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CEO change a shocker

The key highlight was the abrupt exit of RE CEO, Mr Vinod Dasari, who joined just over two years ago. Mr B Govindarajan, COO, is elevated to Executive Director and will be heading RE now. For Q1FY22, Eicher reported consolidated PAT before loss at VECV of Rs2.76bn, in line with our estimates. However, VECV loss share came at a higher Rs394mn.

Standalone PAT was Rs2.67bn, down 46% QoQ. Consolidated revenue came at Rs19.7bn, down 33% QoQ and ahead of our estimate of Rs18.5bn. EBITDA margin was 18.4% (down 500bp QoQ). Management indicated that production ramp-up has met supply issues mainly due to chip shortage. The company is addressing the bottleneck and expects gradual improvement.

We have cut our volume estimate by 5/3% for FY22/23. Cost pressures have been higher, and hence, we have cut our FY22E EBITDA margin by 100bp. Reiterate BUY, with a revised SoTP-based TP of Rs3,070.

Mixed bag results

Eicher reported consolidated PAT before loss at VECV of Rs2.76bn, in line with our estimate. However, VECV loss share came higher at Rs394mn, as volumes declined 68% QoQ. Standalone PAT came at Rs2.67bn, which is 46% lower QoQ. Consolidated revenue came at Rs19.7bn, down 33% QoQ and ahead of our estimate of Rs18.5bn. Standalone revenue was Rs19bn (down 35% QoQ) with ASP growth of 7% QoQ. Consolidated EBITDA margin was 18.4% (down 500bp QoQ), 170bp below our estimate on higher other expenditure. Standalone margin was 17.5% in the quarter.

Abrupt exit of Mr Dasari came as a shocker

The company indicated that CEO, Mr Vinod Dasari will be stepping down from his position, as he intends to pursue his own hospital venture. Mr B Govindarajan, the COO, will be taking over as Executive Director. Mr Govindarajan has been with Eicher Motors for over 20 years and has also headed the India business for three years before. Since Mr Dasari played a key role in initiatives like studio store expansion, new products, and other process improvements, we will be cautious on the management change.

Production ramp-up will be slower on chip shortage

In terms of production challenges, the management indicated that supply-side recovery has started, which will reduce the production constraints slowly. The main bottleneck is from chip shortage, which is being addressed through alternate sourcing and identifying ways to ramp up existing vendors. Production scale-up is expected in H2FY22, as the chip shortage eases gradually. New product launches are getting impacted with these challenges, as production readiness has become important now.

Demand outlook is positive, maintain BUY

We have cut our volume estimates by 5/3% for FY22/23 to incorporate slower ramp-up on chip shortage issues that has also affected the product launch schedules. Cost pressures have been higher, and hence, we have cut our FY22E EBITDA margin by 100bp. Reiterate BUY with revised SoTP based-TP of Rs3,070. Slower production rampup and delay in new launches are the key risks to our rating.

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