Eicher Motors shares fall as Q2 profit misses estimates

CLSA has a buy call on the stock with target of Rs 4,511 per share, an upside of 26 percent from current market price. The research firm believes that Q2 was in-line with ‘Hunter’ boosting demand for Royal Enfield.

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Shares of Eicher Motors dropped over 3 percent intraday on November 11, a day after the auto firm announced its Q2 results.

The September quarter profit of the maker of Royal Enfield motorcycles fell short of analysts’ estimates, as costs jumped 50 percent.

The auto firm on Thursday said that its consolidated profit after tax increased 76 percent to Rs 657 crore in September quarter, aided by brisk sales across domestic and international markets. The company had reported a net profit of Rs 373 crore for July-September 2021-22. Total revenue from operations increased to Rs 3,519 crore from Rs 2,250 crore in the year-ago period, Eicher Motors said in a regulatory filing.

Analysts on average had expected a profit of Rs 697 crore and revenue of Rs 3649 crore, according to Refinitiv IBES data. Total expenses soared to Rs 2832 crore on higher raw material and component costs.

Royal Enfield, a division of the company, sold 2,03,451 motorcycles in the quarter, up 65 percent from the year-ago period. Eicher Motors Managing Director Siddhartha Lal said the company’s overall performance was very encouraging in the first half of current fiscal year.

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At 10:29 hrs Eicher Motors was quoting at Rs 3,579.70, down Rs 122.05, or 3.30 percent on BSE. The stock touched an intraday high of Rs 3,740.75 and an intraday low of Rs 3,538.50. It was trading with volumes of 37,779 shares, compared to its five day average of 11,235 shares, an increase of 236.26 percent.

Global research firm Morgan Stanley has an equal-weight call on the stock with target of Rs 4,065 per share, an upside of 13 percent from current market price. The brokerage firm is of the view that the company is doing the right thing by focusing on growth over margin adding that upside to FY24 consensus EBITDA per unit and margin is limited. Valuations look full at current level, it said.

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CLSA on the other hand has a ‘buy’ call on the stock with target of Rs 4,511 per share, an upside of 26 percent from current market price. The research firm believes that Q2 was in-line with ‘Hunter’ boosting demand for Royal Enfield. “EBITDA margin is poised to improve in H2FY23 while management remained optimistic on volume improvement,” it added.

According to domestic research firm Motilal Oswal, Eicher Motors Q2 FY23 operating performance was adversely impacted by a weaker mix (first quarter of Hunter sales and lower exports). The benefits of softening RM costs should start reflecting from Q3 FY23 onwards. This, coupled with easing supply chain pressures and continued product expansion, will aid domestic recovery and support ramp up in exports.

“We tweak our EPS estimates for FY23E/FY24, as we wait to see Hunter’s impact on volumes, ASPs, and margins. We reiterate our buy rating on the stock,” the research firm said.

HDFC Securities in its research report said that Royal Enfield posted lower-than-expected margin in Q2 (down 60bps QoQ), led by an adverse mix. While exports are likely to remain weak in the near term due to geopolitical concerns, in the long run, we expect them to evolve into a strong growth story. Given better-than-expected volume pick-up in Q2, we raise our forecast by 6-10% over FY23-25E, it asid.

“With improving demand and a gradual reduction in input costs, we expect RE to post healthy 39% EPS CAGR over FY22-25E over a low base. We reiterate add to the stock with a revised target of Rs 3,859 (from Rs 3,333 earlier) as we roll forward to September 2022 earnings,” HDFC Securities added.

(With inputs from Reuters & other agencies)

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