Eicher Motors is under significant pressure after series of downgrades. After Goldman Sachs, UBS also downgraded Eicher Motors to ‘Neutral’ from ‘Buy’ and reducd the 12-month price target to Rs 5,650 from Rs 5,950. According to the firm, Eicher Motors is focused on long-term growth, and is facing short-term margin pressures. This is one of the key reasons for the downgrade.
Here are 3 reasons why UBS downgraded Eicher Motors:
UBS on Eicher Motors: Margin pressure due to higher expenses
According to the brokerage firm, Eicher’s Q3FY25 EBITDA missed estimates by 10%, mainly due to increased spending on new product launches, marketing, and a weaker mix.
The brokerage firm further in its report noted that Rs 700 crore went toward launch expenses, including Rs 200 crore for its electric vehicle unveiling. In addition to this, Rs 450 crore was spent on extra marketing during the festive season.
“It indicated some of these expenses were one-off, although these expenses will continue at a higher level than earlier,” added the brokerage in its report.
UBS on Eicher Motors: Growth over profitability strategy
As per UBS, Eicher is shifting its focus from profitability to expansion. Although the company has been a leader in premium motorcycles, it is now heavily investing in brand-building, marketing, and new product development, including EVs.
“We expect Royal Enfield (RE) to keep outpacing 2W industry growth, on: 1) steady premiumisation; 2 significant cooling in competition; and 3) the upcoming launch of a revamped Hunter,” said the brokerage in its report.
The brokerage expects Eicher’s EBITDA margin to stabilise at 25 to 26%, compared to the 30 to 31% peak seen in FY17-19. The brokerage highlighted:
UBS on Eicher Motors: Eicher Motors recent stock outperformance
The brokerage firm also pointed out that the company’s stock has already outperformed other two-wheeler companies since March 2024.
Its valuation premium over peers has risen and is now in line with the past five-year average.
“Eicher’s share price has significantly outperformed the 2W pack since March 2024, and its premium to other 2W OEMs has risen significantly.”
The brokerage in its report said, “We keep our one-year-forward EV/EBITDA at 21x and roll forward three months toFY27E. We value VECV at 10x EV/EBITDA, at Rs540/ share. We downgrade to Neutral, as 20x FY27E core EV/EBITDA seems fair with a 12% FY25-27E EBITDA CAGR”
Eicher Motors Q3FY25 performance
Eicher Motors reported an 18% rise in net profit to Rs 1,170 crore in Q3FY25, up from Rs 995.97 crore a year ago. Revenue jumped 19% to Rs 4,888 crore, while EBITDA grew 10% to Rs 1,201 crore
Eicher Motors stock performance
Eicher Motors, the maker of Royal Enfield, saw its shares drop over 6% in intraday trade on February 11, hitting a low of Rs 4,966.15 after its Q3FY25 results. The stock is now over 10% below its all time high of Rs 5,551.75 and 35% from its 52 week low of Rs 3,675.
Over the past five days, the share price of Eicher Motors has declined over 7%, while in the last six months, it has fallen nearly 14%. However, despite the short-term weakness, Eicher Motors share price remains up nearly 30% in the past year.