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Earnings strong, outlook intact

Eicher Motors Ltd (EML) manufactures motorcycles and accessories. The company owns the iconic Royal Enfield brand and also has a joint venture with AB Volvo – Volvo Eicher Commercial Vehicles (VECV).

• In Q2FY23, revenue grew 55.8% YoY to Rs. 3,453cr on strong volume growth. Profit after tax rose 76.0% YoY to Rs. 657cr.

• EBITDA margin expanded 260bps YoY to 23.8%, though QoQ it contracted 120bps due to adverse product mix of Hunter 350.

• The company has continued to increase market share with the launch of new products domestically and globally across light-, medium- and heavy-duty segments. The festive season and recently launched Hunter 350 supported the rise in topline.

• The increased market share, strong product pipeline and higher bookings will boost the company’s financial performance over the long term. Therefore, we reiterate our BUY rating on the stock, with a rolled forward target price (TP) of Rs. 4,109 based on SOTP valuation.

Topline growth led by higher volume

EML’s consolidated revenue increased a significant 55.8% YoY in Q2FY23 to Rs. 3,453cr, its highest ever quarterly number. The increase was mainly due to higher sales of its recently launched Hunter 350 motorcycle. During the quarter, EML sold 2,03,451 motorcycles vis-a-vis 1,23,515 in Q2FY22, a 65% YoY increase (9% QoQ). The geographical break-up was: domestic volume rose 73% YoY (16% QoQ) to 1,83,067 units and international sales grew 14% YoY to 20,384 units. The company also registered strong EBITDA growth of 74.9% YoY of Rs. 822cr and EBITDA margin improved 260bps YoY to 23.8%, mainly due to cost optimisation. However, margins narrowed 120bps QoQ because of adverse product mix of Hunter 350.

Key concall highlights

• In August 2022, EML launched Royal Enfield Hunter 350, which received good response from customers. The company has sold over 50,000 Hunters since launch.

• In October 2022, it sold 80,792 motorcycles (+79% YoY), the highest-ever monthly sales.

• In November 2022, it launched Super Meteor 650 in Italy. The company also has plans to launch Hunter 350 in the Asia-Pacific (APAC), Europe, the Middle East and Africa (EMEA) regions shortly.

Increased market share following launch of new products

EML has continued to expand its share in domestic and global markets. Its market share rose to 7% in the Americas, 9% in APAC, and ~10% in EMEA, supported by the launch of new products. It is optimistic that the launch of Hunter 350 will further improve its global market share. On the domestic front as well, the company’s market share reached over 30% in the above 125 cc segment in H1FY23 due to higher festive season sales. Also, VECV had over 8.0% market share in the heavy-duty truck segment and EML standalone comprising ~7.3% share. EML executed ~40 electric bus order for Chandigarh. It also launched new Volvo and Eicher bus models. Meanwhile, firsttime buyers increased to over 18% as well, above the historical average of 13%.

Valuation

The festive season in India boosted Royal Enfield motorcycle sales, thereby improving the company’s market share. Higher bookings for Hunter 350, minimal cannibalisation by other products, and expansion of the retail network in India and globally should continue to support earnings over the long run. Because of the positive outlook, we reiterate our BUY rating on the stock, with a rolled forward TP of Rs. 4,109 based on SOTP valuation.

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