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Easing supply, healthy exports to drive volumes

Valuation and View

Eicher Motors (EIM) 4QFY22 reported overall in-line set of results with consol EBITDA margins expanding consecutive for 3rd quarter to 23.7% (+140bp/40bp QoQ/YoY). Net realizations were record high at Rs172.k/unit (in-line) led by price hikes and favorable product mix. The management indicated strong demand and booking trends for Royal Enfield to be complemented by QoQ production recovery as supply constraints expected to gradually improve over 1HFY23. VECV results were too largely in-line with revenues at Rs43.1b, EBITDA margins at 6.7% (est 6%, flat QoQ) and PAT at Rs1b (+50% QoQ).

We lower our FY23E/FY24E consolidated EPS est by 5%/1% to reflect higher freight cost (for exports) and launch expense. RE demand is expected to recover on the back of launches and ongoing expansion in the exports market. After witnessing severe headwinds over last 24 months, we expect volumes to grow hereafter. Recent launches could be an inflection point for RE as a completely new and improved platform could drive a revival. VECV would see a cyclical recovery in volume and profit, in turn boosting consolidated PAT CAGR to 46% over FY22-24E. Stock trades at 24.1x/18.7x FY23E/FY24E consol EPS. We maintain Buy rating with TP of Rs2,972 (Mar’24E SoTP).

Result Highlights –Consol margins expanded for 3rd consecutive quarter

* Consol revenue grew ~11% QoQ/9% YoY at Rs31.9b (est at Rs30.2b, cons at Rs31.9b). SA revenue grew ~13% QoQ/9% YoY at Rs31.9b led by volume growth of ~10% YoY while realizations grew ~3% QoQ at Rs172.1k/unit.

* Gross margins came in better at 43.7% (+340bp QoQ, est at 40.7%) led by mix and price hike. This resulted in marginally better EBITDA at Rs7.6b (+18% QoQ, est at Rs7.2b, cons at Rs7.1b). Margins came in line at 23.7% (+140bp QoQ, cons at 22.3%). Management hinted freight cost to remain a headwind in the near term (~6x higher YoY in FY22).

* Adj. PAT too came in line at Rs6.1b (+18% QoQ, cons at Rs5.9b) as better op performance was offset by high tax at 26.1% (est at 22.2%).

* VECV results healthy- Revenue grew ~19% QoQ at Rs43.1b, EBITDA at Rs2.9b (+19% QoQ) with margins at 6.7% (flat QoQ). Adj. PAT came in at Rs1b (v/s Rs0.7b in 3QFY22 and Rs2.1b in 4QFY21).

* Company has declared dividend of Rs21/shr for FY22 (v/s Rs17/shr in FY21).

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