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PIAGGIO S.p.A.Politecnico Student Research
Global Investment Research Challenge 2011
Automobiles & Parts
Company Overview Why Invest in Piaggio
Financial AnalysisValuation
Risk Analysis
COMPANY OVERVIEW
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Wide brand portfolio• Wide brand portfolio• Premiumisation strategy
Company Overview
Mobility
Style
YoungSport
Business
Design
Safety Performance
Reliability
Environment
• Largest European producer of 2w and LCVs by revenues
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Why invest in Piaggio
Company Overview
Production FacilitiesDistribution NetworkJoint Venture
• Internationalization strategy
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Why invest in Piaggio
Company Overview• Latest results
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Europe India Vietnam
335,0002Ws 220,000
LCVs 60,0002Ws
360,0002Ws 197,000
LCVs 48,0002Ws
-7.5% +11.7% +25%
Unit Sold Vs Management Guidelines:
European Revenues (€’000)Revenues Breakdown
Source: Company Data, Politecnico EstimatesSource: Company Data
Actual Guidelines Delta
Revenues €1,485M €1,500M -1%1
Ebitda Margin 13.3% 13.3% 0%
EPS €0.115 €0.118 -2.5%
From Revenues to Earnings:
Why invest in Piaggio
Company Overview• Latest results
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Efficiency Improvements
• Financial Savings
• Higher Materials Costs
• One-off Fiscal Items
From Revenues to Earnings:
Why invest in Piaggio
Company Overview• Our Rating
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
BUY
HOLD
Price (03/31/11): €2.4112 M Target Price: €2.8Upside: 16.2%Rating: BUY
Why invest in Piaggio
Indian sales report 2010 financial results
WHY INVEST IN PIAGGIO
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
1. Launch of new products in India
2. Expansion in South-Eastern Asia
3. Consolidation in Europe
Why invest in Piaggio
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Why invest in Piaggio
Market volumes : 1M u (2010)Market growth: 8% (2011E)
Piaggio volumes: 220,000 u (2010)Piaggio growth: 13.5% (2011E)
Why invest in Piaggio: New products in India
3w
4w
Launch of Vespa: 2012EPiaggio volumes: 75,000 u (2013E)
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
25%
24%23%
18%
10%
Why invest in Piaggio
Why invest in Piaggio: Expansion in Asia
Vietnam
Malaysia Indonesia
Thailand Taiwan
Potential Market: 3M vehiclesPotential Market:
11M vehicles
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Why invest in Piaggio
Why invest in Piaggio: Consolidation in Europe
EuropeanEBITDA Margin
+155bpsby 2013
• Improvement of global sourcing position
• Production plants rationalisation
• Synergies in the distribution network
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Eco Friendly Solutions:
Piaggio Market Share: 20%
Piaggio Volumes: 335,000 units (2010)
Why invest in Piaggio
FINANCIAL ANALYSIS
Company Overview
Financial Analysis
Valuation Risk Analysis
Data and Charts
Why invest in Piaggio
€1485M €1615M €1745M €1850M
7.6% Revenue CAGR 10-13Balance Sheet
Income Statement
Cash Flow Statement
+ 160bps EBITDA margin
€0.11 €0.14 €0.18 €0.22
8.8% OCF CAGR 10-13
14.8% From EMs11.9% EBITDA CAGR 10-13
Lower D&A and Financial Charges CAGR
24.3% EPS CAGR 10-13
~ €65M
~ €140M
OCF Capex ∆NWC ∆NFP Div. &Buy Back3.3% From DMs
Financial Analysis
2010 2013
Higher than Revenue CAGR
Source: Politecnico Estimates
2010 E 2011 E 2012 E 2013 E
€197M €218M €249M €276M
€153M €155M €181M €197M
2010 2011 E 2012 E 2013 E
NFP €350M €342M €318M €288M
Debt €528M €500M €470M €440M Cash&other €155M €148M €147M €147M
Equity €443M €467M €499M €537M
Ability to meet short and long term obligations
~ €15M
~ €310M
~€530MDeleveraging while Improving ROE
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
VALUATION
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Sum-of-the-part approach
Two-Stage model Three-Stage model Analytical Period + Perpetuity Analytical Period + Convergence Stage + Perpetuity
Valuation: Discounted Cash Flow
Source: Politecnico Estimates
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
€963M
2.5%
9.75%
30%
€33M
7.63%
Sales 2010
Sales CAGR 10-15
EBITDA margin 2010
Tax Rate
FCFF 2010
WACC
Valuation: Discounted Cash Flow
€389M
12.9%
19.5%
42%
€13M
9.31%
€133M
13.5%
20.5%
7.5%
€10M
10.72%
Source: Politecnico Estimates
€963M
2.5%
9.75%
30%
€33M
7.63%
€133M
13.5%
20.5%
7.5%
€10M
10.72%
€2.90
€0.95
€1.30
€0.65
TP DCF EU + US India Vietnam
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Median Hero Mahindra Bajaj Tata2011 E 9.35 x 10.60 x 8.10 x 11.12 x 5.46 x
• Piaggio’s Indian and Vietnamese businesses are comparable to its Indian peers
• Using the median EV/EBITDA multiple
EV Piaggio Asia
€ 1,114M
DCF EV
€ 970.5M13% discount
Valuation: Multiple Analysis
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Piaggio-Asia Hero Honda Mahindra & Mahindra
Bajaj Auto Tata Motors-5%
0%
5%
10%
15%
20%
25%
30%
35%Sales growth rate (2009-11E)
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Piaggio-Asia Hero Honda Mahindra & Mahindra
Bajaj Auto Tata Motors
Average EBITDA% (2010E-11E)
Piaggio
Hero Honda
Mahindra
Bajaj
Tata
Yamah
aHarl
ey KtmHonda
Suzuki
Peuge
ot0%
33%
67%
100%Geographical exposure to EMs
Valuation: Multiple AnalysisAs regards the whole Piaggio Group (EV/EBITDA multiple):
0%
10%
20%
30%
Sales growth rate (2009-2011)
0%
10%
20%
30%
Average EBITDA % (2010-11)EMs multiple- for the Asian Business:
DMs multiple- for the non-Asian Business:
9.3x 4.4x
Target Price: € 2.620%
33%
67%
100%Business exposure to 2w market to LCVs market
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• DCF Analysis:
• Multiple Analysis:
• Year-end Target Price: (upside > 15%)
€ 2.62
€ 2.90
€ 2.80
70% weight
30% weight
Valuation: Target Price
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
RISK ANALYSIS
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Probable
Possible
•Instable Vietnam •Labour market•Supply Chain risk
•Tighter regulations•Credit risk•Increase in interest rates
Unlikel
y
•Strikes •Intellectual Property•Liquidity risk
•De-premiumisation
Rare
•Machinary failure •Vehicles defects
Marginal Minor Intermediate Major
Risk analysis: Risk matrix
Impact
Like
lihoo
d
Source: Politecnico Estimates
• Unsuccessful product launches
• Stronger competition• Exchange rate risk
• Increase in energy, raw materials and components costs
• GDP growth rates
Risk analysis: Risks from Asia
• Stronger competition
• Exchange rate risk
• Unsuccessful product launches
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Exchange rate risk
• Stronger competition
• Unsuccessful product launches
• Exchange rate risk
• Stronger competition
• Unsuccessful product launches
Source: Politecnico Estimates
Risk analysis: Risk matrixRisk analysis: Risks from Asia
Source: Pacific Exchange Rate Service
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Probable
Possible
•Instable Vietnam •Labour market•Supply Chain risk
•Tighter regulations•Credit risk•Increase in interest rates
Unlikel
y
•Strikes •Intellectual Property•Liquidity risk
•De-premiumisation
Rare
•Machinary failure •Vehicles defects
Marginal Minor Intermediate Major
Risk analysis: Risk matrix
Impact
Like
lihoo
d
Source: Politecnico Estimates
• Unsuccessful product launches
• Stronger competition• Exchange rate risk
• GDP growth rates
Risk analysis: Global risks
• GDP growth rates
• Increase in energy, raw materials and components costs• Increase in energy,
raw materials and components costs
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Increase in energy, raw materials and components costs
