Post Q4CY14, our long term thesis on Eicher Motors...
Post Q4CY14, our long term thesis on Eicher Motors (EIM) remains unchanged, even as last quarter was weaker than estimates. Volume visibility in Royal Enfield gets even stronger on healthy order book, greater management focus on demand creation and capacity expansion to meet the same. We believe VECV is also well placed to leverage the recovery in domestic CV demand, given that it has refreshed its entire product range in LMD (light and medium duty) segment and significantly extended its product range in HD (heavy duty) segment. We estimate consolidated earnings to grow by 70%/ROE to improve by 750bps over CY14-16. Reiterate buy on the stock with target price of R19,100.
EIM reported weak Q4CY14 with consolidated net profit at R154 crore. While VECV performance was in-line, standalone performance was quite weaker than expected. During the conference call, management indicated that Q4CY14 other expenses were on the higher side due to higher R&D/marketing expenses, and the same would normalise as topline/volumes improve going forward.
While Royal Enfield continues to surprise street with its volume performance, we see little risk of the same slowing, given robust waiting period, and capacity expansion. The company is targeting volumes of 450k in 2015. In CV segment, VECV has almost completed its extensive refresh/launch programme.
By JM Financial Institutional