speeds & bumps

19
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited Commodities plateauing? Don’t party yet In our Commodities Spike note, we highlighted that auto stocks always underperform in an inflationary period. Surprisingly, the reverse is not true. Of the two instances of commodity plateau, auto stocks underperformed, barring an outlier. In four instances of deflation, the auto sector was the clear outperformer only in FY09 and FY13. In rest of the cases, it was more stock-specific. Statistically, M&M has outperformed maximum times. What has driven the outperformance? Better-than-expected revenue/margin cycle or a strong product tailwind. Hence we continue to be stock-specific. We maintain ‘BUY’ on TTMT, M&M, AL and BJAUT, and ‘HOLD’ on HMCL, MSIL and EIM. Peaking commodity prices – An opportunity but don’t party yet In our Commodities Spike note, we argued that auto stocks underperform irrespective of revenue growth (strong or not) during the inflation phase. However, and surprisingly, the reverse is not true. Of the six instances (after inflation phase) that we have covered, except for M&M, stocks have underperformed at least three times or more. FY09 outperformance was driven by favourable interest rates and excise duty in the aftermath of the GFC despite low single-digit revenue growth. FY12–13 performance was driven by strong revenue growth. In rest of the periods, stocks have underperformed despite strong revenue growth. The jury’s divided this time This time around multiple micro and macro events can play in favour of or against the auto sector. A favourable base and pent-up demand are the strong tailwinds for the sector that can drive margins. Supportive interest rate/liquidity scenario might be at its fag end; any reversal in the RBI’s stance can emerge as a headwind. And supply chain issues are impacting production in the near term. Besides, commodity trend is not yet clear as of now – whether they will plateau or enter deflationary phase or sustain upward momentum, albeit at a slower pace. Outlook and valuation: Being stock-specific matters We prefer stocks that have a strong demand/margin tailwind and/or a compelling product cycle. We believe CVs’ demand recovery has gotten postponed, and expect it to bounce back like a springboard (FY21 MHCV truck sales are 60% below FY19 peak and 2% below FY14 low). Refer to our note Super Recovery. Pricing power in the tractor segment is generally high and hence we expect OEMs to focus on margins unless demand collapses (looks unlikely for FY22). Hence we like Tata Motors (JLR as well as India PV witnessing strong product cycle tailwind) and Ashok Leyland. We also like Bajaj Auto for its exports business (beneficiary of INR depreciation) and high dividend yield. We like M&M for its strong tractor/LCV franchise (comparable to MSIL in PVs), product revival in PVs, improving capital allocation and strong performance by key subsidiaries. India Equity Research Automobiles October 20, 2021 SPEEDS & BUMPS SECTOR UPDATE Chirag Shah +91 (22) 6623 3367 [email protected]

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Page 1: SPEEDS & BUMPS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

Commodities plateauing? Don’t party yet

In our Commodities Spike note, we highlighted that auto stocks always underperform in an inflationary period. Surprisingly, the reverse is not true. Of the two instances of commodity plateau, auto stocks underperformed, barring an outlier. In four instances of deflation, the auto sector was the clear outperformer only in FY09 and FY13. In rest

of the cases, it was more stock-specific. Statistically, M&M has outperformed maximum times.

What has driven the outperformance? Better-than-expected revenue/margin cycle or a strong product tailwind. Hence we continue to be stock-specific. We maintain ‘BUY’ on TTMT, M&M, AL and BJAUT, and ‘HOLD’ on HMCL, MSIL and EIM.

Peaking commodity prices – An opportunity but don’t party yet

In our Commodities Spike note, we argued that auto stocks underperform

irrespective of revenue growth (strong or not) during the inflation phase. However,

and surprisingly, the reverse is not true. Of the six instances (after inflation phase)

that we have covered, except for M&M, stocks have underperformed at least three

times or more. FY09 outperformance was driven by favourable interest rates and

excise duty in the aftermath of the GFC despite low single-digit revenue growth.

FY12–13 performance was driven by strong revenue growth. In rest of the periods,

stocks have underperformed despite strong revenue growth.

The jury’s divided this time

This time around multiple micro and macro events can play in favour of or against

the auto sector. A favourable base and pent-up demand are the strong tailwinds for

the sector that can drive margins. Supportive interest rate/liquidity scenario might

be at its fag end; any reversal in the RBI’s stance can emerge as a headwind. And

supply chain issues are impacting production in the near term. Besides, commodity

trend is not yet clear as of now – whether they will plateau or enter deflationary

phase or sustain upward momentum, albeit at a slower pace.

Outlook and valuation: Being stock-specific matters

We prefer stocks that have a strong demand/margin tailwind and/or a compelling

product cycle. We believe CVs’ demand recovery has gotten postponed, and expect

it to bounce back like a springboard (FY21 MHCV truck sales are 60% below FY19

peak and 2% below FY14 low). Refer to our note Super Recovery. Pricing power in

the tractor segment is generally high and hence we expect OEMs to focus on

margins unless demand collapses (looks unlikely for FY22).

Hence we like Tata Motors (JLR as well as India PV witnessing strong product cycle

tailwind) and Ashok Leyland. We also like Bajaj Auto for its exports business

(beneficiary of INR depreciation) and high dividend yield. We like M&M for its

strong tractor/LCV franchise (comparable to MSIL in PVs), product revival in PVs,

improving capital allocation and strong performance by key subsidiaries.

India Equity Research Automobiles October 20, 2021

SPEEDS & BUMPS SECTOR UPDATE

Chirag Shah +91 (22) 6623 3367 [email protected]

Page 2: SPEEDS & BUMPS

SPEEDS & BUMPS

Edelweiss Securities Limited

2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Story in charts

Number of stocks outperformed Nifty during plateau/deflation period

Number of stocks outperformed Outliers (relative to Nifty)

Q1F06-Q1F07 4 Eicher Motors (-43%)

Q1F07-Q1F08 1 Eicher Motors (+17%)

Q1F09-Q1F10 7 Tata Motors (-33%)

Q4F11-Q2F13 6 Tata Motors (-24%) and Ashok Leyland (-6%)

Q2F18-Q2F19 1 M&M (+15%)

Q1F19-Q2F20 1 Bajaj Auto (+2%)

Source: Company, Edelweiss Research, Bloomberg

Number of times stock outperformed (plateau and deflationary period)

Number of times stocks outperformed Nifty

Ashok Leyland (AL) 2

Bajaj Auto (BJAUT) 3

Eicher (EIM) 3

Hero MotoCorp (HMCL) 3

M&M 4

Maruti (MSIL) 3

Tata Motors (TTMT) 2

TVS 1

Source: Edelweiss Research, Bloomberg

A bird’s eye view of factors affecting relative stock performance in inflationary environment

Commodity movement

(QoQ) Revenue growth (%)

Gross margin

pressure Interest rate change in bps (QoQ)

Avg stock

performance to Nifty

Q1F05-Q4F05 36% 26% Y 25 -15%

Q1F08-Q1F09 104% 9% Y - -18%

Q1F17-Q1F19 76% 9% Y - 5%*

Source: Company, Edelweiss Research, Bloomberg

Note: for simplicity, considered only steel while calculating QoQ commodity movements;*during Q1F17-Q1F19, sector outperformance is due to

MSIL and TVS; stocks considered are: AL, BJAUT, EIM, HMCL, M&M, MSIL, TTMT and TVS

A bird’s eye view of factors affecting relative stock performance in plateau/deflationary period

Commodity movement (%) Revenue growth (%) Gross margin

pressure

Interest rate

change in bps

Avg stock

performance to Nifty

Q1F06-Q1F07 -32% 19% N 75 11%

Q1F07-Q1F08 -5% 23% Y 25 -25%

Q1F09-Q1F10 -57% 3% Y -275 44%

Q4F11-Q2F13 -30% 23% Y 125 21%

Q2F18-Q2F19 4% 14% Y 0 -7%

Q1F19-Q2F20 -20% 1% Y -85 -33%

Source: Company, Edelweiss Research, Bloomberg

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Edelweiss Securities Limited

SPEEDS & BUMPS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 3

Stocks performance during commodity inflation…

Source: Company, Edelweiss Research, Bloomberg

Note: During Q1F17-Q1F19 sector outperformance is due to MSIL and

TVS.

…and during commodity plateau/deflation

Source: Company, Edelweiss Research, Bloomberg

Interest rate and sector performance (inflation)

Source: Company, Edelweiss Research, Bloomberg

Interest rate and sector perf (plateau/deflation)

Source: Company, Edelweiss Research, Bloomberg

-15%

-18%

5%

-25%

-19%

-13%

-7%

-1%

5%

30%

48%

66%

84%

102%

120%

Q1F05-Q4F05 Q1F08-Q1F09 Q1F17-Q1F19

Commodity movement (LHS)

Avg stock performance to Nifty (RHS)

11%

-25%

44%

21%

-7%

-33%

-50%

-30%

-10%

10%

30%

50%

-60%

-46%

-32%

-18%

-4%

10%

Q1

F06

-Q1

F07

Q1

F07

-Q1

F08

Q1

F09

-Q1

F10

Q4

F11

-Q2

F13

Q2

F18

-Q2

F19

Q1

F19

-Q2

F20

Commodity movement (LHS)

Avg stock performance to Nifty (RHS)

-15%

-18%

5%

-25%

-19%

-13%

-7%

-1%

5%

0

6

12

18

24

30

Q1F05-Q4F05 Q1F08-Q1F09 Q1F17-Q1F19

Interest rate change in bps (LHS)

Avg stock performance to Nifty (RHS)

11%

-25%

44%

21%

-7%

-33%

-50%

-30%

-10%

10%

30%

50%

-300

-210

-120

-30

60

150

Q1

F06

-Q1

F07

Q1

F07

-Q1

F08

Q1

F09

-Q1

F10

Q4

F11

-Q2

F13

Q2

F18

-Q2

F19

Q1

F19

-Q2

F20

Interest rate change in bps (LHS)

Avg stock performance to Nifty (RHS)

Page 4: SPEEDS & BUMPS

SPEEDS & BUMPS

Edelweiss Securities Limited

4 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Phase: Commodities stabilise after strong inflation

We came across two such periods: Q1FY07–Q1FY08 and Q2FY18–Q2FY19. Despite

strong revenue growth during both periods, stocks have largely underperformed

barring an outlier. Despite plateauing commodity prices, gross margin remained

under pressure for 2 to 4 quarters, reflecting the lag impact. Hence we conclude that

the primary reason for underperformance could be either revenue growth has

lagged expectations or margins have been below expectation during the period. The

outlier performance was driven by gross margin expansion.

Q1FY07–Q1FY08

At aggregate level, revenue grew by 23% and gross margins were under pressure. As

can be seen from Exhibit 9, except for Eicher Motor (EIM -Royal Enfield), all the

companies faced gross margin headwinds. As a result only EIM outperformed Nifty

by 17%.

Q2FY18–Q2FY19

At aggregate level, revenue grew by 14% and gross margins were under pressure. As

can be seen from Exhibit 11, only M&M had four consecutive quarters of gross

margin expansion. As a result, M&M outperformed Nifty by 15%.

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Edelweiss Securities Limited

SPEEDS & BUMPS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 5

Q1FY07–Q1FY08

Source: Company, Edelweiss Research, Bloomberg;

Commodity prices are as of period end; #BJAUT – Pre de-merger financials not available

Q1FY07 Q2FY07 Q3FY07 Q4FY07 Q1FY08

Sequential trend in commodities (indexed to 100)

China Domestic Steel 100.0 83.6 81.9 91.4 94.8

Aluminium 100.0 98.5 109.3 106.9 103.3

Crude 100.0 85.0 82.8 92.6 97.1

Platinum 100.0 92.9 92.5 101.3 103.7

Palladium 100.0 100.0 106.0 112.2 116.3

Rhodium 100.0 100.0 115.6 129.2 130.2

USDINR 46.0 45.9 44.3 43.5 40.7

Reverse Repo rate (%) 5.75 6.00 6.00 6.00 6.00

Company wise performance

Ashok Leyland (AL)

Revenue growth (YoY %) 34.0 34.1 48.0 32.1 13.9

Gross profit growth (YoY %) 22.5 12.1 29.1 43.6 19.7

EBITDA growth (YoY %) 28.9 16.2 58.5 12.0 48.8

Bajaj Auto# (BJAUT)

Revenue growth (YoY %) NA NA NA NA NA

Gross profit growth (YoY %) NA NA NA NA NA

EBITDA growth (YoY %) NA NA NA NA NA

Eicher Motor (EIM-Standalone)

Revenue growth (YoY %) -1.2 29.2 26.5 20.6 21.2

Gross profit growth (YoY %) 10.5 48.2 34.6 0.9 25.3

EBITDA growth (YoY %) 83.9 1,040.3 1,045.3 -43.0 39.0

Hero MotoCorp (HMCL)

Revenue growth (YoY %) 19.6 2.9 15.2 17.0 3.5

Gross profit growth (YoY %) 15.5 -2.0 -1.4 23.2 0.3

EBITDA growth (YoY %) 9.1 -15.0 -20.1 -31.0 -17.4

M&M

Revenue growth (YoY %) 22.4 28.0 17.8 20.0 17.8

Gross profit growth (YoY %) 19.8 41.5 17.0 25.7 22.6

EBITDA growth (YoY %) 30.0 50.9 17.5 15.2 12.1

Maruti (MSIL)

Revenue growth (YoY %) 19.0 12.6 18.2 35.2 25.8

Gross profit growth (YoY %) 32.2 28.3 22.9 -10.0 27.1

EBITDA growth (YoY %) 40.6 36.0 8.9 -29.0 25.9

Tata Motors (TTMT- Standalone)

Revenue growth (YoY %) 49.1 37.4 34.5 20.1 8.2

Gross profit growth (YoY %) 39.4 34.4 25.3 16.1 6.9

EBITDA growth (YoY %) 51.2 21.2 20.2 7.3 3.1

TVS Motors (TVS)

Revenue growth (YoY %) 25.4 36.6 7.3 8.6 -15.0

Gross profit growth (YoY %) 16.9 25.2 -9.0 -17.6 -22.7

EBITDA growth (YoY %) -16.3 21.9 -51.2 -97.4 -54.0

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Edelweiss Securities Limited

6 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Stocks underperformed versus Nifty (except Eicher)

Source: Bloomberg, Edelweiss Research, Note: *Prices as of month end. BJAUT- Pre-

demerger prices not available

AL BJAUT EIM HMCL M&M MSIL TTMT TVS Nifty

Q1FY07 100.0 NA 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Q2FY07 124.6 NA 124.4 100.5 109.4 123.7 108.4 128.0 114.7

Q3FY07 126.1 NA 152.6 99.1 146.1 117.1 113.3 90.3 126.8

Q4FY07 110.3 NA 112.7 89.4 126.7 103.4 91.6 61.6 122.2

Q1FY08 108.7 NA 161.8 89.8 117.4 93.8 86.0 63.1 138.0

Relative to Nifty (%)

Q1FY07 0.0 NA 0.0 0.0 0.0 0.0 0.0 0.0

Q2FY07 8.7 NA 8.5 -12.4 -4.6 7.8 -5.5 11.6

Q3FY07 -0.6 NA 20.3 -21.9 15.2 -7.6 -10.6 -28.8

Q4FY07 -9.7 NA -7.8 -26.9 3.7 -15.4 -25.0 -49.6

Q1FY08 -21.2 NA 17.2 -34.9 -14.9 -32.1 -37.7 -54.3

Page 7: SPEEDS & BUMPS

Edelweiss Securities Limited

SPEEDS & BUMPS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 7

Q2FY18–Q2FY19

Source: Company, Edelweiss Research, Bloomberg; Note: Commodity prices are as of period

end

Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19

Sequential trend in commodities

China HRC export 100.0 101.7 102.6 104.3 103.5

Aluminium 100.0 108.5 95.5 103.5 98.5

Crude 100.0 116.2 122.1 138.1 143.8

Platinum 100.0 101.8 102.2 93.6 89.5

Palladium 100.0 113.5 101.8 102.0 114.7

Rhodium 100.0 144.7 172.2 190.7 217.7

USDINR 65.3 63.9 65.2 68.5 72.5

Reverse Repo rate (%) 6.0 5.8 5.8 5.8 6.0

Company wise performance

Ashok Leyland

Revenue growth (YoY %) 30.8 57.5 32.7 47.8 26.0

Gross profit growth (YoY %) 16.8 47.9 36.3 50.2 22.1

EBITDA growth (YoY %) 14.0 73.6 54.2 119.4 35.5

Bajaj Auto

Revenue growth (YoY %) 8.7 26.1 38.3 37.2 21.8

Gross profit growth (YoY %) 1.7 20.8 31.7 32.9 9.8

EBITDA growth (YoY %) 0.2 19.7 45.2 42.7 5.4

RE (Standalone)

Revenue growth (YoY %) 28.4 22.8 23.5 34.2 27.3

Gross profit growth (YoY %) 29.4 22.5 28.4 37.7 31.3

EBITDA growth (YoY %) 30.8 24.9 23.3 38.2 31.0

Hero MotoCorp

Revenue growth (YoY %) 7.4 14.8 23.8 10.5 8.6

Gross profit growth (YoY %) 1.9 6.6 27.2 2.6 4.8

EBITDA growth (YoY %) 6.3 7.2 43.1 6.3 -5.3

M&M

Revenue growth (YoY %) 18.2 10.3 24.3 18.9 6.4

Gross profit growth (YoY %) 22.7 16.6 33.3 19.6 1.0

EBITDA growth (YoY %) 31.0 19.6 61.3 32.1 -3.9

MSIL

Revenue growth (YoY %) 21.8 14.3 14.5 25.6 2.1

Gross profit growth (YoY %) 17.7 14.6 18.7 24.3 2.3

EBITDA growth (YoY %) 21.1 22.0 17.7 35.5 -12.1

Tata Motors (Standalone)#

Revenue growth (YoY %) 28.9 57.6 45.6 83.4 33.4

Gross profit growth (YoY %) 20.3 57.7 39.2 72.0 39.0

EBITDA growth (YoY %) 163.7 1,521.8 306.4 -1,952.5 73.1

Tata Motors (Conso, inc JLR)

