly make any EBITDA in FY21E. With standalone BHFC operating at
sub-50% utilization in FY21E, we expect average consolidated capex in FY21-23E to
be Rs5bn vs. Rs12bn in FY19-20. This would help BHFC generate average FCF of
Rs9bn in FY21-23E and become free of net debt by then vs ~0.25x in FY21E.
Upgrade to BUY with TP of Rs608
Since we initiated BHFC in March 2019 with a SELL, it has declined ~6% vs ~12%
positive return from the benchmark Nifty50. With majority of the business drivers
bottoming out in 1HFY21 itself, we expect BHFC to witness scale, mix and EBITDAM
revival, resulting in strong ~74% consolidated EBITDA CAGR in FY21-23E. Our DCF-
based TP of Rs608 factors in ~10% revenue CAGR in FY20-30E vs. ~8% in FY09-19
along with mean consolidated EBITDAM of ~19%, ~300bps higher vs FY09-19. Our
TP implies ~21x FY23E earnings and ~4x FY23E P/B (vs 3-year rolling average of
~4.5x). We upgrade BHFC to BUY as we believe it is at the cusp of a cyclical revival
with fundamentals set to improve across the next 3-4 years. So it deserves mid-cycle
valuation multiples. We see scope in PVs, defence and US CVs to drive
revenue/earnings upgrades for FY23 as BHFC is adding new customers/components
in these segments and can spring in positive surprise by beating industry growth.
Preferred picks in auto ancillary
From a 2-year investment horizon, our preferred picks in the ancillary space are
Minda Industries, Sundram Fasteners and BHFC as we believe they are set to benefit
from the OEM upcycle of the next 3-4 years. Within them, our preference order would
be Sundram, Minda and BHFC. We prefer BHFC as the instrument to play the CV
cycle revival instead of CV-intensive tyre plays like Apollo Tyres and MRF.
Risks to our view: Longer-than-expected state of lockdown in India, delay in
domestic/EU CV cycle revival, delay in business revival of US shale gas operations,
and rising acceptance of EVs for heavy trucks next decade.
Exhibit 62: ~60% of highly cyclical standalone business Exhibit 63: Factoring in FY23E volume lower vs. FY19 levels;
constituents are witnessing cyclical bottoms currently PVs, aerospace, defense, railways can bridge the gap
Rest India CV,

exports Standalone sales tonnage NRV (Rs/kg) (RHS)
15%
Non-auto,
280 250
18%
Thousands
India PV, 260

4% 230
240
220 210
Exports 200
India Non- 190
O&G, 15% 180
auto, 15% 160 170
140
150
120
Exports PV, 100 130
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
9% US CV,
EU CV, 13%
11%
Source: Ambit Capital research, Company data Source: Ambit Capital research, Company data
Automobiles
Exhibit 64: CV and O&G mix revival, scale improvement Exhibit 65: Subsidiary-level restructuring is undergoing
and fixed cost reductions to drive EBITDA/kg revival currently to save costs and enhance margin to ~10%
EBITDA/kg (Rs) GP/kg (Rs) (RHS) Ex-standalone revenue (Rs bn)
80 160 Ex-standalone EBITDAM (RHS)

70 140 50 10%
60 40 5%
120
50 30 0%
100
40 20 -5%
30 80
10 -10%
20 60
0 -15%
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Exhibit 66: US shale gas rig count and Brent crude prices Exhibit 67: US truck freight rates spot prices higher than
are showing signs of slight uptick already from July lows pre-Covid levels; even contract rates are inching up
US shale gas rig count

Brent Crude (USD/barrel) (RHS)
1,200
75
1,000
65
800
55
600 45
400 35
200 25
Nov-18
May-19
Nov-19
May-20
Nov-20
Mar-19
Mar-20
Sep-19
Sep-20
Jan-19
Jul-19
Jan-20
Jul-20
Source: Baker & Hughes, Ambit Capital research Source: DAT Trend lines, Ambit Capital research
Exhibit 68: EU trucks market has been pretty much stable Exhibit 69: Lag effect in order addition to NA Class 8 truck
since FY13; declined ~50% YoY CYTD20 giving low base retails signify, strong growth in FY22E for the segment
Europe M&HCV truck sales (units) Growth YoY (RHS) 60 40
Thousands
50 35
Thousands
60
115% 40 30
Thousands
50 90% 30 25
65% 20 20
40 10 15
40%
15% 0 10
30
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
-10%
20
-35%
10 -60%
North America Class 8 truck new orders
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
North America Class 8 truck sales (RHS)
Source: Bloomberg, Ambit Capital research Source: Bloomberg, Ambit Capital research
Automobiles
Exhibit 70: Change in estimates; enhancing FY23E EBITDA by ~17% led by improving outlook for domestic/US trucks
FY21E FY22E FY23E
Revenue (Rs bn) 64 60 -5.0% 82 85 3.2% 98 108 10%
EBITDA (Rs bn) 8 7 -5.5% 15 16 9.1% 18.8 22 17.2%
EBITDA margin (%) 12.2% 12.2% (5) 18.2% 19.2% 104 19.2% 20.4% 120
EPS (Rs) 5.0 4.7 -6.8% 17.3 19.5 13.2% 24.0 29.2 22.1%
FCF (Rs bn) 10.2 9.5 -6.5% 6.0 6.9 15.0% 8.2 10.6 28.5%
Price target (Rs) 343 608 77.4%
Exhibit 71: Making higher EBITDA across cycles through portfolio diversification and strong pricing discipline; RoE to revive
from FY22E back towards ~20-22% levels post declining in FY20-21E to mid-single-digit levels
BHFC EBITDA (Rs bn) RoE (RHS)
25 25%
20 20%
15 15%
10 10%
5 5%
0 0%
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Exhibit 72: Traded at forward EV/EBITDA of ~15x across majority of the previous upcycle; volatility in past 2 years led by
EBITDA decline
35 Rol. EV/EBITDA(x) 3 - Yr moving avg EV/EBITDA

30
25
20
15
10
5
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Source: Company, Ambit Capital research. Note: The above is a one-year forward EV/EBITDA
Exhibit 73: All set to enter premium territory over 3-year rolling P/B multiples with cyclical business revival
8 Rolling P/BVPS(x) 3 - Yr moving avg P/B
0
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Mar-19
Mar-20
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Source: Company, Bloomberg, Ambit Capital research. Note: The above is a one year forward P/B
Automobiles
Set to scale new highs in the PV and non-auto space this cycle
BHFC has been adding customers and components in the PV forging space across the
previous cycle in both domestic and export markets and has outperformed industry
trends across upcycles and downcycles. With revival in the demand cycle along with
rising focus on EV parts and portfolio/market diversification in this space, BHFC
revenues are set to increase in this upcycle. In the non-auto space, revival of
aerospace/locos/defence/light-weighting is set to boost revenues. BHFC is aiming to
see USD100mn revenue from each of these non-auto segments in the next 3-4 years
from present sub-USD20mn levels.
Exhibit 74: Standalone revenue constituents; CVs itself constitute ~45-50% of revenue
Rs bn FY18 FY19 FY20 FY21E FY22E FY23E
India CV 11.2 13.2 6.5 5.0 8.0 11.0
India PV 2.1 2.8 2.0 1.7 2.8 3.5
India Non-auto 8.5 10.0 6.5 5.5 8.0 9.5
US CV 8.0 9.2 6.0 5.0 7.5 9.0
EU CV 5.3 6.1 5.0 3.8 4.8 5.5
Exports PV 3.2 4.0 4.0 3.3 5.0 6.5
Exports O&G 8.5 12.0 6.5 3.0 5.0 6.0
Rest exports Non-auto 6.4 9.3 8.0 6.0 8.5 11.0
Total 53.2 66.5 44.5 33.2 49.6 62.0
Volume tonnage 247,515 265,952 201,357 141,277 206,667 248,000
NRV/kg 215 250 221 235 240 250
Exhibit 75: Target price revision led by a combination of raise in FCF estimates, rollover and decline in WACC by ~100bps
a) Significant improvement in outlook for India and US CVs
b) Crude bottoming out gives us the confidence of O&G business
also bottoming out for BHFC in FY21E
Cumulative consol. c) Cost restructuring initiatives taken for EU subsidiary would push EBITDAM
FCF in FY22-25E 40 49 22%
(Rs bn) d) Management is guiding for limited consolidated capex needs at sub-Rs5bn
in FY21-23E, operating at sub-40% utilisation levels in FY21E
e) Aggressively looking at the PV forging space in terms of growth through
new components, new customers and EV parts
a) Rising focus on PV forging/light-weighting applications, EV parts
to add to revenue in the segment from a long-term perspective too
b) Cost-cutting initiatives and business rejig towards aluminium forging in EU
Cumulative consol. to add to EBITDA on a structural basis
FCF in FY26-30E 106 124 17% c) Focus on scaling up in non-auto segments like aerospace/defence/locomotives
(Rs bn) post witnessing downcycle and Covid impact in FY20-21 to drive long-term
scope for revenue from these areas
d) Management’s focus on higher complexity/machining/value addition in the
portfolio to bode well for superior ASP and gross profit/kg in the long run
Automobiles
HAWK scores – Tata Motors

While TTMT’s forensic score has weakened from “Zone of Safety” in FY16 (D3) to
“Zone of Darkness” in FY19 (D10), its greatness score has also deteriorated from
“Zone of Greatness” (~90%) in FY15 to “Zone of Mediocrity” (~10%) in FY19. We
believe this fall was driven by multiple headwinds at both JLR and India business over
the past few years. Shift away from diesel vehicles, tightening of global emission
norms, EV push and diversification of manufacturing footprint resulted in significant
capex /R&D for JLR. On top of this, the global car market witnessed a slowdown led
by the WLTP shift, US-China trade war and consumption slowdown in China. Thus,
combination of an adverse demand environment and high capex intensity resulted in
weakening of FCF, return ratios and accounting scores for JLR. For the standalone
business, the Indian macroeconomic slowdown, axle load limit enhancement and
weak consumer sentiment amidst multiple regulatory changes driving higher TCO led
to the demand slowdown and weakening of the accounting scores. We expect these
parameters to improve from FY22 with start of domestic CV upcycle and sustainable
FCF generation at JLR.
Key contributors to accounting score and comparison to peers
TTMT features in the D10 decile on our accounting framework, or the ‘Zone of
Darkness’. Key contributors to its relatively weak accounting score include: 1) low
cum. FCF/median revenue and 2) high CWIP to gross block. However, we expect
improvement in TTMT’s cumulative FCF/median sales led by revival in demand across
key markets, the Defender/refreshes adding to retails ahead and lower cost structures
under Project Charge+, resulting in sustainable positive FCF from FY22E.
Furthermore, while CWIP to gross block is on the higher side, it has also witnessed
improvement from ~16% in FY18 to ~12% in FY20 and is expected to witness further
reduction going ahead leading to improvement in accounting score.
In comparison to peers, TTMT scores lower than median accounting score, with score
better than only ~9% of the sector/universe.
Exhibit 76: Forensic accounting score contributors Exhibit 77: Forensic score percentile vs sector and universe
Source: Ambit Capital research, Company
Source: Ambit Capital research, Company.
Automobiles
Comments on evolution of accounting score

TTMT’s forensic score weakened from “Zone of Safety” in FY16 (D3) to “Zone of
Darkness” in FY19 (D10). However, we expect improvement in TTMT’s forensic score
led by improvement in cumulative FCF to median revenue and continuation of
reduction in CWIP to gross block.
Exhibit 78: Forensic accounting score evaluation Exhibit 79: Movement in accounting checks
Category Accounting ratios FY18 FY19 FY20
CFO/EBITDA 91% 102% 109%
P & L mis-statement Volatility in depreciation rate 91bps -50bps -156bps

checks
PFD-% of Debtors more than
46% 51% 54%
six months
Cash yield 2% 7% 7%
Balance sheet Change in reserves (ex sec-

4.2 1.2 0.3
mis-statement checks prem)/(PAT ex dividend)
Cont Liab-% of NW 5% 9% 10%
Misc. exps-% of total revs 0% 0% 0%
Adv. to related parties /

0% 0% 0%
CFO
Pilferage checks
CWIP: Gross Block 16% 12% 12%
Cum. FCF/median revs 4% -3% -8%
Audit quality CAGR in auditor's

0.3 -0.3 2.3
checks remn/CAGR in cons. Rev.
Evolution of greatness score

Our greatness framework evaluates companies on drivers of ‘Greatness’ (e.g. cash
generation, incremental capex, efficiency in capital employed turnover etc.). TTMT’s
greatness score has also deteriorated from “Zone of Greatness” (~90%) in FY15 to
“Zone of Mediocrity” (~10%) in FY19. TTMT’s greatness score is higher than ~9% of
the sector peer set. The greatness score of TTMT is low mainly because of: 1) higher
financial leverage and 2) lower asset turnover.
Going ahead, we expect improvement in TTMT’s forensic and greatness score led by:
 Increase in asset turnover: Consolidated gross block turnover would rise led by
rising scale due to CV upcycle, PV business turnaround and strong volume growth
on low base of FY21E along with lower capex ahead led by Project Charge.
 Decrease in net debt/equity: We expect consolidated net debt to reduce from
~2x in FY21E to ~0.8x in FY24E led by better FCF generation with demand
revival leading to higher scale and improved margin other than lower cost
structures/capex requirements under Project Charge+.
Automobiles
Exhibit 80: Greatness score contributors
Exhibit 81: Greatness score percentile vs sector and Exhibit 82: Greatness score evolution
universe
Automobiles
HAWK scores – Ashok Leyland

AL’s forensic score has steadily improved from “Zone of Pain” in FY15 (D6) to “Zone
of Safety” in FY19 (D3). Furthermore, its greatness score has improved sharply from
“Zone of Mediocrity” (~0%) in FY15 to “Zone of Greatness” (~100%) in FY19.
AL features in the D3 decile on our accounting framework, or the ‘Zone of Safety”
decile. Key contributors to its relatively strong accounting score mainly include: 1)
strong CFO/EBITDA conversion, 2) low miscellaneous expenses as a % of revenue,
and 3) strong FCF generation as measured by cumulative FCF to revenue.
Strong improvement in overall financial parameters (and in turn accounting score) for
AL over FY15-19 has been led by the CV upcycle and the consequent rising volume,
lower discounts and scale benefits to EBITDAM. Post a cumulative ~70% YoY decline
in goods M&HCV volume for AL in FY20-21E, we expect a strong ~36% CAGR over
FY21-25E with the initiation of the next upcycle from FY22E, which should aid
improvement in CFO/EBITDA conversion and strong FCF generation.
In comparison to peers, AL scores substantially higher than median accounting score,
with score better than ~79% universally and ~82% as compared to the sector.
Automobiles

AL’s forensic score has steadily improved from “Zone of Pain” in FY15 (D6) to “Zone
of Safety” in FY19 (D3).
CFO/EBITDA 190% -12% 80%

P & L mis-statement Volatility in depreciation 161bps 126bps -69bps
checks rate
PFD-% of Debtors more
26% 11% 25%
than six months
Cash yield 15% 14% 6%
Balance sheet Change in reserves (ex
mis-statement sec-premium)/(PAT ex 1.2 1.1 -4.9
checks dividend)
Cont. Liab-% of NW 6% 5% 5%
Misc. exp-% of total revs 0% 0% 0%
0% 0% 11%
Pilferage checks CFO
Cum. FCF/median revs 80% 49% 47%
0.5 0.3 0.6

generation, incremental capex, efficiency in capital employed turnover etc.)
AL’s greatness score has improved sharply from “Zone of Mediocrity” (~0%) in FY15
to “Zone of Greatness” (~100%) in FY19. AL’s greatness score is higher than ~91%
of the sector and ~100% universally. Key contributors to high greatness score include
robust sales growth trajectory over FY15-19 and strong operating margin, among
others.
Automobiles
Exhibit 88: Greatness score percentile vs sector and universe Exhibit 89: Greatness score evolution
Automobiles
HAWK scores – Bharat Forge

