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Eicher Motors Ltd>
  • CMP : 3,657.4 Chg : -70.0 (-1.88%)
  • Target : 4,065.0 (28.03%)
  • Target Period : 12-18 Month

22 Feb 2023

Steady outlook, gradual margin recovery underway…

About The Stock

Eicher Motors (EML) is the market leader in the >250 cc premium motorcycle segment (market share ~85%+) through its aspirational models under the Royal Enfield (RE) brand, such as Bullet, Classic, Interceptor among others.

  • Via its JV with Volvo i.e., VECV (EML has 54.4% stake), the company has presence in the CV space as well (6.6% FY22 market share)
  • Strong net cash positive b/s with healthy return ratios metrics

Eicher posted a mixed performance in Q3FY23

  • ASP’s at RE and profitability at VECV arm surprised positively while o/p margins disappoint at 23%, down 30 bps QoQ (gross margin down 60 bps)
  • Consolidated revenues were at ₹ 3,721 crore, up 5.7% QoQ
  • Consequent consolidated PAT was at ₹ 741 crore, up 12.8% QoQ
What should Investors do?

EML price has grown ~4% CAGR over last five years (from ₹2,732 levels in Feb 2018), in line with the broader Nifty Auto index.

  • We retain BUY rating on the stock amid RE driving premiumisation play in 2-W space with healthy double digit volume growth on anvil driven by new launches including affordable Hunter 350 & ongoing CV cyclical upswing.
Target Price and Valuation

Introducing FY25E, we value EML at ₹ 4,065 on SOTP basis (i.e., 30x PE to RE business & 30x PE to VECV business on FY24-25E average)

Key Triggers for future price performance
  • With dominant position in >250cc segment, healthy response to Hunter 350, exploration of EV opportunity in premium motorcycle space & global ambitions, we expect RE volumes to grow at CAGR of 21% over FY22-25E
  • Capabilities showcased in alternate fuel technologies domain like BEV, Fuel cells, CNG, etc for entire range of CV’s (trucks, buses) during recently concluded auto expo 2023. With CV cyclical upswing domestically, CV volumes at VECV are expected to grow at 18% CAGR over FY22-25E
  • Strengthening is presence in overseas markets in mid-weight category with new product launched in >350cc segment like “Super Meteor 650”
  • With levers in place margins/RoCE are seen at 25.4%/27.3% by FY25E
Alternate Stock Ideas

In our auto OEM coverage, we also like M&M.

  • Focused on prudent capital allocation, UV differentiation & EV proactiveness
  • BUY with target price of ₹ 1,665

Key Financial Summary

Key Financials FY20 FY21 FY22 5 year CAGR (FY17-22) FY23E FY24E FY25E 3 year CAGR (FY22-25E)
Net Sales 9,153.6 8,720.4 10,297.8 7.9 14,411.2 16,247.7 18,187.2 20.9
EBITDA 2,180.3 1,781.3 2,172.2 0.0 3,414.2 3,978.1 4,613.0 28.5
EBITDA Margins (%) 23.8 20.4 21.1 0.0 23.7 24.5 25.4 0.0
Net Profit 1,827.5 1,346.9 1,676.6 0.1 2,773.7 3,373.8 3,875.6 32.2
EPS (₹) 67.0 49.3 61.3 - 101.5 123.4 141.8 -
P/E 47.4 64.4 51.8 - 31.3 25.7 22.4 -
RoNW (%) 18.3 11.8 13.3 - 19.2 20.3 20.2 -
RoCE(%) 17.3 11.3 13.3 - 19.8 20.2 27.3 -
Source: Company, ICICI Direct Research

Key takeaways of the recent quarter & Concall highlights

Q3FY23 Results:

  • Consolidated revenues for Q3FY23 were at | 3,721 crore up 5.7% QoQ. ASPs at Royal Enfield (RE), were flat QoQ at ~| 1.6 lakh/unit. RE sales volumes were at ~2.21 lakh units, up 6.6% QoQ.
  • Consolidated PAT was at | 741 crore, up 12.8% QoQ. The company’s share of profit from VECV JV stood at | 63.9 crore
  • EBITDA for the quarter was at | 857 crore with margins at 23%, down 30 bps QoQ. The company reported ~64 bps gross margin decline (amid adverse product mix) and limited operating leverage gains (other expense as a % of sales, down just ~40 bps). 

Q3FY23 Earnings Conference Call highlights

  • The company achieved highest ever revenue & EBITDA for a quarter for both VECV & RE operations amidst positive demand sentiments domestically and continued on its path to become global affordable brand in mid-range segment.
  • Eicher continues to dominate >350cc space with >85% market share and within >125 cc (even though it is not present in 125 cc or 150 cc segments) it increased market share to ~30.7% in 9MFY23 vs ~27% till 9MFY22. Also, company has ~8.1% market share in motorcycle space as a whole.
  • Management informed about healthy uptick in international volumes and has grown ~4x from FY18 leading to 8%,9% & 10% market share in America, APAC & EMEA regions respectively. Further to strengthen its export company is setting up CKD facilities in Nepal & Bangladesh.
  • During the quarter company has invested ~US$50 million in Stark mobility for ~11% equity and will be exploring EV opportunities through the same.
  • Management remains upbeat about demand from domestic markets amidst positive macro-economic like (i) Young population with ~60% population between 20-59 years of age, (ii) rigging disposable income, (iii) Favouritism towards premium bikes.
  • Management informed about its recent launch Super Meteor 650 is getting brilliant response from journalist all around the world post its launch event in Rajasthan, whereas hunter 350 continuing to perform well and has crossed ~80k+ units mark till 9MFY23. Further company has started export of hunter 350 in foreign markets.
  • Company’s Bus market share improved to ~22.5% in 9MFY23 vs ~5.3% in FY09., same for Light & Medium trucks improved to 30% from 25% in FY09.
  • Management informed about some commodity decline benefits to accrue in coming quarters as old order book ramps down protecting the interest of customers who booked at old prices.
  • In the CV domain, it expects a price hike of ~3%-5% due to upcoming OBD Phase 2 norms from April, 2023 & has technologies available for same.

    On export front company continued to build upon brand building, retail channel expansion & new CKD facilities.

    Company during the Auto Expo 2023 company showcased future ready mobility technologies like BEV, Fuel Cell, CNG/LNG, EV Bus (13.5 m) in CV space.



I/We, Shashank Kanodia, CFA, MBA (Capital Markets), and Raghvendra Goyal, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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