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  • CMP : 4,881.0 Chg : 28.10 (0.58%)
  • Buying Range : 3540-3583
  • Target : 3,940.0 (10.63%)
  • Stoploss : 3,345.0
  • Target Period : 3 Month

24 May 2023

Falling channel breakout ...

EicherMotors

TECHNICAL_INFOGRAPHIC_1
Technical Outlook
Nifty Auto Index has rallied to a fresh all time high and has generated a resolute breakout above last eight months range (13540-11902) signalling extension of the up move. Two-wheeler stocks in the Auto space, are in strong up trend and are seen extending their up move,  within this space, we remain constructive on Eicher Motors as it is seen accelerating its up move after recent breakout above the falling channel, post earnings, containing entire decline of the last five months signalling resumption of up move 

Structurally, as per change of polarity concept stock rebounded in April 2023 after retesting the major breakout area of ₹ 2800-2900, signalling elevated buying demand

The stock in the current up move is witnessing faster retracement as it has already retraced more than 80% of its preceding five months decline (₹ 3889-2836) in less than two months highlighting strength and a robust price structure

We expect the stock to maintain positive bias and head towards ₹ 3940 levels in the coming months being the price parity with the recent up move (₹ 3321-3705) as projected from the last week low (₹ 3511)

Fundamental Outlook

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. It also has presence in the 650cc segment through 650 cc twins wherein its market share in international markets is pegged at ~8-10% in mid-weight segment & has recently launched Super Meteor 650cc to strengthen the same. On CV space it operates via its JV with Volvo i.e. VECV (EML has 54.4% stake) with consequent market share at ~7.6% FY23.

EML posted healthy performance in Q4FY23 with Royal Enfield ASP’s & profitability on VECV front surprising positively. Net sales for Q4FY23 came in at ₹ 3,804 crore, up 2.2% QoQ, with consequent ASP’s coming at ₹1.72 lakhs up 7.7% QoQ (aided by better export mix & preference towards higher end models). EBITDA in Q4FY23 stood at ₹ 934 crore with corresponding EBITDA margins at 24.5%, up 150 bps QoQ (gross margin expansion stood at ~250 bps QoQ). Consequently, PAT came in at ₹906 crores up 22.2% QoQ. Company’s share of profit from VECV JV stood at ₹ 173.4 crore, with margins at ~10% (highest in recent past).

EML is outpacing its peers in 2W space & is riding upon strong premiumization trend domestically as well as leveraging its brand value in international market through its >650cc portfolio. Further company has in the recent past successfully launched a new model i.e. Hunter 350 at affordable price point of ~₹1.5 lakhs (ex-showroom) with intent to tap in audience from >125cc segment. On commercial vehicle front the company is well equipped with alternate fuel technologies like BEV, CNG, Fuel Cells, Hybrid, etc. EML has also started tangible work on EV front with 2 EV platform under development (i.e., one in house and one EV platform of stark mobility). Further management informed about ~₹1,000 crores of capex to be incurred in FY24E towards product development of EV as well as ICE portfolio.

With incremental consumer preference towards premium space & RE’s dominant position in >250 cc segment domestically aided by new launches in pipeline, we expect RE volumes to grow at 7.2% CAGR in FY23-25E (albeit on a high base). Consequently sales in value terms is seen growing at 8.7 % sales CAGR over FY23-25E. PAT CAGR in the similar timeframe is placed at 13.9%, amid improvement in EBITDA margins to 25.1% by FY25E tracking operating leverage play & increased focus on increasing revenue from non auto space. Further on the B/S front, the company continues to remain debt free with cash & investments worth ~₹11,000 crores as of FY23 with consequent RoIC pegged at 100%+ by FY25E. We have a positive view on the company.

Follow up summary of Gladiator Stocks

Other product open recommendations

Date Product Scrip Name Market Strategy RP Target Stoploss Time Frame
5/16/2023 12:00:00 AM Momentum Pick PNC Infra Cash Buy 318.5 348 303 14 Days
5/18/2023 12:00:00 AM Momentum Pick IEX Cash Buy 162 175 155 14 Days
5/19/2023 12:00:00 AM Momentum Pick Radico Cash Buy 1137 1220 1066 14 Days
5/22/2023 12:00:00 AM Momentum Pick ACC Cash Buy 1810 1970 1740 30 Days
5/22/2023 12:00:00 AM Momentum Pick Intellect Cash Buy 557 605 527 14 Days
- - - - - - - - -
Source: Company, ICICI Direct Research

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INFOGRAPHIC

Disclaimer

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ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts valuation for a stock

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Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15% 

Pankaj Pandey

Head – Research

pankaj.pandey@icicisecurities.com

 

 

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