IGI Logo

EIM reported a healthy Q2, highlighted by the sequential uptick in ASPs and margins (up 81bps to 26.4%, above estimates), with double-digit beat at the PAT level on higher-than-expected EBITDA and other income. Amid improved underlying demand trends (~14% YoY growth in the ongoing festive season despite reasonable base post-Hunter) and expected multi-year upturn ahead in 2Ws post several years of struggle, we continue to consider EIM as one of the top picks in autos (focused play on premium 2Ws, expanding its presence in the performance-oriented sub-segment with attractive valuations at ~19x its FY26E PER; refer Entering product upcycle; risk-reward favourable). Our earnings estimates are largely intact (built in a ~21% FY23-26E consol. EPS CAGR); we retain BUY with an unchanged SoTP-based TP of Rs4,440.

Eicher Motors: Financial Snapshot (Consolidated)

Strong margin performance in Q2

EIM’s revenue grew ~17% YoY to Rs41.1bn (in line); Royal Enfield’s (RE) volumes grew 10% YoY (flat QoQ) to 229K units, while ASPs grew 2.5% QoQ to Rs179K/unit. EBITDA increased 32.3% to Rs10.9bn, with EBITDA margin expanding 81bps QoQ to 26.4% because of gross margin expansion of 190bps. Management attributed better margins to material cost savings, better mix and full benefit of earlier-taken price hike. PAT stood at ~Rs10.2bn (above estimates), with the beat being driven by higher-than-expected EBITDA and other income. The share of profit from associates stood at Rs1bn for Q2.

Earning call KTAs

1) RE posted 13-14% YoY retail growth during the ongoing festive period despite the higher base of last year (with Hunter having been introduced just before last festive season); 2) Management highlighted RE has always faced competition, yet it has held its own courtesy the strength of its brands, community and distribution; while RE may experience slight market share loss (given robust ~90% share currently) due to recent launches by competitors, these could expand the market; EIM remains confident of its long-term prospects; 3) The company recently unveiled Himalayan on the all-new 450cc platform, which has been received very well; while core platforms are now in place (350cc, 450cc, 650cc), the company would continue to introduce new models/products to provide differentiated riding experiences to buyers; 4) RE’s export retail market share has remained intact, with dispatches lower amid cautiousness in building inventories due to prevailing macro instability; the company expects the situation to normalize in a few months, aided by product introduction; 5) Electrification remains some way away in the middleweight motorcycle category; while the company has not finalized technical specifications of its EV offerings yet, it would retain its premium positioning within EVs as well; 6) ~90% of RE customers also buy accessories, and this business continues to grow well; 7) Capex and product development spends are expected to remain in the typical range of 2-3% of sales.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf

& SEBI Registration number is INH000000354