Eicher Motors-TP: INR3,850 Buy :: Motilal Oswal

At inflection point
Multiple growth drivers in place
 With several of its projects to commence in CY13-14, driving 28% sales CAGR and 34%
EBITDA CAGR over CY12-15, Eicher Motors (EIM) is at an inflection point.
 Its motorcycle business will benefit from capacity expansion (new plant to start in
1QCY13), new launches (Thunderbird 500 and Café Racer), and network expansion.
 CV subsidiary, Volvo Eicher Commercial Vehicles (VECV), will benefit from the
commencement of the Medium Duty Engine Project (MDEP) and ramp-up in HCVs.
 Buy with a target price of INR3,850, 45% upside over two years. EIM's strong balance
sheet (net cash increasing to INR16.9b by CY15E) limits downside risk, in our view.

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Motorcycles: Royal Enfield well-positioned
Given its leadership position, cult brand equity and minimal competition, Royal
Enfield is well positioned to benefit from increasing trend of lifestyle biking.
Currently, demand for Royal Enfield motorcycles far exceeds supply with average
waiting period at 6-8 months. Capacity expansion (new plant to start in 1QCY13),
new launches (Thunderbird 500 and Café Racer), and network expansion to drive
25%/29% volume/EBTIDA CAGR over CY12-15E.
CVs: VECV better placed to challenge incumbents
The Indian CV industry is likely to evolve giving new players opportunity to
challenge the incumbents. VECV is better placed among new entrants, given the
marriage of Volvo's technological strength with Eicher's local market expertise.
It is taking initiatives to gain 15% share in HCVs and initial signs of success are
visible. Volvo intends to use Eicher as a mass market brand and VECV as its low
cost manufacturing hub over the long term; this presents a sizable export
opportunity. We estimate VECV to register a CAGR of 16%/28%/37% in volumes/
revenues/EBITDA over CY12-15.
MDEP: A linear business opportunity
MDEP holds immense strategic importance for both the Volvo Group and VECV.
While the Volvo Group would become entirely dependent on VECV for Euro 5
and Euro 6 base engines, MDEP will improve VECV's positioning in HCVs with
headstart on futuristic technology. Moreover, MDEP provides a stable business
opportunity to VECV. We estimate MDEP (excluding captive consumption of engine
by VECV) to contribute 26%/20%/17% to VECV's revenues/EBITDA/PAT in CY15.
Initiating coverage with a Buy rating
EIM provides strong growth visibility, driven by both Royal Enfield and VECV
operations, notwithstanding near-term weakness in CV business. We estimate
28% sales CAGR, 34% EBITDA CAGR and 28% PAT CAGR over CY12-15. The stock has
re-rated post the JV with Volvo. We expect appreciation from current levels to
be largely driven by earnings growth. Initiate coverage with a Buy rating and
target price of INR3,850, 45% upside over two years.