Royal Enfield parent Eicher Motors joins Rs 1-trillion MCap club

Earlier, Maruti Suzuki India Ltd, Tata Motors Ltd, Mahindra & Mahindra Ltd and Bajaj Auto have achieved this milestone.

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Eicher Motors Ltd, parent of Royal Enfield, have become India’s fifth auto firm to join the elite club of Rs 1 trillion market capitalisation (MCap) after its shares surged 41 percent so far this year.

The stock hit a record high of Rs 3,659.45 a share and gained as much as 3.31 percent from its previous close with a market cap of Rs 1.01 trillion.

Earlier, Maruti Suzuki India Ltd, Tata Motors Ltd, Mahindra & Mahindra Ltd and Bajaj Auto have achieved this milestone. Eicher Motors has now surpassed Hindalco Industries, Divi’s Lab, Godrej Consumer Products and Indusind Bank Ltd in terms of market capital.

The company’s performance was impacted significantly during the pandemic amid its ability to expand the customer base in the face of multiple external headwinds such as a steep surge in vehicle prices, supply chain constraints, a weak customer sentiment, and limited volume growth visibility. The company recorded an average contraction in volume growth of 13 percent through FY19 to FY22.

” Most of these challenges are now starting to recede with correction in commodity prices, strong pickup in export sales, improving customer sentiment in urban and rural markets and the launch of new products. The company has rebooted its focus on volume growth and indicated multiple new product introductions during the recent investor meet,” said JM Financial in a recent note.

Analysts said the firm is getting strong customer response for its recently launched Royal Enfield brand Hunter 350. Footfall and enquiries were up 15-20 percent during August 2022 with 50 percent of enquiries from new customers. Dealers expect the demand momentum to rise further during the upcoming festive season. Brokerage firm Sharekhan believes Hunter 350 to boost Royal Enfield’s volumes and comprise 13-15 percent of the brand’s bikes in the medium term.

“With the improvement in underlying demand sentiment and product interventions, we believe the company is back on the growth trajectory (FY22-25 volume CAGR: 21 percent). Softening commodity prices and positive operating leverage is expected to provide margin support (+540bps over FY 22-25). We reinstate PE multiple for RE to 25x (from 18x),” the JM Financial report said. The brokerage firm has upgrade the stock’s rating to ‘buy’ with a revised target price of Rs 3,900.

Analyst said the firm is well-poised to recover strongly and put its performance in top gear, driven by an increase in addressable market size and better operational performance in the company’s two-wheeler division. Further, its commercial vehicle business is geared up to significantly improve its contribution to consolidated PBT, led by expected market share gains, increasing synergies with the joint venture partner (Volvo) and operating leverage benefits.

“As the economy and supply constraints are normalising, we expect premiumisation to surge again in the two-wheeler segment, and expect Royal Enfield to outperform in the premium bike segment. Given a strong business outlook and a robust earnings growth of 48.3 percent during FY22-24,” the Sharekhan report said.

According to Bloomberg, the stock has 35 ‘buy’ ratings, none ‘hold’ ratings and four ‘sell’ ratings.