Eicher Motors share price zoom 9% today; Board to consider splitting shares to increase liquidity

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Updated: May 28, 2020 4:34 PM

Eicher Motors share price surged 9% on BSE Sensex on Thursday, continuing its upward march since the beginning of the week.

A share split is considered by companies to divide shares to multiples and increase liquidity.

Eicher Motors share price surged 9% on BSE Sensex on Thursday, continuing its upward march since the beginning of the week. The stock has now climbed up close to 10% in one week. The manufacturer of the Royal Enfield motorcycles is yet to report its January-March earnings, and along with the earnings, the board will also take a call on the proposal of a sub-division or split of the equity shares of the company. Eicher Motors shares are among the costliest in the 2-3 wheeler segment, sitting at Rs 16,270 per share. In comparison Hero Motocorp is at Rs 2,286 per share and TVS Motors is at Rs 326 per share.

A share split is considered by companies to divide shares to multiples and increase liquidity. A share split increases the number of outstanding shares but does not bring any change in the value of these shares. “The company decides to reduce the cost per share with a stock split. Stock split also helps it increase its overall liquidity as new investors and even small investors may get interested in purchasing these shares. The company said that its board will meet on June 12 to consider and approve subdivision or split of the equity shares,” Jitendra Upadhyay, research analyst, Bonanza Portfolio told Financial Express Online. 

“As we see it is a good move and something that has been pending for long. The shareholding sees 76% help by promoters and FIIs so this brings space for more retail participation,” Saji John, auto analysts at Geojit Financial Services told Financial Express Online. The outlook for Eicher Motors is also positive with the company aiming to increase exports, he said. Eicher Motors has also undertaken the new initiative of customised vehicle manufacturing with the aim of becoming a global player in the next five years’ time.

Eicher Motors although remains a strong player in the premium motorcycle segment, sales numbers for the last fiscal and the current year are expected to see a fall. “ RE domestic volume CAGR of 31.6% in CY10-FY20 has comprehensively outpaced overall 2-W industry’s FY10-20 6.4% CAGR, with the company’s domestic motorcycle market share in its product segment (> 250 cc) as of FY20 at ~96%,” said research firm ICICI Direct in a recent note. ICICI Direct has a target price of Rs 17,150 per share on Eicher motors’ stock. “We value EML on SOTP basis ( 24x P/E on FY22E RE EPS, 15x FY22E VECV EPS) to arrive at a target price of ₹ 17,150,” it added while upgrading the stock from ‘hold’ to ‘buy’.

Falling down during the January-March period the stock tanked over 39%, which makes analysts believe that the current valuations for Eicher Motors are low. The stock is trading at 20x FY22E EPS against average two year forward P/E multiple of ~30x over the last 5 years. Benchmark indices Sensex and Nifty were again seen surging higher on Thursday, both gaining 1.6% each. 

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