• GDP growth rates
• Increase in energy, raw materials and component costs
• GDP growth rates
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4
-2
0
2
4
6
8
Real GDP growth rates
World Major advanced economies (G7)ASEAN-5
Source: International Monetary Fund, World Economic Outlook Database
Risk analysis: Risk matrixRisk analysis: Global risks
Source: Company data
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Price Confidence Interval: (€ 2.70 ; € 2.90)
Risk analysis: Montecarlo Simulation
Source: Politecnico Estimates
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
P = 80%
€2.8
0
€2.8
2
€2.8
5
€2.8
7
€2.9
0
€2.9
2
€2.9
5
€2.9
7
€2.7
7
€2.7
5
€2.7
2
€2.7
0
€2.6
7
€2.6
5
€2.6
2
0.64
0.65
0.66
0.67
0.68
0.69
0.70
0.71
0.72
0.73
0.74
0.75
0.76
0.77
0.78
0.79
0.80
0.81
0.82
0.88
0.89
0.90
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1.08
1.09
1.10
1.11
1.12
1.13
1.14
1.15
1.16
1.17
1.18
0
50
100
150
200
250
300
350
400
Price of ASEAN operations Price of European operations Price of Indian operations
Num
bers
of i
tera
tions
• 74% of volatility comes from Asia
Risk analysis: Montecarlo Simulation
Source: Politecnico Estimates
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
0.71
0.72
0.73
0.74
0.75
0.76
0.77
0.78
0.79
0.84
0.85
0.86
0.87
0.88
0.89
0.90
0.63
0.64
0.65
0.66
0.67
1.18
1.19
1.20
1.21
1.22
1.23
1.24
1.25
1.26
1.27
1.28
1.29
1.30
1.31
1.32
1.33
1.34
1.35
QuestionsCompany Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Questions
PIAGGIO S.p.A.Politecnico Student Research
ICFAS Investment Research Challenge 2011
Automobiles & Parts
Company Overview Why Invest in Piaggio
Financial AnalysisValuation
Risk Analysis
• Hedging Policy• Costs Breakdown• Corr. Oil , Rub, All.• Sensitivity on Oil Price• Sensitivity India• Sensitivity ASEAN• Sensitivity Europe• Political risk – India 1• Political risk – India 2• Japan’s earthquake• Interest Rates Risk• MS: Assumptions• MS: Impact • MS: Results• Sensitivity on steel
• India• Vietnam• Indonesia• Malaysia• Thailand• Summary• GDP growth rates
• On The Stock Market• 2010 Results• OWC• Stock Options Plan • Tax Rate• Sales’ Seasonality• Spare Parts• Aprilia and Moto Guzzi
• Main Competitors• EU Scenario• India Scenario• US Scenario• Vietnam Scenario
• CG Snapshot• Board of Directors• CG and CSR Valuation
• EMs and DMs Multiples• Piaggio Peers• Historical P/E• P/E Future Evolution
• Assumpt. Macro Scenario• Assumpt. Cost Inflation• Terminal Value• WACC
• Debt Structure• Altman Z-Score
• Balance Sheet• Income Statement• Cash Flow Statement India• Cash Flow Statement EU• Cash Flow Statement ASEAN• Ratios• ROE
Data and Charts
Data and ElaborationsFinancial Statements:
Strategy:
Company: Competitive Scenario:
• Strategic Levers• Premiumisation• Brand Diversification• Launch of Vespa • New Urban Vehicles
Macro Scenario:
Market:• From 3w to 4w• Electric and Hybrid• Indian 4w• Margins in 2w•Motorcycle Industry Outlook
Debt:
Acquisitions: • Piaggio as a Prey• Potential Buyers• Piaggio’s Acquisitions
DCF Model:
Multiples:
Risks:
CG and CSR:
Company Overview
Why invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Data and ChartsData and Charts
Piaggio on the stock market
- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000
10,000,000
Source: Bloomberg, Politecnico Estimates
TTM Daily Average: 1.18 millions shares
(equal to 2.5-3 €M)
MARKET CAP:€ 923.98 M
FTSE Italia Mid Cap
2010 Results Slightly below consensus, but positive underlying trends.
• Volumes:
• Ebit Margin: • Interests:• Tax Rate:• EPS:
335k Actual Vs 355k Expected
220k Actual Vs195k Expected
60k Actual Vs48k Expected
7.5%. In line with consensus (+50bps from 2009)
48.9%. Higher than consensun (+12.9% from 2009)
€27.3M. In line with consensus (- €3M from 2009)
€0.115. In line with consensus (substantially in line with 2009)
European 2Ws: Indian LCVs: ASEAN 2Ws:
Data and Charts
XXX
Operating Working Capital:
Source: Bloomberg, Politecnico Estimates
2008 2009 2010 2011 E 2012 E 2013 E € (700)
€ (500)
€ (300)
€ (100)
€ 100
€ 300
€ 500
€ 700
PayablesReceivablesInventories
2008 2009 2010 2011 E 2012 E 2013 E € (10)
€ -
€ 10
€ 20
€ 30
NWC
Mill
ions
Mill
ions
Data and Charts
Data and Charts
Piaggio’s Stock Option Plan
Stock Option Plan approved on 07 May 2007 and updated on 25 January 2010 The Board of Directors is responsible of the Stock Option Plan Max 10,000,000 of granted Stock Options equal to 2.52% of the share capitalThe Stock Options are European style options
Grant Date/Commencement Date
0 5
Expiration Date
3
Vesting Date
EXERCISE PERIOD
Grant Date (GD) Beneficiaries Stock Options Number
Expected Liabiliy
Stock market price at GD Strike Price
31 July 2008 3 Directors and 16 Executives 2,435,000 €1,600,000 €1.391 €1.216
03 October 2008 1 Executive 300,000 €186,600 €1.512 €1.570
15 January 2009 1 Director 390,000 €220,000 €1.1569 €1.221811 May 2009 2 Executives 250,000 €125,000 €1.2238 €1.223718 December
20093 Directors and 29 Executives 4,720,000 €3,000,000 €1.8818 €1.826
04 January 2010 1 Executive 500,000 €350,000 €2.004 €1.892
Data and Charts
Source: Politecnico Estimates
Tax RatesPiaggio’s tax rates by region:
Piaggio’s aggregate tax rate:
Country Tax rateItaly 27.5%
Europe ~30%
US 35%
India 43%
Vietnam 7.5%
ASEAN ~25%
44%
Piaggio’s taxes not based on taxable income:IRAP
Indian Dividend Distribution Tax
Data and Charts
Data and Charts
Seasonality in Piaggio’s sales
Seasonal fixed-term contracts. Peaks’ impact on OWC is:
FQ1 2006
FQ2 2006
FQ3 2006
FQ4 2006
FQ1 2007
FQ2 2007
FQ3 2007
FQ4 2007
FQ1 2008
FQ2 2008
FQ3 2008
FQ4 2008
FQ1 2009
FQ2 2009
FQ3 2009
FQ4 2009
FQ1 2010
FQ2 2010
FQ3 2010
FQ4 2010
0
100
200
300
400
500
600
700
0
100
200
300
400
500
600
700
REVENUES from 2006 to 2010
Peak in the European
springtime.
Payables BEFORE the peak
Receivables AFTER the peak
Inventories BEFORE the peak
Data and Charts
Data and Charts
Spare parts segment
Higher marginality
PIAGGIO’S Business Units
2Ws
Scooters
Motorcycles
Spare Parts
LCVs
Spare Parts
10% of Total Revenues in 2010
Strategic for LCVs in India
New logistics center in Pontendera (Italy)
Data and Charts
Data and Charts
Aprilia and Moto Guzzi
Source: Acem
Substitution trend in Europe (‘000 units)
Two significant brands for Piaggio linked to: increasing importance of motorbikes in the European market: a trend that has begun since the early ‘90
need to enrich and complete Piaggio’s brand diversification Piaggio’s large investments in 2010 for them synergies with Piaggio distribution network
Data and Charts
Piaggio Strategic LeversInternationalization Premiumization
• Design • Environment
• Safety • Innovation • Robustness
• New markets• New products• New plants
Cost Efficiency • Improvement of global sourcing position
• Production Plants Rationalization • Sinergies in Distribution Network
Outsourcing and SCM• Production of engines
• Centralized logistic center for the spare parts business
Data and Charts
Data and Charts
Premiumisation strategy
Piaggio’s prices are higher than its competitors:customers
recognize higher quality and unique
solutions.
Revenues COGs R&D Premiumisation’s impact
Data and Charts
Distribution network already present…
…but for LCVs distribution
Larger organizational structure (Piaggio India has its own CEO)
Piaggio’s R&D department improved Vespa to better target the Indian’s customers
Vespa gained a successful commercial presence in India:
..in 1960, Rahul Bajaj obtained the license to produce the Vespa in India, till 1970 when the Indian government revoked the license. Now Piaggio has better fundamentals to compete in India in respect to the ‘80s and ‘90s.
XXX
Launch of Vespa: India vs Vietnam
Source: Indian news, Politecnico Estimates
Data and Charts
Scooter MP3:
- launched in October 2007- 72,000 units sold so far- hybrid models since 2009
Car prototype NT3:
- November 2010 (Milan Motor Show)- launch expected in 2012-13- three-seat city car
XXX
New types of vehicles: urban mobility
Source: News, Politecnico Estimates
Data and Charts
Piaggio as a Prey WHAT DOES A PREDATOR GET?
•Business: 2W and LCV in Europe. 2W, 3W and 4W in India. 2W in ASEAN.
•Market Share: 20% in 2W Europe 40% in 3W, 4% in 4W India Niche player in 2W ASEAN
•Revenues: €1,485M in 2010 (~$2,065M)
•Leverage: 1.2x
AT WHAT PRICE?
• Market Cap: ~€895M (~ $1,245M)
• Ownership: Immsi S.p.a. (53% share)
~€470M
~€220M • Premium to pay for the deal (+25%)
Best Case: €600M Worst Case: €1,130M
• Market Value of the Control Stake
~€420M • Pubblic Offer to Minority Shareholders (compulsory in the Italian order in case of acquisition of the control stake)
~€20M • Fees
Data and Charts
Potential Buyers INDIAN CONGLOMERATE COMPANIES:
Automotive Business: Commercial Vehicles and Personal Vehicles. Market Share: 1% in Indian 3W LCVs and 31% in 4W.Revenues: Rs184,520 M (~$4,095M)Market Cap: $7,740MLeverage: 0.14x
Automotive Business: Commercial Vehicles and Personal Vehicles.Market Share: 57% in indian 4W LCVs. Revenues: Rs918,934 M (~$20,390M)Market Cap: $14,803MLeverage: 1.0x
Recent acquisitions: Ssangyong Motors (Korean Premium SUV manufacturer )
Recent acquisitions: Jaguar and Land Rover (2008)
BENEFITS FROM ACQUIRING PIAGGIO:
• Entry in Western Markets• Consolidation in Indian Market
• Premium Brands + Technology Transfer• Entry in 2W
Data and Charts
Data and Charts
Leader in motorbikes Large brand portfolio
Piaggio’s acquisitionsPiaggio’s past acquisitions:
In the future Piaggio will not make acquisitions: according to its strategy; there are not potential takeover targets. For example:
Company Positive Negative
Ducati • High margin (18%)• Strong distribution network
• Insignificant share in emerging markets
Scooters India • High annual capacity• Highly cost effective product
• It hasn’t a strong brand position in 3W as Ape
Data and Charts
Data and Charts
Piaggio’s main competitorsEUROPEAN COMPETITORS INDIAN COMPETITORS
2W 2W
LCVs LCVs
Auto Auto
DRIVER PIAGGIO MAHINDRA BAJAJ TATA GM NISSAN
PRODUCT DESIGN QUALITY
PRODUCTION PROCESS QUALITY
PRICE
DISTRIBUTION NETWORK
DRIVER PIAGGIO HONDA YAMAHA BMW KYMCO SUZUKI
BRAND
DESIGN
ENGINE INNOVATION
QUALITY
PRICE
Data and Charts
Data and Charts
Competitive scenarios: EUSegment Total market
sales (2010)Piaggio’s Market
share (2010)
Motorcycles total 1,548,000 20%
Scooters 970,000 27%
Motorbikes 578,000 7%
LCVs 1,500,000 0.92%
Data and Charts
Data and Charts
Competitive scenarios: the US
2006 2007 2008 2009 201020,000
40,000
60,000
80,000
100,000
120,000
140,000
€82,330 €79,281
€94,952
€61,255
€22,217
$103,379 $108,666
$139,652
$85,437
$29,440
US net sales Euro (€) USD ($)
March 8°, 2011, Piaggio US changed its CEO: Paolo Timoni > Miguel Martinez
Market with very peculiar requirements and customer needs.
Data and Charts
Strong impact of the economic crisis. 60% reduction in volumes
Scooter segment: 5% of total in 2010, down from 12% in 2007
Piaggio’s market share in scooter market: 30% (6,700 vehicles)
2006 2007 2008 2009 2010 2011 2012700
800
900
1000
1100
1200
1300
1400
1500
GDP per capita (US $)
IndiaVietnam
Data and Charts
Competitive scenarios: Vietnam
90% of total vehicles in Vietnam are scooters (motorbike segment: absent)
2006 2007 2008 2009 2010 2011 20120
5
10
15
20
25
CPI Inflation (%)
India
Vietnam
Vietnamese market accounts 2,800,000 vehicles sold in 2010
Source: IMF Source: IMF
Data and Charts
Macroeconomic data 2009 2010 2011 2012 2015
Real GDP growth (%) 5.678 9.668 8.373 7.976 8.128
GDP per capita (US $) 1,031.59 1,176.06 1,296.68 1,410.64 1,856.76
Inflation CPI (%) 10.882 13.187 6.668 4.693 4.033
Population (Millions) 1,199.06 1,215.94 1,232.68 1,249.28 1,299.24
Industry data 2009 2010 2011 2012 2015
2w total sales 7,437,619 9,371,231 10,148,600 10,990,000 13,959,500
3w total sales 349,727 440,368 468,500 498,000 600,500
4w LCVs total sales 384,194 531,395 584,500 642,000 855,800
Macro scenario: India
Data and Charts
Macroeconomic data 2009 2010 2011 2012 2015
Real GDP growth (%) 5.323 6.468 6.817 7.044 7.485
GDP per capita (US $) 1,068.26 1,155.57 1,272.18 1,387.16 1,771.85
Inflation CPI (%) 6.717 8.4 8 6.05 5
Unemployment rate (%) 6 5 5 5 5
Population (Millions) 87.211 88.257 89.316 90.388 93.681
Macro scenario: Vietnam
Data and Charts
Macroeconomic data 2009 2010 2011 2012 2015
Real GDP growth (%) 4.546 6 6.2 6.5 7
GDP per capita (US $) 2,329.45 2,963.28 3,270.01 3,532.00 4,440.58
Inflation CPI (%) 4.814 5.066 5.5 5.357 3.714
Unemployment rate (%) 8 7.5 7 6.5 7
Population (Millions) 231.547 234.557 237.606 240.695 250.205
Macro scenario: Indonesia
Data and Charts
Macroeconomic data 2009 2010 2011 2012 2015
Real GDP growth (%) -1.714 6.716 5.3 5.2 5
GDP per capita (US $) 6,950.47 7,754.99 8,238.51 8,748.81 10,455.22
Inflation CPI (%) 0.6 2.2 2.1 2.3 2.5
Unemployment rate (%) 3.7 3.5 3.2 3.1 3
Population (Millions) 27.761 28.233 28.713 29.201 30.716
Macro scenario: Malaysia
Data and Charts
Macroeconomic data 2009 2010 2011 2012 2015
Real GDP growth (%) -2.248 7.522 4.001 4.25 5
GDP per capita (US $) 3,940.97 4,620.71 4,888.46 5,161.49 6,268.62
Inflation CPI (%) -0.846 3.047 2.755 2.53 1.954
Unemployment rate (%) 1.39 1.39 1.39 1.39 1.39
Population (Millions) 66.983 67.653 68.33 69.013 71.104
Macro scenario: Thailand
Data and Charts
India Indonesia Malaysia Thailand Vietnam0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
GDP per capita (US $)
20092010201120122015
India Indonesia Malaysia Thailand Vietnam-2
0
2
4
6
8
10
12
14
Inflation, CPI (%)
20092010201120122015
1215.939
234.557
28.23367.653
88.257
Population (Millions, 2010)
India
Indonesia
Malaysia
Thailand
Vietnam
Population CAGR 2010-15India 1.33%Indonesia 1.30%Malaysia 1.70%Thailand 1.00%Vietnam 1.20%
Macro scenario: Summary
Data and Charts
Shift from 3 to 4 wheel LCVsMarket
segment2003-2010
CAGR2010
VolumesPiaggio’s market
share (2010)
3W 6.46% 500,000 40%
4W 10.74% 350,000 4%
Piaggio’s Product launches (4W)
Quargo Ape Truck
Data and Charts
Electric and hybrid marketsMP3 Hybrid Electric Porter Bifuel Porter
Max speed 62 miles/h 34 miles/h 80 miles/h
GHGs reduction 60% 100% 20%
Range (electric) 12 miles 66 miles -
Full-charge time 3 hours 8 hours -
Cost 11,000 $ 30,000 $ 16,500 $
India Europe USA
Presence of Piaggio’s Eco line
No Yes Yes
Competitors TVS, Hero Electric
Yamaha (2011E), Honda (2011E)
KTM (2011E), EVTAmerica, ZEV, etc.
