Eicher surges 7 percent on strong March quarter earnings

The Royal Enfield maker’s consolidated net profit for March quarter came in at Rs 905.58 crore, up 48.42 percent from Rs 610.14 crore in the same quarter of the previous financial year

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Shares of Eicher Motors Ltd surged nearly 7 percent in the morning trade on May 12, a day after the company reported better-than-expected earnings for the March quarter despite a two-wheeler downturn.

At 9.50 am, the stock was trading at Rs 3,626 on BSE, up 6.5 percent from its previous close even as the benchmark Sensex was 0.44 percent at 61,632 points.

The firm reported a consolidated net profit of Rs 905.58 crore, up 48.42 percent from Rs 610.14 crore in the year-ago quarter.

The higher profit was primarily due to higher-than-expected average selling prices (ASPs), favourable raw material (RM) tailwinds, and an increased mix of higher-margin spare parts, the company said on May 11.

Revenue from operations came in at Rs 3,804.32 crore, rising 19.13 percent from Rs 3,193.32 crore in the year-ago quarter, the Royal Enfield maker said in an exchange filing.

Improving the supply side, new product launches, and ramp-up in exports would drive the next phase of growth for Royal Enfield, Motial Oswal said in a report on May 12.

“Consequently, we are building in for 14% volume CAGR for RE over FY23-25E, resulting in monthly run rate increasing to 80k/90k for FY24/25E (v/s 73.3k in 2HFY23 since Hunter launch). This coupled with stable commodity prices is expected to support margins and drive earnings CAGR of 30% over FY23-25E,” the report said.

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Brokerages’  view

Amid anticipated heightened competition, several brokerages have sounded caution. The upcoming launches from Bajaj-Triumph and Hero-Harley in the above-250 cc motorcycle segment are expected to intensify the competition.

“(This) may weigh on the company’s growth prospects,” said Kotak Institutional Equities. The brokerage house has retained its “sell” rating and kept the target price at Rs 2,900 a share.

Jefferies remains positive on Eicher, citing factors such as the expected recovery in two-wheeler demand, industry premiumisation, and growth in exports.

But in the face of upcoming launches from the rivals, Jefferies has lowered Eicher in its priority list. It still has a “buy” rating on the stock.

“We believe this wave of competition could be more intense than earlier launches by Jawa in 2018 and Honda in 2020 as Harley and Triumph have better brand recognition in India, in our view.

“We factor RE’s market share in 125cc+ bikes dropping from 32% in FY23 (4Q: 34%) to 28% in FY25, but remaining the dominant player in the segment. We see RE’s volumes rising 12%/12% in FY24E/FY25E to 78K/87K units/month (2HFY23: 73K)”, Jefferies’ analysts said in a note.

Brokerage firm Motilal acknowledges that the current valuations of 24.5x/19.3x adequately reflect the anticipated rebound in volume and margins.

It, however, said the valuation does not adequately account for the potential risks associated with the upcoming launches of Bajaj-Triumph in the mid-size segment in both Indian and global markets. Motilal has downgraded the stock from “buy” to “neutral”.

“We value RE at 20x FY25E EPS and VECV at 10x EV EBITDA (v/s 12x earlier, as CV cycle is close to its peak) on FY25E,” Motilal analysts said in a report.

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