BHFC’s forensic score has deteriorated from “Zone of Pain” in FY15 (D7) to “Zone of
Darkness” in FY19 (D9). Furthermore, its greatness score has also deteriorated from
“Zone of Greatness” (~75%) in FY15 to “Good, not great” (~50%) in FY19.
BHFC features in the D9 decile on our accounting framework, or the ‘Zone of
Darkness” decile. Key contributors to its relatively weak accounting score mainly
include: 1) higher miscellaneous expenses as a % of revenue, 3) lower provision for
doubtful debts, 3) higher advances to related parties as a % of CFO, and 4) higher
CWIP/gross block. In comparison to peers, BHFC scores lower than median
accounting score, with score better than ~18% universally and ~8% as compared to
the sector.
BHFC operates at 25-30% EBITDAM, high for any forging player globally. So, while
miscellaneous expenses might look slightly higher, they are justified given the
elevated EBITDAM. Moreover, BHFC will undergo low capex intensity in the coming
years, so CWIP is expected to be low. High advances to related parties were mainly
being driven by Tevva Motors in FY19, an entity which BHFC has hived off in Jun’20.
Thus, advance to related parties as a % of CFO is expected to come down.

BHFC’s forensic score has deteriorated from “Zone of Pain” in FY15 (D7) to “Zone of
Darkness” in FY19 (D9).
Automobiles
CFO/EBITDA 55% 39% 123%
P & L mis-statement Volatility in depreciation -27bps 20bps -27bps
checks rate
PFD-% of Debtors more
42% 42% 63%
than six months
Cash yield 11% 9% 5%
Balance sheet Change in reserves (ex
mis-statement sec-premium)/(PAT ex 0.8 1.2 -0.3
checks dividend)
Cont. Liab-% of NW 2% 3% 2%
Misc. exp-% of total revs 3% 3% 3%
0% 0% 10%
Pilferage checks CFO
Cum. FCF/median revs 46% 40% 44%
1.7 1.0 3.0
Source: Ambit Capital research, Company Source: Ambit Capital research, Company.

generation, incremental capex, efficiency in capital employed turnover etc.)
BHFC’s greatness score has deteriorated from “Zone of Greatness” (~75%) in FY15 to
“Good, not great” (~50%) in FY19. Key contributors to the lower greatness score
include weak sales growth trajectory and lower capital employed turnover. We expect
sales trajectory and capital employed turnover to increase with initiation of domestic
CV upcycle, strong US Class 8 order book translating into production down the line,
revival in O&G and scale-up of other businesses like PV, aerospace/defence,
locomotives etc.

Automobiles
Exhibit 95: Greatness score percentile vs sector and universe Exhibit 96: Greatness score evolution
Automobiles
Financial - Tata Motors

Income Statement (consolidated)
Year to March (Rs bn) FY19 FY20 FY21E FY22E FY23E
Total revenues 3,019 2,611 2,357 2,966 3,489
Operating expenditure 2,764 2,413 2,173 2,621 3,063
EBITDA 256 197 184 345 426
% growth -23% -23% -7% 88% 24%
Depreciation 236 214 235 256 277
EBIT 20 (17) (52) 89 149
Net Interest expenses 58 72 82 89 84
Non-operating income 21 12 7 7 7
Adjusted PBT (17) (77) (127) 7 72
Tax (24) 4 13 (1) 11
Adjusted PAT before MI 7 (81) (140) 7 61
% growth -85% N.M. N.M. N.M. 725%
MI/Share of associates 3 (9) (8) 3 7
Adj. Consol. PAT 10 (90) (148) 10 68
% growth -86% N.M. N.M. N.M. 558%
Exceptional gains/ (loss) (297) (29) - - -
Reported Consol. PAT (286) (119) (148) 10 68
Balance Sheet (consolidated)

Shareholders' equity 7 7 8 8 8
Reserves & surpluses 595 624 476 486 554
Total networth 602 631 483 494 562
Minority Interest 5 8 8 8 8
Debt 911 997 1,163 1,173 1,163
Deferred tax liability (37) (35) (35) (35) (35)
Sources of Funds 1,482 1,601 1,619 1,639 1,697
Gross block 2,659 3,032 3,405 3,642 3,905
Net block 1,105 1,263 1,401 1,382 1,368
CWIP 319 356 356 356 356
Goodwill on Consolidation 7 8 8 8 8
Investments 68 54 54 54 54
Cash & equivalents 416 446 209 317 471
Debtors 190 112 132 162 188
Inventory 390 375 280 345 403
Loans & advances 525 553 498 531 558
Total current assets 1,521 1,485 1,119 1,355 1,620
Current liabilities 1,314 1,315 1,198 1,373 1,543
Provisions 225 251 122 143 167
Total current liabilities 1,539 1,566 1,320 1,517 1,710
Net current assets (18) (81) (201) (162) (90)
Total assets 1,482 1,601 1,619 1,639 1,697
Automobiles
Cash Flow Statement (consolidated)

Profit before tax (314) (106) (127) 7 72
Depreciation 236 214 235 256 277
Net Interest Exp 58 72 82 89 84
Tax (32) (3) (13) 1 (11)
(Incr) / decr in net working capital 20 97 (118) 69 82
Others (0) 3 - - -
Cash flow from operations (32) 279 60 422 505
Capex (53) (410) (373) (237) (263)
Increase/ (Decrease) in Investments (5) 4 (8) 3 7
Others - - - - -
Cash flow from investments (57) (407) (381) (234) (257)
Issuance of equity (60) 153 0 (0) 0
Net borrowings 131 86 166 10 (10)
Interest paid (58) (72) (82) (89) (84)
Dividend paid - (4) - - -
Others (1) (4) - - -
Cash flow from financing 12 158 84 (79) (94)
Net Change in Cash (77) 30 (237) 108 154
Free Cash Flow (85) (132) (313) 185 242
Ratio Analysis (consolidated)

Year to March FY19 FY20 FY21E FY22E FY23E
EBITDA margin (%) 8.5% 7.6% 7.8% 11.6% 12.2%
EBIT margin (%) 0.7% -0.7% -2.2% 3.0% 4.3%
Net profit margin (%) 0.3% -3.5% -6.3% 0.3% 1.9%
Net debt: equity (x) 0.82 0.87 1.97 1.73 1.23
ROCE (post-tax) -0.7% -1.7% -4.6% 7.5% 10.4%
RoIC (%) -1.2% -2.4% -5.7% 10.7% 15.5%
RoE (%) 1.3% -14.6% -26.6% 2.1% 12.9%
Valuation Parameters (consolidated)

Adjusted EPS (Rs) 3.0 (23.5) (38.7) 2.7 17.8
Diluted EPS (Rs) 2.7 (23.5) (38.7) 2.7 17.8
Book value per share (Rs) 157 165 126 129 147
Dividend per share (Rs) 0.9 - - - -
P/E (x) 59.0 N.M. N.M. 66.3 10.1
P/BV (x) 1.1 1.1 1.4 1.4 1.2
Adjusted EV/ EBITDA (x) 5.7 7.3 7.9 4.2 3.4
EV/ Sales (x) 0.5 0.6 0.6 0.5 0.4
Automobiles
Financial - Ashok Leyland

Income Statement (standalone)
Year to March (Rs mn) FY19 FY20 FY21E FY22E FY23E
Net Sales 290,550 174,675 150,488 221,113 309,376
% growth 10% -40% -14% 47% 40%
EBITDA 31,357 11,737 1,094 22,877 38,270
% growth 6% -63% -91% 1,991% 67%
Depreciation 6,210 6,698 6,775 7,615 8,409
EBIT 25,147 5,039 (5,681) 15,261 29,861
Interest expenditure 704 1,095 2,750 2,109 1,659
Non-operating income 1,099 1,233 1,000 1,600 2,000
Adjusted PBT 25,543 5,177 (7,431) 14,752 30,202
Tax 5,136 1,224 (2,006) 3,688 7,551
Adjusted PAT 20,407 3,953 (5,424) 11,064 22,652
% growth 17% -81% N.M. N.M. 105%
Extraordinary income/ (expense) (575) (1,558) - - -
Reported PAT after minority interest 19,832 2,395 (5,424) 11,064 22,652
Balance Sheet (standalone)

Shareholders' equity 2,936 2,936 2,936 2,936 2,936
Reserves and surpluses 80,389 69,704 64,280 72,409 89,190
Total net worth 83,324 72,640 67,216 75,344 92,125
Debt 3,984 30,648 37,648 32,648 22,648
Deferred tax liability 2,497 2,648 2,648 2,648 2,648
Total liabilities 89,806 105,936 107,512 110,641 117,422
Gross block 75,936 94,524 99,039 106,778 114,512
Net block 56,145 68,036 65,776 65,899 65,225
CWIP 6,576 5,941 5,941 5,941 5,941
Investments (non-current) 26,365 27,196 30,196 30,196 30,196
Cash & cash equivalents 13,736 13,225 15,494 27,896 44,815
Debtors 25,057 11,804 9,070 13,327 18,647
Inventory 26,847 12,380 10,720 15,750 22,038
Loans & advances 27,518 25,314 15,667 21,203 29,666
Provisions 21,477 9,822 6,184 12,022 18,585
Net current assets 719 4,763 5,599 8,604 16,059
Total assets 89,806 105,936 107,512 110,641 117,422
Automobiles
Cash Flow Statement (standalone)

Net profit before tax 25,543 5,177 (7,431) 14,752 30,202
Depreciation 6,210 6,698 6,775 7,615 8,409
Others 704 1,095 2,750 2,109 1,659
Tax (5,625) (1,073) 2,006 (3,688) (7,551)
(Incr)/decr in net working capital (34,003) 4,631 3,200 6,461 6,529
Cash flow from operations (7,171) 16,528 7,300 27,250 39,249
Capex (net) (8,989) (17,954) (4,515) (7,739) (7,734)
(Incr)/decr in investments - - - - -
Sale of non-core assets/investments 29,702 (831) (3,000) - -
Other income (expenditure) - - - - -
Cash flow from investments 20,713 (18,785) (7,515) (7,739) (7,734)
Net borrowings (2,142) 26,664 7,000 (5,000) (10,000)
Issuance/buyback of equity 1,990 - (0) (0) -
Interest paid (704) (1,095) (2,750) (2,109) (1,659)
Dividend paid (8,561) (10,953) (1,767) - (2,936)
Cash flow from financing (10,228) 1,746 2,483 (7,109) (14,594)
Net change in cash 3,315 (511) 2,269 12,402 16,920
Free cash flow (before investments) (16,160) (1,426) 2,786 19,511 31,514
Ratio Analysis (standalone)

EBITDA margin (%) 10.8% 6.7% 0.7% 10.3% 12.4%
EBIT margin (%) 8.7% 2.9% -3.8% 6.9% 9.7%
Net prof. (bef min int) margin (%) 7.0% 2.3% -3.6% 5.0% 7.3%
Dividend payout ratio (%) 46% 61% 0% 27% 26%
Net debt: equity (x) (0.1) 0.3 0.4 0.1 (0.3)
RoCE (pre-tax) (%) 29% 5% -5% 14% 26%
RoCE (post-tax) (%) 23% 4% -4% 11% 20%
RoIC (%) 33% 5% -7% 21% 46%
RoE (%) 27.9% 6.3% -9.5% 17.0% 27.7%
Valuation Parameters (standalone)

EPS (Rs) 7.0 1.3 (1.8) 3.8 7.7
Diluted EPS (Rs) 7.0 1.3 (1.8) 3.8 7.7
Book value per share (Rs) 24.9 21.3 19.4 22.2 27.9
Dividend per share (Rs) 3.1 0.5 - 1.0 2.0
P/E (x) 13.5 69.9 N.M. 25.0 12.2
P/BV (x) 3.8 4.4 4.8 4.2 3.4
EV/Sales (x) 0.9 1.6 1.8 1.2 0.9
EV/EBITDA (x) 8.6 23.1 247.8 11.9 7.1
EV/EBIT (x) 10.8 53.8 (47.7) 17.8 9.1
Automobiles
Financial - Bharat Forge

Income Statement (consolidated)
Net Sales 101,457 80,558 60,437 85,008 108,031
% growth 21% -21% -25% 41% 27%
Raw material (RM) expenditure 42,143 35,765 17,155 30,282 44,616
RM/Sales 42% 44% 28% 36% 41%
Staff cost 12,463 11,955 13,150 14,465 15,912
Staff cost/Sales 12.3% 14.8% 21.8% 17.0% 14.7%
Other expenses 26,295 21,691 22,776 23,915 25,111
Other expenses/Sales 25.9% 26.9% 37.7% 28.1% 23.2%
EBITDA 20,556 11,147 7,356 16,346 22,392
% growth 19% -46% -34% 122% 37%
Depreciation 5,208 5,477 5,655 6,002 6,277
EBIT 15,348 5,670 1,702 10,345 16,116
Interest expenditure 1,272 1,713 1,089 939 789
Non-operating income 1,914 660 2,100 2,250 2,588
Adjusted PBT 15,990 4,617 2,713 11,656 17,915
Tax 5,664 1,125 543 2,564 4,300
Adjusted PAT/ Net profit before MI 10,326 3,492 2,171 9,092 13,615
% growth 22% -66% -38% 319% 50%
Minority Interest 4 (9) - - -
Adjusted PAT/ Net profit after MI 10,322 3,501 2,171 9,092 13,615
Balance Sheet (consolidated)

Shareholders' equity 931 931 931 931 931
Reserves & surpluses 52,829 51,266 52,892 60,894 70,151
Total networth 53,761 52,197 53,823 61,826 71,082
Minority Interest 298 320 320 320 320
Debt 37,728 38,784 33,784 28,784 23,784
Deferred tax liability 2,062 507 507 507 507
Total liabilities 93,850 91,808 88,433 91,436 95,692
Gross block 89,749 99,000 106,620 111,620 116,620
Net block 36,246 40,020 41,985 40,984 39,707
CWIP 8,307 11,427 8,307 8,307 8,307
Investments (non-current) 15,237 16,180 16,180 16,180 16,180
Cash & equivalents 4,755 5,751 9,690 10,450 11,670
Debtors 21,478 14,938 11,260 15,371 20,290
Inventory 18,447 17,347 11,260 15,371 19,675
Loans & advances 11,314 9,161 7,234 9,826 12,274
Provisions 2,940 2,334 1,751 2,463 3,130
Net current assets 34,060 24,181 21,961 25,965 31,498
Total assets 93,850 91,808 88,433 91,436 95,692
Automobiles
Cash Flow Statement (consolidated)