5,000 electric Porter sold in 10 years, leader in the
niche “Green” Market
MP3 Hybrid
Porter
Data and Charts
XXXWe do not believe margins will suffer in the next yearsSource: Company’s financial statements, Politecnico Estimates
Indian market of 4w LCV’s: growing 10% YoY Price competition is not a rational strategy
Piaggio’s strategic positioning: quality leadership vs. cost leadership Piaggio’s products have a higher fuel efficiency in respect to competitors’ products
GM and Nissan start from scratch, while Piaggio is operating in India since 1999with 560 dealers across the country
Indian 4w market
Data and Charts
Europe and U.S. Low margins, but on the way to
increase, due to:- plant rationalization (elimination
of the factories in Spain)- the market will slowly recover
Vietnam and ASEAN: Higher margins, slightly decreasing
(conservative forecasting)- lower cost of labor;- advanced know-how in respect
to emerging markets’ based companies
XXX
2011 E 2012 E 2013 E 2014 E 2015 E20.0%20.5%21.0%21.5%22.0%22.5%23.0%
ASEAN EBITDA %
2011 E 2012 E 2013 E 2014 E 2015 E10.0%
10.5%
11.0%
11.5%
12.0%
EU and US EBITDA %
Margins in the 2w market
Source: Bloomberg, Politecnico Estimates
Data and Charts
Data and Charts
Motorcycle industry: world outlookCountry 2010 2009 Growth
Italy 294,000 389,000 -24.42%France 210,000 226,000 -7.08%Spain 106,000 106,500 -0.47%
Germany 89,000 113,000 -21.24%UK 29,000 31,868 -9.00%
USA 27,000 30,337 -11.00%Brasil 375,000 277,778 35.00%India 2,600,000 2,460,377 5.67%
Indonesia 6,700,000 5,321,684 25.90%Vietnam 2,700,000 2,263,202 19.30%
Thailandia 1,500,000 1,247,920 20.20%Malesia 428,000 407,619 5.00%
Philippine 402,000 328,969 22.20%
Country 2010 2009 GrowthIndia 11,300,000 9,300,000 21.51%China 16,000,000 17,391,304 -8.00%
Indonesia 7,600,000 5,801,527 31.00%Vietnam 2,750,000 2,305,113 19.30%
Thailandia 1,850,000 1,537,822 20.30%Philippine 768,000 619,355 24.00%Malesia 451,000 429,524 5.00%Taiwan 541,000 477,915 13.20%
USA 496,000 520,000 -4.62%Brasil 1,800,000 1,563,858 15.10%Italy 393,000 504,116 -22.04%
France 343,000 370,565 -7.44%Spain 167,000 174,278 -4.18%
Germany 181,000 213,000 -15.02%UK 96,000 111,630 -14.00%
Motorcycles ScootersCountry 2010 2009 Growth
Italy 99,000 115,116 -14.00%France 133,000 144,565 -8.00%Spain 61,000 67,778 -10.00%
Germany 92,000 100,000 -8.00%UK 67,000 79,762 -16.00%
USA 412,000 489,000 -15.75%Brasil 1,400,000 1,262,399 10.90%India 8,700,000 6,839,623 27.20%
Indonesia 648,000 514,286 26.00%Vietnam - - -
Thailandia 366,000 290,476 26.00%Malesia 73,000 60,331 21.00%
Philippine 22,000 20,952 5.00%
Data and Charts
Source: Company Data, Politecnico Estimates
Data and Charts
Balance Sheet 2008 2009 2010 2011 E 2012 E 2013 EFIXED ASSETS 899,186 892,251 909,909 917,080 920,218 923,412 Intangible assets 648,234 641,254 652,622 655,611 656,929 658,271 Tangible assets 250,354 250,415 256,759 260,887 262,707 264,559 Financial assets 598 582 528 582 582 582 NET WORKING CAPITAL (3,726) 17,212 30,553 52,103 72,844 92,798 Current trade receivables 90,278 103,164 90,421 103,292 116,800 129,597 Other current receivables 21,380 24,198 23,300 25,823 27,893 29,622 Other non-current receivables 12,587 12,914 12,655 13,718 14,818 15,737 Inventories 257,961 252,496 240,066 264,685 289,385 309,182 Trade payables (362,224) (345,987) (352,627) (377,660) (402,699) (425,820) Short term Tax receivables 27,772 23,979 44,200 40,200 39,400 37,000 Long term Tax receivables 8,166 4,990 967 4,708 4,708 4,708 Deferred tax assets 36,227 46,462 46,294 42,994 42,994 42,994 Short term Tax payables (19,065) (18,952) (19,290) (19,102) (19,102) (19,102) Long term Tax payables (166) - (3,361) - - - Other short term payables (70,677) (79,567) (69,503) (75,855) (87,164) (92,569) Other long term payables (5,965) (6,485) (5,961) (6,294) (6,799) (7,220)PROVISIONS (137,531) (133,685) (131,100) (124,680) (123,807) (122,733)NET CAPITAL EMPLOYED 757,929 775,778 785,970 808,645 816,645 824,808 NET FINANCIAL POSITION 359,708 351,976 349,938 341,645 317,957 287,535 Short term debt 140,691 113,178 156,800 140,000 110,000 90,000 Long term debt 264,789 443,164 371,048 360,000 360,000 350,000 Other liquid assets 5,787 4,127 23,051 10,000 5,000 5,000 Cash 39,985 200,239 154,859 148,355 147,043 147,465 TOTAL SHAREHOLDER’S EQUITY 398,221 423,802 442,890 467,000 498,688 537,273 SOURCES OF FUNDS 757,929 775,778 785,970 808,645 816,645 824,808
Data and Charts
Source: Company data, Politecnico Estimates
2008 2009 2010 2011 E 2012 E 2013 ENet Sales 1,570,060 1,486,882 1,485,304 1,613,932 1,743,286 1,851,390
Reported Growth -7.2% -5.3% -0.1% 8.7% 8.0% 6.2%Business Units
Two Wheeler Vehicles 1,180,666 1,065,417 988,015 1,063,383 1,154,554 1,224,789 Reported Growth -8.8% -9.8% -7.3% 7.6% 8.6% 6.1%
Commercial Vehicles 389,394 421,465 497,289 550,549 588,732 626,600 Reported Growth 2.4% 8.2% 18.0% 10.7% 6.9% 6.4%
Geographical Area Europe and America 1,280,932 1,116,191 963,253 1,008,187 1,038,362 1,060,882
Reported Growth -8.6% -12.9% -13.7% 4.7% 3.0% 2.2%India 243,972 286,753 388,890 448,934 527,477 590,348
Reported Growth 2.5% 17.5% 35.6% 15.4% 17.5% 11.9%ASEAN 45,156 83,938 133,161 156,810 177,447 188,000
