This piece in BT gives a very good picture of the problems faced by commercial vehicle industry.
FY13 (Dec ending year) results out.
Bikes:
Sales - up from 1049 cr (FY12) to 1702cr (up 55%; 78% for Q4)
PAT - up from 145cr to 279cr (up 92%; 118% growth for Q4)
Better than my estimates below.
CV business (derived from consolidated minus standalone bikes)
Sales 5108cr - down 5% for the year (15% for the Q4)
PAT 115cr - down 36% for the year (34% for Q4).
Margin slumped to 2.5% from 3.4%.
For Q4, there was slight margin improvement from 3.7% in Q3 to 4.1% in Q4 and much better than the 2.2% for the 9 month period ending Sepâ13. This could continue given new product launches, investments made in modern plant and machinery and most important, hopeful economic recovery, and can have a multiplier effect on the overall performance of the company.
Company has also declared 30 rupees dividend. This is showing increasing trend - dividend from 2006 is - 4, 5, 5, 7, 11, 16, 20, and now 30.
FY14 estimates given below look achievable, based on which company trades at 19-20x one year forward earnings. Looks reasonable given the growth, improving ROE, decent and growing dividend and cashflows.
Article giving improving market share information:
Discl - initiated starter position recently.
FY13 (Dec ending year) results out.
Bikes:
Sales - up from 1049 cr (FY12) to 1702cr (up 55%; 78% for Q4)
PAT - up from 145cr to 279cr (up 92%; 118% growth for Q4)
Better than my estimates below.
CV business (derived from consolidated minus standalone bikes)
Sales 5108cr - down 5% for the year (15% for the Q4)
PAT 115cr - down 36% for the year (34% for Q4).
Margin slumped to 2.5% from 3.4%.
For Q4, there was slight margin improvement from 3.7% in Q3 to 4.1% in Q4 and much better than the 2.2% for the 9 month period ending Sepâ13. This could continue given new product launches, investments made in modern plant and machinery and most important, hopeful economic recovery, and can have a multiplier effect on the overall performance of the company.
Company has also declared 30 rupees dividend. This is showing increasing trend - dividend from 2006 is - 4, 5, 5, 7, 11, 16, 20, and now 30.
FY14 estimates given below look achievable, based on which company trades at 19-20x one year forward earnings. Looks reasonable given the growth, improving ROE, decent and growing dividend and cashflows.
Article giving improving market share information:
Discl - initiated starter position recently.
4Q and year end results are out today
Standalone (RE Division)
| QoQ | Q4'13 | Q4'12 |
|---|---|---|
| sales (Gross) | 592 cr.(up 78%) | 332 cr. |
| Operating Profit | 96.59 cr.(up 228%) | 29.43 |
| PAT | 74.43(up 117%) | 34.16 |
| YoY | ||
| Sales | 1910 (up 63%) | 1173 cr. |
| Operating Income | 283(up 121% ) | 128 |
| PAT | 278(up 93%) | 144 |
Consolidated
| QoQ | Q4'13 | Q4'12 |
|---|---|---|
| Sales (Gross) | 1813( up 1.3%) | 1789 |
| Operating Income | 127 (up 36.5%) | 93 |
| PAT | 121 (up 16%) | 105 |
| YoY | ||
| Sales (Gross) | 7309 (5.3%) | 6935 |
| Operating Income | 583 (up 26%) | 466 |
| PAT | 525 (up 11%) | 474 |
EPS after minority interest calculation is 145 for CY13 and a dividend of 30/- has been declared.
HDFC Sec had EPS esimtate of 126.7 for CY13, which is missed by 14.4% !!
They have a EPS estimate of 211.8 for next year. Let's see...
Now let's do some work to derive the VECV division figures, which is essentially consolidated- standalone nos.
Only Annual Nos.
| CY13 | CY12 | |
|---|---|---|
| Sales | 5399 (down 6.7%) | 5762 |
| Operating Income | 300 (down 13%) | 338 |
| PAT | 247 (down 25%) | 330 |
| Minority Interest (picked from Result - But should be 50% of this derived PAT ?) |
131 | 150 |
| PAT after Minority Interest | 116 (down 35%) | 180 |
The idea behind calculating this table is to use it for seeing what's the role of CV division performance in overall context.