Net Profit Before Tax 15,990 4,617 2,713 11,656 17,915
Depreciation 5,208 5,477 5,655 6,002 6,277
Others - - - - -
Tax (5,664) (1,125) (543) (2,564) (4,300)
(Incr) / decr in net working capital (9,724) 10,876 6,158 (3,244) (4,313)
Cash flow from operations 5,810 19,846 13,983 11,850 15,579
Capex (net) (11,326) (12,371) (4,500) (5,000) (5,000)
(Incr) / decrease in investments (225) (944) - - -
Cash flow from investments (11,551) (13,315) (4,500) (5,000) (5,000)
Net borrowings 10,618 1,055 (5,000) (5,000) (5,000)
Dividend paid (2,724) (1,090) (545) (1,090) (4,359)
Others (439) (5,500) - - -
Cash flow from financing 7,455 (5,535) (5,545) (6,090) (9,359)
Net change in cash 1,714 997 3,938 760 1,220
Free cash flow (5,516) 7,475 9,483 6,850 10,579
Ratio Analysis (consolidated)

Year to March (%) FY19 FY20 FY21E FY22E FY23E
Gross margin 58.5% 55.6% 71.6% 64.4% 58.7%
EBITDA margin 20.3% 13.8% 12.2% 19.2% 20.7%
EBIT margin 15.1% 7.0% 2.8% 12.2% 14.9%
Net profit margin 10.2% 4.3% 3.6% 10.7% 12.6%
Net debt: equity (x) 0.5 0.4 0.2 0.1 0.0
RoCE (pre-tax) 21% 8% 4% 14% 20%
RoCE (post-tax) 13% 6% 3% 11% 15%
RoE 21% 7% 4% 16% 20%
Fixed Asset Turnover (x) 1.2 0.9 0.6 0.8 0.9
Asset Turnover (x) 1.2 0.9 0.7 0.9 1.2
Working Capital days 10.5 8.4 7.4 6.7 6.7
DPS (Rs) 5.0 2.0 1.0 2.0 8.0
Payout Ratio 22.6% 26.6% 21.5% 10.2% 27.4%
Valuation Parameters (consolidated)

EPS (Rs) 22 8 5 20 29
Diluted EPS (Rs) 22 8 5 20 29
Book value per share (Rs) 115 112 116 133 153
Dividend per share (Rs) 5.0 2.0 1.0 2.0 8.0
P/E (x) 24.9 73.4 118.5 28.3 18.9
P/BV (x) 4.8 4.9 4.8 4.2 3.6
EV/EBITDA (x) 13.5 24.8 37.7 16.9 12.4
EV/EBIT (x) 18.0 48.9 162.8 26.8 17.2
Automobiles
Institutional Equities Team

Research Analysts
Name Industry Sectors Desk-Phone E-mail
Nitin Bhasin - Head of Research Strategy / Cement / Home Building / Mid-Caps (022) 66233241 nitin.bhasin@ambit.co
Ajit Kumar, CFA, FRM Banking / Financial Services (022) 66233252 ajit.kumar@ambit.co
Amandeep Singh Grover Mid-Caps / Hotels / Real Estate (022) 66233082 amandeep.grover@ambit.co
Ashish Kanodia, CFA Consumer Discretionary (022) 66233264 ashish.kanodia@ambit.co
Ashwin Mehta, CFA Technology (022) 6623 3295 ashwin.mehta@ambit.co
Basudeb Banerjee Automobiles / Auto Ancillaries (022) 66233141 basudeb.banerjee@ambit.co
Darshan Mehta E&C / Infrastructure / Aviation (022) 66233174 darshan.mehta@ambit.co
Deep Shah, CFA Media / Telecom / Oil & Gas (022) 66233064 deep.shah@ambit.co
Dhruv Jain Mid-Caps (022) 66233177 dhruv.jain@ambit.co
Karan Khanna, CFA Mid-Caps / Hotels / Real Estate (022) 66233251 karan.khanna@ambit.co
Karan Kokane Automobiles / Auto Ancillaries (022) 66233028 karan.kokane@ambit.co
Mitesh Gohil Banking / Financial Services (022) 66233197 mitesh.gohil@ambit.co
Nikhil Mathur, CFA Healthcare (022) 66233220 nikhil.mathur@ambit.co
Pankaj Agarwal, CFA Banking / Financial Services (022) 66233206 pankaj.agarwal@ambit.co
Prasenjit Bhuiya Agri & Chemicals (022) 66233132 prasenjit.bhuiya@ambit.co
Prateek Maheshwari Cement (022) 66233234 prateek.maheshwari@ambit.co
Ritesh Gupta, CFA Consumer Discretionary / Agri & Chemicals (022) 66233242 ritesh.gupta@ambit.co
Satyadeep Jain, CFA Metals & Mining (022) 66233246 satyadeep.jain@ambit.co
Shreya Khandelwal Banking / Financial Services (022) 6623 3292 shreya.khandelwal@ambit.co
Sumit Shekhar Economy / Strategy (022) 66233229 sumit.shekhar@ambit.co
Udit Kariwala, CFA Banking / Financial Services (022) 66233197 udit.kariwala@ambit.co
Varun Ginodia, CFA E&C / Infrastructure / Aviation (022) 66233174 varun.ginodia@ambit.co
Vinit Powle Strategy / Forensic Accounting (022) 66233149 vinit.powle@ambit.co
Vivekanand Subbaraman, CFA Media / Telecom / Oil & Gas (022) 66233261 vivekanand.s@ambit.co
Sales
Name Regions Desk-Phone E-mail
Dhiraj Agarwal - MD & Head of Sales India (022) 66233253 dhiraj.agarwal@ambit.co
Bhavin Shah India (022) 66233186 bhavin.shah@ambit.co
Dharmen Shah India / Asia (022) 66233289 dharmen.shah@ambit.co
Abhishek Raichura UK & Europe (022) 66233287 abhishek.raichura@ambit.co
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Automobiles
Tata Motors (TTMT IN, BUY)
500
400
300
200
100
Aug-20
Aug-18
Aug-19
Jun-20
Oct-20
Jun-18
Jun-19
Oct-18
Oct-19
Feb-18
Feb-19
Feb-20
Apr-20
Apr-18
Apr-19
Dec-20
Dec-18
Dec-19
Dec-17
Tata Motors Ltd
Source: Bloomberg, Ambit Capital research
Ashok Leyland Ltd (AL IN, BUY)
180
160
140
120
100
80
60
40
20
0
Aug-20
Aug-18
Aug-19
Jun-20
Oct-20
Jun-18
Jun-19
Oct-18
Oct-19
Feb-20
Feb-18
Feb-19
Apr-19
Apr-20
Apr-18
Dec-20
Dec-17
Dec-18
Dec-19
Ashok Leyland Ltd
Bharat Forge Ltd (BHFC IN, BUY)
900
800
700
600
500
400
300
200
100
0
Aug-18
Aug-19
Aug-20
Jun-19
Jun-20
Jun-18
Oct-18
Oct-19
Oct-20
Feb-19
Feb-20
Feb-18
Apr-19
Apr-20
Apr-18
Dec-19
Dec-20
Dec-17
Dec-18
Bharat Forge Ltd
Automobiles
Explanation of Investment Rating - Our target prices are with a 12-month perspective. Returns stated are our internal benchmark
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BUY We expect this stock to deliver more than 10% returns over the next12 months
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Ambit - Automobiles - Thematic - Stage Set For CV Upcycle - 14dec2020

