Time to go cyclical cv industry gears up for a multi-year upcycle - edelweiss

1. 1
Time to go cyclical - CV industry gears up for a multi-year upcycle
Vishal Srivastav
Research Analyst
vishal.srivastav@edelweissfin.com

2. Table of Content
Commercial vehicle industry gears for a multi-year upcycle – Executive Summary ………………………………………………….........3
Current drivers and draggers - Change in axle load norms a knock-out blow, which initiated current downcycle………….…...4
Change in axle load norms a knock-out blow, which initiated current downcycle………………………………………………………….…...5
Pickup in LCV retails and recovery in tippers is driving revival…………………………………………………………………………………………....6
Erosion in volumes in current down-cycle was the sharpest in last 10 years……………………………………………………………………....7
…however in tonnage terms it was even more sharper…………………………………………………………………………………………………..….8
Replacement demand to fuel next CV cycle similar to FY02…………………………………………………………………………………………..……9
Tonnage to surpass volume growth in the current cycle…………………………………………………………………………………………………...10
Company section
Ashok Leyland – The best play in OEM space…………………………………………………………………………………………………………..….12
Company to fire up all engines as volume recovers………………………………………………………………………………………………………..…13
Increase in revenue was at least 2x during past up-cycles, which will be replicated………………………………………………………….14
Earning upgrades can be expected from upcoming quarterly results……………………………………………………………………………..…15
LCVs – Missing link in the story getting addressed…………………………………………………………………………………………………………….16
Valuation peaks a year prior to company achieving peak volumes…………………………………………………………………………………...17
Jamna Auto – The best bet in auto ancillary space to ride the CV cycle…………………………………..……………………………….....19
Top line and financial performance replicates CV cycle…………………………………………………………………………………………..……..…20
Earnings upgrade to start from Q3FY21 as M&HCV volumes recover……………………………………………………………………….……….21
Earnings upgrade to lead significant re-rating from these levels……………………………………………………………………………………….22
GNA Axles – Gearing for next level……………………………………………………………………………………………………………………………..24
Gaining market share in both domestic and international markets…………………………………………………………………………….…….25
New orders ensures strong growth visibility……………………………………………………………………………………………………………………..26

3. 3
New axle norms introduced in July 2018 triggered the worst decline for commercial vehicle (CV) industry
in last two decades. The sluggish economic growth in FY20 and the COVID-19 led slowdown in FY21
further impacted CV sales (-29%/-17% in FY20/FY21E). However, post easing of the lockdown, recovery
was seen in the retail sector. Revival in sales of light commercial vehicles (LCVs) and pickup in
construction activities led to traction in tipper sales. We expect (a) CV volume growth to benefit on
account of low inventory levels, coupled with significantly lower base over Q4FY21−Q2FY22, and (b)
higher proportion of older truck fleet for primary freight movement, which should spark replacement
demand as economic growth gains momentum. These factors would lead to a multi-year CV cycle, which
may last till the next 4-5 years. We estimate M&HCVs/LCVs to clock 43%/33% CAGR during the first phase
of the cycle (over FY21-FY23E). Ashok Leyland (ALL), Jamna Auto Industries (JAI) and GNA Axles (GNA) are
the best placed to garner benefits of this upcoming surge. Strong financials, wider product offerings and
market dominance would lead to significant improvement in the performance of these players, thereby
leading to valuation re-rating from these levels as well.
Inventory buildup to lead revival in industry growth
Benefits of low inventory levels along with significantly lower base (Q4FY21−Q2FY22) should lead to
recovery in CV volume growth from Q4FY21. The CV supply chain was starved with near-zero inventory
during start of the fiscal due to BS-VI implementation, which was followed by the COVID-19 led lockdown
and supply related constraints.
Replacement demand to lead first phase of upcoming CV cycle
Increased share of older trucks (more than 10 years old) from 31% in FY15 to 41% in FY21E and decreased
proportion of newer truck categories (less than 5 years/6-10 years) from 37%/32% in FY15 to 29%/28% in
FY21E, should fuel growth for replacement demand. With GDP projected to grow at 10% in FY22E (with 6.5-
7% expected to be maintained in the medium term), we estimate M&HCVs/LCVs to clock 43%/33% CAGR
during the first phase of the cycle (FY21-FY23E).
Top picks ALL, JAI and GNA − expect significant valuation re-rating on gains from upcoming CV cycle
ALL, JAI and GNA are the best plays to garner benefits from the upcoming surge. We foresee strong market
presence, diversified product basket and better financial health for all three companies on the back of
healthy fiscal discipline that was maintained over the last 5-6 years. Hence, we initiate Tactical BUY on
ALL/JAI/GNA with target price of INR131/INR84/INR375, implying 38%/42%/46% upside.
Ashok Leyland
CMP: INR 95
Target price: INR 131
Rating: Tactical BUY
Upside: 38%
Jamna Auto Inds
CMP: INR 59
Target price: INR 84
Rating: Tactical BUY
Upside: 42%
GNA Axles
CMP: INR 257
Target price: INR 375
Rating: Tactical BUY
Upside: 46%
Vishal Srivastav
Research Analyst
vishal.srivastav@edelweissfin.com
Date: 30th December 2020
Commercial vehicle industry gears up for a multi-year upcycle

4. 4
LCVs seeing healthy recovery while M&HCVs are catching up
Healthy cropping
seasons
Robust rural sentiment
1) Three robust cropping seasons has ensured
healthy agriculture freight movement.
2) Healthy rural sentiment should continue to drive
spending.
Rise in E-commerce
activities
Recovery in redistribution demand
1) Redistribution demand recovery was seen over the
last few months and is encouraging for the LCV
segment.
2) Growth in e-commerce should also boost LCV
sales.
3) Tipper segment is seeing recovery as infrastructure
and construction activities are catching up.
4) ICV segment, which is used in intra-city movement,
is seeing revival.
Attractive financing
options
Lower base benefit
1) Consecutive decline for two years should lead to a
bounce-back in demand from next fiscal.
2) Replacement demand should kick in from next
fiscal as economic activities revive.
3) Lower inventory in supply-chain in H1FY21 ensures
healthy H2FY21 for wholesale sales.
BS-VI price hikes
BS-VI price hikes
1) BS-VI related price hikes of ~7-8% should act as a
dampener in an already depressed demand
situation.
2) For the M&HCV segment, it would be more
challenging.
Depressed financials
of freight operators
Stressed financials of freight operators and high
inventory of repossessed trucks
1) Low utilization levels over the past two years has
impacted financials.
2) Significant inventory of repossessed or second-
hand trucks should strain new demand creation.
Down-trading and
discounts
Down-trading and discounts will impact realization
growth in the initial part of the cycle
1) Legalization of 20% overloading has led to
downtrading in new purchases.
2) Significant headwinds in demand scenario would
lead to aggressive discounting by OEMs.
Drivers FY21 Draggers FY21

