We recently met the senior management of Eicher Motors. The key takeaways were, the company remains confident of achieving its CY15 motorcycle volume target of 450K, monthly motorcycle production capacity will increase from 30K now to 50K in 2HCY15 and 60K by H1CY16, heavy truck industry growth of 42.5% in FY15 has been driven mainly by replacement and could taper in FY16, Eicher’s heavy truck market share (3.4% in FY15) could improve post new product launches in Q4CY15. Our positive thesis on Eicher continues to be driven by strong momentum in its niche motorcycle segment. Maintain buy with a target price of Rs 18,000.
The company has recently increased volume guidance for motorcycles and we are forecasting a higher growth rate. However, if growth tapers over the next 12-18 months, it would lead to a downside risk to our forecasts. The domestic commercial vehicle industry is witnessing an initial demand recovery after two years to steep volume decline. We have assumed that the industry demand recovery will gain further momentum over the next 2-3 years. A slower-than-expected demand recovery could bring downside risks to our forecasts for Eicher.
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