Reported Growth -13.2% 85.9% 58.6% 17.8% 13.2% 5.9% Other operating income 133,474 135,938 121,128 130,728 134,233 140,706 Cost for materials (936,603) (871,653) (881,075) (963,517) (1,040,742) (1,107,131) Cost for services (292,920) (272,065) (258,358) (279,210) (294,615) (307,331) Employee costs (250,967) (242,916) (240,115) (251,773) (256,263) (262,897) Other operating costs (33,993) (35,387) (29,821) (32,279) (36,609) (38,879)EBITDA 189,051 200,799 197,063 217,881 249,290 275,857 EBITDA margin 12.04% 13.50% 13.27% 13.50% 14.30% 14.90% D&A 94,540 96,378 86,006 94,560 101,459 103,261 % Capex 91.85% 102.76% 89.50% 93.00% 97.00% 97.00%EBIT 94,511 104,421 111,057 123,321 147,831 172,596 EBIT margin 6.02% 7.02% 7.48% 7.64% 8.48% 9.32% Financial charges (41,288) (33,275) (33,905) (32,725) (32,548) (31,570) % Tot Financial Liabilities 10.18% 5.98% 6.42% 6.55% 6.93% 7.18% Other Financials 6,410 2,947 6,625 3,000 3,000 3,000 Earnings before tax 59,633 74,093 83,777 93,596 118,283 144,026 Taxation for the period 16,302 26,674 40,983 41,182 50,862 61,931 Actual tax rate (%) 27.34% 36.00% 48.92% 44.00% 43.00% 43.00%Consolidated net income 43,331 47,419 42,794 52,413 67,421 82,095 Profit margin 2.76% 3.19% 2.88% 3.25% 3.87% 4.43% Minority Shareholders 330 1,388 30 262 337 410 Earnings per share (€) 0.11 0.116 0.115 0.14 0.18 0.22 Avg. number of Ordinary Shares 396,041 396,041 371,793 371,793 371,793 371,793Dividend per share (€) 0.06 0.07 0.07 0.08 0.10 0.12 Earnings paid as dividends 22,120 25,795 26,000 28,303 35,733 43,510 Payout Ratio 51% 56% 61% 54% 53% 53%
Income Statement
Data and Charts
Source: Politecnico Estimates
Data and Charts
Cash Flow Statement IndiaINDIA 2011 E 2012 E 2013 E 2014 E 2015 ELCV volumes (units) 243,756 258,381 271,817 285,408 299,393LCV ARPU (€) 1,842 1,910 1,977 2,036 2,0972w volumes (units) 50,000 75,000 95,000 110,000
2w ARPU (€) 680 707 735 765
Sales from India 448,934 527,477 590,348 650,970 712,000% tot sales 27.82% 30.26% 31.89% 33.38% 34.71%
% growth 15.44% 17.50% 11.92% 10.27% 9.38%
EBITDA from India 87,542 102,331 114,528 124,986 134,568EBITDA margin India 19.50% 19.40% 19.40% 19.20% 18.90%
D&A India 22,877 24,580 25,017 25,206 25,309% Capex India 90.00% 94.00% 94.00% 94.00% 94.00%
EBIT from India 64,665 77,750 89,511 99,780 109,259EBIT margin India 14.40% 14.74% 15.16% 15.33% 15.35%
Tax Rate India 42.00% 42.00% 42.00% 42.00% 42.00%
Op. Tax India 27,159 32,655 37,594 41,908 45,889Adj. Op. Tax India 34,713 40,725 47,069 52,582 57,556Adj. Tax Rate India 53.68% 52.38% 52.58% 52.70% 52.68%
D&A India 22,877 24,580 25,017 25,206 25,309Change in NWC India (4,363) (2,262) (2,265) (1,005) (84)Cash Flow From Indian Operations 48,466 59,343 65,194 71,399 76,928Capex India 25,419 26,149 26,614 26,815 26,924% Capex 25.00% 25.00% 25.00% 25.00% 25.00%
FCFF India 23,046 33,194 38,580 44,585 50,004% growth 44.03% 16.23% 15.56% 12.15%
Data and Charts
Source: Politecnico Estimates
Data and Charts
Cash Flow Statement Europe and USEUROPE and US 2011 E 2012 E 2013 E 2014 E 2015 E2W volumes (units) 352,275 362,843 370,100 373,801 377,5392W ARPU (€) 2,573 2,599 2,625 2,651 2,678LCV volumes (units) 13,165 12,560 11,982 11,431 10,905LCV ARPU (€) 7,718 7,584 7,452 7,323 7,195Sales from Europe and US 1,008,187 1,038,362 1,060,882 1,074,822 1,089,504% tot sales 62.47% 59.56% 57.30% 55.11% 53.11%% growth 4.66% 2.99% 2.17% 1.31% 1.37%EBITDA from Europe and US 98,802 110,066 119,880 121,455 123,114EBITDA margin Europe and US 9.80% 10.60% 11.30% 11.30% 11.30%D&A Europe and US 61,007 63,386 64,512 64,999 65,264% Capex Europe and US 100.00% 101.00% 101.00% 101.00% 101.00%EBIT from Europe and US 37,796 46,680 55,368 56,456 57,850EBIT margin Europe and US 3.75% 4.50% 5.22% 5.25% 5.31%Tax Rate Europe and US 30.00% 30.00% 30.00% 30.00% 30.00%Op. Tax Europe and US 11,339 14,004 16,610 16,937 17,355Adj. Op. Tax Europe and US 15,754 18,849 22,471 22,976 23,532Adj. Tax Rate Europe and US 41.68% 40.38% 40.58% 40.70% 40.68%D&A Europe and US 61,007 63,386 64,512 64,999 65,264Change in NWC Europe and US (3,265) (869) (811) (231) (20)Cash Flow From EU Operations 79,783 90,348 96,597 98,248 99,562Capex Europe 61,007 62,758 63,873 64,356 64,618% Capex 60.00% 60.00% 60.00% 60.00% 60.00%FCFF Europe 18,777 27,590 32,725 33,892 34,943% growth 17.54% 12.71% 5.53% 1.42%
Data and Charts
Source: Politecnico Estimates
Data and Charts
Cash Flow Statement ASEANASEAN 2011 E 2012 E 2013 E 2014 E 2015 E2W volumes (units) 76,160 93,677 112,412 132,646 153,8702W ARPU (€) 2,059 1,894 1,781 1,692 1,624Sales from ASEAN 156,810 177,447 200,160 224,379 249,869% tot sales 9.72% 10.18% 10.81% 11.51% 12.18%% growth 17.76% 13.16% 12.80% 12.10% 11.36%
EBITDA from ASEAN 31,676 35,667 40,232 44,651 49,224EBITDA margin ASEAN 20.20% 20.10% 20.10% 19.90% 19.70%
D&A ASEAN 11,896 13,336 14,371 14,480 14,539% Capex ASEAN 78.00% 85.00% 90.00% 90.00% 90.00%
EBIT from ASEAN 19,779 22,331 25,861 30,171 34,685EBIT margin ASEAN 12.61% 12.58% 12.92% 13.45% 13.88%
Tax Rate ASEAN 7.50% 7.50% 7.50% 7.50% 7.50%
Op. Tax ASEAN 1,483 1,675 1,940 2,263 2,601Adj. Op. Tax ASEAN 3,794 3,993 4,677 5,490 6,305Adj. Tax Rate ASEAN 19.18% 17.88% 18.08% 18.20% 18.18%
D&A ASEAN 11,896 13,336 14,371 14,480 14,539Change in NWC ASEAN (1,211) (504) (675) (335) (29)Cash Flow From ASEAN Operations 26,671 31,170 34,880 38,826 42,890Capex ASEAN 15,252 15,690 15,968 16,089 16,155% Capex 15.00% 15.00% 15.00% 15.00% 15.00%
FCFF ASEAN 11,419 15,480 18,912 22,737 26,735% growth 35.56% 22.17% 20.22% 17.59%
Data and Charts
Source: Company data, Politecnico Estimates
Ratios Key Financial Ratios 2009 2010 2011E 2012E 2013E 2009 2010 2011E 2012E 2013EProfitability ratios EBITDA margin 13.50% 13.27% 13.50% 14.30% 14.90% ROI 6.67% 7.18% 7.85% 9.19% 10.49% EBIT margin 7.02% 7.48% 7.64% 8.48% 9.32% ROA 3.03% 2.77% 3.34% 4.19% 4.99% EBT margin 4.98% 5.64% 5.80% 6.79% 7.78% ROE 11.19% 9.66% 11.22% 13.52% 15.28%Cost structure Du Pont Analysis Labor Cost / Sales 16.34% 16.17% 15.60% 14.70% 14.20% Profit Margin 3.19% 2.88% 3.25% 3.87% 4.43% Materials Cost / Sales 58.62% 59.32% 59.70% 59.70% 59.80% Asset Turnover 0.95x 0.96x 1.03x 1.08x 1.13x Services Cost / Sales 18.30% 17.39% 17.30% 16.90% 16.60% Total Assets/Equity 3.69x 3.49x 3.36x 3.22x 3.06xGearing ratios Debt ratios Net Debt to Equity 0.83x 0.79x 0.73x 0.64x 0.54x Interest coverage ratio 3.44x 4.07x 4.15x 5.00x 6.04x Total Debt to Equity 1.31x 1.19x 1.07x 0.94x 0.82x Net Debt / EBITDA 0.57x 0.56x 0.64x 0.78x 0.96xLiquidity ratios Cash flow ratios Current ratio 1.05x 0.93x 0.94x 0.99x 1.02x OCF / Sales 10.93% 10.28% 9.60% 10.37% 10.62%Solvency ratio 0.26x 0.24x 0.29x 0.36x 0.42x OCF / Earnings 3.43x 3.57x 2.96x 2.68x 2.40x Market Ratios Capex EPS €0.116 €0.115 €0.141 €0.181 €0.221 Capex / Sales 6.31% 6.30% 6.00% 5.85% 5.75% DPS €0.07 €0.07 €0.08 €0.10 €0.12 D&A / Capex 6.48% 5.79% 5.86% 5.82% 5.58%
