Eicher Motors: At inflection point, maintain buy

Highlights:

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.VECV is estimated 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. Motilal Oswal estimates MDEP (excluding captive consumption of engine by VECV) to contribute 26%/20%/17% to VECV's revenues/EBITDA/PAT in CY15.

Outlook: 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. EIM's strong balance sheet (net cash increasing to Rs16.9b by CY15E) limits downside risk, maintain buy

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