Revenue growth (YoY %) 6.0 9.8 18.2 14.0 3.3

Gross profit growth (YoY %) -4.3 -2.3 15.1 8.0 2.6

EBITDA growth (YoY %) 6.5 65.5 0.9 1.7 -21.6

TVS

Revenue growth (YoY %) 18.6 24.0 38.1 22.0 22.8

Gross profit growth (YoY %) 15.0 22.3 38.7 14.0 10.8

EBITDA growth (YoY %) 31.1 37.5 35.1 40.9 18.1

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Edelweiss Securities Limited

8 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Auto stocks underperformance continued

Source: Edelweiss Research, Bloomberg; Note: Prices as of month end

AL BJAUT EIM HMCL M&M MSIL TTMT TVS Nifty

Absolute price performance (indexed to 100)

Q2FY18 100 100 100 100 100 100 100 100 100

Q3FY18 133 114 116 102 94 112 93 120 103

Q4FY18 97 107 97 100 120 122 108 118 108

Q1FY19 122 84 94 93 99 91 77 80 97

Q2FY19 87 100 101 100 121 100 81 90 105

Relative to Nifty (%)

Q2FY18 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Q3FY18 29.5 10.5 12.7 -0.8 -8.7 8.6 -9.7 16.4

Q4FY18 -10.1 -0.3 -9.6 -6.8 11.3 13.4 0.0 9.3

Q1FY19 25.8 -13.2 -3.1 -3.9 2.5 -5.9 -20.7 -17.1

Q2FY19 -17.5 -4.5 -4.4 -4.7 14.6 -5.2 -22.7 -14.8

Page 9: SPEEDS & BUMPS

Edelweiss Securities Limited

SPEEDS & BUMPS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 9

Phase: Commodities deflate significantly

We also evaluated the phase of commodity deflation (generally sets in after

plateau/inflation phase), even though we are not expecting the same as of now.

Of the four deflationary phases, only two times auto sector was a clear

outperformer. Also the driver of the performance is not revenue growth. There have

been instances of outperformance in a weak revenue environment and vice versa.

Q1FY06 – Q1FY07

At aggregate level, revenue grew by strong 19%. This has been an interesting phase

wherein steel prices saw a sharp correction but all the other commodities saw a

similar increase. Given steel was the largest contributor to the commodity basket

during this period, we believe the net impact will be beneficial for OEMs. Another

observation has been rising interest rate as reflected by repo rate trend.

As can be seen from Exhibits 13 and 14, of the seven stocks, AL, M&M, MSIL and

TTMT outperformed Nifty. This could be attributed to better-than-expected revenue

growth and expectation of margin revival.

Q1FY09 – Q1FY10

At aggregate level, revenue grew by merely 3% and margins were under pressure.

This was a unique period, especially when compared to other three periods. All the

stocks outperformed regardless of revenue performance (growth or decline) and

gross margins (expansion or otherwise). We primarily attribute this to a sharp

reduction in interest rate as well as excise duty reduction in the aftermath of the

GFC.

As can be seen from exhibits 15 and 16, revenue growth trend was mixed (strong for

MSIL, HMCL, M&M and TVS, and subdued for AL, TTMT and BJAUT). Similarly, gross

margin expanded for AL, BJAUT, HMCL and TVS, whereas M&M and MSIL witnessed

pressure. For TTMT, there was a lag of three quarters for the benefit to be visible.

TTMT was the only stock that underperformed Nifty significantly.

Q4FY11 – Q2FY13

At aggregate level, revenue grew by 23% and margins were under pressure. During

this period, stocks outperformed Nifty significantly in the initial phase on

expectation of revenue/margin beat. However, post-Q2FY12, stocks started to

underperform (Exhibit 18). This was due to absence of gross margin expansion along

with revenue growth slowing down.

As can be seen from Exhibit 17, for many players, revenue actually reported a

double-digit decline by the end of the period. Interestingly players like EIM, which

continued to report strong revenue growth as well as margin expansion,

underperformed post strong outperformance till Q2FY12. The only plausible

assumption is expectations were higher than actual performance.

Q1FY19 – Q2FY20

At aggregate level, revenue grew by 1% and margins were under pressure. As can be

seen from Exhibit 19, revenue growth started with strong double-digit and turned

negative by end of the period. Margins expansion was visible for some players with

a lag of three–four quarters and coincided with the revenue decline phase.

As can be seen from Exhibit 20, unlike the earlier 3 phases, stocks largely

underperformed the Nifty. The only outlier that performed marginally better than

Nifty was BJAUT.

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Edelweiss Securities Limited

10 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Q1FY06 – Q1FY07

Source: Company, Edelweiss Research, Bloomberg; Note: Commodity prices are as of period

end. BJAUT – Pre- demerger financials are not available.

Q1FY06 Q2FY06 Q3FY06 Q4FY06 Q1FY07

Sequential trend in commodities

China HRC export 100.0 85.6 67.0 72.3 67.9

Aluminium 100.0 107.8 133.9 143.5 152.1

Crude 100.0 114.2 106.1 118.6 132.3

Platinum 100.0 105.5 110.0 120.5 139.2

Palladium 100.0 108.0 140.2 183.5 173.6

Rhodium 100.0 142.0 155.4 208.5 248.7

USDINR 43.7 43.5 44.0 45.1 44.6

Reverse Repo rate (%) 5.0 5.00 5.25 5.50 5.75

Company wise performance

Ashok Leyland

Revenue growth (YoY %) 29.4 36.6 21.7 18.8 34.0

Gross profit growth (YoY %) 23.5 31.7 28.4 NA 22.5

EBITDA growth (YoY %) 18.7 60.4 13.9 38.3 28.9

Bajaj Auto

Revenue growth (YoY %) NA NA NA NA NA

Gross profit growth (YoY %) NA NA NA NA NA

EBITDA growth (YoY %) NA NA NA NA NA

RE (Standalone)

