Eicher Motors: Maintain ‘hold’ with TP of Rs 3,075

By: |
February 13, 2021 8:46 AM

Q3FY21, Operating performance in line EIM’s standalone revenue and EBITDA of ~Rs 28bn and Rs 6.6bn, respectively, came broadly in line with our estimates.

A strong product cycle tailwind though forces our hand to raise target multiple to 33x (from 30x) and FY23E EPS by 7%.

Eicher Motors (EIM) posted Q3FY21 results in line with expectations. Production ramp-up continues to lag our expectation due to bottlenecks. Production ramp-up, hence, remains a key variable (FY22E: ~75K/month; FY23E: ~85K versus Q3FY21: ~67K) given rising commodity pressure (refer to Commodity spike), intent to launch one bike (upgrade/new) a quarter, and export opportunities. A strong product cycle tailwind though forces our hand to raise target multiple to 33x (from 30x) and FY23E EPS by 7%. Our FY22 EPS is almost unchanged. Maintain ‘HOLD’ with a TP of Rs 3,075 (earlier Rs 2,602) as we roll over the valuation to Jun-22E. Upside risks arise from faster- than-expected adoption of Make IT Yourself (MIY) initiative.

Q3FY21, Operating performance in line EIM’s standalone revenue and EBITDA of ~Rs 28bn and Rs 6.6bn, respectively, came broadly in line with our estimates. However, QoQ gross margin were under pressure (down 160 bps to 41.2%), which was compensated for by cost control. Consolidated profit at Rs 5.3bn is 8% lower than our estimate due to weaker-than-expected other income and profit contribution from the VECV JV at Rs 314mn (Q2FY21: -Rs 39mn) Going ahead, rising raw material costs would weigh on gross margins. Management aims to mitigate it via price hikes (~3% taken till now), value engineering, higher contribution of accessories and operating leverage
Structural story intact.

Royal Enfield (RE) remains a strong franchise with a deeply entrenched and loyal customer base. Outlook and valuation. Priced in; maintain ‘HOLD’ We expect RE to outpace the industry given its franchise and reach. However, current valuation leave little room for disappointment.

Maintain ‘HOLD/SN’ with a TP of Rs 3,075 (RE at 33x FY22E core EPS, VECV at 25x EPS and cash per share of Rs 436). The stock is trading at FY22E/23E PER of 30.3x/24.6x.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Rakesh Jhunjhunwala rubbishes Bitcoin, says only sovereign has right to create currency
2Maintain ‘buy’ on Nestle India with TP of Rs 21,110
3Analyst Corner| NTPC: Maintain ‘buy’ with DCF-based TP of Rs 141