Data and Charts
Source: Starmine Smart Income Statements, Politecnico Estimates
ROE Piaggio and its competitors
Expectations and Du Pont analysis
Yamaha Suzuki Honda Piaggio Harley Mahindra Tata Bajaj Hero
2010 (2.0%) 3.6% 6.4% 9.7% 12% 31.9% 35.6% N.A. 61.4%
2011E 2.4% 5.4% 12.1% 11.2% 22.9% 28.2% 57.2% 66.8% 48.8%
ROE Earnings / EBT EBT / EBIT EBIT / Sales Sales / Assets Assets/ Equity
2010 9.66% 0.51 0.75 0.075 0.96 3.49
2011E 11.22% 0.56 0.76 0.076 1.03 3.36
2012E 13.52% 0.57 0.80 0.085 1.08 3.22
2013E 15.28% 0.57 0.83 0.093 1.13 3.06
Source: Politecnico Estimates
Tax Burden
Interest Burden
Ebit Margin
Asset Turnover
Leverage (Proxy)
Data and Charts
Altman Z-Score
Time series of Piaggio’s Z-Score Competitors’ Z-score (2010)
Source: Bloomberg
Automotive players Indian PlayersExpectation
Data and Charts
Assumptions on Macro Scenario
Raising interest rates Raising Cost of DebtRaising commodities’prices Raising Cost of Materials
Global recovery stronger in EMs than in DMs Increasing revenues from EMs
∆=5.5%∆=4.5%
Source: Politecnico Estimates, www.economywatch.com Source: Bank or America Estimates , Politecnico Estimates
Data and Charts
Assumptions on Cost Inflation
• Decreasing cost of labour
• Increasing cost of materials
• Decreasing G&A Costs
• Cost structure:
• Increasing Ebitda Margin:
Data and Charts
Terminal Value
Two-Stage model Three-Stage model Analytical Period + Perpetuity
Ability of the company to generate cash flow
• Convergence Stage: Exponential Decay of FCFF Growth Rates
• Perpetuity: Long Term FCFF Growth Rate = 0.5%
• Sum-of-the-Parts Approach:
High Medium Low
Strongly developing 3-5% 2-3% 0-1%
Moderately developing 1.5 - 2.5% 1-2% 0%
Stable 0-1% 0% 0%
Decadent 0% 0% 0%
Industry
Source: Guatri (1998)
Analytical Period + Convergence Stage + Perpetuity
+
Source: Politecnico Estimates
Data and Charts
XXX
Source: Company’s financial statements, Bloomberg, (1) Damodaran, Politecnico Estimates
• NWC Historical evolution
EU & US
INDIA Asean Notes:
7.63% 9.31% 10.72%
Gearing Ratio (D/E) 0.7 Target declared by the company
Cost of Debt 5.58%
Marginal tax rate 43% Corporate tax rate
Gross cost of debt 9.79% 1/3 of debt is indexed to Euribor
Cost of Equity 10.76% 13.61% 16.01%
Beta ß 1.00 Measured on 5Y of weekly returns
Risk free rate 4.81% Yield on Italian Gov. Debt (21.01.11)
Equity market premium 5.20% Implied market premium (1) (01.01.11)
Country risk premium 0.75% 3.60% 6.00% Country’s default spread adjusted by 1.5 times (1)
WACC
Data and Charts
Basic Assumptions:• EBITDA margin is 50% higher in EMs• Markets’ exposure is equal to the percentage of
Sales in EMs
EV/EBITDA multiple for the whole Company:
EMs multiple:• Equal to the Indian peers’ multiple = 9.3 x
DMs multiple:• Mkt_Multiple = (EBITDA_DMs x Multiple_DMs) + (EBITDA_EMs x Multiple_EMs)
known estimated estimated 9.3 x4.4 x
EMs and DMs Multiples.
Data and Charts
Data and Charts
Piaggio's current market multiple Median Hero
HondaMahindra & Mahindra
Bajaj Auto
Tata Motors
Yamaha Motor
Harley-Davidson
Ktm AG
Honda Motor Suzuki Peugeot
CitroenEV/EBITDA 2011E median = 9.3 2011E median = 7.2
2011E 5.75 8.31 10.6 8.1 11.1 5.5 5.5 13.2 9.4 8.5 3.5 5.82012E 5.10 6.51 9.5 N/A 10.3 4.7 4.8 10.7 N/A 7.8 3.1 5.3
Price/Earnings 2011E median = 12.9 2011E median = 16.12011E 16.7 13.04 12.8 13.1 14.8 8.0 13.0 19.2 35.3 11.6 18.7 5.92011E (1) 13.92 12.8 13.1 14.8 - 13.0 19.2 35.3 - - -2012E 13.3 10.89 11.5 11.4 12.9 6.6 10.2 15.3 24.5 10.2 15.8 4.3
Price/Book Value 2011E 1.93 2.65 4.9 2.9 7.1 2.9 1.5 3.9 2.4 1.3 1.1 0.52011E (1) 3.39 4.9 2.9 7.1 - 1.5 3.9 2.4 - - -2012E 1.81 2.10 4.0 N/A 5.1 2.1 1.3 4.3 2.1 1.1 1.0 0.4
Piaggio Median Hero Honda
Mahindra & Mahindra
Bajaj Auto
Tata Motors
Yamaha Motor
Harley-Davidson
Ktm AG
Honda Motor Suzuki Peugeot
CitroenSales’ CAGR 2008-11E 4.1% -1% 14% 17% 21% 20% -3% -6% -4% -3% -3% 1%EBITDA margin (2) 13.5% 12% 15% 18% 20% 13% 8% 23% 12% 11% 9% 9%EBITDA growth (3) 10.0% 11% 9.5% 12.1% 16.7% 26.4% 18.6% 32.2% 8.2% 7.7% 9.7% 3.5%EBIT margin (2) 8.0% 8% 14% 15% 20% 10% 5% 17% 5% 6% 4% 3%Profit margin (2) 3.2% 6% 12.1% 8.9% 15.0% 6.5% 2.5% 8.8% 2.1% 5.5% 1.9% 1.9%
EPS growth (3)15.2 % 21% 9.7% 13.0% 21.8% 32.9% 20.4% 119.4%
-11.5% 11.5% 25.7% 24.4%
Leverage (D/E) 0.4 0.3 0.0 0.2 0.0 0.4 0.2 0.5 0.3 0.5 0.0 3.5
(1) no automotive peers(2) 2010-11E Average(3) 2011E
Piaggio and its peers (CY 2011E):Global playersIndian based players
Source: Bloomberg, Politecnico Estimates (03.25.2011)
Data and Charts
7/11/0
6
8/22/0
6
10/3/06
11/14/06
12/26/06
2/6/07
3/20/0
7
5/1/07
6/12/0
7
7/24/0
7
9/4/07
10/16/07
11/27/07
1/8/08
2/19/08
4/1/08
5/13/0
8
6/24/08
8/5/08
9/16/0
8
10/28/08
12/9/08
1/20/09
3/3/09
4/14/0
9
5/26/09
7/7/09
8/18/0
9
9/29/0
9
11/10/09
12/22/09
2/2/10
3/16/1
0
4/27/10
6/8/10
7/20/1
0
8/31/1
0
10/12/10
11/23/10
1/4/11
2/15/11
0.0
5.0
10.0
15.0
20.0
25.0
30.0
25.8
8.57.1
19.2
16.7
19.2
forward P/E ratio
Historical P/E:
Average: 15.7
Source: Bloomberg, Politecnico Estimates (03.25.2011)
Data and Charts
2006 2007 2008 2009 2010 2011 E 2012 E 2013 E 2014 E 2015 E
0.18
0.15
0.11 0.12 0.12
0.14
0.18
0.22
0.25
0.27
0.03
0.06 0.06 0.07 0.07 0.08
0.10
0.12 0.13
0.14
Earnings per share (figures in €)Dividend per share (figures in €)
XXXSource: Bloomberg, Politecnico Estimates (03.25.2011)
(1) FTM P/E ratio
EPS P/E (1)
2010 € 0.12 20.1
2011 E € 0.14 16.7
2012 E € 0.18 13.3
2013 E € 0.22 11.0
2014 E € 0.25 9.8
2015 E € 0.27 9.3
P/E future evolution: CAGR EPS
PEG ratio
2010-13E 24.5% 0.68
2010-15E 18.3% 0.91
2006-10 -14.4%
Data and Charts
Piaggio’s Hedging PolicyRisk area Risk Hedging Policy
Strategic risks
Unsuccessful product launches Local R&D departments, continuous investment, frequent introduction of innovative products.