Revenue growth (YoY %) 12.1 -20.8 -26.8 -21.9 -1.2

Gross profit growth (YoY %) -9.9 -25.1 -28.9 NA 10.5

EBITDA growth (YoY %) -54.0 -92.5 -93.1 109.3 83.9

Hero MotoCorp

Revenue growth (YoY %) 14.8 23.3 15.6 16.3 19.6

Gross profit growth (YoY %) 11.3 19.9 22.8 NA 15.5

EBITDA growth (YoY %) 2.4 21.3 21.6 32.8 9.1

M&M

Revenue growth (YoY %) 27.3 23.2 23.4 19.8 22.4

Gross profit growth (YoY %) 24.2 15.0 34.4 11.7 19.8

EBITDA growth (YoY %) 20.2 16.5 24.5 29.0 30.0

MSIL

Revenue growth (YoY %) 5.9 15.6 10.7 7.7 19.0

Gross profit growth (YoY %) 8.8 15.8 23.5 62.2 32.2

EBITDA growth (YoY %) 5.9 11.1 30.4 86.9 40.6

Tata Motors (Standalone)

Revenue growth (YoY %) 7.3 15.3 16.3 28.9 49.1

Gross profit growth (YoY %) 6.7 13.1 19.2 24.6 39.4

EBITDA growth (YoY %) 15.7 17.0 14.6 30.7 51.2

TVS

Revenue growth (YoY %) 20.3 6.2 8.4 16.8 25.4

Gross profit growth (YoY %) -0.1 -9.6 4.3 17.0 16.9

EBITDA growth (YoY %) -11.7 -31.9 14.7 37.8 -16.3

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Stocks outperformed (EIM dragged overall outperformance)

Source: Edelweiss Research, Bloomberg; Note: *Prices as of month end.

AL BJAUT EIM HMCL M&M MSIL TTMT TVS Nifty

Absolute price performance (indexed to 100)

Q1FY06 100.0 NA 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Q2FY06 125.4 NA 94.2 131.4 135.4 121.0 125.6 129.9 117.1

Q3FY06 140.6 NA 76.5 152.3 183.5 137.4 153.6 141.2 127.7

Q4FY06 168.5 NA 88.3 156.9 224.0 183.4 214.1 195.8 154.0

Q1FY07 163.9 NA 80.3 139.4 225.9 170.7 190.0 137.9 140.9

Relative to Nifty (%)

Q1FY06 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Q2FY06 7.1 -19.6 12.1 15.6 3.3 7.2 10.9

Q3FY06 10.1 -40.1 19.2 43.6 7.6 20.2 10.5

Q4FY06 9.5 -42.7 1.9 45.5 19.1 39.1 27.2

Q1FY07 16.3 -43.0 -1.1 60.4 21.1 34.9 -2.1

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Q1FY09 –Q1FY10

Source: Company, Edelweiss Research, Bloomberg; Commodity prices are as of period end;

EIM – comparable financials not available due to demerger

Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10

Sequential trend in commodities (indexed to 100)

China Domestic Steel 100.0 72.3 48.7 42.9 42.9

Aluminium 100.0 77.5 49.2 44.2 52.1

Crude 100.0 70.2 32.6 35.2 49.6

Platinum 100.0 48.9 45.2 54.5 56.9

Palladium 100.0 43.1 40.4 46.7 54.1

Rhodium 100.0 41.6 12.9 12.1 14.9

USDINR 43.0 47.0 48.8 50.7 47.9

Reverse Repo rate (%) 6.00 6.00 5.00 3.50 3.25

Company wise performance

Ashok Leyland

Revenue growth (YoY %) 16.2 6.9 -44.4 -52.5 -51.6

Gross profit growth (YoY %) -1.7 8.1 -39.9 -50.1 -44.0

EBITDA growth (YoY %) -11.6 -8.6 -80.0 -61.2 -91.9

Bajaj Auto#

Revenue growth (YoY %) 9.6 7.9 -15.9 -9.2 1.2

Gross profit growth (YoY %) -3.0 -1.3 -8.0 6.9 40.0

EBITDA growth (YoY %) -3.0 -9.1 -16.7 15.8 70.7

RE (Standalone)

Revenue growth (YoY %) 17.4 -86.6 -85.5 -86.4 -83.3

Gross profit growth (YoY %) 2.6 -85.0 -83.1 -80.7 -73.6

EBITDA growth (YoY %) -7.0 -122.5 -102.3 -67.8 -59.0

Hero MotoCorp

Revenue growth (YoY %) 16.2 36.1 5.0 22.3 34.0

Gross profit growth (YoY %) 20.3 35.8 7.7 29.2 53.0

EBITDA growth (YoY %) 29.4 49.2 9.0 30.7 87.3

M&M

Revenue growth (YoY %) 26.1 14.5 -14.8 14.9 28.8

Gross profit growth (YoY %) 20.8 -3.3 -26.7 9.6 44.2

EBITDA growth (YoY %) 15.3 -17.6 -33.6 12.4 87.5

MSIL

Revenue growth (YoY %) 23.6 9.8 0.1 34.5 33.6

Gross profit growth (YoY %) 20.2 10.1 -7.2 18.3 31.4

EBITDA growth (YoY %) -0.8 -13.7 -35.9 19.7 39.1

Tata Motors

Revenue growth (YoY %) 10.7 9.4 -34.4 -22.8 -7.6

Gross profit growth (YoY %) -4.7 2.5 -46.9 -22.2 9.6

EBITDA growth (YoY %) -28.1 -2.0 -90.3 -45.8 37.2

TVS

Revenue growth (YoY %) 18.0 23.3 -2.3 15.2 6.9

Gross profit growth (YoY %) 21.5 23.3 -0.4 28.7 21.9

EBITDA growth (YoY %) 91.1 32.7 5.6 77.1 71.3

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Stocks outperformed broad indices (except HMCL and MSIL)

Source: Company, Edelweiss Research Note: Prices as of month end.

AL BJAUT EIM HMCL M&M MSIL TTMT TVS Nifty

Q1FY09 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Q2FY09 98.1 132.1 97.0 128.8 106.9 112.8 83.3 126.1 97.0

Q3FY09 55.4 86.8 85.4 118.7 57.6 85.0 38.7 87.1 73.2

Q4FY09 67.1 137.3 79.1 158.2 80.5 127.4 43.7 87.6 74.8

Q1FY10 110.5 222.7 115.6 206.4 145.0 174.7 70.5 177.0 106.2

Relative to Nifty (%)

Q1FY09 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Q2FY09 1.1 36.1 0.0 32.8 10.1 16.2 -14.1 29.9 0.0

Q3FY09 -24.3 18.6 16.6 62.1 -21.4 16.1 -47.1 18.9 0.0

Q4FY09 -10.3 83.7 5.7 111.6 7.6 70.4 -41.6 17.2 0.0

Q1FY10 4.0 109.7 8.8 94.4 36.6 64.5 -33.6 66.6 0.0

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Q4FY11 – Q2FY13

Source: Company, Edelweiss Research, Bloomberg; Note: Commodity prices are as of period

end

Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13

Sequential trend in commodities

China HRC export 100.0 92.7 94.7 84.0 88.0 77.3 70.0

Aluminium 100.0 95.6 81.1 76.2 79.7 71.6 79.6

Crude Oil 100.0 95.8 87.6 91.5 104.7 83.3 95.8

Platinum 100.0 100.3 109.8 119.0 114.1 124.8 118.6

Palladium 100.0 97.4 86.3 78.9 92.7 81.9 94.0

Rhodium 100.0 99.1 80.0 85.5 85.6 76.2 83.4

USDINR 44.6 44.7 49.0 53.1 50.9 55.6 52.9

Reverse Repo rate (%) 5.75 6.50 7.25 7.50 7.50 7.00 7.00

Company wise performance

Ashok Leyland

Revenue growth (YoY %) 30.3 6.3 14.0 29.3 12.6 20.5 6.5

Gross profit growth (YoY %) 35.5 13.7 14.2 25.6 3.1 17.4 9.5

EBITDA growth (YoY %) 34.7 -0.1 8.1 26.7 -3.7 2.4 0.9

Bajaj Auto

Revenue growth (YoY %) 21.9 21.0 21.3 19.4 12.2 3.4 -5.6

Gross profit growth (YoY %) 11.8 10.6 18.5 19.1 14.6 9.4 -6.8

EBITDA growth (YoY %) 3.4 8.1 17.9 15.9 14.6 3.8 -13.4

RE (Standalone)

Revenue growth (YoY %) 50.2 55.4 63.0 39.0 46.7 52.0 52.4

Gross profit growth (YoY %) 38.8 50.2 58.9 42.6 48.8 57.2 64.1

EBITDA growth (YoY %) 51.5 85.5 119.3 55.1 55.2 74.4 79.8

Hero MotoCorp

Revenue growth (YoY %) 30.8 32.3 28.1 16.9 11.9 9.9 -11.0

Gross profit growth (YoY %) 8.1 16.3 29.3 21.5 10.4 14.3 -11.7

EBITDA growth (YoY %) 16.6 35.7 51.1 46.8 11.5 14.6 -21.7

M&M

Revenue growth (YoY %) 29.2 30.9 36.0 33.9 33.0 31.5 26.8

Gross profit growth (YoY %) 22.3 27.7 24.8 17.7 20.4 26.2 25.3

EBITDA growth (YoY %) 13.6 24.5 13.0 12.5 14.9 27.9 33.2

MSIL

Revenue growth (YoY %) 19.8 3.6 -14.4 -17.0 16.2 26.4 6.0

Gross profit growth (YoY %) 10.8 0.9 -19.1 -20.0 7.4 29.9 1.2

EBITDA growth (YoY %) -9.1 -5.0 -48.5 -53.7 -15.0 -3.5 2.9

Tata Motors (Standalone)#

Revenue growth (YoY %) 19.4 14.2 12.6 15.8 12.3 -11.0 -3.6

Gross profit growth (YoY %) 14.9 19.5 1.1 0.7 5.9 -14.0 -5.1

EBITDA growth (YoY %) 3.1 -16.4 -20.3 -27.1 16.5 -27.6 -25.1

Tata Motors (Conso, inc JLR)

Revenue growth (YoY %) 22.9 24.1 25.8 42.8 43.0 29.0 19.9

Gross profit growth (YoY %) 20.7 16.3 16.7 33.4 41.9 33.8 30.0

EBITDA growth (YoY %) 42.2 9.9 12.6 41.4 50.8 35.8 18.4

TVS

Revenue growth (YoY %) 35.1 25.4 23.3 7.9 -0.9 4.2 -15.1

Gross profit growth (YoY %) 17.7 14.6 15.2 12.8 -2.4 11.6 -8.4

EBITDA growth (YoY %) 16.3 31.9 29.9 29.7 -1.4 -8.2 -26.5

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Stock outperformed Nifty but started to give up gains midway

Source: Edelweiss Research, Bloomberg; Note: Prices as of month end.

