avendus two wheelers sector 2011jul

8/2/2019 Avendus Two Wheelers Sector 2011Jul

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Pleaserefertothedisclaimertowardstheendofthedocument.

IndiaEquityResearch

Automobiles

July27,2011

TwowheelersSafehavenwithinautomobileindustry

SectorReport The Indian twowheeler manufacturers possess superior resilience to

prevailingadverseeconomicforcessuchasrisingfuelpricesandrising

rates, when compared to other segments within automobiles.

Domestic demand for motorcycles is likely to stay strong with rural

sales growing twice as fast as urban sales. Exports may continue to

grow faster than domestic sales, despite the end to DEPB. Scooters

may continue to grow faster than motorcycles stemming from their

appeal to niche segments. Competition is intensifying following the

emergence of two significant new manufacturers. Yet, the structural

storystaysrobustwithsalesvolumeslikelytogrowata12%CAGRtill

FY14f.

We

initiate

coverage

on,

BJAUT

(Buy),

HH

(Reduce)

and

TVSL

(Buy).Riskfactorsarelowerdutydrawbackrates,fuelpriceincreases,

higherinterestratesandcommodityinflation.

Leastaffectedbytheprevailingheadwindsintheindustry

Consumer affordability is being tested by the increase in fuel prices and

interestrates;ouranalysisshowsthatthe impactofthese factors is loweron

twowheelers than on passenger and commercial vehicles. Rural areas

contribute45%oftwowheelersalesasagainst11%ofpassengervehiclesales.

Thehighercontributionofsalesfromruralareasleveragesonthegrowingrural

income. Sales are partially shielded from the impact of higher interest costs

duetolimitedpenetrationoffinancingoptions.

Momentumin

exports

likely

to

persist

despite

the

end

to

DEPB

Exportscontributed12%oftwowheelersalesinFY11,upfrom7%inFY06.The

robust export growth is a result of the growing acceptance of Indian two

wheelers in developing countries, where they are available at competitive

prices. Export demand is estimated to slow from a CAGR of 25% over FY07

FY11aswithdrawalofDEPBbenefits is likelyto leadtoan increase invehicle

prices.EvenafterDEPB,weestimateexports togrowataCAGRof18%over

FY12fFY14f;tocontribute13%oftwowheelersalesbyFY14f.

Robustgrowthinscootersaddstotwowheelergrowth

Thegrowingacceptanceofscootersasfamilyvehicles,duetoqualitiessuchas

unisex suitability, easy handling and loadbearing capacity, has led to robust

salesgrowth(CAGRof18%overFY07FY11)inthedomesticmarket,outpacing

mopeds

(CAGR

of

16%)

and

motorcycles

(CAGR

of

9%).

Scooters

contributed

18%ofdomestictwowheelersalesinFY11,upfrom13%inFY06.Weestimate

scooterstocontribute20%ofdomestictwowheelersalesbyFY14f.

InitiatecoverageonBJAUT,HHandTVSL

Thetargetpricesforthethreestocksarebenchmarkedtothehistoricalmean

ofHH.WevalueBJAUTatHHsfiveyearhistoricalP/E,whilewevalueTVSLata

15%discountdue to lowerearningsgrowth.Wevalue HHat 12.8xP/Eata

10%discounttoitsfiveyearhistoricalP/Eduetolowerearningsgrowth.We

initiatecoverageonBJAUT(Buy),HH(Reduce)andTVSL(Buy).Riskfactorsare

lower duty drawback rates, fuel price increases, higher interest rates and

commodityinflation.

BajajAutoRating

CurrentMarketPrice

TargetPrice

BloombergCode

Reuterscode

Avg.Vol.(3m)

Avg.Val.(3m)(INRmn)

52wkH/L(INR)

MCAP(INRbn/USDbn)

HeroHondaRating Reduce

CurrentMarketPrice

TargetPrice

BloombergCode

Reuterscode

Avg.Vol.(3m)

Avg.Val.(3m)(INRmn)

52wkH/L(INR)

MCAP(INRbn/USDbn)

TVSMotorsRating

CurrentMarketPrice

TargetPrice

BloombergCode

Reuterscode

Avg.Vol.(3m)(mn)

Avg.Val.(3m)(INRmn)

52wkH/L(INR)

MCAP(INRbn/USDmn)

Valuations

BJAUT

HH

TVSL

03/13f

9.1

03/12f

109

24.11/546

EV/E(x)03/13f03/12f

9.812.2

10.8 9.8

16.4 14.5

412.57/9.34

BJAUTIN

BAJA.BO

1,665/1,166

619

1,426

454,707

TVSLIN

TVSM.BO

87.5/43.6

P/E(x)

5.9

13.8

50.8

1,733

Buy

HROH.BO

1,821

889

363.63/8.23

1,616

HHIN

2,062/1,376

Buy

65

4.9

10.4

8.7

497,158

2.01

SriRaghunandhanNL,+9102266842863

[email protected]


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India Equity Research Twowheelers

Automobiles 2

InvestmentSummary

TheIndiantwowheelermanufacturerspossesssuperiorresiliencetoprevailingadverseeconomicforces.We estimate

theadditional

burden

to

the

owner

of

atwo

wheeler

from

rising

fuel

prices

and

rising

interest

rates

to

be

less

than

half

thattotheownerofacar,whenmeasuredrelativetoincomes.Theruralmarketabsorbed45%ofFY11salesoftwo

wheelersandislikelytogrowtwiceasfastasurbansalestillFY14f.Exportswouldstayasignificantdriverofmotorcycle

sales.DespitetheendtotheDEPBschemeweestimateathreeyearCAGRof18%tillFY14f. Scootersaleshadgrown

twiceasfastasmotorcycles inthepast fouryears.Theirstrongappeal innichesegments is likelytopreservehigher

growth. Competition within the Indian twowheeler market may intensify with the emergence of Honda Motorcycle

(not listed)and,Mahindra& Mahindra (notrated).Yet,thestructuralstorystays robustwithsalesvolumes likelyto

growata12%CAGRtillFY14f.WeinitiatecoverageonBJAUT(Buy),HH(Reduce)andTVSL(Buy).


TheIndiantwowheelermanufacturersaretheleastimpactedbyadverseforcessuchasrisingpricesof

fuel,rising

interest

rates

and

commodity

inflation.

The

addition

to

the

fuel

bill

of

atypical

two

wheeler

owner, following a 10% rise in the price of petrol, is estimated at c0.2% of pretax income. The

correspondingimpactforacarownerisestimatedatc0.5%ofpretaxincome.Similarly,theadditional

burdenfollowinga1%riseintheinterestrateonavehicleloanwouldcorrespondtoc0.1%andc0.5%

of their pretax incomes, respectively. Meanwhile, the adverse effect of an increase in commodity

prices such as steel and aluminum is marginally lower for twowheelers in comparison to passenger

vehicles.Growthintwowheelersaleshasbeenledbytheruralsegment,whichcomprised45%oftotal

sales in FY11.Thus,regardless of the headwinds,webelieve the structural story in the twowheeler

segmentisstillintactandthesegmentisestimatedtogrowataCAGRof12%overFY12fFY14f.

MomentuminexportslikelytopersistdespitetheendtoDEPB

Exportsasapercentageoftotalsaleshavegrownto12%inFY11,from7%inFY06.Thestronggrowth

inexports

was

due

to

positioning

of

Indian

two

wheelers

at

competitive

prices

in

the

global

market,

whichisdominatedbyJapaneseandChineseOEMs.Indianvehiclesarepricedatpricepointsbetween

Japanese and Chinese vehicles. Countries with low twowheeler penetration or inadequate public

transportsystemsarethetargetsforIndiantwowheelerexports.Exportdemandisestimatedtoslow

fromaCAGRof25%overFY07FY11aswithdrawaloftheDutyEntitlementPassBook(DEPB)benefits

islikelytoleadtoanincreaseinvehicleprices.EvenafterwithdrawalofDEPB,weestimateexportsto

growataCAGRof18%overFY12fFY14f;likelytocontribute13%oftwowheelersalesbyFY14f.


Scootersarethepreferredfamilyvehicleofmiddleclassfamiliesduetohigherpower,easeofhanding,

loadbearingcapacityandunisexsuitability.Scootersarepreferredbyyoungadults(learners),women

andbymenbeyondtheageof45.Inthedomesticmarket,scooters,whichgrewataCAGRof18%over

FY07FY11,

have

outpaced

mopeds

(16%

CAGR)

and

motorcycles

(9%

CAGR),

given

the

wider

customer

base. Scooters contributed 18% of domestic twowheeler sales in FY11 as against 13% in FY06. We

estimatescooterstocontribute20%ofdomestictwowheelersalesbyFY14f.

Newwaveofcompetitorsleavingtheirmark

The increasing competition in the twowheeler segment has led to loss of market share, higher

advertising expenditure and lower pricing power for existing players. In the domestic motorcycle

segment,HeroHondas(HHIN)marketsharedeclinedto54.6%inFY11asagainst58.5%inFY10.Inthe

domestic scooter segment, Honda Motorcycle and Scooter Indias (HMSI) market share declined to

43.1%inFY11asagainst50.6%inFY10.Ouranalysisofthepricingpowerinthetwowheelersegment

revealsthatrawmaterialcostasapercentageoftotal income increasedto72.1%aggregateofHH,

BajajAuto(BJAUTIN)andTVSMotorCompany(TVSLIN)intheMar11quarterasagainst68.2%inthe

Leastaffectedthebyfuel

priceincreases

and

interestratehikes.

Stronggrowthinexports

isdue

to

positioning

of

Indiantwowheelersat

competitivepricesinthe

globalmarket.

Scootershaveoutpaced

thegrowthofmopedsand

motorcycles,giventhe

widercustomer

base.

