IGI Logo

Steady performance, product excitement stands out…

Eicher Motors (EML) reported a steady Q4FY21 performance. Consolidated revenues for Q4FY21 were at | 2,940 crore, up 4% QoQ. ASPs for Royal Enfield (RE) in Q4FY21 were at ~| 1.43 lakh/unit, up 2.1% QoQ amid sales volumes of ~2.05 lakh units (up 2.5% QoQ). EBITDA for Q4FY21 was at | 634 crore with attendant EBITDA margins at 21.6%, down 219 bps QoQ. Adjusting for one-off impact of ~| 50 crore in other expenses, EBITDA margins were at 23.3% (down 50 bps QoQ). Consequent consolidated PAT was at | 526 crore. EML’s share of profits from VECV JV was at | 69 crore.

Covid resurgence to elongate demand recovery in 2-W, CV

The ongoing pandemic second wave has taken a heavy toll on industry in Q1FY22E. However, demand is expected to bounce back strongly once economic activity is allowed to resume with RE volume trajectory over the medium term expected to be aided by intact brand pull, continuance of good response to the new Meteor and expansion of distribution footprint both in India and overseas. On the new product development front, the company has guided for an exciting year up ahead and would continue to introduce a new model every quarter. We build 16.5% RE volume CAGR in FY21-23E. With the domestic CV space having turned a corner in late CY20 and systemic tailwinds (government’s infra push, pickup in mining and road construction activities, introduction of scrappage policy) in place, VECV is seen continuing to outperform peers with volume CAGR over FY21-23E at 30%. Improving product mix, cost saving initiatives & operating leverage benefits are seen leading to 23.4% EBITDA margins in FY23E.

Q4FY21 earnings conference call – highlights & key takeaways

EML said (1) underlying demand remains healthy but the combined effect of supply constraints (localised lockdowns, semiconductor shortage) is seen leading to a soft Q1FY22E with improvement expected from Q2FY22E; (2) the company would be able to sustain >80,000/month production run rate once supply constraints ease; (3) it has taken 3-8% price hike in CY21, with increase in costs of ~| 12,000/unit at the absolute level having been passed on; (4) for RE, rhodium content is ~30-35% higher than lower cc motorcycles, the price of which has risen ~10x over the past year. However, EML has been able to achieve 66% reduction in rhodium usage via value engineering initiatives, the benefits of which will flow, going forward; (5) consolidated other expense run rate, going forward, would be ~| 290 crore/quarter; (6) FY22E will be the best ever year for new model launches; (7) share of online bookings have gone up 5x post lockdown; (8) Meteor production has been ramped up to ~15,000 units/month.

Valuation & Outlook

For EML, we factor in 19%, 33.1% sales, PAT CAGR, respectively, in FY21- 23E. The company is seen delivering healthy double-digit volume growth in RE along with continued VECV outperformance, with margins undergoing a sedate recovery. We maintain HOLD and value EML at | 2,970 on SOTP basis (34x FY23E EPS to RE; 25x FY23E EPS to VECV; earlier TP | 3,050).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer