Though the stock is taking a breather, performance from Eicher Motors has more than justified the rally. Eicher has been showing incremental improvement in volumes for the last several quarters, but the full impact on the bottomline is just beginning to be felt following an exercise in cost- cutting which has enhanced margins.

In the first quarter, though, EML showed a strong growth in sales, itmanaged just 0.44 crore in net profit (against a corresponding loss of Rs 0.66 crore) but the net profit figure has surged to Rs 4.14 crore in the second quarter, which is nearly double the profit earned in the second quarter of the last financial year. While the first five months of the financial year saw a 17 per cent growth in volumes, the month of September alone saw a growth of 52 per cent (though such dramatic increases is an annual feature because of the depreciation benefits given to buyers of commercial vehicles). Overall, the second quarter has seen a 28.25 per cent growth in volumes, while the first half has seen a 25 per cent growth.

According to Abhishek Tewari, automobiles analyst with First Global Finance, this tempo of growth will accelerate during the second half. This is true because the company traditionally reports 60 per cent of its sales in the second half. It is already producing vehicles at the rate of 7,500 per month. The expectation now is that EML will record an additional Rs 200 crore in revenues in H2 along with an incremental net profit of Rs 10.5 crore, making it a total of Rs 15 crore for the year. This makes the stock available at a forward multiple of just 6.5 times.

An additional push will come when the company (which is in the 6-9 tonne segment) lauches its new 10.5 tonne medium or intermediate commercial vehicle (ICV) later in the financial year. Here, the company is looking at niche markets, in order to avoid a head-on confrontation with the market leader, Telco. But so far, the company along with Bajaj Tempo, has taken a chunk of the LCV market away from Telco, over the last couple of years. EML currently has a market share of 25 per cent in the 6-9 tonne category against 22 per cent last year, and overall in the LCV segment (which cumulatively has contracted over the last one year) it has a market share of 12.4 per cent, up from 10.24 per cent.

According to Tewari, the company has been making the right moves besides controlling operating costs, such as using the increased cashflows to reduce debt. As a result, interest costs are lower by 18 per cent in Q2. Further, the operating cost control that has been put into effect has seen an improvement in operating margins to 9 per cent from 7.6 per cent in the corresponding period last year. To a large extent, the shift from outsourcing to increased integrated manufacturing has been responsible for the reduction in costs (this is also the model being followed by the market leader, Telco).

"The increased level of integration should see operating margins grow by at least another 1.5 per cent by the end of the year," says Tewari. Further, EML has plans to foray in a big way into the north Indian market which is the biggest for LCVs. Its traditional market base is in the southern and eastern regions.