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A steady quarter

Eicher’s consolidated 3QFY21 PAT at Rs 5.3bn (+7% YoY) was led by a sharp revival in the VECV segment. On Royal Enfield, while demand for the Meteor remains encouraging, the waiting periods on other models has fallen. The company is resolving production bottlenecks at RE. We set a revised Mar-22 TP of Rs 2,600 (we are raising our FY22/23E by ~13% to factor in the improving production and enhanced VECV profitability). The stock trades at elevated valuations of 51x / 33x on FY21/22E earnings.

* 3QFY21 financials: Standalone: RE volumes at 199.6k units were up +9% YoY and realisations grew ~8% YoY (flattish QoQ) to Rs 141k. Revenue at Rs 28bn grew 18% YoY. EBITDA margin at 23.5% was up 70bp QoQ (-170bps YoY). While standalone PAT was flat YoY at Rs.4.8bn, the consolidated PAT grew +7% YoY, 55% QoQ due to improved performance at VECV - Margins at 8.6% (+170bp QoQ) surprised positively due to operating leverage benefits and the business reported a PAT of Rs.580mn (vs a loss QoQ).

* Call and other takeaways: (1) Supply situation: The supply bottlenecks at RE are gradually easing up, with overall production at 75K units in December (2) Demand scenario: The demand in urban cities is now picking up with top 10 cities share rising to 25% of sales as these centers have opened up (up from 20% levels earlier). While demand for the Meteor remains encouraging, the waiting on other models has come down (3) Margin outlook: To offset rising commodity prices, (RM costs were higher by 140bp QoQ), RE has raised prices by 3-5% across models recently (4) Exports: remains a focus area for the company, with a new store opened in Japan recently. The management continues to expand its distribution network overseas (4) CVs: VECV volumes are reviving, led by market share gains on its new BSVI portfolio. Volumes were up +3% YoY to 12,800 units and profitability surprised with margins of 8.6%. The management expects to gain further market share due to its superior BSVI products.

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