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Ambit - Automobiles - Thematic - Stage Set For CV Upcycle - 14dec2020

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Stage set for CV upcycle Key Recommendations

The Narrative in Charts

Delhi - Mumbai-Delhi freight rate (Rs) 50%

Diesel price (Rs/ltr) (RHS)

Goods M&HCV growth BTKM growth

Domestic goods M&HCV volume Goods M&HCV growth (%) (RHS)

AL EBITDA (Rs bn)

Source: Ambit Capital research, Company data

Pre-tax ROCE %) ROE (%) 60 FY23E EBITDAM ~12.5%

17% 17% 17% 4.5

Rol. P/BV (x) 3-Yr moving avg P/B (x)

Source: Ambit Capital research, Bloomberg, Company data

On the cusp of CV cycle reversal

Axle-load limit rise led to decline in blended tonnage

FY22E revival to be led by replacement demand

Domestic goods M&HCV volume Goods M&HCV growth (%) (RHS)

During the FY20-21E cyclical downturn, reduction in demand of consumable goods

Systemic fleet utilization trends in past 2 years:

VECV gaining share in adverse times on low base

TTMT AL VECV TTMT AL VECV

LCVs more resilient in downcycles

Goods LCV domestic market Growth (RHS) 70%

Upto 2 tonnes 2 to 3.5 tonnes

M&M Tata Motors Ashok Leyland

80% 75% 66% 73% 69%

Source: Ambit Capital research, SIAM

Target prices imply mid-cycle valuation multiples on FY23E

AL EBITDA (Rs bn) Pre-tax RoCE (RHS) 32

TTMT consol. FCF (Rs bn) 9

Source: Company, Ambit Capital research

BHFC EBITDA (Rs bn) Pre-tax RoCE (RHS) Rol. EV/EBITDA(x)

Source: Company, Bloomberg, Ambit Capital research

Exhibit 40: Ambit vs Consensus

Prefer AL vs TTMT/BHFC; prefer CVs over personal mobility driven businesses

Actual earnings delivery by the companies vs. estimated a year back

7 AL Trailing 12m EPS (Rs) AL 1 Yr fwd EPS (Rs)

Source: Ambit Capital research, Company, Bloomberg

Source: Ambit Capital research, Company, Bloomberg

Source: Ambit Capital research, Company, Bloomberg

Risks for the CV sector in India

Catalysts for the CV sector in India

Comparative important fundamental aspects of the three cyclical businesses

Tata Motors – JLR + India business moving

Enterprise Value of other subsidiaries 136,608

9 Rol. EV/EBITDA (x) 3-Yr moving avg EV/EBITDA (x)

Ashok Leyland – Key beneficiary of CV

Upgrade to BUY with TP of Rs128

140,000 50% Disbursement 51 71 99 130 153 136

Source: Ambit Capital research, SIAM

Source: Ambit Capital research, Company data

AL EBITDA (Rs bn) RoE (RHS)

Rol. EV/EBITDA (x) 3-Yr moving avg EV/EBITDA (x)

Bharat Forge – Set for an all-inclusive

Favorable base visible in CVs across India, US and EU for BHFC

Non-autos: Revival in O&G + rising scale in aerospace and locomotives

Disciplined pricing, improving mix and revival in scale to drive profitability

Key segments witnessing cyclical bottom to drive growth in FY21-23E

Rest India CV,

India PV, 260

EBITDA/kg (Rs) GP/kg (Rs) (RHS) Ex-standalone revenue (Rs bn)

80 160 Ex-standalone EBITDAM (RHS)

US shale gas rig count