Stronger competition Focus on premiumisation and differentiation; frequent introduction of innovative products.
GDP growth rates Flexible structure, fixed term employment contracts and CIGO funds to align production capacity with demand.
Operative risks
Increase in energy, row mat. and components costs
Multi-year supply contracts, premiumisation strategy, bargain power.
IP and brand plagiarism risk Legal protection (patents), with exception to India, where laws are not strict enough.
Vehicles defects Strict quality controls both on finished products and on inbound components.
Financial risks
Exchange rate risk Derivatives purchase and sell operations on 100% of the transaction risk and on 66% of the translation risk. Fluctuations are also mitigated with natural hedging.
Liquidity risk Strong cash generation and committed lines available (€150 mln unrevocable, €125 mln revocable).
Interest rate risk Half debt is fixed rate. Derivatives for variable rate debt.
Credit risk Low concentration (17,500 dealers); agreements for the transfer of trade recievables without recourse.
Complian. Tighter regulations CSR policy, R&D investments, auditing by indep. auditors.
Data and ChartsSource: Company annual report
42.5%
32.4%
12.0%
6.7%6.4%
RubberSteelCrude oilAluminiumOthers
Data and Charts
Costs breakdown
59.3%
17.4%
16.2%
2.0%
Materials and energy
Central costs
Employees
Others
Data and Charts
Source: Company data, Politecnico estimates
Sep-06
Dec-06
Mar-07Jun-07
Sep-07
Dec-07
Mar-08Jun-08
Sep-08
Dec-08
Mar-09Jun-09
Sep-09
Dec-09
Mar-10Jun-10
Sep-10
Dec-10
0.020.040.060.080.0
100.0120.0140.0160.0180.0
USD/bbl USD/tonCrude oil Aluminium
4000
3500
3000
2500
2000
1500
Data and Charts
Oil price impact on Rubber and Alluminium
Sep-06
Dec-06
Mar-07Jun-07
Sep-07
Dec-07
Mar-08Jun-08
Sep-08
Dec-08
Mar-09Jun-09
Sep-09
Dec-09
Mar-10Jun-10
Sep-10
Dec-10
0.020.040.060.080.0
100.0120.0140.0160.0180.0
USD/bbl USD/kgCrude oil Rubber
Crude oil and Rubber price RUBBER ALLUM.
Actual price 5,5 USD/kg 2.600 USD/ton
Correlation index with oil price
91% (strong) 83% (strong)
Rationale More than 75% of syntetic rubber raw materials are derived on petroleum.
Alluminium production is energy intensive
Price increse estimation
+0.5 $/kg for each +10 $/bbl oil increase
+300 $/ton for each +10 $/bbl oil increase
Source: World Bank Community price data
Crude oil and Aluminium price
Data and Charts
Sensitivity on Oil PriceRESULTS: KEY DRIVERS TO PROTECT EPS:
EPS
2011 E 2012 E
CRUDE OIL PRICE
($/BBL)
70.0 €0.186 €0.192
80.0 €0.171 €0.181
90.0 €0.156 €0.163
100.0 (base case) €0.141 €0.141
110.0 €0.141 €0.136
120.0 €0.135 €0.129
130.0 €0.130 €0.119
140.0 €0.125 €0.109
Oil Oil , Rubber, Alluminium
Data and Charts
Bargaining power: Improving Global Sourcing
Pricing power:Premiumization
SUPPLIERS CUSTOMERS
Source: Politecnico estimates
Sensitivity on Indian Business
16.9% 17.4% 17.9% 18.4% 18.9% 19.4% 19.9% 20.4% 20.9%4.4% €2.52 €2.55 €2.58 €2.61 €2.65 €2.68 €2.72 €2.75 €2.794.8% €2.54 €2.57 €2.61 €2.64 €2.68 €2.71 €2.75 €2.78 €2.825.2% €2.57 €2.60 €2.64 €2.67 €2.71 €2.74 €2.78 €2.82 €2.855.6% €2.59 €2.63 €2.66 €2.70 €2.74 €2.77 €2.81 €2.85 €2.896.0% €2.62 €2.66 €2.69 €2.73 €2.77 €2.80 €2.84 €2.88 €2.926.4% €2.65 €2.68 €2.72 €2.76 €2.80 €2.84 €2.88 €2.92 €2.966.8% €2.68 €2.71 €2.75 €2.79 €2.83 €2.87 €2.91 €2.95 €2.997.2% €2.70 €2.74 €2.78 €2.82 €2.86 €2.90 €2.94 €2.99 €3.037.6% €2.73 €2.77 €2.81 €2.85 €2.89 €2.94 €2.98 €3.02 €3.068.0% €2.76 €2.80 €2.85 €2.89 €2.93 €2.97 €3.01 €3.06 €3.108.4% €2.79 €2.84 €2.88 €2.92 €2.96 €3.01 €3.05 €3.10 €3.14
Indian 2015 Ebitda Margin
Indian LCV Volume CAGR 10-15
According to our DCF, Indian business is worth €1.3
Data and Charts
Data and Charts
Sensitivity on ASEAN BusinessAccording to our DCF, ASEAN business is worth €0.65
18.9% 19.1% 19.3% 19.5% 19.7% 19.9% 20.1% 20.3% 20.5%18.9% €2.71 €2.71 €2.72 €2.72 €2.73 €2.73 €2.74 €2.74 €2.7519.3% €2.72 €2.73 €2.73 €2.74 €2.74 €2.75 €2.75 €2.76 €2.7619.7% €2.73 €2.74 €2.74 €2.75 €2.75 €2.76 €2.76 €2.77 €2.7720.1% €2.75 €2.75 €2.76 €2.76 €2.77 €2.77 €2.78 €2.78 €2.7920.5% €2.76 €2.77 €2.77 €2.78 €2.78 €2.79 €2.79 €2.80 €2.8020.9% €2.77 €2.78 €2.78 €2.79 €2.80 €2.80 €2.81 €2.81 €2.8221.3% €2.79 €2.79 €2.80 €2.80 €2.81 €2.82 €2.82 €2.83 €2.8321.7% €2.80 €2.81 €2.81 €2.82 €2.82 €2.83 €2.84 €2.84 €2.8522.1% €2.82 €2.82 €2.83 €2.83 €2.84 €2.84 €2.85 €2.85 €2.8522.5% €2.83 €2.84 €2.84 €2.85 €2.85 €2.86 €2.87 €2.87 €2.8822.9% €2.84 €2.85 €2.86 €2.86 €2.87 €2.87 €2.88 €2.89 €2.89
ASEAN 2015 Ebitda Margin
ASEAN 2W Volume CAGR 10-15
Data and Charts
Data and Charts
Sensitivity on European BusinessAccording to our DCF, European business is worth €0.95
10.5% 10.7% 10.9% 11.1% 11.3% 11.5% 11.7% 11.9% 12.1%0.4% €2.63 €2.65 €2.67 €2.69 €2.71 €2.73 €2.74 €2.76 €2.780.8% €2.65 €2.67 €2.69 €2.71 €2.72 €2.74 €2.76 €2.78 €2.801.2% €2.67 €2.68 €2.70 €2.72 €2.74 €2.76 €2.78 €2.80 €2.821.6% €2.68 €2.70 €2.72 €2.74 €2.76 €2.78 €2.80 €2.82 €2.842.0% €2.70 €2.72 €2.74 €2.76 €2.78 €2.80 €2.82 €2.84 €2.862.4% €2.72 €2.74 €2.76 €2.78 €2.80 €2.82 €2.84 €2.86 €2.882.8% €2.73 €2.75 €2.78 €2.80 €2.82 €2.84 €2.86 €2.88 €2.903.2% €2.75 €2.77 €2.79 €2.82 €2.84 €2.86 €2.88 €2.90 €2.933.6% €2.77 €2.79 €2.81 €2.84 €2.86 €2.88 €2.90 €2.92 €2.954.0% €2.79 €2.81 €2.83 €2.86 €2.88 €2.90 €2.92 €2.95 €2.974.4% €2.81 €2.83 €2.85 €2.88 €2.90 €2.92 €2.95 €2.97 €2.99
European 2015 Ebitda Margin
European 2W Volume CAGR 10-15
Data and Charts
Independence: 15 August 1947
Republic: 26 January 1950
World’s most populous democracy Federal parliamentary democratic republic:
- INC (India National Congress), center left: liberal
- BJP (Bhartiya Janata Party), center right:
conservative
Current Government: the INC party won the general elections both in 2004 and 2009, forming the government with the UPA coalition and Manmohan Singh as prime minister.
