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Valuation and View

Eicher Motors (EIM) 1QFY24 consolidated results were better with ~3%/6% beat to our/street EBITDA leading to margins beat by ~100bp/160bp at 25.6% (+110bp YoY/ 110bp QoQ, 12 quarter high). This was largely due to positive impact of price hike (~150bp) and cost savings (~80bp), higher spares sales (RE and VECV at +25% YoY each) offsetting lower exports (-30.5%/-22.5% YoY/QoQ at 9% of vols vs 12% QoQ). However, margins expansion ahead will be gradual ahead as stable RM and price hike (+1.5% in 2Q in domestic) would be partially offset by launch expense related to new Bullet 350 in Aug’23. While demand outlook is mixed/weak for domestic/exports, the management sounded confident to navigate increased competitive intensity by playing on RE’s strength developed over period of past decade. Further, it has hinted slew of disruptive launches (rather will be spaced out), which should help expand overall mid-size market.

We expect RE’s overall volumes to grow at ~11% CAGR over FY22-25E (vs -7% CAGR over FY20-22), despite new competitive launches. Recent launches could be an inflection point for RE as a completely new and improved platform should drive efficiencies. VECV would continue to see a cyclical recovery in volume and profit, in turn boosting consolidated PAT CAGR to 23.3% over FY23-25E. Stock trades at 24.3x/21x FY24E/FY25E consol EPS. We maintain BUY with SoTP based revised TP of Rs4,008 (v/s Rs3,939). We value S/A business at 25x (~15% discount to 10yr LPA).

Result Highlights – Weak product mix offset by price hike, spares and cost savings

* Consol reveunes grew 17.3% YoY (+4.8% QoQ) at Rs39.9b (in-line, cons Rs40.4). RE’s volume grew 21.6% YoY/ +4.2% QoQ while RE ASPs came in lower which declined 1.3% YoY (-2.3% QoQ) at Rs171.3k/unit (est Rs175k/unit) largely led by weak product mix. The management indicated price hike of ~1.5% in domestic as well as for few SKUs/markets in exports too in 2QFY24.

* Consol gross margins were flat YoY (-20bp QoQ) at 44.1% (in-line). Consol EBITDA grew 22.8% YoY (+9.3% QoQ) at Rs10.2b (est Rs10b, cons Rs9.6b) with margins at 25.6% (+110bp YoY/ +110bp QoQ, est 24%). S/A margins expanded 170bp YoY (+130bp QoQ) at 26% (est 24.8%, cons 24%). Led by healthy op performance and higher other income at Rs2.4b (+18% QoQ, est Rs1.6b), Adj.PAT came in at Rs9.1b (+50% YoY/ +1.4% QoQ, est Rs8b, cons Rs8.4b).

* VECV 1QFY24 performance in-line - Revenues grew ~27% YoY (-19.5% QoQ) at

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