Eicher Motors rises 4% on above-estimate Q2 net profit, revenue; should you buy the stock?

Shares of Eicher Motors rose more than 4 percent on November 13, after the auto major reported better-than-expected earnings for the fiscal second quarter. With a record revenue of Rs 4,115 crore, up 17 percent on-year, and EBITDA of Rs 1,087 crore, up 32 percent YoY, the company reported highest ever net profit of Rs 1,016 crore, a robust growth of 55 percent on-year.

At 10:07 am, Eicher Motors shares were trading 4 percent higher at Rs 3,657.00 on the National Stock Exchange. In the last one year, the stock has risen around 4 percent, underperforming benchmark Nifty 50.

The tractor maker’s consolidated EBITDA margin came in at 26.4 percent despite a weaker mix, offset by the full benefit of Q1 price hikes and raw material (RM) cost savings. With the launch of the Himalayan 452cc on a new platform, Royal Enfield has further intensified competition in the premium segment of bikes.

Recent launches such as Super Meteor 650cc and Himalayan 450cc along with the upcoming line-up have the potential to rev up growth in the face of higher competitive intensity, said analysts.

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Should you buy, hold or sell Eicher Motors shares?

Despite strong operations performance, Eicher Motors stock has lagged Nifty auto by 20 percent in 2023. Competitive concerns weighed on its valuations, said analysts at Jefferies. According to international brokerage, the launches of Harley and Triumph are anticipated to have a limited impact.

The brokerage foresees the potential for re-rating and expresses confidence in the long-term sustainability of market share. Analysts perceive favorable tailwinds from the recovery of demand for two-wheelers, and premiumisation. Jefferies has a ‘buy’ rating on the stock with a target price of Rs 4,650 per share.

Nuvama Institutional Equities is also bullish on the stock. Their positive view is bolstered by expectations of 10 percent revenue CAGR over FY23-26E, driven by: premiumisation in 2Ws, focus on new products with customisation options, and network expansion.

“We argue Eicher Motors (EIM) would be largely unaffected by the electric vehicle (EV) transition over the next few years as acceptance of EV cruisers shall be gradual,” the brokerage said as it maintained the ‘buy’ rating on the stock with a target price of Rs 4,200.

Morgan Stanley has an ‘equal-weight’ call on Eicher Motors stock with a target price of Rs 3,552 per share.

Going forward, increasing accessories revenue, expanding Royal Enfield (RE)’s reach in the international market, expanding presence in underpenetrated markets (Tier II & III cities), and a healthy launch pipeline across the bike category will bode well for Eicher Motors.

The company may witness healthy growth in FY24-26, according to Choice Broking. The brokerage maintains an ‘Outperform’ rating on the stock with a target price of Rs 4,210 per share.

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Analysts at Motilal Oswal believe that improving supply side, new product launches, and ramp-up in exports are expected to drive the next phase of growth.

“Valuations at 23.8x/21x largely reflect the expected volume recovery, but not the potential risk from the recent launches of Bajaj-Triumph and Hero-HD in mid-size motorcycles in India and global markets. Hence, we reiterate our Neutral rating,” the brokerage said as it put a target price of Rs 3,800 on the stock.

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