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Recommendation Rationale

New Product Launches: Eicher Motors pursued an aggressive product launch strategy in Q3FY25, introducing five major models under the Royal Enfield (RE) brand—Bear 650, New Classic 650, Bullet Battalion Black (which received a strong response in the North), Goan Classic 350, and Scram 440. Additionally, Royal Enfield unveiled its EV brand Flying Flea, showcasing the FF C6 and FF S6, with production set to begin in Q1FY26 at the Vallam plant, which has an initial capacity of 1,50,000 units per annum.

International market: RE inaugurated its first wholly owned CKD assembly plant in Thailand, scaling production to 5,000-7,000 units per month, serving as a strategic hub for exports to ASEAN countries and leveraging FTAs. The company continued its dominance in the midweight motorcycle segment, maintaining an 8.5% market share in Europe, 8% in the Americas, and 9% in the Asia-Pacific region.

VECV Business: Revenues were up 19% YoY to Rs 4,973 Cr in Q3, while EBITDA grew 10% YoY to Rs 1,201 Cr, with EBITDA margins at 24.2% (down 200 bps YoY) due to competitive pricing. The company sold 21,012 units in Q3, attaining a market share of 18.9%. Despite a 1.7% industry decline, VECV maintained a 36% LMD market share, while heavy-duty truck sales reached 5,428 units (8.9% share). The bus segment recorded Q3 sales of 3,749 units (20.7% share, up 10% YoY), and exports grew 44.5% to 1,192 units. EBITDA margin rose to 8.8%, up 0.8% YoY, driven by cost and pricing efficiencies.

Sector Outlook: Positive

Company Outlook & Guidance: Eicher expects sustained growth driven by strong domestic demand, export expansion, and new product launches. Royal Enfield will focus on strengthening its midweight segment while preparing for the Flying Flea EV launch in Q1FY26 with an initial 1,50,000-unit capacity. International expansion continues with a flagship store in Bangladesh and a new CKD plant in Thailand. VECV anticipates a rebound in Q4FY25, supported by economic growth of 6.3-6.5% and government infrastructure CapEx. The Eicher Pro-X will drive growth in LCVs, and e-mobility investments remain a key focus. The company is on track for Rs 1,000 Cr CapEx in FY25, balancing volume expansion and profitability across motorcycles and commercial vehicles.

Current Valuation: We value RE standalone business at 28x on FY26 EPS (unchanged) and VECV at 10x EV/EBITDA on FY26 EBITDA (unchanged ).

Current TP: Rs 5,060/share (Earlier TP: Rs 5,050/share)

Recommendation: We recommend a HOLD rating on the stock.

Financial Performance: Q3FY25 standalone revenue missed our estimates by 3.7% (up ~21%/~17% YoY/QoQ) due to lower-than-expected ASP driven by an inferior product mix. At the same time, sales volume grew 19.4%/19.5% YoY/QoQ to 2,72,000 units. EBITDA missed estimates by 9.7% (up 9.8%/10.8% YoY/QoQ) due to higher marketing expenses related to five model launches. EBITDA margins at 24.9% missed estimates by 167 bps (down 257 bps/137 bps YoY/QoQ). PAT missed estimates by 11.4% (up 15.6%/4.6% YoY/QoQ), primarily tracking the EBITDA decline and lower other income, partially offset by lower tax expenses.

Outlook We expect RE volumes to grow at mid-single digits in FY26/27E, with standalone revenue and EBITDA projected to grow at a 9% CAGR over FY24-27E. The long-term growth potential for VECV remains strong, supported by its robust execution capabilities and entry into the EV SCV category.

Valuation & Recommendation The recent run-up in prices has largely factored in the positives, and hence, we downgrade our rating from BUY to HOLD, with a target price of Rs 5,060/share (previously Rs 5,050/share). We value the RE standalone business at a sustainable PE of 28x on FY26 EPS (unchanged) and VECV at 10x EV/EBITDA on FY26 EBITDA (unchanged), implying a downside of ~5% from the CMP. (We recommend a Buy On Dips strategy for the stock.)

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