5. 5
Change in axle load norms a knock-out blow, which initiated current downcycle
635
586
486
711
649
746
800
1018
832
1116
1024
1379
987
877
934
1476
683
1244
1558
1886
1383
1596
1315
1664
1012
599
635
615
0
500
1,000
1,500
2,000
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Tonnes
(in
000s)
MHCV GC sales (tonnage) Additional MHCV GC sales post axle norms (tonnage)
MCV (16T) MCV (25T) MAV (31 T) MAV (35 T) MAV (37 T) T Trailer (40 T) T Trailer (49 T)
Tonnes
Types of Vehicles
Old axle load (in tonnage) New axle load (in tonnage)
Cannabalisation Zone
Increase in axle load norms raised carrying capacity, thereby impacting new truck demand…
…which structurally dragged the industry’s tonnage growth as it
led to down trading
• About 40-45% M&HCVs (load carriers) were impacted
with the change in axle load norms in July 2018,
which legalized 20-25% overloading for trucks.
• Demand has shifted from higher tonnage to lower
tonnage trucks, which has led to downtrading.
• Additional spare capacity was created due to the
change in axle norms, which impacted overall demand.
• Downtrading impacted realization growth for OEMs,
which contributed ~one-fourth to the rise in top line
during last up-cycle.
Source: SIAM and Edelweiss Wealth Research
Source: SIAM and Edelweiss Wealth Research

6. 6
Pickup in LCV retails and recovery in tippers is driving revival
FY21 Estimates
Wholesale: -15%
Retail: -27%
Inventory levels in Nov 2020 ~90-100K units
FY21 Estimates
Estimates during lockdown: 5.34 lac units (-24% yoy)
Current estimates: 5.8 lac units (-17% yoy)
Pickup in demand and low inventory levels should drive growth in wholesales from H2FY21
Healthy revival in LCVs /ICVs and pickup in tipper sales is leading to swifter recovery in wholesales
-22%
-3%
21%
-10%
-35%
-17%
-48%
-85%
-19%
6%
47%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21E Q4FY21E
Estimates during lockdown Current estimates
Source: SIAM and Edelweiss Wealth Research
Source: SIAM, FADA and Edelweiss Wealth Research
0
20
40
60
80
100
120
140
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21
Units
(
in
000s)
Wholesale Retail

7. 7
Erosion in volumes in current down-cycle was the sharpest in last 10 years
Revival in LCVs, ICVs and Tippers coupled with
inventory push to lead the next upcycle from H2FY21
Downcycle of FY20-21 was the sharpest over the last two decades, and hence, recovery should take
longer. We estimate the previous peak of FY19 to be matched in FY25E
Period Cycle LCV M&HCV CV
FY02-07 Upcycle 25% 24% 24%
FY08-09 Decline 2% -18% -9%
FY09-12 Upcycle 32% 24% 28%
FY12-14 Decline -3% -24% -12%
FY15-19 Upcycle 7% 14% 9%
FY19-21E Decline -17% -36% -24%
FY21E-25E Upcycle 21% 29% 23%
• The current downcycle is the sharpest over the last two decades.
M&HCVs are the worst hit with volume erosion of more than half.
• We believe M&HCVs will require 3-4 years to reach the levels it had
clocked in FY19.
• Current revival is led by growth in LCVs/ICVs due to strong demand from e-
commerce and some pickup in the Tipper segment as infrastructure and
construction activities are recovering.
• Current inventory in the channel is ~25 days, near to lowest levels. This
provides a cushion for OEMs to fill inventory, thereby pushing growth.
Source: SIAM and Edelweiss Wealth Research
3X
2X
1.6x
2.3x
0.2X
0.3X
0.4X
0.2
0.5
0.4
0.8
0.6
1.0
0.6
1.3
FY02
Upcycle
FY08
Decline
FY09
Upcycle
FY12
Decline
FY15
Upcycle
FY19
Decline
FY21E
Upcycle
FY25E
Units
(in
mn)
Source: SIAM and Edelweiss Wealth Research

8. 8
…however in tonnage terms it was even more sharper
2014
3983
2722
5613
4065
7100
2923
7543
FY02
Upcycle
FY08
Decline
FY09
Upcycle
FY12
Decline
FY15
Upcycle
FY19
Decline
FY21E
Upcycle
FY25E
Tonnes
(in
000s)
2.6x
The imminent upcycle may see the highest tonnage growth v/s any over the last two decades
0.3X 0.6X
2X
2X
1.7x
0.3X
Expect strong addition in tonnage from FY22, as
M&HCV growth picks up
Period Cycle LCV M&HCV CV
FY02-07 Upcycle 9% 17% 16%
FY08-09 Decline -2% -22% -19%
FY09-12 Upcycle 26% 28% 27%
FY12-14 Decline -6% -26% -22%
FY15-19 Upcycle 7% 18% 16%
FY19-21E Decline -18% -40% -36%
FY21E-25E Upcycle 18% 29% 27%
• Tonnage growth over FY20-21 was impacted by the sluggish economic
growth over FY20/FY19 (4%/2%) and the sharp 7-8% expected decline in
economic growth in FY21
• Tonnage erosion in the current downcycle is higher than volumes. In
FY21, tonnage sales should reach decadal low levels.
• Hence, momentum in economic activities will fuel strong demand for
higher tonnage vehicles.
Source: SIAM and Edelweiss Wealth Research
Source: SIAM and Edelweiss Wealth Research

9. 9
Replacement demand to fuel CV cycle similar to FY02
Age wise population mix: Replacement cycle to kick in strongly (in line with the one seen in FY01-02)
29%
30%
34%
37%
41%
45%
47%
46%
44%
44%
43%
40%
39%
37%
35%
32%
32%
34%
33%
29%
31%
31%
30%
28%
24%
19%
19%
22%
24%
27%
30%
33%
32%
32%
33%
34%
32%
30%
29%
28%
23%
23%
21%
20%
20%
21%
20%
19%
19%
16%
13%
13%
15%
18%
20%
24%
26%
25%
25%
27%
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
Less than 5 yrs 6-10yrs 11-15yrs More than 15yrs
Correlation between Road freight and GVA is 75%
70%
67%
65%
62%
61%
59%
56%
61%
63%
65%
66%
-50%
-25%
0%
25%
50%
75%
-10%
-5%
0%
5%
10%
15%
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY24E
FY25E
MHCV utlisation % (RHS) GVA (at constant prices)
Road freight growth (in BTKM)
Utilization levels across the freight industry to pick up as
economic growth sustains
Source: SIAM and Edelweiss Wealth Research
Note: Estimation of M&HCV population is done considering 20 years age limit
• The current downcycle has led to a significant dip in on-road M&HCV truck
population (of less than five years age) from 34% in FY19 to 29% in FY21.
• Even population of M&HCVs between 6-10 years age has decreased from
30% in FY19 to 28% in FY21.
• M&HCV trucks (age less than 10 years) constitute ~80% in long-haul
movement. Hence, declining stock of M&HCVs used in long-haul
movement would trigger recovery in replacement demand.
• With GDP expected to grow 10% in FY22 and thereafter at ~6.5-7% in
medium term, we expect a multi-year CV cycle, which could last for the
next 3-4 years.
Source: SIAM and Edelweiss Wealth Research

10. 10
Tonnage to surpass volume growth in the current cycle
FY21-FY25E
LCV: 21%
MHCV: 29%
983
1124
884
760
1044
1308
1446
1494
5448
5976
3003
2163
3183
4506
5445
6095
-60%
-40%
-20%
0%
20%
40%
60%
0
1000
2000
3000
4000
5000
6000
7000
8000
FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E
Tonnes
(in
000s)
LCV M&HCV LCV growth % M&HCV growth %
FY21-FY25E
LCV: 18%
MHCV: 29%
…leading to tonnage surpassing volume growth
M&HCV growth to surpass LCV which normally happens
in the upcycles…
• We estimate 23% CAGR in CV volumes, while growth in tonnage terms is estimated to be higher i.e. 27% during FY21-25 period. Higher growth from M&HCVs to
drive tonnage growth for the sector.
• M&HCV sales in FY21 to reach not even 50% in both volume and tonnage terms it was in FY19. Hence with economy recovering sharply from FY22, we expect
sharp recovery in sales of higher tonnage vehicle.
• We foresee, M&HCV to take 3-4 years to surpass both volume and tonnage of FY19 peak. Also since the demand erosion in higher tonnage vehicles were higher
in current downcycle, it will take longer for tonnage to surpass the peak levels as compared to volumes.
0.5
0.6
0.5 0.4
0.5
0.7
0.8 0.9
0.3
0.4
0.2
0.2
0.2
0.3
0.4 0.4
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E
Units
(in
000s)
LCV M&HCV LCV growth % M&HCV growth %
Source: SIAM and Edelweiss Wealth Research

11. 11
Company Section

12. 12
Ashok Leyland – The best play in OEM space
Ashok Leyland is the second largest M&HCV manufacturer in India. During the last CV upcycle, the
company gained significant market share from 29% in FY15 to 34% in FY19. After a challenging FY20-21,
M&HCV demand is expected to bounce back strongly, driven by strong economic recovery − being a
significant player in the industry, Ashok Leyland will be a key beneficiary. Further efforts undertaken by
the company toward cost reduction in the recent past and benefits accruing from value addition should
drive significant improvement in profitability as the top line scales up. Hence, we initiate a Tactical BUY
with a target price of INR131/share.
Strong product offerings to sustain strong market share
Refurbishing its model offerings in M&HCV helped the company gain market share in the last upcycle. We
expect strengthening of the LCV portfolio with the success of recent launches like ‘Dost’ and ‘Bada Dost’ −
this should further scale up the company’s overall market share.
Scale up in financial performance in upcoming cycle to aid re-rating of valuation
The expectation of strong revival in the economy from FY22 will lead to the next CV upcycle with volumes
expected to scale up to 26%/17% CAGR for M&HCVs/LCVs during FY21-25. We estimate significant growth
in top line and margins, thereby leading to considerable improvement in ROCEs − from expected ~-0.5%
in FY21E to 18% in FY23E. Hence we expect re-rating in valuation of the stock from these levels as well.
We initiate a Tactical BUY with target price of INR131.
CMP: INR 95
Target price: INR 131
Rating: Tactical BUY
Upside: 38%
Bloomberg: AL:IN
52-week range (INR): 34/102
Share in issue (crore): 294
M-cap (INR crore): 23,370
Promoter holding (%) 51.54
40
90
140
190
240
290
340
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Indexed
Ashok Ley Sensex
Year to March FY19 FY20 FY21E FY22E FY23E
Revenue (INR crore) 29,444 18,302 14,273 20,995 27,385
Revenue growth (%) 10 -38 -22 47 30
EBITDA (INR crore) 3,075 2,008 646 1,791 2,732
Adjusted PAT (INR crore) 1,978 1,230 -74 738 1,414
Price-to-earning (x) 14 23 -320 38 20
Price-to-book value (x) 3.4 3.9 3.9 3.5 3.0
EV/EBITDA (x) 8.9 15.0 47.1 16.4 10.2
RoCE (%) 31.0 14.0 -0.5 9.8 17.8
RoAE (%) 25.5 15.8 -1.0 10.0 17.9

13. 13
Company to fire up all engines as volume recovers
Sharp increase in top line expected over next two years, driven by strong volume recovery and change in mix
53
73
79
61
74
114
134
131
103
139
194
205
268
294
179
147
210
274
-60%
-40%
-20%
0%
20%
40%
60%
-300
-200
-100
0
100
200
300
400 FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
INR
(in
bn)
Revenues (LHS) Growth %
FY06-FY08
Revenue: 22%
Volumes: 16%
FY09-FY12
Revenues: 30%
Volumes: 23%
FY15-FY19
Revenues: 21%
Volumes: 17%
FY21-FY23
Revenue: 38%
Volumes: 31%
• Higher tonnage growth during the last upcycle (FY15-19) benefitted Ashok Leyland. This can be gauged from the fact that contribution from value-led growth
was more than 20% of the overall revenue increase during the above period.
• Increase in market share in the M&HCV segment (from 29% in FY15 to 34% in FY19) significantly scaled up the mix toward higher-tonnage vehicles, thereby
fuelling value growth.
• Change in mix because of higher tonnage growth coupled with BS-VI price escalation from H2FY21 should lead to rise in realization. We expect the company to
more than double its revenue by FY23E.
• During last upcycle company’s revenue has increased by 3x, we may see similar growth trajectory for company in this upcoming cycle as well which is
expected to last till FY25.
• In previous cycles company was too much dependent on M&HCV segment which has more volatile demand pattern than LCVs. However success of new launches
in LCV segment, company may get some cushion from the sharp volatility of M&HCV segment.
Source: SIAM and Edelweiss Wealth Research

14. 14
Increase in revenue was at least 2x during past up-cycles, which will be replicated
…which will lead to significant expansion in margins and ROCE from current levels
5,330
7,935
6,098
13,380
10,301
29,444
14,273
27,385
16% 6%
12%
23%
7%
22%
8%
4%
37%
2%
-35%
-7% -5%
-33%
FY06
Volumes
Value
FY08
Volumes
Value
FY09
Volumes
Value
FY12
Volumes
Value
FY14
Volumes
Value
FY19
Volumes
Value
FY21E
Volumes
Value
FY23E
INR
cr
Change in mix to contribute almost one-third of the overall growth in the upcoming up-cycle…
Peak FY08
EBITDA margins: 10%
ROCE: 28%
Peak FY11
EBITDA margins: 11%
ROCE: 16%
Peak FY18
EBITDA margins: 10%
ROCE: 32%
Expectation for FY23E
EBITDA margins: 10%
ROCE: 18%
Source: SIAM and Edelweiss Wealth Research
Source: Edelweiss Wealth Research
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0%
2%
4%
6%
8%
10%
12%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA margins (LHS) ROCE

15. 15
Earning upgrades can be expected from upcoming quarterly results
-57
58
168
228
38 27
-57
-389
-147
133
322
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21
INR
cr
Estimates during lockdown Current estimates
-35%
-9%
25%
28%
-44% -29%
-57%
-90%
-33%
7%
51%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21
Estimates during lockdown Current estimates
12,519
14,273
20,995
Estimates
during
lockdown
Volumes Change in
mix
Current
estimates
FY21E
Volumes Realisation Current
estimates
FY22E
INR
cr
1.1
-0.8
1.5
1.1
-0.3
2.5
FY20 FY21E FY22E
Estimates during lockdown Current estimates
PAT may see up-gradation in estimates for the remaining
quarters of FY21
EPS to see upward revision for FY21-22
Top line is expected to witness ~15-17% upside for FY21 as
compared to estimates done during the start Q1FY21
Volumes: Strong pickup in e-commerce and infrastructure
activities driving better revival in CVs
Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research

16. 16
LCVs – Missing link in the story getting addressed
LCVs: Company leaving no stone unturned to become a key
competitor to market leaders in this cycle
M&HCVs: Stiff competition and depressed market scenario led
to erosion in market share during last two fiscals
35% 39% 42% 42% 40% 38% 31%
46%
48% 43% 38% 38% 40% 41%
39%
34%
6% 7% 7% 8% 8% 9%
9%
10%
2% 4%
4%
6%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
M&M Tata Motors Ashok Leyland Maruti Suzuki Others
55% 54% 52% 49% 49% 50% 50% 51%
26% 29% 33% 34% 34% 34% 32% 27%
13% 11% 11% 12% 12% 11% 13% 19%
7% 6% 5% 5% 5% 5% 5% 4%
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Tata Motors Ashok Leyland VECV Others
• Ashok Leyland gained significant ground from the market leader in
M&HCV space during the last upcycle (it scaled up market share
from 29% in FY15 to 34% in FY19).
• Refurbishing models across segments with improved features led
to this improvement.
• Recent launches like new BOSS LE and LX models in ICV space will
help gain back some lost market share in M&HCVs.
• The company has increased its dealer network across India from
~1,290 in FY15 to more than 3,000 currently.
• LCVs were the missing link in the arsenal; however, over the last 5-6
years, the company has scaled up its market share from 6% in
FY14 to 10% currently.
• Increase in model offerings from just one model ‘Dost’ in FY14 to
around three models currently along with their different
application-based variants enabled the increase in market share.
• With recent launches like ‘Bada Dost’ and ‘Partner’ and upcoming
slew of launches under project ‘Phoenix’, Ashok Leyland is giving
significant competition to market leaders in the LCV space.
Source: SIAM and Edelweiss Wealth Research
Source: SIAM and Edelweiss Wealth Research

17. 17
Valuation peaks a year prior to company achieving peak volumes
Stock has significantly rallied post lock down, however significant
upside still remains in the upcoming CV cycle
Possibilities of positive earning surprises during upcycles to
provide valuation re-rating from current levels
12
31
85
86
106
163
128
69
43
91
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19
Feb-20
May-20
Aug-20
Nov-20
INR
• Valuation peaks a year prior to the company hitting peak volumes
in upcycle period.
• We believe the next CV upcycle has just begun and there should
be significant improvement in financial performance from these
levels. For example ROCE to improve from ~-0.5% expected in
FY21E to 18% in FY23E.
• Notable contribution expected from value growth. Efforts
undertaken by the company toward cost reduction in the recent
past would help to scale up financial performance significantly in
the upcoming cycle.
• We initiate Tactical Buy on the stock with target price of INR 131.
23
16 15
13
10
25
46
16
10
FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Times
(x)
EV/EBITDA Average EV/EBITDA for last 10 years
Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research
Valuation calculations FY23
Estimated EBITDA for FY23E (INR cr) 2732
Target EV/EBITDA multiple (x) 12
Net debt -361
Target Market cap (INR cr) 33147
Target Price for Standalone (INR) 113
BV of Hinduja Leyland Finance (HFL) 82
Target Multiple (x) 2
Ashok Leyland Holdings (%) 67%
Target Price for Ashok Leyland Holders of HFL 18
Target Price 131

18. 18
Financials
Income statement (INR cr)
FY19 FY20 FY21E FY22E FY23E
Total operating income 29,444 18,302 14,273 20,995 27,385
Gross profit 8,515 5,933 3,982 6,047 7,996
Employee costs 2,156 1,615 1,502 1,682 1,935
Other expenses 5,440 2,310 1,834 2,574 3,330
EBITDA 3,075 2,008 646 1,791 2,732
Depreciation 621 670 699 822 859
Less: Interest expense 70 110 159 103 90
Add: Other income 113 123 115 121 106
Profit before tax 2,497 1,196 -97 987 1,889
Prov for tax 514 122 -22 248 476
Less: Other adj 0 -156 0 0 0
Reported profit 1,983 1,074 -74 738 1,414
Less: Excp.item (net) 6 0 0 0 0
Adjusted profit 1,978 1,230 -74 738 1,414
Diluted shares o/s 294 294 294 294 294
Adjusted diluted EPS 6.7 4.2 -0.3 2.5 4.8
DPS (INR) 1.8 3.6 -0.1 1.1 2.1
Tax rate (%) 20.6 10.2 23 25.2 25.2
Common size metrics- as % of net revenues
Year to March FY19 FY20 FY21E FY22E FY23E
Operating expenses 89.6 89.0 95.5 91.5 90.0
Depreciation 2.1 3.7 4.9 3.9 3.1
Interest expenditure 0.2 0.6 1.1 0.5 0.3
EBITDA margins 10.4 11.0 4.5 8.5 10.0
Net profit margins 6.7 6.7 -0.5 3.5 5.2
Growth metrics (%)
Year to March FY19 FY20 FY21E FY22E FY23E
Revenues 10 -38 -22 47 30
EBITDA 15 -35 -68 177 53
PBT 5 -52 -108 -1,120 91
Net profit 17 -38 -106 -1,092 91
EPS 16 -38 -107 -933 92
Balance sheet (INR cr)
Year to March FY19 FY20 FY21E FY22E FY23E
Share capital 294 294 294 294 294
Reserves 8,039 6,970 6,935 7,283 7,949
Shareholders funds 8,332 7,264 7,229 7,577 8,243
Minority interest 0 0 0 0 0
Borrowings 632 3,065 2,265 2,610 2,610
Trade payables 7,652 5,541 4,629 6,524 8,375
Other liabs & prov 803 520 618 785 943
Total liabilities 17,420 16,390 14,741 17,496 20,171
Net block 5,615 6,354 6,505 6,133 5,725
Intangible assets 0 0 0 0
Capital WIP 658 594 594 594 594
Total fixed assets 6,272 6,948 7,099 6,728 6,319
Non current inv 2,637 2,540 2,190 2,190 3,690
Cash/cash equivalent 1,374 1,459 368 2,418 2,971
Sundry debtors 2,506 1,180 968 1,425 1,859
Loans & advances 1,623 55 28 42 54
Other assets 3,009 4,208 4,088 4,695 5,279
Total assets 17,420 16,390 14,741 17,496 20,171
Cash flow statement (INR cr)
Year to March FY19 FY20 FY21E FY22E FY23E
Reported profit 1,989 1,074 -74 738 1,414
Add: Depreciation 621 670 699 822 859
Interest (net of tax) 70 98 122 77 68
Others 0 -411 -78 -95 -83
Less: Changes in WC -2,580 -490 -454 985 979
Operating cash flow 100 941 214 2,527 3,236
Less: Capex -923 -1,963 -400 -450 -450
Free cash flow -822 -1,022 -186 2,077 2,786
Key Ratios
Year to March FY19 FY20 FY21E FY22E FY23E
RoE (%) 25.5 15.8 -1.0 10.0 17.9
RoCE (%) 31.0 14.0 -0.5 9.8 17.8
Inventory days 38 58 39 29 31
Receivable days 22 37 27 21 22
Payable days 139 207 180 136 140
Cash conversion cycle (days) -79 -112 -114 -86 -87
Gross debt/equity (x) - 0.4 0.3 0.3 0.3
Net debt/equity (x) -0.1 0.2 0.3 0.0 0.0
Interest coverage (x) 35.7 12.2 -0.3 9.4 20.8
Valuation parameters
Year to March FY19 FY20 FY21E FY22E FY23E
Diluted EPS (INR) 6.7 4.2 -0.3 2.5 4.8
Y-o-Y growth (%) 16 -38 -107 -933 92
CEPS (INR) 8.9 5.9 2.1 5.3 7.7
Diluted P/E (x) 14 23 -320 38 20
Price/BV(x) 3.4 3.9 3.9 3.5 3.0
EV/Sales (x) 0.9 1.7 2.1 1.3 0.9
EV/EBITDA (x) 8.9 15.0 47.1 16.4 10.2
Diluted shares O/S 294 294 294 294 294
Basic EPS 6.7 4.2 -0.3 2.5 4.8
Basic PE (x) 14 23 -320 38 20
Dividend yield (%) 1.9 3.8 -0.1 1.1 2.2

19. 19
Jamna Auto – The best bet in auto ancillary space to ride the CV cycle
Jamna Auto Industries (JAI) is India's largest and among the world's third largest manufacturer of
leaf springs for automobiles. The company has significantly scaled up its financial performance in
the last upcycle on the back of good financial discipline coupled with improvement in its market
position. Expanding product offerings like lift axles, parabolic springs and suspension products
should help the company double its aftermarket market share (from ~25% currently) over the next
3-4 years. This should also help the company to significantly outgrow industry volumes in the
upcoming cycle. Hence, we initiate a Tactical BUY with target price of INR 84/share, valuing the stock
at 18x on FY23E EPS estimates.
Diversification into new products and markets to garner benefits
Over the last few years, the company has diversified into new value-added products like parabolic
springs, lift axles and suspension components, which currently contribute one-third to revenues
compared to less than 20% in FY15. Further expansion in its aftermarket business along with plans to
double market share (currently at 25%) should provide significant support to growth during downcycle.
Upcoming CV cycle may bring back glory for JAI
JAI has a tendency of surpassing expectations (in terms of earnings and ROCE), which led to re-rating of
the stock in the last CV upcycle. The upcoming CV cycle should help the company to bounce back
strongly. We expect (a) significant improvement in financial performance, (b) the diversification in new
products/markets to help the company achieve better-than-expected top line growth and ROCE.
Hence, we initiate a Tactical BUY with target price of INR84, valuing it at 18x on FY23E EPS estimates.
CMP: INR 59
Target price: INR 84
Rating: Tactical BUY
Upside: 42%
Bloomberg: JMNA:IN
52-week range (INR): 21/62
Share in issue (crore): 40
M-cap (INR crore): 2,339
Promoter holding (%) 50.00
0
50
100
150
200
250
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Indexed
Jamna Sensex
Year to March FY19 FY20 FY21E FY22E FY23E
Revenue (INR crore) 2,135 1,129 869 1,314 1,889
Revenue growth (%) 22.8 (47.1) (23.0) 51.1 43.8
EBITDA (INR crore) 279 115 83 167 302
Adjusted PAT (INR crore) 137 49 37 85 185
Price-to-earnings (x) 16.8 47.5 62.1 27.1 12.5
Price-to-book value (x) 4.5 4.5 4.2 3.8 3.1
EV/EBITDA (x) 8.2 21.4 28.8 13.9 7.6
RoACE (%) 46.8 14.6 46.8 46.8 46.8
RoAE (%) 29.4 9.3 29.4 29.4 29.4

20. 20
Top line and financial performance replicates CV cycle
Company to attain peak margins and ROCE during second half of the upcycle
Jamna Auto (JAI) to witness strong bounce-back as M&HCV demand recovers at faster pace
FY09-FY12
Revenue: 35%
Volumes: 24%
FY14-FY19
Revenue: 21%
Volumes: 14%
FY21-FY23 estimates
Revenue: 47%
Volumes: 43%
Peak FY11
EBITDA margins: 12%
ROCE: 32%
Peak FY17
EBITDA margins: 13%
ROCE: 47%
-60%
-40%
-20%
0%
20%
40%
60%
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Jamna Auto revenue growth % MHCV volume growth %
FY23 estimates
EBITDA margins: 16%
ROCE: 34%
0%
10%
20%
30%
40%
50%
0%
3%
6%
9%
12%
15%
18%
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
EBITDA margins ROCE
Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research

21. 21
Earnings upgrade to start from Q3FY21 as M&HCV volumes recover
Recovery in top line and cost reduction efforts to drive
upside surprise in PAT
Recovery in CV sales to drive better-than-expected rise in
top line
8 9
18
20
6
10 11
-13
14
24
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21
INR
cr
Estimates during lockdown Current estimates
-35%
-9%
25%
28%
-44%
-29%
-57%
-90%
-33%
7%
51%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21
Estimates during lockdown Current estimates
816
869
1,314
Estimates
during
lockdown
Volumes Change in mix Current
estimates
FY21E
Volumes Realisation Current
estimates
FY22E
Expected pickup in M&HCV to lead rise in top line; however,
higher growth in lower tonnage vehicles may impact
realization growth
EPS upgradation for FY21 and FY22 and start of CV upcycle
may lead to valuation re-rating from these levels as well
1.2
0.8
1.7
1.2
1.1
2.1
FY20 FY21E FY22E
Estimates during lockdown Current estimates
Source: Edelweiss Wealth Research Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research Source: Edelweiss Wealth Research

22. 22
Earnings upgrade to lead significant re-rating from these levels
Stock price has more than doubled in the current market
euphoria, however, scope of significant upside exists as
industry enters upcycle
Tendency of posting positive earnings surprise has led to
significant re-rating in the past
23 28
45
49
62
77
100
73
60
47
22
56
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19
Feb-20
May-20
Aug-20
Nov-20
INR
9
2
5
20 17
14
4 5
9 10
66
70
23
14
19
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Times
(x)
P/E 2 year forward Average P/E 2 year forward
• JAI has a tendency of surpassing expectation on earnings and ROCE,
thereby leading to re-rating in the last CV upcycle.
• As we enter a multi-year CV upcycle, which may last till FY25, we expect
significant improvement in JAI’s financial performance.
• Strong market position and focussed management toward maintaining
robust financial position as displayed during the last upcycle will drive
improvement in financial performance.
• Efforts toward diversifying in value-added new technology products like
parabolic springs, lift axles and suspension components will aid in
improving financial performance.
• Company’s plans to double market share over next 3-4 years in
aftermarket (currently ~25%) will also provide cushion from the
cyclicality of OEM demand to some extent.
• Currently, the stock is trading at 13x on FY23E EPS estimates. Similar to
Ashok Leyland, JAI has also run up significant from the bottom i.e. ~2.5x
in the recent rally since the lockdown was lifted.
• However, we believe (a) the CV upcycle, (b) the significant expected
improvement in financial performance, and (c) diversification in new
products and markets will lead to re-rating from these levels.
• Hence, we initiate a Tactical BUY with target price of INR 84/share
valuing it at 18x on FY23E EPS estimates.
Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research

23. 23
Financials
Income statement (INR cr)
Year to March FY19 FY20 FY21E FY22E FY23E
Income from operations 2,135 1,129 869 1,314 1,889
Direct costs 1,491 781 609 930 1,313
Employee costs 158 113 78 92 104
Other expenses 365 233 178 217 274
Total operating expenses 1,856 1,014 787 1,147 1,587
EBITDA 279 115 83 167 302
Depreciation and amortisation 46 41 38 51 56
EBIT 232 73 44 116 246
Interest expenses 28 18 10 6 4
Other income 11 16 14 3 5
Profit before tax 215 72 48 114 247
Provision for tax 78 24 10 28 62
Core profit 137 48 37 85 185
Extraordinary items -0 1 0 0 0
Profit after tax 137 49 37 85 185
Minority Interest 0 0 0 0 0
Share from associates 0 0 0 0 0
Adjusted net profit 137 49 37 85 185
Equity shares outstanding (mn) 40 40 40 40 40
EPS (INR) basic 3.4 1.2 0.9 2.1 4.6
Diluted shares (Cr) 39.8 39.8 39.8 39.8 39.8
EPS (INR) fully diluted 3.4 1.2 0.9 2.1 4.6
Dividend per share 0.3 0.3 0.1 0.6 1.4
Dividend payout (%) 8.7 25.0 11.0 30.0 30.0
Common size metrics- as % of net revenues
Year to March FY19 FY20 FY21E FY22E FY23E
Operating expenses 87.0 89.8 90.5 87.3 84.0
Depreciation 2.2 3.7 4.4 3.8 3.0
Interest expenditure 1.3 1.6 1.2 0.5 0.2
EBITDA margins 13.0 10.2 9.5 12.7 16.0
Net profit margins 6.4 4.3 4.3 6.5 9.8
Growth metrics (%)
Year to March FY19 FY20 FY21E FY22E FY23E
Revenues 22.8 (47.1) (23.0) 51.1 43.8
EBITDA 16.4 (58.8) (28.1) 102.0 81.2
PBT 15.8 (66.7) (33.5) 138.2 117.4
Net profit 9.6 (64.6) (23.5) 129.1 117.4
EPS 9.6 (64.6) (23.5) 129.1 117.4
Balance sheet (INR cr)
As on 31st March FY19 FY20 FY21E FY22E FY23E
Equity share capital 40 40 40 40 40
Reserves & surplus 470 477 510 570 699
Shareholders funds 510 517 550 609 739
Borrowings 4 152 102 52 42
Minority interest 0 0 0 0 0
Sources of funds 513 669 652 662 781
Gross block 491 529 649 699 799
Depreciation 118 160 198 249 305
Net block 373 369 450 450 494
Capital work in progress 40 132 10 20 20
Total fixed assets 412 501 460 470 514
Investments 0 0 0 0 0
Inventories 229 130 95 108 155
Sundry debtors 304 80 83 90 129
Cash and equivalents 25 4 35 51 65
Total current assets 592 244 240 294 409
Sundry creditors and others 494 64 36 90 129
Provisions 31 28 28 28 28
Total CL & provisions 525 91 63 118 157
Net current assets 67 152 176 177 252
Net Deferred tax 8 3 3 3 3
Misc expenditure 25 13 13 13 13
Uses of funds 513 669 652 662 781
Book value per share (INR) 13 13 14 15 19
-21 148 67 -6 -38
Cash flow statement
Year to March FY19 FY20 FY21E FY22E FY23E
Net profit 138 47 37 85 185
Add: Depreciation 46 41 38 51 56
Add: Misc expenses written
off
0 0 0 0 0
Add: Deferred tax -1 5 0 0 0
Add: Others 0 0 0 0 0
Gross cash flow 183 94 75 136 241
Less: Changes in W. C. -85 107 -7 -16 62
Operating cash flow 268 -13 83 152 179
Less: Capex 127 130 -2 60 100
Free cash flow 142 -142 85 92 79
Ratios
Year to March FY19 FY20 FY21E FY22E FY23E
ROAE (%) 29.4 9.3 7.0 14.7 27.5
ROACE (%) 46.8 14.6 8.4 17.5 33.5
Debtors (days) 52 26 35 25 25
Current ratio 1.1 2.7 3.8 2.5 2.6
Debt/Equity 0.0 0.3 0.2 0.1 0.1
Inventory (days) 39 42 40 30 30
Payable (days) 84 21 15 25 25
Cash conversion cycle
(days)
7 47 60 30 30
Debt/EBITDA 0.0 1.3 1.2 0.3 0.1
Adjusted debt/Equity (0.0) 0.3 0.1 0.0 (0.0)
Valuation parameters
Year to March FY19 FY20 FY21E FY22E FY23E
Diluted EPS (INR) 3.4 1.2 0.9 2.1 4.6
Y-o-Y growth (%) 9.6 (64.6) (23.5) 129.1 117.4
CEPS (INR) 4.6 2.2 1.9 3.4 6.1
Diluted P/E (x) 16.8 47.5 62.1 27.1 12.5
Price/BV(x) 4.5 4.5 4.2 3.8 3.1
EV/Sales (x) 1.1 2.2 2.7 1.8 1.2
EV/EBITDA (x) 8.2 21.4 28.8 13.9 7.6
Diluted shares O/S 39.8 39.8 39.8 39.8 39.8
Basic EPS 3.4 1.2 0.9 2.1 4.6
Basic PE (x) 16.8 47.5 62.1 27.1 12.5
Dividend yield (%) 0.7 0.2 0.2 1.1 2.4

24. 24
GNA Axles – Gearing for next level
GNA Axle (GNA) is a leading manufacturer in axle shafts and spindle for heavy commercial vehicles
and tractors in both domestic and export markets. Export business has been growth driver for the
company in last 3-4 years. Recently it has increased wallet share amongst its leading international
customers by more than 2x, which is big positive for export business. Further recently company has
entered in SUV axle shaft business which will start contributing from FY22. We believe with recovery
expected in both domestic and export business from FY22 and healthy financial position of GNA
presents it as a strong contender for rerating. We re-initiate tactical BUY on the stock with a target
price of INR 375 valuing at 12x on FY22 earnings estimates.
Strong presence in both domestic and export market provides natural hedge
Over a period of last 1-2 years GNA has increased its wallet share amongst its leading international
customers, which will provide significant growth vector for the company as industry volumes recovers.
In domestic market company has dominant ~65% market share in tractor industry.
Strong new order book ensures strong revenue visibility
We believe, 1) Strong recovery expectation in both domestic and export markets, 2) increase in wallet
share across major international clients, 3) addition of new product line-up i.e. SUV axle shaft is
expected to start adding to topline from FY22, 4) Focus on debt reduction and cost control to help
company to scale up ROCEs substantially as volume recovers. With multiple growth drivers clicking, we
believe GNA is a strong contender for rerating from the current valuation. At CMP stock is trading at 8x
on FY22 earnings estimates, we re-initiate tactical BUY on the stock with a target price of INR 375.
CMP: INR 257
Target price: INR 375
Rating: Tactical BUY
Upside: 46%
Bloomberg: GNA:IN
52-week range (INR): 126/375
Share in issue (crore):
M-cap (INR crore): 564
Promoter holding (%) 67.51
Year to March FY19 FY20 FY21E FY22E FY23E
Revenue (INR crore) 928 909 718 945 1,176
Revenue growth (%) 38.5 (2.1) (21.0) 31.7 24.4
EBITDA (INR crore) 145 125 107 145 186
Adjusted PAT (INR crore) 66 53 39 67 97
Price-to-earnings (x) 8.5 10.7 14.3 8.4 5.8
Price-to-book value (x) 1.4 1.3 1.2 1.1 0.9
EV/EBITDA (x) 5.0 5.9 6.1 4.5 3.3
RoACE (%) 21.4 14.0 10.9 16.7 21.5
RoAE (%) 17.7 12.4 8.5 13.4 17.3
0
50
100
150
200
250
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Indexed
GNA Sensex

25. 25
Gaining market share in both domestic and international markets
GNA outperformed industry volume growth mainly driven
by wallet share increase even in domestic market
Significant market share gain led to notable
outperformance to Class 8 truck
Source: Edelweiss Wealth Research Source: Edelweiss Wealth Research
47%
33%
25%
-14%
-20%
-28%
-39%
-24%
-57%
31%
33%
17%
11%
-1%
-19% -24% -25% -26%
-51%
11%
Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Q3 FY20 Q4FY20 Q1 FY21 Q2FY21
Growth in GNA domestic business Tractor and MHCV production growth
44%
60%
71%
66% 64%
52%
8%
-33%
-73%
-29%
18%
28% 31%
25% 30%
1%
-19% -33%
-71%
-25%
Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Q3 FY20 Q4FY20 Q1 FY21 Q2FY21
Growth in GNA export business USA Class 8 factory shipments growth
• GNA has ~65% market share in domestic tractor industry in axle shafts
and spindle space increased by ~800-1000 bps over last 2-3 years.
• Company has strong presence as Tier 2 supplier with leading axle
manufacturers like Meritor, Dana and American Axles supplying to their
manufacturing setups across leading markets.
• Dearth of Tier 2 small forging suppliers for heavy truck segment in
North America and Europe gives GNA the opportunity to scale up its
presence.
Asia, 7% Asia, 6%
S America, 8% S America, 10%
Europe, 18% Europe, 17%
India, 44%
India, 32%
N America, 23%
N America, 34%
FY19 FY20
Source: Edelweiss Wealth Research
Well spread out regional share in revenues acts like a
natural hedge

26. 26
New orders ensures strong growth visibility
New order execution in exports business will drive strong
recovery in topline in medium term…
260 234 296
476 558
445
638
847
249 279
374
452 351
273
308
330
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
INR
cr
Export revenues Domestic revenue
CAGR FY16-FY20
Export: 21%
Domestic:9%
Bagging new as well as spot
orders in exports fueled growth in
export business
CAGR FY21-FY23E
Export: 28%
Domestic:10%
16%
16%
15%
16%
14%
15%
15%
16%
20%
19%
20%
21%
14%
11%
17%
21%
10%
12%
14%
16%
18%
20%
22%
24%
13%
14%
15%
16%
17%
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
EBITDA margins ROCE (RHS)
…also significant improvement in profitability in the
upcoming cycle
Source: Edelweiss Wealth Research
Source: Edelweiss Wealth Research
• Over last one year GNA has increased its wallet share by more
than 2x amongst its leading exports customers.
• Strong recovery expected in both domestic and international
markets in FY22 onwards, will provide significant fillip to
company’s topline and profitability growth from FY22 onwards.
• New product line i.e. SUV axle shafts is expected to start
contributing meaningfully from FY22. GNA is currently in
advance stage of bagging initial orders in this product line.
• We expect CAGR of around 28-30% on topline and approx 57-
58% in bottom line.
• Debt reduction and aggressive cost control initiatives will help
to further improve financial position and thereby leading
significant improvement in ROCEs in next 2 years.
• We believe with multiple growth drivers, GNA is a strong
contender for rerating from the current valuation.
• At CMP stock is trading at 8x on FY22 earnings estimates. We
initiate tactical BUY on the stock with a target price of INR
375 valuing at 12x on FY22 earnings estimates.

27. 27
Financials
Income statement (INR cr)
Year to March FY19 FY20 FY21E FY22E FY23E
Income from operations 928 909 718 945 1,176
Direct costs 663 550 504 673 837
Employee costs 33 41 32 42 53
Other expenses 120 235 108 128 153
Total operating expenses 783 785 612 800 990
EBITDA 145 125 107 145 186
Depreciation and amortisation 35 42 43 47 52
EBIT 110 82 64 98 135
Interest expenses 8 14 13 10 7
Other income 0 1 1 1 1
Profit before tax 103 70 52 89 128
Provision for tax 37 17 13 22 31
Core profit 66 53 39 67 97
Extraordinary items -0 -0 -0 -0 -0
Profit after tax 66 53 39 67 97
Minority Interest 0 0 0 0 0
Share from associates 0 0 0 0 0
Adjusted net profit 66 53 39 67 97
Equity shares outstanding (mn) 2 2 2 2 2
EPS (INR) basic 30.6 24.6 18.3 31.3 45.1
Diluted shares (Cr) 2.1 2.1 2.1 2.1 2.1
EPS (INR) fully diluted 30.6 24.6 18.3 31.3 45.1
Dividend per share 8.0 6.4 4.8 8.1 11.7
Dividend payout (%) 26.0 26.0 26.0 26.0 26.0
Common size metrics- as % of net
revenues
(INR cr)
Year to March FY19 FY20 FY21E FY22E FY23E
Operating expenses 84.4 86.3 85.2 84.7 84.2
Depreciation 3.7 4.7 6.0 5.0 4.4
Interest expenditure 0.9 1.5 1.8 1.0 0.6
EBITDA margins 15.6 13.7 14.8 15.3 15.8
Net profit margins 7.1 5.8 5.5 7.1 8.2
Growth metrics (%)
Year to March FY19 FY20 FY21E FY22E FY23E
Revenues 38.5 (2.1) (21.0) 31.7 24.4
EBITDA 40.8 (14.2) (14.4) 36.1 28.5
PBT 38.7 (32.0) (25.4) 70.7 44.2
Net profit 29.3 (19.9) (25.4) 70.7 44.2
EPS 29.3 (19.9) (25.4) 70.7 44.2
Balance sheet (INR cr)
As on 31st March FY19 FY20 FY21E FY22E FY23E
Equity share capital 21 21 21 21 21
Preference Share Capital 0 0 0 0 0
Reserves & surplus 380 425 454 504 576
Shareholders funds 402 447 476 526 597
Secured loans 170 194 0 0 0
Unsecured loans 0 0 0 0 0
Borrowings 170 194 144 114 84
Minority interest 0 0 0 0 0
Sources of funds 571 641 620 639 681
Gross block 464 521 591 641 701
Depreciation 235 277 320 367 419
Net block 229 244 272 274 282
Capital work in progress 16 61 0 0 0
Total fixed assets 245 306 272 274 282
Unrealised profit 0 0 0 0 0
Investments 0 0 0 0 0
Inventories 161 145 128 168 209
Sundry debtors 312 296 266 324 403
Cash and equivalents 0 21 52 29 30
Loans and advances 30 33 26 34 43
Other current assets 0 0 0 0 0
Total current assets 504 495 472 555 685
Sundry creditors and others 194 169 132 198 294
Provisions 13 11 11 11 11
Total CL & provisions 207 180 143 210 305
Net current assets 296 316 329 346 379
Net Deferred tax -3 -1 -1 -1 -1
Misc expenditure 34 20 20 20 20
Uses of funds 571 641 620 639 681
Book value per share (INR) 187 208 222 245 278
Cash flow statement
Year to March FY19 FY20 FY21E FY22E FY23E
Net profit 66 53 39 67 97
Add: Depreciation 35 42 43 47 52
Add: Misc expenses written off 0 0 0 0 0
Add: Deferred tax 1 -3 0 0 0
Add: Others 0 0 0 0 0
Gross cash flow 102 92 82 115 149
Less: Changes in W. C. 55 -1 -18 41 33
Operating cash flow 47 94 100 74 116
Less: Capex 89 103 9 50 60
Free cash flow -42 -10 91 24 56
Ratios
Year to March FY19 FY20 FY21E FY22E FY23E
ROAE (%) 17.7 12.4 8.5 13.4 17.3
ROACE (%) 21.4 14.0 10.9 16.7 21.5
Debtors (days) 123 119 135 125 125
Current ratio 2.4 2.8 3.3 2.6 2.2
Debt/Equity 0.4 0.4 0.3 0.2 0.1
Inventory (days) 63 58 65 65 65
Payable (days) 74 66 65 75 90
Cash conversion cycle (days) 112 111 135 115 100
Debt/EBITDA 1.2 1.6 1.3 0.8 0.4
Adjusted debt/Equity 0.4 0.4 0.2 0.2 0.1
Valuation parameters
Year to March FY19 FY20 FY21E FY22E FY23E
Diluted EPS (INR) 30.6 24.6 18.3 31.3 45.1
Y-o-Y growth (%) 29.3 (19.9) (25.4) 70.7 44.2
CEPS (INR) 46.8 44.3 38.3 53.4 69.2
Diluted P/E (x) 8.5 10.7 14.3 8.4 5.8
Price/BV(x) 1.4 1.3 1.2 1.1 0.9
EV/Sales (x) 0.8 0.8 0.9 0.7 0.5
EV/EBITDA (x) 5.0 5.9 6.1 4.5 3.3
Diluted shares O/S 2.1 2.1 2.1 2.1 2.1
Basic EPS 30.6 24.6 18.3 31.3 45.1
Basic PE (x) 8.5 10.7 14.3 8.4 5.8
Dividend yield (%) 3.0 2.4 1.8 3.1 4.5

28. 28
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