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Margins surprise; maintain Buy

Revenue growth aided by volumes and realizations: Eicher consol. revenue grew by 72.1% YoY to Rs. 3,397 cr led by 53.2% volume growth and 12% growth in realizations on a low base. Sequentially, volumes grew by 2% and realizations by 4.3% leading to a revenue growth of 6.4% QoQ.

Margins surprise on the upside: Eicher operating margins came in better than our expectations at 24.5%, higher in last nine quarters. The margins expanded by 608bps YoY and 75bps sequentially. RE margins also expanded by 674bps YoY and 64bps QoQ. The expansion was mainly due to better mix, price hikes, and higher operating leverage during the quarter. Consequently, consol. EBITDA grew by 129% YoY to Rs. 831 cr.

PAT grew by 157.5% YoY: Aided by strong operating performance and lower tax rate led the PAT to grow by 157.5% YoY to Rs. 611 cr. Royal Enfield PAT grew by 117.1% YoY and 4.9% QoQ to Rs. 580 cr.

Royal Enfield continues to strengthen its market share: RE market share improved to 36.2% in the motorcycle above 125 cc as against 27.2% in Q1FY22 and 28.7% as on end of FY22.

Outlook: i) Eicher has recently launched Hunter-350 a cruiser bike priced at Rs. 1.5 lakh and the management remains optimistic about the future of this product, ii) The management reiterated demand outlook both in domestic and exports market remains positive, iii) the softening of commodity prices would aid gross margins for the company, iv) the company has launched Meteor 350 and Classic 350 in key markets in APAC and Europe v) the VECV business recorded its highest ever first quarter volumes. The quarter also witnessed the inauguration of the first electric city bus delivered to the city of Chandigarh.

Valuations: After three years of volume decline, Eicher is witnessing healthy pick up in volumes which we believe would continue on the back of favourable base, new product launches and easing supply side constraints. The strong momentum in exports market is also likely to continue led by Eicher focus on expanding geographies and new product launches. The margin outlook too remains positive as favourable mix (both product and geographical mix) and softening commodity prices would aid operating performance. Factoring the positive outlook, we have raised our estimates for Eicher and expect Revenue/EBITDA/PAT to grow at 29%/40.1%/45.3% over FY22-24E. We maintain a Buy on the stock with a revised target price of Rs. 3,623.

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