XXX
Not a major threat for Piaggio’s business
Data and Charts
Political risk - India
Source: Reuters, Politecnico Estimates
Key Political Risks:
- Inflation
- Corruption
Data and Charts
Euromoney Country Risk Score (March 2011):
XXXData and Charts
Political risk - India
Source: Reuters, Politecnico Estimates
Data and Charts
2/1/11
2/3/11
2/5/11
2/7/11
2/9/11
2/11/11
2/13/1
1
2/15/11
2/17/11
2/19/1
1
2/21/1
1
2/23/1
1
2/25/1
1
2/27/11
3/1/11
3/3/11
3/5/11
3/7/11
3/9/11
3/11/1
1
3/13/11
3/15/11
3/17/1
1
3/19/1
1
3/21/1
1
3/23/1
1
3/25/1
180
85
90
95
100
105
110 PiaggioS&P500NIKKEI 225Earthquake
4Q 2010 data release
Middle East turmoil
Data and Charts
The Japan’s earthquake:
: Peak of S&P500 02.18.2011
Bottom of Nikkei 03.15.2011
10 days later03.25.2011
Piaggio 2.31 2.41 ( + 4.3%) 2.51 ( + 8.7%)S&P500 1,343.01 1,281.87 ( - 4.6%) 1,316.11 ( - 2.0%)Nikkei225 10,857.53 8,605.15 ( - 20.7%) 9,536.13 ( - 12.2%)
Source: Bloomberg, Politecnico Estimates
Data and Charts
XXXData and ChartsSource: krugman.blogs.nytimes.com
How rising interest rates affect share prices:
“If fears of default were driving rates, a rise in
interest rates should be associated with a fall in stock prices. If, on the other hand, rates rise
because people think the US will emerge from the
liquidity trap sooner, stocks and rates should move in the same direction. And here’s what it looks like: It’s all about economic
optimism.”
Data and Charts
Data and Charts
Montecarlo Simulation ASSUMPTIONS: Risk Business Unit Drawn Variable Distribution Std. Dev. CommentGDP growth rate India LCV YoY volumes growth (%) Inverted Lognormal 1% Unexpected Indian slowdown
India 2W “ Inverted Lognormal 5% “
Europe 2W “ Lognormal 1% Unexpected European recovery
Europe LCV “ Normal 0.5% Structural decline
ASEAN 2W “ Inverted Lognormal 2% Unexpected ASEAN slowdown
Success of new models India LCV Volumes (units) Normal 6000 units
India 2W “ Normal 4000 units
ASEAN 2W “ Normal 5000 units
Stronger Competition India EBITDA Margin (%) Inverted Lognormal 1%
Europe “ Inverted Lognormal 0.5%
ASEAN “ Inverted Lognormal 1%
Exchange Rate Volatility India EBIT (€) Normal 3.5% EBIT 3.5% is the avg yearly INR std dev
ASEAN “ Normal 4.5% EBIT 4.5% is the avg yearly VND std dev
Legend:
Upside risk Lognormal
Downside risk Inverted Lognormal
Data and Charts
Data and Charts
Montecarlo Simulation IMPACT ON CASH FLOW STATEMENT:
INDIA 2011 E 2012 E 2013 E 2014 E 2015 ELCV volumes (units) 250,000 265,000 280,000 295,000 310,000% growth 25% 18% 15% 12% 8%
LCV ARPU (€) 50,000 75,000 95,000 110,000
… 680 707 735 765
Sales from India 439,895 526,074 601,840 671,067 736,122% growth 19.92% 19.59% 14.40% 11.50% 9.69%
EBITDA from India 89,739 107,319 122,174 134,213 144,280EBITDA margin India 20.40% 20.40% 20.30% 20.00% 19.60%
D&A India 24,867 25,244 25,745 26,454 27,266EBIT from India 64,871 82,075 96,429 107,759 117,013EBIT margin India 14.75% 15.60% 16.02% 16.06% 15.90%
Tax Rate India 42.00% 42.00% 42.00% 42.00% 42.00%
… 27,246 34,471 40,500 45,259 49,146D&A India 24,867 25,244 25,745 26,454 27,266Change in NWC India (12,172) (12,670) (11,150) (10,914) (9,855)Cash Flow From India 43,484 52,228 60,098 68,774 74,963Capex India 26,454 26,856 27,388 28,143 29,007
RISKS:
• Success of new models
• GDP / Industry growth rate
• Stronger competition
• Exchange rate volatility
Data and Charts
Data and Charts
Montecarlo Simulation RESULTS: • Target price volatility:
• Geographical breakdown:
ASEAN EUROPE + US INDIA
Piaggio India Europe ASEAN
TP DCF €2.90 €1.30 €0.95 €0.65
Std. Dev. €0.055 €0.029 €0.019 €0.025
CV 1.9% 2.26% 2% 3.67%
Data and Charts
Data and Charts
Comply Does not complyIndependence of the board of directors: 4 of 11 members are independent.Internal Control Committee: Composed of independent directors, convenes at least 5 times per year.Appointment Proposals Committee: The majority of members are non executives, and there is a transparent procedure for the presentation of candidate lists.Financial disclosure and transparency: Piaggio follows COSO Reporting guidelines.
Internal Control Supervisor: Tight relationship between the Company and Immsi Audit S.c.ar.l. CEO undermines auditors’ autonomy.Independence of Chairman: Chairman and CEO are not separate.Board of Directors members’ maximum offices in other companies: Board has not established a limit to the number of offices directors can cover in other companies.Remuneration Committee: The attendance of the CEO by invitation creates a conflict of interest.
Source: Politecnico Estimates
Corporate Governance Snapshot
Data and Charts
Data and Charts
Name Position In office from
Indep. % attendance
Other offices
Roberto Colaninno ChairmanCEO
04/16/2009 100 7
Matteo Colaninno Deputy Chairman
04/16/2009 100 3
Michele Colaninno Director 04/16/2009 100 9Livio Corghi Director 04/16/2009 100 5Franco Debenedetti Director 04/16/2009 X 91 5Daniele Discepolo Director 04/16/2009 X 100 9
Andrea Paroli Director 22/09/2010 - -Giorgio Magnoni Director 04/16/2009 73 1Luca Crespi Director 04/16/2009 X 91 5Riccardo Varaldo Director 04/16/2009 X 82 2Vito Varvaro Director 04/16/2009 90 2
Source: Piaggio’s 2009 CG Report
Composition of the Board of Directors
Data and Charts
Data and Charts
CG and CSR Valuation
Piaggio’s CG and CSR are under control, with improvement margins
Data and Charts
Data and Charts
Steel impact on EPS
Sep-06
Dec-06
Mar-07
Jun-07Sep
-07Dec-
07
Mar-08
Jun-08Sep
-08Dec-
08
Mar-09
Jun-09Sep
-09Dec-
09
Mar-10
Jun-10Sep
-10Dec-
10
1.2
1.0
0.8
0.6
0.4
0.2
Steel price chart (USD/kg)
Source: World Bank Community price data
Data and Charts
DRIVERS Weight Why increasing?
Coking Coal
Accounts for 50% of steel price fluctuations
Economic recovery
Iron Ore Accounts for 30% of steel price fluctuations
Increase in demand form EMs, mainly China and India
Source: Company’s data
Worst case scenario:
-0.3% EBITDA margin
Data and ChartsData and Charts
India and Vietnam nominal GDP growth rates
2009 2010 2011 2012 20150.00%
5.00%
10.00%
15.00%
20.00%
25.00%
India Nominal GDP growth (%) Vietnam Nominal GDP growth (%)
Source: IMF, World Economic Outlook Database
India Vietnam
EMs nominal GDP growth rates (2011-2015)
12.29% CAGR
14.00% CAGR
Piaggio’s top line growth rate (‘11-’15)
12.86% CAGR*
13.41% CAGR*
(ASEAN)
*Source: Politecnico estimates
GDP growth rates in EMs