Note: Minority Interest is the portion of profits attributable to the joint venture partner Volvo.
Now let's see whats the contribution of CV division to overall company
| CY13 | CY12 | |
|---|---|---|
| 1. Cons. PAT excluding Minority Interest | 394 | 324 |
| 2. PAT attributable to CV division | 116 | 180 |
| 2 as %tage of 1 | 29% | 55.5% |
Note: 1. My immediate previous post mentioned the PAT figures including the Minority interest. So keep it mind to avoid confusion on why they are different in previous post& here.
As you can see CV companies are going through a really tough time. All of them are making loss as per Mr. Lal. Eicher is the only one to be still in green.
Even if we are going to have 1-2 more years of bad times for CV industry, Eicher is still going to do well based on the RE division. RE production capacity has been ramped up by over 50-60%. Significance of CV division's profit is going down in overall context.
I think north of 200 EPS is almost certain for CY14. And now it's trading around 22 time CY14. Am expecting better than 200 EPS.
I think it's still a multi-year story on RE and a bet on turn around in CV industry and economy (when it happens)
Disc: I have been accumulating around 4400.
Please help to double check the figures, just in case there is some mistake
Hello Raj,
Shouldnât PAT for Q4CY13 be 96 cr? http://www.bseindia.com/xml-data/corpfiling/AttachLive/Eicher_Motors_Ltd_120214.pdf
Sorry Vinay, noticed little late that you have already posted the details 
Thanks
has any one attended the con.call today?
It is available on researchbytes.com
They are looking to spend around 600 crores in RE division to build more capacity for 2016.
For 2014 the target is to produce 280000 bikes.
Hi Augustine,
You are right. Should be 96 after reducing minority interest. I mentioned the mistake in my note in the 2nd post.
Link: http://www.bseindia.com/xml-data/corpfiling/AttachLive/Eicher_Motors_Ltd_120214.pdf
2 result analysis attached:
HDFC Sec has reduced its FY14 EPS estimate from 214 to 190. ICICI Sec has upâped it from 227 to 240!!!
Both agree on what is obvious - that the bikes business is the mainstay and that the CV business can outperform (business wise) when the tide turns. As Donald had put it in Astral thread - the business is good, but is the stock?
A lot of focus has been on the growth aspects. Am trying to see how efficiently has this growth been achieved. Will post some data in my next post.
Continued
I think following figures would indicate how efficiently this growth is coming about.
Asset turnover (by which i mean ratio of Sales to net fixed assets plus investments), return on assets (PAT to net fixed assets plus investments), ROE and ROCE, I think would present a holistic view of the productivity of the investments made and capital employed.
Bikes business first:
Last 5 year average for 2009-2013 followed by 3 year trend (from 2010-13)
Asset turnover 1.12x (1.04, 1.24, 1.45)
ROA 17% (19%, 17%, 24%)
ROE 21% (23%, 23%, 34%)
ROCE 24% (21%, 27%, 44%)
Figures generally seem to be steadily improving. Improvement in the asset turnover is important as the management has guided to make continuous investments (apprx 600cr) in the bike business and had also indicated in the concall that incremental investments generate proportionately higher returns.
Consolidated business: Asset turnover 3.71x (4, 3, 2.3)
ROA 18% (22%, 15%, 18%)
ROE 18% (21%, 19%, 26%)
ROCE 31% (41%, 34%, 32%)
The declining trend is a factor of negatives of the CV business.
Inspite of the drag of the CV business, the consolidated numbers appear reasonably healthy. This is only an observation on the absolute numbers; I have not seen how competitors are performing and hence do not know whether Eicherâs relative standing quantitatively. However benefit has to be given to Eicher as they are the only CV maker to remain in the green when others are bleeding red. They have hiked prices over FY13 and discounts have remained more or less flat in Q4 when Tata and Ashok continue to increase discounts to retain market share. Another point is that Eicher is recruiting while Ashok has given VRS to several employees.
Naturally it follows, that a turnaround in the CV cycle can result in a huge improvement in the numbers as incremental sales will mostly flow to the bottomline due to operating leverage benefits.
The Q is - is this already priced in.
Discl - had started accumulating; however the stock ran up post results. now waiting. Looking at combining Eicher+Ashok as a combined play on the CV turnaround possibility with about 2-3% of the portfolio. Views invited.
Good points raised by you Vinay.
Letâs try to do some analysis of other cv industry players next
Tata motors, Ashoka leyland, any other ?
Did you hear the conf. Call? Any other important points ?
[quote="rajpanda, post:1, topic:341368548"]
joint venture with
[/quote]
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Will try to present a very short case for Tata Motors and Ashok Ley.
Tata Motors â as per the 18th MOST wealth creation study (Page 42), over 2008-13, the companyâs sales have increased at CAGR of 40%, PAT at 35% and market price at 17%. The ROE in 2008 and 2013 was 26% and the PE in the respective years was 11 and 9.
JLR for 9 months FY14 has contributed 85% of the sales and it profitability has increased by 71% over same period last year, compared to sales increase of 31%. Tata Motors is definitely a JLR story currently. JLR PAT for 9 months is Rs 14000 cr, with Q3 alone contributing Rs 5000 cr. Mcap is 126000 cr. Assuming FY14 profit at 18000 cr and a conservative 20% increase in FY15, PE works out to just 6 times. It is a free cashflow business, good cash balances, low debt, strong brand. India JLR sales have not yet made headlines like Royal Enfield (RE) has, so to that extent, there is a positive surprise element. China could slow down though. But if it slows from current 40%-plus to 25%, still it is very robust. Their website has many presentations and information memoranda (information deluge, actually) for those who are inclined.
CV business is a drag and currently available for free. Similarity with Eicher is that the CV portions of both companies are pulling down consolidated results. Excluding which, the JLR and RE are firing on all cylinders. Looking at it this way, makes Tata motors much cheaper than Eicher with equally strong marquee brands and leadership position in CV. Plus India story of RE is already discovered, whereas JLR is not yet.
Ashok Leyland â This is a through and through play on CV recovery as they do not have JLR/RE type supporting businesses. To that extent they will be biggest beneficiaries of economic recovery amongst the 3 companies. Not much to speak about from financials. High debt company. However new management is aggressively selling non core investments, reducing debt and investing in core operations. They have huge distribution network especially in the South. They have 2 JVs with Nissan and John Deere, where company has been consistently investing. Nissan has a strong portfolio of medium duty commercial and passenger transport vehicles. JV with John Deere for agri and construction equipment can be a game changer as it will put them in the league of international players like Caterpillar, Komatsu, Kubota etc.
My strategy would be to invest cumulative 5-6% of the portfolio in these 3 companies. Combining them with another 5-6% in beaten down names IDFC (trading at less than book, with super management, possibility of banking license etc), Pantaloon retail (debt reduction and business consolidation play), DCB (turnaround case- profits have gone up 4x in 2 years, but stock still where it was), Heidelberg cement (good management and strong ownership), maybe BHEL etc. A basket approach, opportunistic in nature and so not much analysis. Together, hopefully, they should perform well in Namo sentiment.
Vinay -
Iâm invested in Tata Motors-DVR (just 3% of portfolio) and if I may add a few pointsâŚ
1). Good point made that the passenger car and CV business is availabe for next to nothing. The stock should be named Jaquar-Land Rover (DVR)!
2). No âexcitingâ new models. Others companies are doing well: Hyundaiâs i20 Grand, Hondaâs Amaze, Fordâs EcoSport, Nissanâs Terrano, Marutiâs Swift, etc. I myself donât like the present line up of cars. [Iâm discounting JLR models.] Even their CV lineup needs a huge boost. Volvo and Bharat Benz models are good and going forward it will be difficult to catch up.
But then theyâve âHorizonNextâ to address this issue. I was kind of disappointed with their potential offering at recently concluded Auto Expo. I think we would see some really good models hitting the road anytime now.
