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We increase our FY24/FY25/FY26 consol. EPS estimates by 7%/4%/3% to factor in 3Q beat along with management commentary and upgrade the rating to ‘Accumulate’ from ‘Hold’ with revised SoTP based TP of Rs 4,100 (previous Rs. 3,870). Eicher Motors’ (EIM) 3QFY24 consol. EBITDA margin at 26.1% came ~20bps above consensus and above PLe (23.5%); margins contracted ~30bps QoQ led by higher other opex given multiple launches and higher marketing and advertising spends in 3Q. However, good stride made on the RM side was a surprise to us. On CV side, VECV would benefit from profitable growth as peers work towards lowering discounts in the industry.

Increase in competition has marred EIM’s medium term growth prospects and could chip away from RE’s growth. Domestic volume growth in 9MFY24 was lower than 125cc+ motorcycle industry and exports volume is expected to remain weak over next 6 months. However, (1) ASP growth from new launches, (2) focus on growing export mix, (3) higher mix of merchandise and spare should aid both revenue and margin. We roll over by one quarter and value the stock at 23x Mar-26E standalone EPS and 11x EV/EBITDA for VECV in-line with Ashok Leyland. Upgrade to ‘Accumulate’ rating.

Beat on revenue and margin: (1) Revenue grew by 12.3% YoY and came higher than PLe and Bloomberg consensus estimates (BBGe) due to higher ASP and better mix. EBITDA margin at ~26.1% was in-line with BBGe (25.9%) and higher than PLe (23.5%). Better than expected GM helped by mix and better ASP aided margin. Standalone: Revenue at Rs 40.5bn grew by ~13% YoY, higher than PLe. EBITDA margin came in at 27.5%, up ~360bps YoY. PAT came in at Rs 8.1bn. (2) VECV: Revenue grew by 19% YoY with volume growth of ~14%. EBITDA margin at 8% was up 140bps YoY. PAT came in at Rs 2.1bn, 82% YoY.

Key takeaways: (1) Enquiry rate has gone up 14-15% YoY, booking has increased 10-11% in Jan-24. RE is cautious about building inventory and thus is not pushing volumes. It noted that they will focus more on already existing products as bulk of the core launches are already done. (2) RE is facing volatility in export markets however, it has maintained its market shares in key regions like APAC, Europe, North America, and America. It sees exports to remain impacted for the next 6 months and YoY growth to begin after that. New products like the Super Meteor and Roadster 650 will start getting sold in the United States and it has partnered with AW Rostamani Group for distribution in the UAE. RE plans to scale up international volumes on the back of newly launched Himalayan 450. RE market share was ~8% in Americas and 9% in APAC and ~20% in UK. (3) Management sees the increased competition leading to market growth, which could benefit RE even if it loses some market share. (4) RE’s margins benefited from material cost savings, portfolio mix partially offset by higher expenses on model launches. (5) In CVs, VECV continued to gain market share in 3Q across. Fundamental drivers are healthy given growth in GDP, infrastructure spending, replacement demand, etc. VECV did global unveil of small commercial vehicle range at Bharat Mobility 2024, which has GVW from 2T to 3.5T and sales is expected to start from 4QFY25. (6) RE’s network consists of 1050+ touchpoints spread across 60+ countries.

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