Increasingcompetitionin

thetwowheelersegment

hasledtolossofmarket

share,higheradvertising

expenditureandlower

pricingpowerforexisting

players.


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Automobiles 3

Mar10quarter,whereasEBITDAmargindecreasedto14.5% intheMar11quarterasagainst18.1% in

theMar10quarter.Thus,allthecompaniesfacedmargincontractionduringFY11.

Relativevaluations

applied

to

arrive

at

price

targets

WeusetherelativevaluationmethodtoderivethestandalonevaluationforBJAUTandTVSL.Weuse

HHasabenchmark,as it isthe largesttwowheelercompany,tovalueBJAUTandTVSL.BJAUT,TVSL

and HH represent the three largest twowheeler players in India. We value BJAUT at HHs fiveyear

historicalP/E,whilewevalueTVSLata15%discountduetolowergrowth.IncaseofHH,thevaluations

takenarebelowthefiveyearmeanduetolowerearningsgrowth.WevalueHHata10%discountto

its fiveyear historical P/E. We initiate coverage on BJAUT (Buy), HH (Reduce) and TVSL (Buy). Risk

factors are lower duty drawback rates, fuel price increases, higher interest rates and commodity

inflation.

Initiatecoverageon3twowheelercompanies

BajajAuto(BJAUT):BJAUThaslinedupnewmodelssuchasKTMDukeandBoxer,andvariantlaunches

fordomesticandexportmarkets inFY12f.These launchesare likelytostrengthentheproduct lineup

andaidgrowth.BJAUTsvehiclesarewellaccepted inexportmarkets CAGRof43%and25% intwo

and threewheeler exports over FY07FY11, respectively. BJAUT is likely to maintain higher EBITDA

margins of 19%20% over FY12fFY14f due to exposure to the highgrowth threewheeler passenger

segment.WeestimateBJAUTssalestogrowat12%overFY12fFY14f.OurJun12TPforBJAUTstands

atINR1,733,anupsideof22%.InitiatecoveragewithaBuyrating.

HeroHonda(HH):TheendoftheJVwithHondaMotorpresentsmanychallenges.Themostpressing

oneistostrengthenR&Doperationstochurnoutnewmodelsandupgradevehiclesforthenextlevel

of emission norms. Another challenge stems from the rise in competitive intensity posed by Honda

Motors solo presence in the country. HH faces margin pressure due to a rise in R&D, royalty and

advertising expenditures as a result of the split. In addition to breakup woes, the companys sales

growth

is

limited

by

production

constraints

and

slowing

launches.

We

estimate

sales

growth

to

taper

to

aCAGRof11%overFY12fFY14f.OurJun12TPforHHstandsatINR1,616,whichimpliesadownsideof

11%.InitiatecoveragewithaReducerating.

TVS Motor Company (TVSL): New launches in FY12f are likely to aid growth and strengthen TVSLs

portfolio.ThescootersegmentislikelytogrowataCAGRof17%overFY12fFY14f,ledbythegrowing

acceptance of scooters as a family vehicle. The company entered the lucrative threewheeler

passengersegment inFY08andsucceeded incapturing6%marketshare inFY11.Weestimatethree

wheelersalestogrowataCAGRof15%overFY12fFY14f.TVSLsuccessfullyrodetheexportgrowth

story (CAGR of 25% over FY07FY11), led by the growing acceptance of Indian vehicles in several

developing countries. We estimate TVSLs exports to grow at a CAGR of 15% over FY12fFY14f. We

estimatesalestogrowataCAGRof12%overFY12fFY14f.OurJun12TPforTVSLstandsatINR65,an

upsideof28%.InitiatecoveragewithaBuyrating.

Exhibit1:RelativevaluationsasonJuly26,2011CMP Rating

Target

Price Upside PriceChange(%) P/E EV/E

ROCE

(%)

ROE

(%)

(INR) (INR) (%) 1m 3m 6m FY12f FY13f FY14f FY12f FY13f FY14f FY12f FY12f

BJAUT 1,426 Buy 1,733 22 2.7 4.0 10.2 13.8 12.2 10.7 9.8 8.7 7.6 49.2 52.1

HH 1,821 Reduce 1,616 11 2.3 2.8 2.6 16.4 14.5 14.2 10.4 9.1 8.5 73.0 78.6

TVSL 51 Buy 65 28 2.8 16.9 15.3 10.8 9.8 8.9 5.9 4.9 4.0 13.1 20.8

Source:Bloomberg,

Avendus

Research

Relativevaluationsused

toderivefairvaluesfor

BJAUTandTVSL.

Initiatecoverage

with

a

BuyratingandJun12

targetofINR1,733.

Initiatecoveragewitha

Reduceratingwitha

Jun12targetofINR1,616.


BuyratingandJun12

targetofINR65.


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Automobiles 4

TableofContents

InvestmentSummary ........................................................................................................................ 2Leastaffectedbytheprevailingheadwindsintheindustry..................................................................2MomentuminexportslikelytopersistdespitetheendtoDEPB..........................................................2Robustgrowthinscootersaddstotwowheelergrowth......................................................................2Newwaveofcompetitorsleavingtheirmark .......................................................................................2Relativevaluationsappliedtoarriveatpricetargets............................................................................3Initiatecoverageon3twowheelercompanies ....................................................................................3

Leastaffectedbytheprevailingheadwindsintheindustry.............................................................. 5Lowerimpactoffuelpricesontwowheelerowners............................................................................5Lowerimpactofinterestratehikesontwowheelerowners ...............................................................6Marginallylowerimpactofcommodityinflationontwowheelers......................................................7Increasingshareofruralsales ...............................................................................................................9Structural

growth

story

still

intact.......................................................................................................10

MomentuminexportslikelytopersistdespitetheendtoDEPB.................................................... 12ExportslikelytogrowataCAGRof18%overFY12fFY14f .................................................................12Indiantwowheelerspositionedatcompetitiveprices .......................................................................12LowpenetrationinAfrica,LatinAmericaandAsiancountries ...........................................................13WithdrawalofDEPBlikelytoerodeFY12fEPSbyupto6%................................................................14

Robustgrowthinscootersaddstotwowheelergrowth................................................................ 16Widercustomerprofileforscooters ...................................................................................................16Majorplayersinscooter,motorcycleandmopedsegments ..............................................................17Indiantwowheelerscontribute22%24%ofglobaltwowheelers ....................................................18

Newwaveofcompetitorsisleavingitsmark .................................................................................. 19Lossofmarketshareforleaders .........................................................................................................19Marketingexpenditureremainsatsimilarlevelsinrelativeterms.....................................................19Reducedabilitytopassthroughcosts.................................................................................................20

Relativevaluationsappliedtoarriveatpricetargets...................................................................... 22ValuationsderivedforBJAUTandTVSLusingHHasabenchmark .....................................................22Forecastslowerthanconsensusestimates.........................................................................................23Initiatecoverageon3twowheelercompanies ..................................................................................23Riskfactors ..........................................................................................................................................24

Annexure ......................................................................................................................................... 25


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Automobiles 5


The Indian twowheeler manufacturers are the least impacted by adverse forces such as rising prices of fuel, rising

interestrates

and

commodity

inflation.

The

addition

to

the

fuel

bill

of

atypical

two

wheeler

owner,

following

a10%

rise in the price of petrol, is estimated at c0.2% of pretax income. The corresponding impact for a car owner is

estimated at c0.5% of pretax income. Similarly, the additional burden following a 1% rise in the interest rate on a

vehicleloanwouldcorrespondtoc0.1%andc0.5%oftheirpretaxincomes,respectively.Meanwhile,theadverseeffect

ofanincreaseincommoditypricessuchassteelandaluminumismarginallylowerfortwowheelersincomparisonto

passengervehicles.Growthintwowheelersaleshasbeenledbytheruralsegment,whichcomprised45%oftotalsales

inFY11.Thus,regardlessoftheheadwinds,webelievethestructuralstoryinthetwowheelersegmentisstillintactand

thesegmentisestimatedtogrowataCAGRof12%overFY12fFY14f.

Lowerimpactoffuelpricesontwowheelerowners

Petrolprices increasedexponentiallyover thepast15 months, leading to an increase inthe running

costof

vehicles.

Petrol

prices

currently

stand

at

INR68.3

(Mumbai),

a31%

increase

from

INR52.2

in

Apr10,whereasdieselpriceshaveonlyincreasedbyc15%.

Exhibit2:Trendinfuelprices(INR)Hikeinmonthof: Petrolprice(INR) Cumulativerise(%) Dieselprice(INR) Cumulativerise(%)

Apr10 52.2 39.88

Jun10 55.88 7 41.98 5.3

Sep10 55.97 7.2

Sep10 56.25 7.8 42.06 5.5

Nov10 57.01 9.2

Nov10 57.35 9.9

Dec10 60.46 15.8

Jan11 63.08 20.8

May11 68.33 30.9

Jun11 45.84 14.9

Jul11 45.99 15.3

Source:Bloomberg

A10%increaseinfuelpricesleadstoa0.2%increaseinexpenditureasapercentageofannualpretax

incomeforatwowheelerowner,whiletheincreaseis0.5%forapassengervehicleowner.

Exhibit3:Sensitivityanalysis impactofhigherpetrolpricesTwowheelers PassengerCars

Fuelcostperkm current(INR) 1.14 4.88

Annualfuelcost(INR)* 12,299 52,712

Annualpretaxincomeofvehicleowner(INRmn) 0.50 0.91

Fuelcostas%ofannualincome(%) 2.5 5.8

Assuming10%increaseinfuelprices

Fuelcostperkmpostincrease(INR) 1.25 5.37

Annualfuelcostpostincrease(INR) 13,529 57,983

Fuelcostas%ofannualincomepostincrease(%) 2.7 6.3

Riseinfuelcostas%ofannualincome(%) 0.2 0.5

Source:AvendusResearch Note:*Assumingvehicleusageof30kmsperday.

Ourestimateoftheincomeoftwowheelerandpassengervehicleownersarebasedontheestimated

contribution to demand across various categories of households (Source: NCAER). The income of a

twowheeler owner is estimated at INR0.50mn, while the income of a passenger vehicle owner is

Petrolpricesonan

uptrend.

Impactofpetrolpricehike

isloweronatwowheeler

ownerdespitelower

income.


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Automobiles 6

estimatedatINR0.91mn.The incomeofapassengervehicleowner is1.8xhigherthanatwowheeler

owner.

Exhibit4:AnnualpretaxincomeofavehicleownerAnnualpretaxincomeofatwowheelerowner(INRmn)

Householdtype AverageIncome

WeightsEstimated

contributiontodemand(%) WeightedAverageIncome

A B AxB

Global(>INR1.7mn) 1.70* 2% 0.03

Middleclass(INR0.34mntoINR1.7mn) 1.03 32% 0.33

Aspirers(INR0.15mntoINR0.34mn) 0.23 58% 0.13

Deprived(INR1.7mn) 1.70 11% 0.18

Middleclass(INR0.34mntoINR1.7mn) 1.03 67% 0.68

Aspirers(INR0.15mntoINR0.34mn) 0.23 22% 0.05

Deprived(


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Automobiles 7

Exhibit6:Interestcostasapercentageofrunningcost(%)Twowheeler Passengervehicle

Interestcostasapercentageofrunningcost(%) 24 43

(A+B+C)

Runningcost

per

month

(INR)

1,501

10,026

A Interestcostpermonth(INR)* 358 4,323

B Fuelcostpermonth(INR) 1,025 4,393

C Maintenancecostpermonth(INR) 118 1,310

Interestcostassumptionsforathreeyearloan

Averagecostofvehicle(INR) 47,000 524,000

Loanamount(80%;INR) 37,600 419,200

Interestrate HDFCBank(Flatrate)(%) 11.4 12.4

Source:HDFCBank,AvendusResearch Note:*Assuminginterestforathreeyearloan.

A1%increaseintheinterestrateonavehicleloanleadstoa0.1%increaseincostasapercentageofpre

taxincomeforatwowheelerowner,whiletheincreaseis0.5%forapassengervehicleowner.

Exhibit7:SensitivityanalysisimpactofhigherinterestrateTwowheeler Passengervehicle

Interest(%) Flatrate 11.4 12.4

Annualinterestcost(INR) 4,296 51,876

Annualpretaxincomeofvehicleowner(INRmn) 0.50 0.91

Interestcostas%ofannualincome(%) 0.86 5.67

Assuming1%increaseininterestrate

Interest(%) Flatratepostincrease 12.4 13.4

Annualinterestcostpostincrease(INR) 4,672 56,068

Interestcostas%ofannualincomepostincrease(%) 0.93 6.13

Risein

interest

cost

as

%

of

annual

income

(%)

0.07

0.46

Interestcostassumptionsforathreeyearloan

Averagecostofvehicle(INR) 47,000 524,000

Loanamount(80%;INR) 37,600 419,200

Source:HDFCBank,AvendusResearch Note:*Assuminginterestforathreeyearloan.

Marginallylowerimpactofcommodityinflationontwowheelers

Exhibit8:Rubberprices(INRperkilogram)

0

100

200

300

Apr09 Jul09 Oct09 Jan10 Apr10 Jul10 Oct10 Jan11 Apr11

70%

Source:Capitaline

Theadditionalburden

followinga

1%

rise

in

the

interestrateonavehicle

loanwouldcorrespondto

0.1%and0.5%ofannual

pretaxincomesfortwo

wheelerandpassenger

vehicleowner

respectively.


8/29


Automobiles 8

Exhibit9:Steelprices(USDpertonne)

400

600

800

1000

Apr09 Oct09 Apr10 Oct10 Apr11

Hotrolled Coldrol le d Ga lva ni ze d

16%

Source:Bloomberg

Exhibit10:Aluminumprices(USDpertonne)

1,000

1,500

2,000

2,500

3,000

Apr09 Oct09 Apr10 Oct10 Apr11

21%

Source:Bloomberg

Pricesof

steel,

aluminum

and

rubber

increased

by

16%,

21%

and

70%,

respectively

in

FY11

impacting

therawmaterialscostofOEMsintheautomobileindustry.

Theadverseeffectofanincreaseincommoditypricessuchassteelandaluminumismarginallylower

fortwowheelersduetothehigherproportionofconversioncostasapercentageoftotalrawmaterial

cost. Conversion cost refers to the expenditure incurred for converting commodities into finished

goodsthatarebuiltintoavehicle.Conversioncostasapercentageoftotalrawmaterialcoststandsat

69%fortwowheelers, incomparisonto66%and48%forpassengervehiclesandmediumandheavy

commercialvehicles(MHCVs),respectively.

Exhibit11:Conversioncostasapercentageoftotalrawmaterialcost(%)(INR) Costof

commodities

Conversion

costofvendors

Totalrawmaterial

cost

Conversioncostofvendorsasapercentage

oftotalrawmaterial/cost(%)

A B A+B

Twowheeler 8,456 18,544 27,000 69

Passengervehicle 78,739 153,261 232,000 66

Mediumandheavy

commercialvehicle 458,067 421,933 880,000 48

Source:AvendusResearch

A10%increaseincommoditypricesislikelytoimpacttherawmaterialcostofatwowheelerby3.1%,

comparedto3.4%forpassengervehiclesand5.2%forMHCVs.

Exhibit12:Increaseinrawmaterialcostduetohighercommodityprices(%)Costpervehicle(INR) Twowheelers Passengervehicles Mediumandheavy

commercialvehicles

Costofcommodities(INR) 8,456 78,739 458,067

Increasein

commodity

prices

(%)

10 10

10

Increaseincommodityprices(INR) 846 7,874 45,807

Totalrawmaterialscost(INR) 27,000 232,000 880,000

Increaseinrawmaterialscost(%) 3.1 3.4 5.2


Conversion of commodities into finished goods is done by automobile component manufacturers or

vendors.Thus,conversioncostreferstothepaymentmadebyOEMstothevendors.Asvendorsare

dependentonOEMs,theprice increasegiventovendorsforconversionofcommodities intofinished

goodsishalftheriseincommodityprices.A5%increase(halfofthe10%increaseincommodityprices)

inconversioncostislikelytoimpacttherawmaterialcostofatwowheelerby3.4%,comparedto3.3%

forpassengervehiclesand2.4%forMHCVs.

Steel,aluminumand

rubberpricesareonan

uptrend.

Theimpactofcommodity

inflationismarginally

lowerfortwowheelers

thanforpassenger

vehicles.


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Automobiles 9

Exhibit13:Increaseinrawmaterialcostduetoincreaseinconversioncostofvendors(%)Costpervehicle(INR) Twowheelers Passengervehicles Medium&heavycommercialvehicles

Conversioncostofvendors(INR) 18,544 153,261 421,933

Increasein

conversion

cost

of

vendors

(%)

5 5

5

Increaseinconversioncostofvendors(INR) 927 7,663 21,097

Totalrawmaterialscost(INR) 27,000 232,000 880,000

Increaseinrawmaterialscost(%) 3.4 3.3 2.4


The combined effect of the increase in commodity prices (assuming 10%) and conversion cost

(assuming5% halfofincreaseincommodityprices)islikelytoimpacttherawmaterialcostofatwo

wheelerby6.6%,comparedto6.7%forpassengervehiclesand7.6%forMHCVs.Thus,thedifferencein

totalimpactonrawmaterialcostbetweentwowheelersandpassengervehiclesismarginal.

Exhibit14:Increaseintotalrawmaterialcost(INR)Costpervehicle) Twowheelers Passengervehicles

Medium&

heavy

commercialvehicles

Costofcommodities(INR) 8,456 78,739 458,067

Increaseincommodityprice(%) 10.0% 10.0% 10.0%

A Increaseincommodityprice(INR) 846 7,874 45,807

Conversioncostofvendors(INR) 18,544 153,261 421,933

Increaseinconversioncostofvendors(%) 5.0% 5.0% 5%

B Increaseinconversioncostofvendors (INR) 927 7,663 21,097

Totalrawmaterialcost(INR) 27,000 232,000 880,000

A+B Increaseincost(INR) 1,773 15,537 66,903

Increase

in

cost

(%)

6.6% 6.7%

7.6%Source:AvendusResearch

Therawmaterialcostpervehicleincreasedby9%,11%and12%forBJAUT,TVSLandHH,respectively,

inFY11.WedonotestimatethecommoditypriceincreaseinFY12ftobeassevereasthatinFY11.We

estimatetherawmaterialcostpervehicletoincreaseby3%4%fortwowheelercompanies,basedon

our projections forsteel (increase of 14% inFY12f overaverageFY11 prices),aluminum (increaseof

4%)andrubber(increaseof16%)prices.

Increasingshareofruralsales

Theruraldemandfortwowheelershasconsistentlyoutperformedurbandemand.Ruraldemandhas

been increasingdueto lowerpenetrationandrising income levels.Ruralpenetrationstandsat9% in

FY11,whereasurbanpenetrationstandsat40%.

Exhibit15:TwowheelerpenetrationinruralandurbanareasinFY11(%)Households Penetration(%)

Rural 9

Urban 40

Overall 27

Source:Company

Theruraldemandgrowth(CAGRof16%overFY07FY11)hasoutpacedurbandemandgrowth(CAGRof

8%).

Strongruraldemanddue

tolowerpenetrationand

risingincome.

Ruraldemandgrowthhas

outpacedurbandemand.


