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RE in-line, VECV PAT boost led by tax credits

Valuation and View – New RE launches yet to boost volumes

Eicher Motors (EIM) 1QFY25 consolidated results were in-line as both standalone (S/A) and VECV performance were steady. EBITDA margins of S/A expanded 190bp (+30bp QoQ) at 27.9% (est 27.5%) led by record ASP at Rs186.5k/unit due to favorable product mix as price hikes were not taken during 1QFY25. VECV operating performance though were in-line with margins were at 7.6% (flat QoQ, est 7.5%), PAT boosted by tax credits. RE's margins expansion ahead will be guided by stable RM (positive impact of 60bp YoY), higher share of non-motorcycle revenues, platform related VAVE and exports. The demand outlook is positive for domestic as middle weight motorcycles segment growth guided at high single digit in FY25E while exports to see gradual volume improvement. The management sounded confident to improve RE’s volume trajectory backed by healthy response to new launches (Himalayan 450 and Guerilla 450). Further, it has re-iterated slew of launches such as Classic and initiatives such as branding for Hunter and Bullet, which should help expand overall mid-size market. We expect RE’s overall volumes to grow at ~9% CAGR over FY24-26E, despite competitive launches. Recent launches could be an inflection point for RE as a completely new and improved platform should drive efficiencies. However, we remain watchful of domestic average monthly run-rate as exports recovery to be only gradual. On the other hand, VECV is approaching a cyclical decline in volumes, in turn restricting consolidated revenue/EBITDA/Adj.PAT CAGR to 10%/12%/9% over FY24- 26E. We cut FY25/FY26 EPS by 1.5% each as we cut RE volumes by ~0.5% each for FY25/26. Stock trades at 28x/26.3x FY25E/FY26E consol EPS. We maintain BUY with SoTP based revised TP of Rs5,307 (vs Rs5,383 earlier). We value S/A at 30x P/E and VECV at 11x EV/EBITDA.

Result Highlights – Overall performance steady

* Consol reveunes grew 10.2% YoY (+3.2% QoQ) at Rs43.9b (est ~Rs41.8b). RE’s volume de-grew 0.4% YoY/-0.3% QoQ at 226.9k while RE ASPs came in better at Rs186.5k/unit (est Rs185.4k/units, +8.8% YoY, +1.3% QoQ), led by product mix.

* Consol gross margins expanded 220bp YoY (-10bp QoQ) at 46.4% (est 46.5%) while RE’s gross margins expanded 350bp YoY (+50bp QoQ) at 46.8% (est 46.5%). Consol EBITDA grew 14.2% YoY (+3.3% QoQ) at Rs11.7b (est ~Rs11b) with margins at 26.5% (+90bp YoY/ flat QoQ, est 26.3%). S/A margins expanded 190bp YoY (+30bp QoQ) at 27.9% (est 27.5%), leading to highest EBITDA/vehicle at Rs51.9k/unit which grew by ~17% YoY (+2.4% QoQ). Adj.PAT came in-line at ~Rs11b (+20% YoY/ +2.9% QoQ, est Rs10.6b).

* VECV performance operationally in-line while PAT was a beat - Revenues grew 2% YoY at Rs50.7b (est Rs49.5b), EBITDA declined ~1% to Rs3.8b (est Rs3.7b) with margins at 7.6% (est 7.5%). PAT grew 77% YoY at Rs3.2b (est Rs1.8b).

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