IGI Logo

Production constraints to ease  

Valuation and View

Eicher Motors (EIM) 3QFY22 consol results were weak with revenue/EBITDA/PAT missed our estimate by ~5%/7%/9%. Lowerrealizations at Rs167.4k/unit(est Rs179.6k/unit) due to weak product mix and RM inflation. Adjusted for one‐off of Rs0.6b (on advertisement and warehousing cost), EBITDA margins came in at 22.3% (est 22.7%, +320bp QoQ). The management indicated strong demand and booking trends for Royal Enfield to be complemented by QoQ production recovery as supply constraints expected to ease in 4QFY22. On the other hand, VECV results were better with ~11%/5.4% beat in revenues/EBITDA with margins at 6.7% (est 6.7%, +130bp QoQ).

Royal Enfield (RE’s) EBITDA margins expanded consecutive for the third quarter by ~400bp to 22.6% (adj for higher marketing/warehousing cost) led by 1) higher sales volume and 2) price hikes. With further volume recovery, we expect margins expansion to continue in 4QFY22E and FY23E. RE is aggressively working on enriching its product lifecycle and management re‐iterated a new product launch every quarter. With lower penetration in key motorcycling states in India (<4% v/s average of ~7%) and expanding footprints in exports, we expect volume CAGR of ~21% over FY22‐24E. We cut FY23/24 consol EPS by ~5% each to factor in weak mix and high ad spends for new launches and factor in earnings CAGR of ~44% over FY22‐24E. We retain BUY with SoTP based TP of Rs3,026. EIM trades at 23.6x/19.2x FY23E/24E EPS.  

Result Highlights –Weak product mix dent ASPs and margin

Consol revenue grew ~2% YoY/ 28% QoQ at Rs28.8b (est at Rs30.4b). SA volumes declined 15% YoY/ (+37% QoQ), while realisations declined 5% QoQ at Rs167.4k/unit (est at Rs179.6k).

RM inflation and weak product mix led 210bp QoQ contraction in gross margins at 40.3% (est at 41.5%). This was offset by op leverage resulting in EBITDA (adj. to one off marketing expense) at Rs6.4b (‐4% YoY, est at Rs6.9b). Consequently, margins came lower at 22.3% (‐140bp YoY, est at 22.7%).

Company recorded one offs of Rs600m attributable to marketing expenses (including Rs70m towards warehousing expenses).

Weak op performance coupled with lower other income at Rs921m (est Rs1300m) was offset by lower tax at 22.2% (est at 25%), resulting in Adj. PAT miss at Rs5.2b (‐3% YoY, cons at Rs5.7b).

VECV performance‐ Revenue grew ~15% QoQ at Rs36.3b (est at Rs32b), EBITDA at Rs2.4b (+42% QoQ, est at Rs2.3b) with margins at 6.7% (+130bp QoQ, est at 6.7%). Adj. PAT came in at Rs0.6b (v/s Rs0.18b in 2QFY22 and 0.57b in 3QFY21, est at Rs0.8m).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer