Eicher Motors Q3 net profit zooms over 62%: What should you do with the stock?

Eicher Motors Q3: Revenue from operations came in at Rs 3,721 crore, registering a growth of 29.17 percent from Rs 2,880.65 crore in the corresponding quarter last year.

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The share price of Eicher Motors, the maker of Royal Enfield, opened higher on February 15 – a day after the company came out with its December quarter earnings.

At 9:20 am, the stock was quoting at Rs 3,236 apiece on the NSE, higher by 1.87 percent.

Eicher Motors on February 14 reported a 62.41 percent surge in consolidated net profit at Rs 740.84 crore for the quarter ended December 2022 from Rs 456.13 crore a year ago.

The revenue from operations came in at Rs 3,721 crore, registering a growth of 29.17 percent from Rs 2,880.65 crore in the corresponding quarter last year.

The company said its EBITDA (operating) margin surged to 23.9 percent from 19.6 percent in the nine-month period of FY23. Cash at hand also improved to Rs 9,120 crore from Rs 7,215 crore.

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Here’s what brokerages have to say about the stock and the company after its December quarter earnings:

CLSA has a ‘buy’ rating on the stock and cut the target price to Rs 4,007 per share. A report from the brokerage house notes that the company’s Q3 results were slightly below expectations due to lower margins in Royal Enfield.

The report expects Royal Enfield volumes to see a double-digit growth and margin expansion through price hikes. The stock is trading at 20x FY25 EPS.

Citi has kept the ‘buy’ rating on the stock with a target price of Rs 4,400 per share. The report notes that the company’s Q3 results were above expectations, with better-than-expected margins for both Royal Enfield and VECV business.

The demand outlook is positive for the company. The margin should see an uptick, given a confluence of easing commodity costs and price hikes.

The new Super Meteor 650 has garnered a positive response and could further support profitability, said Citi.

Jefferies has maintained the ‘buy’ rating on Eicher Motors with a target price of Rs 4,250 per share. The report notes that the company’s Q3 operating profit rose to hit a new high.

The Royal Enfield (RE) volumes grew, while operating profit/vehicle stayed flat sequentially.

Jefferies believes that the company is on track to deliver the highest RE volumes and EPS in FY23.

The recovery of two-wheeler demand and industry premiumisation are tailwinds for RE. The limited competition and low electric vehicle (EV) risk are also tailwinds for RE.

Nomura has upgraded Eicher Motors to ‘neutral’, but cut its target price to Rs 3,264 per share. The Q3 margin was below estimates.

Nomura has marginally revised its revenue estimates for FY23/24/25 by 1-2 percent and has slightly trimmed its EBITDA margin estimate by 110/80/80 bps to 23.7 percent/24.6 percent/24.7 percent.

The report highlights competition as a key risk, with the entry of Bajaj Triumph and Hero Harley in FY24.

Morgan Stanley has kept an ‘equal-weight’ rating on the stock with a target price of Rs 3,553 per share.

The report notes that the company gained market share following the launch of the Hunter model. It also suggests that the margin and market share of the company are likely to peak in 2023.

The launch of Bajaj Triumph in 2023 and Hero Harley in 2024 are key developments to watch in the industry.

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