AL BJAUT EIM HMCL M&M MSIL TTMT TVS Nifty

Absolute price performance (indexed to 100)

Q4FY11 100 100 100 100 100 100 100 100 100

Q1FY12 89 99 97 123 100 92 80 90 97

Q2FY12 96 108 119 130 117 86 64 103 85

Q3FY12 84 112 111 127 99 73 73 88 79

Q4FY12 111 118 150 137 102 108 112 70 91 Q1FY13 91 111 150 143 103 93 99 64 90

Q2FY13 92 132 174 128 128 108 111 74 98

Relative to Nifty (%)

Q4FY11 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Q1FY12 -7.9 2.2 -0.1 27.0 3.5 -5.1 -17.7 -7.3 0.0

Q2FY12 12.9 27.5 41.0 52.8 37.8 1.9 -24.8 21.6 0.0

Q3FY12 5.5 41.2 39.6 60.3 24.8 -7.6 -7.9 10.9 0.0

Q4FY12 22.6 30.1 64.9 51.0 11.9 18.6 23.9 -22.6 0.0

Q1FY13 0.9 22.2 66.0 58.4 13.4 3.1 9.5 -29.5 0.0

Q2FY13 -6.0 35.5 77.5 31.3 30.6 10.9 13.8 -24.2 0.0

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Q1FY19 – Q2FY20

Source: Company, Edelweiss Research, Bloomberg; Note: Commodity prices are as of period

end

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20

Sequential trend in commodities

China HRC export 100.0 95.8 81.7 90.0 84.2 80.0

Aluminium 100.0 95.1 86.5 87.9 82.6 79.0

Crude 100.0 104.1 67.7 86.1 83.8 76.5

Platinum 100.0 95.6 93.2 99.5 97.8 103.5

Palladium 100.0 112.5 132.1 145.0 160.9 175.4

Rhodium 100.0 114.2 108.8 142.0 148.2 234.5

USDINR 68.5 72.5 69.8 69.2 69.0 70.9

Reverse Repo rate (%) 6.0 6.3 6.25 6.00 5.5 5.2

Company wise performance

Ashok Leyland

Revenue growth (YoY %) 47.8 26.0 -11.1 0.7 -9.2 -48.4

Gross profit growth (YoY %) 50.2 22.1 -7.0 -4.6 -12.1 -42.7

EBITDA growth (YoY %) 119.4 35.5 -17.6 -12.5 -20.1 -72.4

Bajaj Auto

Revenue growth (YoY %) 37.2 21.8 16.0 9.6 3.9 -3.8

Gross profit growth (YoY %) 32.9 9.8 -1.0 0.6 1.0 1.9

EBITDA growth (YoY %) 42.7 5.4 -7.5 -6.7 -10.5 -6.6

RE (Standalone)

Revenue growth (YoY %) 34.2 27.3 11.1 3.6 -1.2 -7.6

Gross profit growth (YoY %) 37.7 31.3 14.5 3.5 -5.6 -12.6

EBITDA growth (YoY %) 38.2 31.0 6.7 -3.7 -15.0 -25.9

Hero MotoCorp

Revenue growth (YoY %) 10.5 8.6 7.7 -7.9 -8.8 -16.7

Gross profit growth (YoY %) 2.6 4.8 2.8 -11.7 -7.8 -12.4

EBITDA growth (YoY %) 6.3 -5.3 -4.6 -22.0 -15.9 -20.1

M&M

Revenue growth (YoY %) 18.9 6.4 12.2 4.7 -4.1 -14.5

Gross profit growth (YoY %) 19.6 1.0 2.3 -1.9 -5.6 -10.3

EBITDA growth (YoY %) 32.1 -3.9 0.6 -6.4 -15.0 -16.7

MSIL

Revenue growth (YoY %) 25.6 2.1 2.0 2.3 -11.2 -23.6

Gross profit growth (YoY %) 24.3 2.3 -5.5 -4.7 -16.1 -29.7

EBITDA growth (YoY %) 35.5 -12.1 -36.4 -24.9 -38.9 -50.3

Tata Motors (Standalone)#

Revenue growth (YoY %) 83.4 33.4 0.7 -6.2 -19.9 -43.7

Gross profit growth (YoY %) 72.0 39.0 1.5 -15.2 -18.3 -48.0

EBITDA growth (YoY %) -1,952.5 73.1 5.6 -25.0 -44.7 -110.2

Tata Motors (Conso, inc JLR)

Revenue growth (YoY %) 14.0 3.3 3.7 -5.3 -7.8 -9.3

Gross profit growth (YoY %) 8.0 2.6 -0.5 -14.3 -8.4 -3.2

EBITDA growth (YoY %) 1.7 -21.6 -30.3 -26.4 -40.7 6.0

TVS

Revenue growth (YoY %) 22.0 22.8 26.1 9.4 7.2 -12.9

Gross profit growth (YoY %) 14.0 10.8 10.7 -3.5 10.6 -4.2

EBITDA growth (YoY %) 40.9 18.1 25.0 4.4 10.8 -10.8

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Auto stocks underperformed broader indices….

Source: Edelweiss Research, Bloomberg; Note: *Prices as of month end.

Financial snapshot

Source: Company Data, Edelweiss Research, Bloomberg

AL BJAUT EIM HMCL M&M MSIL TTMT TVS Nifty

Absolute price performance (indexed to 100)

Q1FY19 100 100 100 100 100 100 100 100 100

Q2FY19 96 98 85 85 97 84 83 101 102

Q3FY19 83 99 81 90 90 85 64 104 101

Q4FY19 74 106 72 76 76 76 65 86 108

Q1FY20 71 103 67 77 74 75 60 78 110

Q2FY20 58 109 63 81 62 78 44 77 107

QoQ price performance relative to Nifty (%)

Q1FY19 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Q2FY19 -5.5 -4.3 -16.7 -16.3 -5.2 -17.7 -18.6 -0.7 0.0

Q3FY19 -12.7 1.8 -3.0 5.4 -5.7 1.8 -18.2 3.0 0.0

Q4FY19 -13.7 0.0 -13.7 -19.3 -19.3 -13.9 -3.6 -23.3 0.0

Q1FY20 -3.9 -4.1 -5.4 -0.2 -2.9 -2.4 -4.8 -8.2 0.0

Q2FY20 -10.2 8.7 -2.4 6.3 -8.7 4.8 -14.1 0.9 0.0

Company

CMP

(INR)

Mkt cap

(INR mn) Reco Revenue EBITDA Adj. PAT

EPS

(INR) Revenue EBITDA Adj. PAT

EV /

EBITDA (x) P/E (x) P/B (x) RoE (%)

RoCE

(%) FCF

Ashok Leyland 140 4,09,946 Buy FY21 1,53,015 5,351 (3,016) (1.0) (12.4) (54.4) (176.3) 46.7 (72.7) 3.1 (4.2) (0.9) 3.5 (7,511)