I guess the market is cognizant (of course) of this and thatâs why the stock is languishing at this level where as Eicher, Maruti get a higher valuation.
3). I hardly see any JLR models in India whereas we get to see Audi A8, BMW X5/X7, Mercedes SUVs. Range Rover Evoque retails for less than Rs 40 lac (though not sure) and it may give those German machines some run of their money. If JLR sales happens significantly in India, the market will value the stock differently.
4). The DVR shares are trading almost at 45-55% discount to the main stock for the past one year whereas globally, there isnât such a steep discount. Additionally you get 5% more dividend for compromise on voting rights. Of course, one should not invest only betting on valuation gap to narrow but it gives some margin on safety/comfort going forward.
5). My own sense is that just betting on Namo sentiment will not work for a long term PF model. It will just fizz out. Or what if there is a hung parliament? Or CV/auto industry turnaround taking more time than expected? Iâm sure that JLR/Tata Motors will do well going forward, but then Iâll need to have patience and not sure about opportunity cost that is involved. I thought about this a lot. Why hold on for some 13-15% CAGR returns (my guess) when there are other businesses (youâll have to pick/find them) which may offer better returns?
Itâs a good read on the export plans for engines and eicher trucks from vecv division.
Q1 Results out.
Standalone Result Highlights (Royal Enfield Division)
1.Q1 2014 is Royal Enfieldâs best ever quarter with sales of 64268 units, equating to 85% sales growth over Q1 2013 when 34736 bikes were sold.Income from operation growth of 90% YoY.
2). Resultantly, (standalone Royal Enfield) phenomenal increase of 155.9 % in Earnings before interest and tax (EBIT) at Rs. 135.9 crores are reported for Q1 2014 when compared to Rs 53.1 crores in Q1 2013.Eicher Motors has been able to extract significant operating leverage in Q1 2014 and reports its best ever operating margin (EBIT) at 21.4%.
3). PAT growth of 65% at 160.62 cr. Vs 97.2 cr., EPS at 59.06 Vs 35.77
3.In the first quarter of 2014, the Oragadam facility has produced more than 10,000 units per month and that number is poised to go up further as the year progresses
Consolidated level
1). Income from operation grew by 11.6%, at 1924 cr. Vs 1724 cr YoY.
2). EBIT grew by 21%, at 174.22 cr. Vs 143.03 cr.
3). PAT (after minority interest) grew by 42%, at 139.12 Vs 97.94 cr. (EPS at 51.16 Vs 36.04)
a more detailed analysis on the nos. of commercial vehicle sold, specially from VECV.
http://www.rushlane.com/eicher-motors-limited-cy-2014-q1-results-12117517.html
The call was addressed by Eicher Motors Managing Director and CEO Siddharth Lal and Lalit Malik, CFO.Key Points from the discussion by Capital Mkt:
With the recent commercial launch of the Eicher Pro-1000 and Pro-3000 range of trucks and buses, the company aims to meet the needs of the emerging mid-premium market segment.
Regarding Two wheeler capacity, management said that there will be continued rapid capacity expansion. In the next one year, there should be no problem regarding demand and supply.
Two wheeler margins was strong during Q1 FY 14-15. The company sees no problem in continuing with such margin.
VECV blended realization dropped q-o-q and it was due to product mix.
The growth momentum continues to remain strong for Royal Enfield (RE) as the demand situation appears to be robust.The co is adding 5-6 dealers every month.
The 50:50 joint venture with US-based Polaris Industries is well on track for a commercial launch in 2015.
Buyer profile of RE is interesting as average age is dropping. Lot of growth has been coming from metros and smaller towns. There has become enough number of first bikes as contrary to second bike previously.
The company sold 2630 engines to Volvo during Q1 FY 14-15.
For Royal Enfield, the co. stands at its production target at 2.8 lakh units for FY 14-15.
With the Continental GT, exports are getting a boost.
In RE, there was a price increase of 2% during mid Jan 2014. That contributed in qoq increase in realization for RE.
For the overall year, tax will be around 20-22% for RE. It will be around 25% for VECV.