10/29


Automobiles 10

Only 25% of total twowheeler sales are funded by loans, significantly lower than that for other

automobilesegments(forpassengerandcommercialvehicles,60%65%ofsalesarefundedbyloans).

Thepenetrationoffinanceavenuesislowerinruralareas;inspiteofthis,ruralareascontribute45%of

twowheeler

sales.

This

indicates

ahigher

percentage

of

cash

purchases,

driven

by

higher

income.

The

higherincomeinruralareasisdrivenbyrecordcropproduction,higherfarmproductpricesandrural

jobguaranteeschemes.

Theruralcontributiontodemandishigherfortwowheelers(45%inFY11)thanforpassengervehicles

(11%).Twowheelercompaniesderive45%50%oftheirrevenuesfromruralareas.Totakeadvantage

of the highgrowing rural demand, companies are further expanding their dealership network and

touchpointstopenetratedeeperintoruralareas.

Exhibit16:DealershipnetworkandtouchpointsFY11Dealers Touchpoints

HH 800 4,400

BJAUT 610 4,270

TVSL

700 2,700

Source:Company

Structuralgrowthstorystillintact

Indiasyoungpopulation,growingmiddleclassandrisingincomelevelsarefuelingthehigherspendon

twowheelers.Almost50%ofthepopulationisunder25,whilec65%isunder35.Ayoungpopulation

impliesalargerworkforceandlesserdependents,leadingtohigherdiscretionaryspend.

Exhibit17:Populationbyagegroups

014

36%

1524

18%

2534

15%

3549

17%

50+

14%

Source:2001Censusdata

Higherincomeinrural

areasisdrivenbyrecord

cropproduction,higher

farm

product

prices

and

ruraljobguarantee

schemes.

Companiesareexpanding

theirnetworkto

penetratedeeperinto

ruralareas.

Ayoungpopulation

impliesalargerworkforce

andlesserdependents,

leadingtohigher

discretionaryspend.


11/29


Automobiles 11

Exhibit18:Estimatedgrowthinmiddleclasshouseholds(INRmn)

Source:NCAER

Over70%ofmiddleclasshouseholdsowntwowheelers;thissectionislikelytogrowataCAGRof11%

overFY12eFY16e(Source:NCAER).

The sales price of a vehicle as a ratio of per capita income (FY11) for twowheelers and passenger

vehiclesis0.9xand9.6x,respectively,implyingeasyaffordabilityinthetwowheelersegment.

Thestructuralstory inthetwowheelersegment isstill intactwithruraldemand in thedriversseat.

WeestimatethetwowheelersegmenttogrowataCAGRof12%overFY12fFY14f ledbyaCAGRof

12%indomesticgrowthand18%inexportgrowth.

Exhibit19:Percapitaincome(INR)

10,000

30,000

50,000

70,000

FY01 FY03 FY05 FY07 FY09 FY11

13%CAGR

Source:RBI

Exhibit20:Domestictwowheelersales(mn)

Source:SIAM,AvendusResearch

Over70%ofmiddleclass

householdsowntwo

wheelers;thissectionis

likelytogrowataCAGRof

11%CAGRFY12fFY16f.

Thesalespriceofavehicle

asaratioofpercapita

income(FY11)fortwo

wheelersandpassenger

vehiclesis0.9xand9.6x,

respectively,implying

easyaffordabilityinthe

twowheelersegment.

2

6

10

14

18

FY96 FY99 FY02 FY05 FY08 FY11 FY14f

12%CAGR

11%CAGR

10.7 13.3

31.4

53.3

113.8

0

50

100

150

FY01 FY05 FY11e FY16e FY26e

`

11% CAGR


12/29


Automobiles 12

MomentuminexportslikelytopersistdespitetheendtoDEPB

Exportsasapercentageoftotalsaleshavegrownto12%inFY11,from7%inFY06.Thestronggrowthinexportswas

dueto

positioning

of

Indian

two

wheelers

at

competitive

prices

in

the

global

market,

which

is

dominated

by

Japanese

andChineseOEMs.IndianvehiclesarepricedbetweenJapaneseandChinesevehicles.Countrieswithlowtwowheeler

penetrationor inadequatepublictransportsystemsarethetargetsfor Indiantwowheelerexports.Exportdemand is

estimatedtoslowfromaCAGRof25%overFY07FY11aswithdrawalofDEPBbenefitsarelikelytoleadtoanincrease

invehicleprices.EvenafterwithdrawalofDEPB,weestimateexportstogrowataCAGRof18%overFY12fFY14f;likely

tocontribute13%oftwowheelersalesbyFY14f.

ExportslikelytogrowataCAGRof18%overFY12fFY14f

The twowheeler segment has witnessed robust growth in exports (CAGR of 25% over FY07FY11),

chieflydrivenbymotorcycles(CAGRof31%).DuringFY07FY11,exportgrowthoutperformeddomestic

growth(CAGRof11%)byahugemargin.Exportsasapercentageoftotalsaleshavegrownfrom7%in

FY06

to

12%

in

FY11.

We

estimate

the

contribution

of

exports

to

grow

to

13%

of

two

wheeler

sales

by

FY14f.

Exhibit21:ExportsalesExports FY06 FY07 FY08 FY09 FY10 FY11 CAGR:FY07FY11(%)

Scooters 83,934 35,685 25,482 25,865 30,125 52,312

Growth(%) 57 29 2 16 74 9

Motorcycles 386, 054 545,887 776,007 97 0,969 1,102,978 1,480,983

Growth(%) 41 42 25 14 34 31

Mopeds 43,181 37,566 18,224 7,300 6,905 6,295

Growth(%) 13 51 60 5 9 32

Total 513, 169 619,138 819, 713 1, 004, 134 1,140, 008 1,539,590

Growth(%) 21 32 22 14 35 25

Source:SIAM

Exhibit22:DomesticsalesDomestic FY06 FY07 FY08 FY09 FY10 FY11 CAGR:FY07FY11(%)

Scooters 909, 051 940, 673 1,050,109 1, 145,798 1,462, 507 2,073,797

Growth(%) 3 12 9 28 42 18

Motorcycles 5,810,599 6,553,664 5,768,342 5,835,145 7,341,265 9,019,090

Growth(%) 13 12 1 26 23 9

Mopeds 332,741 355,870 413,759 431,214 564,584 697,418

Growth(%) 7 16 4 31 24 16

Total 7,052,391 7,850,207 7,232,210 7,412,157 9,368,356 11,790,305

Growth(%) 11 8 2 26 26 11

Source:SIAM

Indiantwowheelerspositionedatcompetitiveprices

ChineseandJapaneseOEMsdominatetheworldtwowheelermarket.Chinesevehiclesarecheapand

are positioned at the lower end of the market, whereas Japanese vehicles are expensive. In such a

scenario,IndianOEMsarepricingtheirproductsbetweenJapaneseandChinesevehicles.

IntheNigerianmarket,BJAUTsellstwowheelersata40%premiumtoChinesevehicles.Despitehigher

prices,BJAUThassuccessfullycapturedc28%marketshare(secondlargestplayer)inthismarket.

IntheIndonesianmarket,BJAUTofferstwowheelersatcheaperpricesagainstJapanesevehicles.The

companysellsthreevariantsofthePulsarinIndonesianmarket.HondaMotors(7267JP;NR)vehicles

arecostlierthanBJAUTsvehiclesbyatleast15%34%intheirrespectivecategories.

Exportgrowthhas

outpaceddomestic

growth.


13/29


Automobiles 13

Exhibit23:ComparisonofBJAUTsvehicleswithHondasvehiclesinIndonesiaBJAUT Honda

Pulsar135LS Citisport1

Engine[cc]

135 125

Price[IDR] 14,750,000 17,190,000

PricedifferencewithBJAUT(%) 17

BJAUT Honda Honda

Pulsar180DTSi MegaproCW MegaproSW

Engine[cc] 179 149 149

Price[IDR] 15,900,000 19,500,000 18,300,000

PricedifferencewithBJAUT(%) 23 15

BJAUT Honda

Pulsar220DTSi TigerD/SHeadlight

Engine[cc]

220 197

Price[RP] 18,600,000 24,940,000

PricedifferencewithBJAUT(%) 34

Source:Company,AvendusResearch

LowpenetrationinAfrica,LatinAmericaandAsiancountries

IndianOEMsaretargetingAfrica,theMiddleEast,LatinAmerica,SouthAsia,SouthEastAsiaandWest

Asiancountries.Manyofthesecountrieshavelowtwowheelerpenetration.Someofthesecountries

arehaveinadequatepublictransportsystems,whereinasignificantpartoftheruralpopulationhasno

accesstothetransportsystem.Thismakesthemidealtwowheelerexportdestinations.

Exhibit24:Twowheelerpenetrationacrosscountries(penetrationperthousandpersons)

Source:MeszlerEngineeringServices 2007

Hondasvehiclesare

costlierthanBJAUTs

vehiclesby

at

least

15%

34%.

Targetexportcountries

forIndianOEMsare

countrieswithlow

penetrationorinadequate

publictransportsystems.


14/29


Automobiles 14

Exhibit25:RuralAccessIndex proportionofruralpopulationwithaccesstotransportsystemsRegion Country RAI(%)

Africa Sudan 5

Tanzania

38

Kenya 44

Nigeria 47

LatinAmerica Brazil 53

Peru 43

Asia Nepal 17

Myanmar 23

Bangladesh 37

Bhutan 47

India 61

Source:WorldBank 2005

Withdrawalof

DEPB

likely

to

erode

FY12f

EPS

by

up

to

6%

The DEPB scheme, which gave liberal reimbursements to exporters at 8%9% free on board (FOB)

value, is coming toanend. Exporters will have to migrate to the Duty Drawback scheme where the

reimbursementislikelytobemuchlower(estimatedtobebetween1%and5%ofFOBvalue).