FY22E 2,36,765 15,159 4,232 1.4 54.7 183.3 240.3 15.0 51.9 3.0 6.0 7.5 6.4 17,221

FY23E 3,26,164 29,807 15,141 5.2 113.2 457.0 257.8 7.4 14.5 2.7 19.8 21.7 9.1 37,883

FY24E 3,70,433 36,158 19,981 6.8 56.5 138.5 32.0 6.0 11.0 2.4 23.2 25.6 9.8 30,054

Bajaj Auto 3,912 11,31,874 Hold FY21 2,77,411 49,285 45,730 158.0 (94.0) (3.3) (10.3) 18.7 24.4 4.4 20.3 26.3 17.8 29,313

FY22E 3,46,549 56,107 51,046 176.4 24.9 13.8 11.6 16.4 21.8 4.3 20.1 26.0 16.2 33,315

FY23E 3,87,354 68,558 60,848 210.3 11.8 22.2 19.2 13.4 18.3 4.2 23.4 30.4 17.7 41,956

FY24E 4,24,524 79,014 69,519 240.2 9.6 15.3 14.2 11.6 16.0 4.1 26.1 33.9 18.6 49,970

Eicher Motors 2,704 7,39,191 Hold FY21 87,204 17,813 13,469 49.3 (4.7) (20.1) (28.3) 34.4 53.1 6.3 12.6 16.3 20.4 11,851

FY22E 1,12,117 23,564 20,841 76.3 28.6 32.3 54.7 25.5 34.3 5.4 16.9 19.6 21.0 11,712

FY23E 1,33,292 30,887 28,375 103.8 18.9 31.1 36.1 18.6 25.2 4.6 19.7 22.3 23.2 22,653

FY24E 1,48,957 35,174 32,320 118.3 11.8 13.9 13.9 15.5 22.1 3.9 19.0 21.4 23.6 26,489

Hero Motocorp 2,876 5,74,618 Hold FY21 3,08,006 40,193 29,642 148.4 6.8 (1.8) (7.1) 11.1 18.7 3.6 20.2 26.7 13.0 36,183

FY22E 3,38,994 43,920 31,624 158.3 10.1 9.3 6.7 10.0 17.5 3.4 20.0 26.7 13.0 19,965

FY23E 3,69,737 48,568 35,381 177.1 9.1 10.6 11.9 8.7 15.6 3.1 20.7 27.3 13.1 32,078

FY24E 4,07,793 56,886 42,038 210.4 10.3 17.1 18.8 6.9 13.2 2.8 22.1 29.2 13.9 38,487

M&M 846 11,40,629 Buy FY21 4,45,744 69,766 22,302 20.1 (0.6) 9.9 (42.7) 15.0 46.1 2.9 6.4 14.5 15.7 60,040

(M&M + MVML) FY22E 5,69,343 81,935 52,500 47.4 27.7 17.4 135.4 12.6 19.6 2.6 13.9 16.2 14.4 23,716

FY23E 6,38,616 83,969 52,413 47.3 12.2 2.5 (0.2) 12.0 19.6 2.3 12.4 14.6 13.1 25,801

FY24E 7,24,961 95,279 59,279 53.5 13.5 13.5 13.1 10.1 17.4 2.1 12.5 14.9 13.1 46,172

Maruti Suzuki 7,656 23,12,619 Hold FY21 7,03,325 54,706 43,550 144.2 (7.0) (26.3) (24.3) 28.1 45.5 3.9 8.7 10.7 7.8 58,664

FY22E 9,59,482 80,109 57,433 190.2 36.4 46.4 31.9 18.4 34.5 3.7 10.9 14.0 8.3 69,072

FY23E 10,62,499 1,08,673 78,907 261.3 10.7 35.7 37.4 12.9 25.1 3.4 13.9 18.0 10.2 68,812

FY24E 11,65,839 1,34,329 1,00,301 332.1 9.7 23.6 27.1 9.7 19.8 3.0 16.0 20.7 11.5 88,701

Tata Motors (C) 482 17,23,902 Buy FY21 24,97,948 3,05,553 (2,10,908) (55.1) (4.3) 54.9 194.8 6.1 (5.7) 2.2 (34.9) 5.6 12.2 17,435

FY22E 30,20,392 3,37,015 33,418 8.7 20.9 10.3 115.8 4.8 36.1 2.1 5.7 4.9 11.2 2,73,538

FY23E 37,24,665 4,57,531 1,24,457 32.5 23.3 35.8 272.4 3.0 9.7 1.7 18.7 10.1 12.3 2,68,668

FY24E 40,54,469 5,46,200 1,75,650 45.9 8.9 19.4 41.1 2.1 6.9 1.4 21.6 13.0 13.5 2,30,764

Financials (INR mn) Growth (%) ValuationsEBITDA

margins

(%)

All price charts cannot be included given the large of number of companies in our coverage. Specific charts may be available upon request

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position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment

objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business

with ESL.

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance.

Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk.

Research analyst has served as an officer, director or employee of subject Company: No

ESL has financial interest in the subject companies: No

ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report.

Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No

Subject company may have been client during twelve months preceding the date of distribution of the research report.

There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer.

A graph of daily closing prices of the securities is also available at www.nseindia.com

Analyst Certification:

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Page 19: SPEEDS & BUMPS

Edelweiss Securities Limited

SPEEDS & BUMPS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 19

Additional Disclaimers

Disclaimer for U.S. Persons

This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

Disclaimer for U.K. Persons

The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Disclaimer for Canadian Persons

This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst.

This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.

ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Disclaimer for Singapore Persons

In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors.

Disclaimer for Hong Kong persons

This report is distributed in Hong Kong by Edelweiss Securities (Hong Kong) Private Limited (ESHK), a licensed corporation (BOM -874) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to Section 116(1) of the Securities and Futures Ordinance “SFO”. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The report also does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual recipients. The Indian Analyst(s) who compile this report is/are not located in Hong Kong and is/are not licensed to carry on regulated activities in Hong Kong and does not / do not hold themselves out as being able to do so. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved.

Aditya Narain

Head of Research

[email protected]