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Strong volumes drive revenue growth:

Eicher’s Q3FY23 revenue was much in line with expectations as it came in at Rs 3,721 Cr, up by 29.2% YoY and 5.7% QoQ, driven by robust demand in the domestic market across its segments. Amongst segments, Royal Enfield (RE) volumes grew by 30.6% YoY and 6.6% QoQ to 239,037 units, as its new launch Hunter garnered strong response from consumers while its commercial vehicle arm Volvo Eicher volumes grew by 13.2% YoY and 3% QoQ to 18,162 units

Price benefits to customers impact realization:

Eicher’s blended realization came in at Rs 155,673/unit, down by 8.4% YoY while it remained flat sequentially. Despite taking a price hike of 1-1.5% for the Hunter and Bullet models, the realization was impacted as customers were offered the benefit to avail their bookings at rates prior to price hikes. Going forward, we believe higher operating leverage, strong volumes, improving chip availability and gradual implementation of price hikes across models would aid in improving realization.

Mixed trend of margin:

EBITDA for the quarter came in Rs 857 Cr, higher by 47.2% YoY and 4.3% QoQ. EBITDA margin was mixed as it grew by 282bps YoY while it contracted by 31bps QoQ. However, the management expects the margins to inch higher gradually post Q4, as it would benefit from the easing cost prices.

Strong demand for new models driving market share gains:

The new model RE Hunter has gained traction in urban as well as rural areas which led to its highest ever market share at ~8.1% in overall motorcycle industry while it also reached highest ever market share in 125+CC category to ~33%. We believe the company’s focus on increasing product portfolio and improving participation from rural areas would continue to aid in gaining market share.

Key concall commentary:

1) Company setup a new CKD facility in Brazil to cater American market demands and also agreed to setup CKD facilities in Nepal and Bangladesh. 2) Management plans to increase its exports to various regions due to high potential. 3) The chip shortage issue has improved compared to last year and the company expects robust production activities in coming quarters. 4) VECV model change will be implemented in Q4 in a phased manner for new norms which could increase the cost by 3-5%.

Outlook & Valuations:

Eicher is one of the leading players in premium 125+cc 2-wheelers category with a market share of ~33%, further it plans to scale its international business due to high potential while rise in rural penetration would aid in top line growth gradually. Demand recovery, government push towards developing rural infra and improving urban infra as well as its plan to leverage its Stark Future investment toward EV would benefit the company's commercial vehicle segment. Along with the topline we expect its margins to improve gradually due to better product mix, factoring this we estimate its Revenue/EBITDA/PAT to grow at a CAGR of 33.7%/43.3%/49% over FY22-25E. We recommend Buy and have revised our target price upwards to Rs 3,808, valuing the company at a PE multiple of 28x on FY25E EPS.

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