ThegovernmenthasannouncedthewithdrawaloftheDEPBschemefromSep11.Thegovernmentmay

also extend the scheme till Dec11 as the rates under the Duty Drawback scheme are yet to be

determined.

Wedidasensitivityanalysis togauge the impact ontheFY12fEPS, basedonDEPBexpirydatesand

DutyDrawbackrates.

We have assumed that companies are likely to increase vehicle prices and lower distributor

commissions

by

up

to

4%

to

compensate

for

the

loss

of

DEPB

benefits.

If

the

difference

between

the

DEPBrateandtheDutyDrawbackrateismorethan4%,itislikelytoadverselyaffecttheFY12fEPS.For

instance, if thenewDutyDrawback rate is3%andtheDEPBschemeexpires in Sep11, then BJAUTs

FY12fEPSislikelytobeadverselyaffectedby1.5%asshowninExhibit26.

Exhibit26:ImpactofwithdrawaloftheDEPBschemeonFY12fEPS(%)DEPBschemeextensiondate DutyDrawbackRates(%)

5.0 4.0 3.0 2.0 1.0

BJAUT

TillSep11 0.0 0.8 1.5 2.2 2.9

TillDec11 0.0 0.3 0.7 1.0 1.3

TVSL

TillSep11

0.0

1.6

3.2

4.7

6.3

TillDec11 0.0 0.8 1.7 2.5 3.3

HH

TillSep11 0.0 0.1 0.2 0.3 0.4

TillDec11 0.0 0.1 0.1 0.2 0.2


Similarly,wedidasensitivityanalysistogaugethe impactofDEPBexpiryontheFY13fEPS(shown in

Exhibit27).

Wehaveassumedthat

companiesarelikelyto

increasevehiclepricesand

lowerdistributor

commissionsbyupto4%

tocompensatefortheloss

ofDEPBbenefits.


15/29


Automobiles 15

Exhibit27:ImpactofwithdrawaloftheDEPBschemeonFY13fEPS(%)Company DutyDrawbackRates(%)

5.0 4.0 3.0 2.0 1.0

BJAUT

0.01.7

4.5

6.4

8.7

HH 0.0 0.2 0.5 0.8 1.0

TVSL 0.0 3.1 8.5 12.1 16.4


As TVSL has a lower EBITDA margin (6.2% in FY12f) than BJAUT (19.8% in FY12f) and HH (14.4% in

FY12f),theimpactoftheDEPBschemeexpiryislikelytobehigherforthecompany.

Wehaveassumedthenewdutydrawbackrateat5%inourestimatesforthecompanies.Weestimate

thegrowthinexportstoslowfromaCAGRof25%overFY07FY11,ascompaniesmaytakepricehikes

tocompensateforthe lossofDEPBbenefits.EvenafterwithdrawalofDEPB,weestimateexports to

growataCAGRof18%overFY12fFY14f.


16/29


Automobiles 16


Scootersarethepreferredfamilyvehicleofmiddleclass familiesduetohigherpower,easeofhanding, loadbearing

capacityand

unisex

suitability.

Scooters

are

preferred

by

young

adults

(learners),

women

and

by

men

beyond

the

age

of

45. In the domestic market, scooters, which grew at a CAGR of 18% over FY07FY11, have outpaced mopeds (16%

CAGR)andmotorcycles(9%CAGR),giventhewidercustomerbase.Scooterscontributed18%ofdomestictwowheeler

salesinFY11asagainst13%inFY06.Weestimatescooterstocontribute20%oftwowheelersalesbyFY14f.

Widercustomerprofileforscooters

Inthedomesticmarket,thescootersegmentgrewataCAGRof18%overFY07FY11,outperforming

mopeds(16%CAGR)andmotorcycles(9%CAGR).Thisgapingrowthratesoftwowheelercategoriesis

duetothedifferenceincustomerprofiles.

Exhibit28:Salesgrowthfordomesticscooters,motorcyclesandmopeds(%)

20

0

20

40

FY07 FY08 FY09 FY10 FY11

Scooters Motorcycles Mopeds

Source:SIAM

Scooters are the preferred family vehicle of middle class families due to higher power (there is a

growing preference for 100cc+ scootersover the past five years),ease of handing (gearless and self

start),higher loadbearingcapacity (luggagecarryingspace in the front,near the legsandbelow the

seat), lighterhandling(visvismotorcycles)andunisexsuitability(suitedforbothmenandwomen).

Scootersarepreferredbyyoungadults(learners),womenandbymenbeyondtheageof45.

Exhibit29:Customerprofilesofscooters,motorcyclesandmopedsGender Specificsection Class

Scooters Menandwomen Youngadults,women,menabove45 RichandMiddleclass

Motorcycles

Men

Males

up

to

45

years

Rich

and

Middle

class

Mopeds Men Malesupto45years LowerMiddleclass


Given the wider customer base for the scooter segment, domestic scooter segment sales as a

percentage of domestic twowheeler sales have increased from 13% in FY06 to 18% in FY11. We

estimate this trend to continue and scooter segment sales as a percentage of twowheelersegment

salestoincreaseto20%byFY14f(representsaCAGRof17%overFY12fFY14f).

Scootersgrowthhas

outpacedgrowthin

mopedsandmotorcycles.

Scootersarepreferredby

youngadults(learners),

womenandbymen

beyondtheageof45.


17/29


Automobiles 17

Exhibit30:Domesticsalesbreakup(%)

13 12 15 15 1618 18 19 20

82 83 80 79 78 7676 75 74

5 56 6 6 6 6 6 6

0

50

100

FY06 FY07 FY08 FY09 FY10 FY11 FY12f FY13f FY14f

Scooters Motorcycles Mopeds


Majorplayersinscooter,motorcycleandmopedsegments

Themotorcyclesegmenthas thehighest numberof players, ateight,asagainst five inscootersand

oneinmopeds.

The motorcycle segment witnessed the entry of one player, Mahindra & Mahindra (MM IN, NR),

whereasthescootersegmentwitnessed theexitofoneof itsoldestplayers,BJAUT.TVSL is theonly

playerinthemopedsegment.

After the split from HH, HMSI is planning several product launches, especially in the mass market

category.Thecompanyisalsoaggressivelyrampingupitsdistributionnetworkby200dealersperyear.

Exhibit31:Marketshareinmotorcycleandscootersegments(%) Motorcyclesmarketshare(%) Scootersmarketshare(%)

FY06 FY07 FY08 FY09 FY10 FY11 FY06 FY07 FY08 FY09 FY10 FY11

HH 48.2 45.8 49.4 52.4 51.9 48.0 1.5 9.5 9.7 13.3 14.4 17.0

BJAUT 30.9 33.5 32.7 28.0 29.7 32.3 11.7 2.1 2.0 1.0 0.3 0.0

TVSL 13.0 13.0 9.4 9.3 7.6 8.0 24.7 26.5 24.2 21.2 20.7 21.9

HMSI 1.6 2.4 4.3 5.9 6.2 7.1 50.3 56.0 58.5 56.9 50.3 42.7

YamahaMotor 4.2 3.8 2.6 3.0 3.4 3.6

RoyalEnfield 0.5 0.5 0.6 0.7 0.6 0.5

SuzukiMotorcycleIndia 0.0 0.9 0.9 0.7 0.6 0.5 0.0 0.0 2.3 7.1 9.5 10.9

MM 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.8 7.5

LML 1.1 0.0 0.0 0.0 0.0 0.0 4.2 0.0 0.0 0.0 0.0 0.0

KineticMotor* 7.6 5.9 3.4 0.5 0.0 0.0

Source:SIAM Note:*Mahindra&MahindraacquiredKineticMotorinFY09

Weestimatescooter

segmentsalesasa

percentageoftwo

wheelersalestoincrease

from18%inFY11to20%

byFY14f.

Themotorcyclesegment

sawentryofoneplayer

MM,whereasthescooter

segmentsawtheexitof

anoldplayerBJAUT.


18/29


Automobiles 18

Indiantwowheelerscontribute22%24%ofglobaltwowheelers

InIndia,thetwowheelersegmenthasgrowninsalesandvaluetermsovertheyears.Thesegmenthad

salesof13.3mninFY11(at93%capacityutilization)andisvaluedatcINR441bn.

Exhibit32:SegmentsizeFY11Sales(mn) FY11fSalesValue(INRbn)

Twowheelers 13.3 c441

Scooters 2.1 c69

Motorcycles 10.5 c359

Mopeds 0.7 c12


Globally, the twowheeler market is classified into leisure and utility markets; North America and

Europeareleisuremarkets.Thebulkofvehiclesaresoldintheutilitymarkets;withinutility,thereare

two types of markets, viz. Mature and Emerging markets.Thailand, Indonesia, Philippines and Brazil

constitutematuremarkets,whileAfricaisanemergingmarket.

Globally, the twowheeler market is dominated by Chinese and Japanese manufacturers. In mature

markets, Japanese OEMs rule the market. In some emerging markets where Japanese OEMs do not

haveadirectpresence,ChineseOEMshavemadestronginroads.

Exhibit33:Globalsalesoftwowheelers(2010)2010sales(mn)

Global c5560

Asia 43.9

Africa 4.0

Europe 2.0

LatinAmerica 4.0

NorthAmerica 0.5

Source:Yamaha

Motor

annual

report,

Avendus

Research

The Indian twowheeler industry (13.3mn sales) contributes 22%24% of global twowheeler (55mn

60mnsales)sales.

Indiantwowheeler

segmenthassalesof

13.3mnand

is

worth

cINR441bn.

Globally,thebulkoftwo

wheelersaleshappenin

utilitymarkets.Theglobal

marketisdominatedby

ChineseandJapanese

OEMS.


19/29


Automobiles 19

Newwaveofcompetitorsisleavingitsmark

Theincreasingcompetitioninthetwowheelersegmenthasledtolossofmarketshare,higheradvertisingexpenditure

andlower

pricing

power

for

existing

players.

In

the

domestic

motorcycle

segment,

HHs

market

share

declined

to

54.6%

inFY11asagainst58.5%inFY10.Inthedomesticscootersegment,HMSIsmarketsharedeclinedto43.1%inFY11as

against50.6%inFY10.Ouranalysisofthepricingpowerinthetwowheelersegmentrevealsthatrawmaterialcostasa

percentageoftotalincomeincreasedto72.1%aggregate ofHH,BJAUTandTVSLinMar11quarterasagainst68.2%

inMar10quarter,whereastheEBITDAmargindecreasedto14.5%inMar11quarterasagainst18.1%inMar10quarter.

Thus,allthecompaniesfacedmargincontractionduringFY11.

Lossofmarketshareforleaders

Theincreasingcompetitionhasledtoadropinmarketshareforleadersinthedomestictwowheeler

segment.Indomesticmotorcycles,HHsmarketsharedeclinedfrom58.5% inFY10to54.6% inFY11.

AfterthesplitfromHH,HMSIhasaggressivelylinedupproductlaunchesandcapacityexpansionplans

to

increase

capacity

from

1.6mn

units

to

4.0mn

units

by

1.4mn

units.

HMSI

has

already

overtaken

TVSL

in domestic market share. We see HMSI as HH and BJAUTs biggest competitor in the future. MM

enteredthemotorcyclesegmentwiththelaunchofStallioinFY11.

Exhibit34:Marketshareindomesticsegment(%)Segment Marketleader MarketShare

FY10 FY11

Motorcycles HH 58.5 54.6

Scooters HMSI 50.6 43.1

Source:SIAM

Inthedomesticscootersegment,HMSIsmarketsharedeclinedfrom50.6%inFY10to43.1%inFY11.

MMenteredthescootersegmentwiththeacquisitionofKineticMotor,andhas increased itsmarket

share

in

scooters

from

4.8%

in

FY10

to

7.7%

in

FY11.

Apart

from

competition,

a

long

waiting

list

for

HMSIsvehiclesisanothercauseforlossinmarketshare;customersshiftedtowardsproductsofSuzuki

MotorcycleIndia,HHandTVSL.

Marketingexpenditureremainsatsimilarlevelsinrelativeterms

As total income grows, fixed costs such as marketing expenditure should reduce as a percentage of

total income(reduction inrelativeterms)this isoperatingleverage.Althoughtotal incomegrewby

23% for HH and 42% for TVSL in FY11, marketing expenditure as a percentage of total income has

remained at similar levels for HH (2.3% of total income) and TVSL (7.2% of total income). As the

competitionintensityincreases,thesecompaniesareincreasingtheirmarketingexpendituretoretain

theirmarketshare.

The only company whose marketing expenditure declined was BJAUT. The companys marketing

expenditure

stood

at

0.6%

of

total

income

in

FY11.

In

future,

BJAUT

has

guided

to

an

increase

in

marketingexpenditureasithaslineduplaunchesofmotorcyclessuchastheKTMDukeandBoxer150.

BJAUThasguidedtomarketingexpenditureasapercentageoftotalincometobeupto1.0%oftotal

incomeinFY12.

AfterthesplitfromHonda,HHislikelytospendINR1bnonanimagemakeoverandbrandbuildingin

FY12.Thisexpenditureisoverandabovetheregularmarketingexpenditure.ItislikelytoincreaseHHs

marketingexpenditureto2.7%asapercentageoftotalincomeinFY12fasagainst2.3%inFY11.

HH,themarketleader,

andHMSIwitnessedan

erosioninmarketsharein

motorcyclesandscooters,

respectively.


20/29


Automobiles 20

Exhibit35:Marketingexpenditure(INRmn)

500

2,000

3,500

5,000

FY10 FY11f

TVSL HH BJAUT


Exhibit36:Marketingexpenditureasa%oftotalincome(%)

7.2 7.2

2.3 2.3

1.5

0.6

0

3

6

9

FY10 FY11f

TVSL HH BJ AUT


Reducedabilitytopassthroughcosts

Exhibit37:RawmaterialcostasapercentageofTotalincomeandEBITDAmargin(%)

64

67

70

73

76

4QFY10 1QFY11 2QFY11 3QFY11 4QFY11

0

5

10

15

20

Raw material cost AdjEBITDAMargin(RHS)


OEMsworkedharderoncostreductiontechniques inFY11astheywereunabletofullypassthrough

theriseininputcoststoconsumers.Alltwowheelercompaniesfacedmargincontraction.

We have calculated the combined raw material costs and EBITDA margins for HH, BJAUT and TVSL

duringMar10

Mar11

quarters.

Our

analysis

showed

that

raw

material

cost

as

apercentage

of

total

income increasedfrom68.2% inMar10quarterto72.1% inMar11quarter,whereasEBITDAmargins

decreasedfrom18.1%to14.5%.Thepressureonmargins indicatesthelossofpricingpowerfortwo

wheelercompanies.

Ashighercompetitionislikelytocontinue,thisscenariooflimitedpricingpowerwouldalsocontinue.

We have assumed an upward trend in commodity prices over FY12fFY14f. Rising input costs,

increasingwagesandhighermarketingexpenditurearealsolikelytoputpressureonmargins.

We have calculated the combined raw material costs and EBITDA margins for HH, BJAUT and TVSL

duringFY12fFY14f.Weassumerawmaterialcostsasapercentageoftotal income to increase from

72.1%inFY11to73.6%inFY14f;EBITDAmarginsarelikelytodeterioratefrom14.8%to14.0%.

Alltwowheeler

companiesfacedmargin

contraction.


21/29


Automobiles 21

Exhibit38: RawmaterialcostandEBITDAmarginforHH,BJAUTandTVSL

64

67

70

73

76

FY10 FY11 FY12f FY13f FY14f

0

5

10

15

20

Raw Materialcost/Totalincome AdjEBITDAMargin(RHS)


ThedeterioratingEBITDAmargins indicatethepresenceofnegativeoperating leverage.Weestimate

theCAGRof12.0%inEBITDAgrowthduringFY12fFY14ftolagtotalincomegrowth(CAGRof14.3%).

Exhibit39:TotalincomeandEBITDAgrowthoverFY12fFY14fFY11 FY12f FY13f FY14f CAGR(FY12fFY14f)

Totalincomegrowth 31.4% 17.7% 12.6% 12.6% 14.3%

EBITDAgrowth 10.0% 10.0% 10.1% 16.0% 12.0%


Weassumerawmaterial

costasapercentageof

totalincometoincrease

to73.6%inFY14fas

against72.1%inFY11.

WithdeterioratingEBITDA

margins,wehavenegative

operatingleverageat

work.


22/29


Automobiles 22

Relativevaluationsappliedtoarriveatpricetargets

We use the relative valuation method to derive the standalone valuation for BJAUT and TVSL. We use HH as a

benchmark,

as

it

is

the

largest

twowheeler

company,

to

value

BJAUT

and

TVSL.

BJAUT,

TVSL

and

HH

represent

the three largest twowheelerplayers in India. WevalueBJAUTat HHs fiveyearhistoricalP/E,while we valueTVSL

at a 15% discount due to lower growth. In case of HH, the valuations taken are below the fiveyear mean due to

lowerearningsgrowth.WevalueHHata10%discountto its fiveyearhistoricalP/E.We initiatecoverageonBJAUT

(Buy),HH(Reduce)andTVSL(Buy).Riskfactorsarelowerdutydrawbackrates,fuelpriceincreases,higherinterestrates

andcommodityinflation.

ValuationsderivedforBJAUTandTVSLusingHHasabenchmark

WehavederivedthestandalonevaluationforBJAUTandTVSLusingtherelativevaluationmethodand

havecomparedthesecompanieswithHH.Thesecompaniesrepresentthetopthreecompaniesinthe

twowheelersegment.Wevaluethesecompaniesonthefollowingbasis:

We value BJAUT at 14.2x 1year forward EPS; this is on par with the fiveyear mean P/E of HH.BJAUT and HH have witnessed similar sales and total income growth over FY07FY11 (shown in

Exhibit40).

WevalueTVSLata15%discounttoHHsfiveyearhistoricalmeanP/EasTVSLshistoricalgrowthinsalesandtotalincomeislowerthanHHs.

Exhibit40:HistoricalgrowthcomparisonofHHandTVSLoverFY07FY11(%)(%) HH BJAUT TVSL

Salesgrowth 12 12 9

Totalincomegrowth 17 16 14


WevalueHHat12.8xP/E,whichisata10%discounttoHHsfiveyearhistoricalmeanP/Eof14.2x.We take a 10% discount to historical valuations as the earnings growth for HH over FY12fFY14f

(CAGRof8%)islikelytobelowerthanhistoricalearningsgrowth(CAGRof16%overFY07FY11).HH

hastradedata10%discounttotheSensexP/Emeanoverpastfiveyears.Ourvaluationmultipleof

12.8xfactorsinthisdiscountaswell.

Exhibit41:HHsP/ErelativetoSensex

80

40

0

40

Jul06 Apr07 Dec07 Sep08 May09 Feb10 Oct10 Jul11

RelativetoSensexP/E(%) Avgdiscount(%)

Average=10%

Source:Bloomberg,AvendusResearch

WevalueTVSLata15%

discounttoHHsfiveyear

historicalmeanP/Eas

TVSLshistoricalgrowthin

salesandtotalincomeis

lowerthanHHs.


23/29


Automobiles 23

Exhibit42:ElementsoftargetpriceMultiple(x)AsapercentageofHHs

historicalvaluation

Fairvalue(INR) Strategicinvestment(INR) Targetprice(INR)

BJAUT

14.2xP/E 100% 1,706 27

1,733

HH 12.8xP/E 90% 1616 1,616

TVSL 12.0xP/E 85% 64 1 65


WeinitiatecoverageonBJAUT(Buy),HH(Reduce)andTVSL(Buy)withJun12targetpriceofINR1,733,

INR1,616andINR65respectively.

Forecastslowerthanconsensusestimates

Our aggregate net revenue forecast for BJAUT, HH and TVSL in FY13f is 2% lower than consensus

estimates, implying that oursalesgrowth forecast is lower. We estimate aggregate salesgrowth for

these companies to be lower, at 9%, in FY13f (in comparison to 13% in FY12f) due to continuing

headwinds.

Exhibit43:AvendusandconsensusestimatesoverFY12fFY13f NetSales(INRmn) EPS(INR)

FY12f FY13f FY12f FY13f

BJAUT Consensusestimate 194,909 223,309 102.2 115.4

Avendusestimate 186,909 215,127 103.3 116.7

Difference(%) 4.1 3.7 1.1 1.1

HH Consensusestimate 226,062 256,406 112.4 128.4


Difference(%) 1.1 0.6 1.2 2.4

TVSL Consensusestimate 73,285 84,458 5.3 6.5


Difference

(%)

1.3

1.6

11.7

20.8

Source:Bloomberg,AvendusResearch

We largely differ from the consensus in our estimates for TVSL in FY13f (2% and 21% lower than

consensusestimatesonnetrevenueandEPS,respectively), implyinghighermarginpressures.TVSLs

marginsare likely tobeaffectedbycommodityandwage inflation.Wealsoestimate thecompanys

marketing expenditure to remain at 7.2% of total income in FY13f, as TVSL is likely to continue

spendingonmarketingtocountertherisingcompetition.

Initiatecoverageon3twowheelercompanies

BajajAuto(BJAUT):BJAUThaslinedupnewmodelssuchasKTMDukeandBoxer,andvariantlaunches

fordomesticandexportmarkets inFY12f.These launchesare likelytostrengthentheproduct lineup

andaid

growth.

BJAUTs

vehicles

are

well

accepted

in

export

markets

CAGR

of

43%

and

25%

in

two

and threewheeler exports over FY07FY11, respectively. BJAUT is likely to maintain higher EBITDA

margins of 19%20% over FY12fFY14f due to exposure to the highgrowth threewheeler passenger

segment.WeestimateBJAUTssalestogrowat12%overFY12fFY14f.OurJun12TPforBJAUTstands

atINR1,733,anupsideof22%.InitiatecoveragewithaBuyrating.

HeroHonda(HH): TheendoftheJVwithHondaMotorpresentsmanychallenges.Themostpressing

oneistostrengthenR&Doperationstochurnoutnewmodelsandupgradevehiclesforthenextlevel

of emission norms. Another challenge stems from the rise in competitive intensity posed by Honda

Motors solo presence in the country. HH faces margin pressure due to a rise in R&D, royalty and

advertising expenditures as a result of the split. In addition to breakup woes, the companys sales

growthislimitedbyproductionconstraintsandslowinglaunches.Weestimatesalesgrowthtotaperto

aCAGRof11%overFY12fFY14f.OurJun12TPforHHstandsatINR1,616,whichimpliesadownsideof

11%.Initiate

coverage

with

aReduce

rating.

Weinitiatecoverageon

BJAUT(Buy),HH(Reduce)

andTVSL(Buy)withJun12

targetpriceofINR1,733,

INR1,616andINR65

respectively.


Buy

rating

and

Jun12

targetofINR1,733.


Reduceratingwitha

Jun12targetofINR1,616.


24/29


Automobiles 24

TVSMotorCompany(TVSL):LaunchesinFY12farelikelytoaidgrowthandstrengthenTVSLsportfolio.

The scooter segment is likely to grow at a CAGR of 17% over FY12fFY14f, led by the growing

acceptance of scooters as a family vehicle. The company entered the lucrative threewheeler

passengersegment

in

FY08

and

succeeded

in

capturing

6%

market

share

in

FY11.

We

estimate

three

wheelersalestogrowataCAGRof15%overFY12fFY14f.TVSLsuccessfullyrodetheexportgrowth

story (CAGR of 25% over FY07FY11), led by the growing acceptance of Indian vehicles in several

developing countries. We estimate TVSLs exports to grow at a CAGR of 15% over FY12fFY14f. We

estimatesalestogrowataCAGRof12%overFY12fFY14f.OurJun12TPforTVSLstandsatINR65,an

upsideof28%.InitiatecoveragewithaBuyrating.

Riskfactors

Failureofproductlaunches:Salesmaybeaffectedduetofailureofmodelsorvariantlaunches.Lower Duty Drawback rates: New duty drawback rates are likely to replace DEPB scheme rates.

These dutydrawback rates formotorcyclesare likelyto beanywherebetween 1%and5%. If the

rateis

lower

than

5%,

then

margins

are

likely

to

be

adversely

affected.

RiseinRawmaterialprices:Wehaveassumedanincreaseofc4%inrawmaterialcostpervehicleinFY12f.Ifthepricesofsteel,aluminum,andrubberincreaseatahigherthanestimatedrate,then

marginsanddemandmaybeadverselyaffectedasaresultofpartialpassthroughofprices.

Rise in interestratesandfuelprices:Further increase in interestratesandfuelpricesmayaffectthe sentiment of replacement and upgrade buyers (these buyers contribute 50% of domestic

demand).


BuyratingandJun12

targetofINR65.


25/29


Automobiles 25

AnnexureExhibit44:Scootersegmentsales,growthandtopplayersSco oters FY 07 FY 08 FY09 FY10 F Y11 CAGR

(FY07

FY 11)

Totalvolume( 000s) 976 1,076 1,172 1,49 3 2,1 26

Domesticvolume( 000s) 941 1 ,050 1 ,146 1 ,46 3 2,0 74

Exportvolume (0 00s) 36 25 26 3 0 52

Totalvolumegrowth ( % ) 1.7 10.2 8.9 27.4 42.4 16.4

Domesticvolumegrowth ( % ) 3.5 11.6 9.1 27.6 41.8 17.9

Exportvolume growth(%) 57.5 28.6 1.5 16.5 73.6 9.0

Exportsas percentageo fto talvolume(% ) 3.7 2.4 2.2 2.0 2.5

Top 3P layers

Volume(00 0s)

HondaMotorcycle &Scoo ter India 547 629 666 75 1 9 07

TV SL 259 260 248 30 9 4 66

HH 93 105 156 21 4 3 61

Growth( % )

HondaMotorcycle &Scoo ter India 9.4 15.0 5.9 12.8 20.7 12.7

TV SL 5.6 0.4 4.5 24.6 50.7 13.7

HH 51 9.2 12.7 49.0 37.2 68.7 88.9

Market share(%)

HondaMotorcycle &Scoo ter India 5 6.0 58.5 56.9 50.3 42.7

TV SL 2 6.5 24.2 21.2 20.7 21.9

HH 9.5 9.7 13.3 14.4 17.0

Source:SIAM


26/29


Automobiles 26

Exhibit45:Motorcyclesegmentsales,growthandtopplayersM otorc ycles F Y07 F Y08 F Y09 F Y10 FY1 1 CAGR (FY07 FY11)

Totalvolume( 000s) 7,100 6,54 4 6,806 8,4 44 10,500

Dom esticvolume

( 000s) 6,554 5,76 8 5,835 7,3 41 9,019

Exportvolume(0 00s) 546 77 6 971 1,1 03 1,481

Totalvolumegrowth ( % ) 14.6 7.8 4.0 24.1 24 .3 11.1

Dom esticvolumegrowth ( % ) 12.8 12.0 1.2 25.8 22 .9 9.2

Exportvolumegrowth( %) 41.4 42.2 25.1 13.6 34 .3 30.9

Exportsa spercentage o fto tal volum e(% ) 7.7 11.9 14.3 13.1 14 .1

Top 3Players

Volume(000s)

HH 3,254 3,23 2 3,566 4,3 86 5,041

BJA UT 2,377 2,14 0 1,908 2,5 07 3,387TV SL 925 61 8 636 6 41 837

Growth( % )

HH 9.0 0.7 10.3 23.0 14 .9 11.0

BJA UT 24.2 10.0 10.8 31.4 35 .1 12.1

TV SL 14.7 33.2 3.0 0.8 30 .6 0.7

Market share(%)

HH 45.8 49.4 52.4 51.9 48 .0

BJA UT 33.5 32.7 28.0 29.7 32 .3

TV SL 13.0 9.4 9.3 7.6 8 .0

Source:SIAM

Exhibit46:Annexure3:Mopedsegmentsales,growthandtopplayersMopeds FY 07 FY08 FY09 FY10 FY11 C AGR(FY07FY11)

Totalvolume(000s) 393 4 32 439 57 1 704

Domesticvolume(000s) 356 4 14 431 56 5 697

Exportvolume(0 00s) 38 18 7 7 6

Totalvolumegrowth (%) 4 .7 9.8 1.5 30.3 23.1 1 3.4

Domesticvolumegrowth (%) 7 .0 16.3 4.2 30.9 23.5 1 6.0

Exportvolumegrowth(%) 13.0 51.5 59.9 5.4 8.8 32.0

Exportsaspercentageo ftotalvolume(%) 9 .5 4.2 1.7 1.2 0.9

Top 3Players

Volume(00 0s)

TVSL 345 4 11 437 57 1 704

KineticMoto r 23 12 2 0 0

MajesticAuto 26 8 0 0 0

Growth(% )

TVSL 18 .7 19.4 6.2 30.8 23.1 1 9.4

KineticMotor 19.9 46.6 85.7 NM N M NM

MajesticAuto 54.4 67.6 NM NM N M NM

Marketshare(%)

TVSL 87 .6 95.2 99.6 100.0 100.0

KineticMoto r 5 .8 2.8 0.4 0.0 0.0

MajesticAuto 6 .6 2.0 0.0 0.0 0.0

Source:SIAM


27/29


Automobiles 27

Exhibit47:Annexure4:3Wpassengersegmentsales,growthandtopplayers3Wpassegnervehicles FY 07 FY08 FY 09 FY10 FY1 1 CAGR(FY07FY11)

Totalvolume(000s) 380 375 415 522 695

Domesticvolume

(000s) 237 235 268 350 427

Exportvolume(0 00s) 143 140 147 173 268

Totalvolumegrowth (%) 31.7 1.2 1 0.7 25.7 33. 2 19.2

Domesticvolumegrowth (%) 11.3 0.9 1 4.4 30.2 22. 1 15.0

Exportvolumegrowth(%) 88.9 1.8 4.6 17.4 55. 6 28.8

Exportsaspercentageo ftotalvolume(%) 37.6 37.4 3 5.4 33.0 38. 6

Top 3Players

Volume(000s)

BJAUT 279 264 264 329 432

PiaggioVehicles 79 94 105 135 158

MM 3 4 27 31 47

Growth(% )

BJAUT 29.3 5.6 0.3 24.6 31. 3 14.9

Piaggio Vehicles 48.7 18.8 1 1.7 28.1 17. 4 24.3

MM 16.2 40.1 52 9.3 13.7 52. 3 66.5

Marketshare(%)

BJAUT 73.6 70.3 6 3.6 63.1 62. 2

Piaggio Vehicles 20.9 25.1 2 5.3 25.8 22. 7

MM 0.8 1.2 6.6 6.0 6. 8

Source:SIAM

Exhibit48:3Wgoodssegmentsales,growthandtopplayers3Wgoodsvehic le s FY 07 FY08 FY 09 FY10 FY11 CAGR(FY07FY11)

Totalvolume(000s) 168 131 82 92 101

Domesticvolume(000s) 167 130 81 91 99

Exportvolume(0 00s) 1 1 1 1 2

Totalvolumegrowth (%) 13.2 22.2 37 .0 11.1 10.0 7.5

Domesticvolumegrowth (%) 13.5 22.2 37 .5 11.7 9.2 7.6

Exportvolumegrowth(%) 20.9 14.0 40 .7 32.6 97.3 5.0

Exportsaspercentageo ftotalvolume(%) 0.6 0.6 1 .4 0.8 1.5

Top 3Players

Volume(000s)

Piaggio Vehicles 67 59 43 51 63

MM 31 30 17 14 17

AtulAuto 9 5 4 7 9

Growth(% )

Piaggio Vehicles 18.2 11.8 27 .4 18.3 22.6 1.9

MM 63.5 2.9 41.2 17.9 21.3 1.5

AtulAuto 12.7 38.9 18 .1 68.5 21.4 2.2

Marketshare(%)

Piaggio Vehicles 40.1 45.4 52 .4 55.8 62.2

MM 18.2 22.7 21 .2 15.7 17.3

AtulAuto 5.2 4.1 5 .3 8.0 8.8

Source:SIAM


28/29


Automobiles 28

AnalystCertification

I,SriRaghunandhanNL,MBA,researchanalystandauthorofthisreport,herebycertifythatalloftheviewsexpressed inthisdocumentaccuratelyreflectourpersonalviews

aboutthesubjectcompany/companies and itsortheirsecurities.Wefurthercertifythatnopartofourcompensation was, isorwillbe,directlyor indirectlyrelatedtospecific

recommendations orviewsexpressedinthisdocument.

Disclaimer

ThisdocumenthasbeenpreparedbyAvendusSecuritiesPrivateLimited(Avendus). Thisdocumentismeantfortheuseoftheintendedrecipientonly.Thoughdissemination toall

intendedrecipientsissimultaneous, notallintendedrecipientsmayreceivethisdocumentatthesametime.Thisdocumentisneitheranoffernorsolicitation foranoffertobuy

and/orsellanysecuritiesmentionedhereinand/orofficialconfirmationofanytransaction. Thisdocumentisprovidedforassistanceonlyandisnotintendedtobe,andmustnot

betakenas,thesolebasisforaninvestmentdecision.Theuserassumestheentireriskofanyusemadeofthisinformation. Eachrecipientofthisdocumentshouldmakesuch

investigationashedeemsnecessarytoarriveatanindependentevaluation,includingthemeritsandrisksinvolved,forinvestmentinthesecuritiesreferredtointhisdocument

andshouldconsulthisownadvisorstodeterminethemeritsandrisksofsuchinvestment.Theinvestmentdiscussedorviewsexpressedmaynotbesuitableforallinvestors.This

documenthasbeenpreparedonthebasisofinformation obtainedfrompubliclyavailable,accessibleresources.Avendushasnotindependently verifiedalltheinformationgiven

inthisdocument.Accordingly,norepresentationorwarranty,expressorimplied,ismadeastoaccuracy,completeness orfairnessoftheinformationandopinioncontainedinthis

document.The informationgiven inthisdocument isasofthedateofthisdocumentandtherecanbenoassurancethat futureresultsoreventswillbeconsistentwiththis

information.Though

Avendus

endeavours

to

update

the

information

contained

herein

on

reasonable

basis,

Avendus,

its

associate

companies,

their

directors,

employees,

agents

or

representatives(Avendusanditsaffiliates)areundernoobligation toupdateorkeeptheinformationcurrent.Also,theremayberegulatory,compliance orotherreasonsthat

maypreventusfromdoingso.Avendusanditsaffiliatesexpresslydisclaimanyandallliabilitiesthatmayarisefrominformation, errororomissioninthisconnection. Avendusand

itsaffiliatesshallnotbeliableforanydamageswhetherdirect,indirect,specialorconsequential, includinglostrevenueorlostprofits,whichmayarisefromorinconnectionwith

theuseofthisdocument.Thisdocumentisstrictlyconfidentialandisbeingfurnishedtoyousolelyforyourinformation. Thisdocumentand/oranyportionthereofmaynotbe

duplicatedinanyformand/orreproducedorredistributedwithoutthepriorwrittenconsentofAvendus.Thisdocumentisnotdirectedorintendedfordistribution to,oruseby,

anypersonorentitywho isacitizenorresidentoftheUnitedStatesorCanadaor is located inanyother locality,state,countryorotherjurisdiction,wheresuchdistribution,

publication, availabilityorusewouldbecontrarytolaworregulationorwhichwouldsubjectAvendusanditsaffiliatestoanyregistration orlicensingrequirementswithinsuch

jurisdiction.Personsinwhosepossessionthisdocumentcomesshouldinformthemselvesaboutandobserveanysuchrestrictions.Avendusanditsassociate companiesmaybe

performingorseekingtoperforminvestmentbankingandotherservicesforanycompanyreferredtointhisdocument.AffiliatesofAvendusmayhaveissuedotherreportsthat

areinconsistentwithandreachadifferentconclusionfromtheinformationpresentedinthisdocument.

Avendusgenerallyprohibits itsanalystsandpersonsreportingtoanalystsfrommaintaining afinancial interest inthesecuritiesorderivativesofanycompanythattheanalysts

cover.Avendusanditsaffiliatesmayhaveinterest/positions, financialorotherwise,inthecompaniesmentionedinthisdocument.Inordertoprovidecompletetransparencyto

ourclients,wehave incorporateda Disclosureof InterestStatement inthisdocument.Thisshould,however,notbetreatedasanendorsementoftheviewexpressed inthe

document. Avendus is committed toprovidinghighquality, objective and unbiased research to our investors. To thisend, wehavepolicies in place to identify, consider and

managepotentialconflictsofinterestandprotectthe integrityofourrelationships with investingandcorporateclients.Employeecompliance withthesepoliciesismandatory.

AnycommentorstatementmadehereinaresolelythoseoftheanalystanddonotnecessarilyreflectthoseofAvendus.


29/29


DisclosureofInterestStatement(asofJuly26,2011)

Analystownership

ofthestock

Avendusoritsassociatecompanys

ownershipofthestock

InvestmentBankingmandatewith

associatecompaniesofAvendus

IndianCompanies

BajajAuto No No No

EicherMotors No No No

HDFCbank No No No

HeroHonda No No No

HondaMotorcycleandScooterIndia No No No

LML No No No

Mahindra&Mahindra No No No

StateBankofIndia No No No

SuzukiMotorcycleIndia No No No

TVSMotorCompany No No No

YamahaMotor

India

No

No

No

InternationalCompanies

HondaMotor No No No

KTMPowerSportsAG No No No

PTBajajAutoIndonesia No No No

PTTVSMotorCompanyIndonesia No No No

Yamahamotor No No No

OUROFFICES

Corporateoffice InstitutionalBroking Bangalore

IL&FSFinancialCentre, IL&FSFinancialCentre, TheMillenia,TowerA,

BQuadrant,5thFloor, BQuadrant,6thFloor, #1&2,10thFloor,MurphyRoad,

BandraKurlaComplex BandraKurlaComplex Ulsoor,Bangalore8.India.

Bandra(E),Mumbai400051 Bandra(E),Mumbai400051 T:+918066483600

T:+912266480050 T:+912266480950 F:+918066483636

F:+912266480040

Avendus

Securities

Private

Limited

SEBI

Registration

No:

BSE

CM

INB011292639

|

NSE

CM

INB231294639

|

NSE

F&O

INF231294639

avendus two wheelers sector 2011jul

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