Eicher Motors (EIM) posted Q2FY19 consolidated Ebitda in line with our estimate (up 7% y-o-y to Rs 7.3bn).
Eicher Motors (EIM) posted Q2FY19 consolidated Ebitda in line with our estimate (up 7% y-o-y to Rs 7.3bn). While revenue and gross margin sprung positive surprises, the strike at the Oragadam plant dragged Ebitda margin 120bp y-o-y. The waiting list has dwindled to less than a month, but the outlook for premium offerings remains strong. This would reduce reliance on the traditional Classic 350 as well lift gross margin. Normalising demand in Kerala (11% of FY18 RE sales) after the recent floods would also restore momentum.
However, success of the newly showcased ‘650cc twins’ and normalisation of production will be the key triggers. Maintain ‘buy’ with TP of Rs 25,442 (earlier Rs 29,202) as we lower target multiples (from 26x to 22x FY20 core PE) to factor in near-term demand headwinds (strike, sharp uptick in retail prices, etc). Demand continues to remain robust on the back of launches/introduction of premium variants. We expect strong average realisation growth for RE driven by premiumisation trend led by demand for expensive and higher CC engines. We believe the launch of new 650cc bikes — a competent new product in the global mid-motorcycle market — marks the beginning of a new chapter for RE. Hence, its success is critical. Any positive surprise on the capacity addition guidance will be key monitorable.Our FY18–20E EPS CAGR of 17% is driven by strong demand for RE and margin improvement, riding premiumisation and scale benefits. The JV — VECV — too is focusing on profitable growth and garnered market share on account of launches.
At CMP, the stock is trading at FY19/20E PER of 25.4/20.7x.The response, globally, has been positive on all fronts — from looks to design to price points. They were recently launched in the UK, Milan (Italy) and other European locations.Media rides will start in India from Wednesday at Goa. Price announcement will be the day after. The strategy is to start with bigger cities and then move to smaller towns.At EICMA, RE showcased the concept KX 1140cc bike. It is not intended for production, but depending on the response, RE may adapt some of its features in its other bikes.