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In-line; upcoming launches critical to delivering strong growth

RE plans to launch new model every quarter

* Eicher Motors (EIM)’s 4QFY21 performance was in-line, supported by good volume recovery in both RE and VECV. Despite cost inflation, EBITDA margins per unit were stable QoQ. Good response to Meteor, upcoming launches of the new Classic, and normalized production would support RE volume recovery going forward. VECV is also firmly on the recovery path.

* We cut FY22E consol. EPS by 7%, accounting for the COVID impact on volumes and commodity inflation, while maintaining FY23E earnings estimates. Maintain Buy, with TP of INR3,200 (Mar’23 SOTP).

REs EBITDA/unit stable despite cost pressures; VECV misses estimates

* Consol. revenues/EBITDA/PAT grew 33%/58%/85% YoY to ~INR29.4b/INR6.8b/INR5.6b. FY21 consol. revenues/EBITDA/PAT declined 5%/16%/24% YoY.

* RE’s 4QFY21 realizations grew 6.7% YoY (+1.7% QoQ) to INR142.8k (v/s est INR146k), driven by price hikes (~9% hike in FY21 and 3–8% across models since Jan’21) and a better mix.

* S/A revenues grew 34% YoY to INR29.2b (v/s est INR 29.9b). S/A gross margins declined 322bp YoY to 40.3% (in-line).

* S/A adj. EBITDA grew 47.5% YoY to INR6.7b (v/s est INR6.9b). Adj. EBITDA margins grew 210bp YoY (-60bp QoQ) to 22.9% (v/s est.23.2%). EBITDA per unit grew 17% YoY on low base, but was stable QoQ at INR32.7k (v/s INR33k in 3QFY21).

* VECV realizations grew 10% YoY (-5% QoQ) to INR1.99m (v/s est INR2.03m). EBITDA margins were 8.9% (+710bps YoY, +30bp QoQ v/s est 10%). PAT stood at INR1.26b (v/s est INR1.73b).

Highlights from management commentary

* RE demand remains strong on the back of a strong order book, expected pent-up demand, and a surge in export numbers. It has 2–3 months of order backlog, which would be catered to once the lockdowns are lifted. It expects to achieve 80k units/month in 2HFY22.

* RE has a very exciting pipeline of new products, with FY22 having the highest ever number of model launches.

* RE has reduced rhodium consumption by 66%; however, the benefit of this would be reflected in the coming quarters.

* RE added a total of 535 stores, including main stores (>100 stores) and studio stores (>430 stores), in FY21, taking the total number of outlets to 2,056 across 1,750 cities (from 1200 cities). Network expansion in India is largely complete, except in one state.

Valuation and view

* We believe the recently launched Meteor and upcoming products would help expand addressable markets and drive the next phase of growth for RE.The stock trades at 28.9x/21.6x FY22E/FY23E consol. EPS. Maintain Buy.

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