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Record overall performance despite the competitive pressure!

Strong overall performance: Eicher’s Q2FY24 performance was in line with our expectations wherein its revenue from operations came in at Rs 4,115 Cr, up by 16.9% YoY/3.2% QoQ. Despite the competitive pressure the company posted a healthy volume growth of 10.4% YoY and marginally on sequential basis to 248,831 units which was supported by festive period and shift towards premium motorcycles.

Healthy realizations: Its blended realization for the quarter came in at Rs 165,354/ unit, up by 5.9% YoY and 2.6% sequentially while its RE realizations were at Rs 171,437/ unit registering a growth of 4.8% YoY and remained flat sequentially. The company had taken price hikes across divisions during the last quarter while refreshed launches in the motorcycles category enabled the realizations growth.

Strong operating leverage: Gross profit was reported at Rs 1,894 Cr, experiencing a growth of 26.8% YoY/7.7% QoQ with a margin of 46% which improved by 360bps YoY/191bps QoQ. Similarly, EBITDA grew by 32.3% YoY/6.5% QoQ to Rs 1,087 Cr while margin came in at 26.4% with an improvement of 308bps YoY/81bps QoQ. The favorable commodity prices coupled with strong volume and price hike taken during the previous quarter resulted in better operating leverage enabling strong expansion of operational profitability.

Beneficiary of premiumization trend: The industry has seen gradual shift from 100-125cc range of motorcycles to 125cc+ motorcycles where the company has a strong presence. Despite the competitive pressure the company has seen healthy volume growth in the domestic market indicating a strong brand value in the industry. Factoring this and premiumization trend in the industry, we anticipate the demand momentum to continue for Eicher with volume growth of 7.8%/6.8% for FY24/FY25E.

Concall & other key highlights: 1) Bullet 350 series to be launched in international markets 2) Witnessing healthy festive period demand, the company anticipates the momentum to continue. 3) 1/3 of the product manufactured through green energy with gradual focus on improving sustainability. 4) Strong growth momentum in VECV arm with consistent record sales across divisions. 5) Parts business registered a growth of ~29% YoY to Rs 521 Cr.

Valuations: Eicher has a strong foothold in the premium 250+CC 2-Wheelers segment with a market share of ~33%. The company would also focus on scaling up its international business while a rise in rural participation would aid in top line growth gradually. Industrial demand and governments 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 which would further aid in top line growth. We remain positive on the growth prospect of the company and have estimated its revenue/EBITDA/PAT to grow at a CAGR of 15.3%/19.3%/23.3% over FY23-25E. We maintain Buy on the company with a target price to Rs 4,202, valuing the company at a PE multiple of 26x on FY25E EPS.

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