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Key Rationale:

* Eicher motor’s earnings performance during Q4 was better than expected. Revenue came at Rs.31.9bn highest ever led by +20% YoY growth in ASP and 9.5% YoY drop in volume. An increase in ASP is attributed to price hikes and a better product mix due to the arrangement of the alternate vendor. EBIDTA came at Rs.7.6bn +19%YoY/+30% QoQ. Despite elevated RM prices and higher freight charges margin expanded to 23.7% (+213bpsYoY/+349bps QoQ) due to price hike and value engineering. PAT stood at Rs.6.1bn and grew by 16% YoY .

* Outlook and valuations: Gradual improvement in supply chain led by an alternate arrangement of suppliers, increasing presence in the underpenetrated market, digital focus, expanding RE presence in international market (opening exclusive stores in markets such as LatAM, Indonesia, London, Paris, Madrid, and ASEAN) augur well for RE to witness healthy growth in FY23. Further, the impact of higher RM cost is likely to be partially mitigated by price hikes (as the target customer segment is not much price sensitive), better product mix, and cost reduction efforts. However, to factor in longer than expected supply chain issue and near term RM cost headwind we cut our FY23/FY24 earnings by ~10% each and value the EIM based on 23x of FY24E EPS to arrive at a TP of Rs. 2,783 and maintain ADD rating

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