Neutral Eicher Motors Ltd for the Target Rs.7,598 by Motilal Oswal Financial Services Ltd
Domestic demand remains healthy, exports uncertain
* Eicher Motors’ (EIM) 1QFY27 consolidated PAT of INR14.6b was in line with our estimates. While RE earnings were in line with estimates, VECV earnings came in 13% above estimates on the back of strong margin performance.
* We project RE to record a 14% volume CAGR over FY26-28E. We expect the domestic business to deliver a 15% CAGR, though exports are likely to post a much lower 5% CAGR, that too largely back-ended. Given management’s focus on volume growth and the recent surge in input costs, we expect margins to remain under pressure. Overall, we expect EIM to post a 14% earnings CAGR over FY26-28E. At 34x/29.6x FY27E/FY28E, the stock appears fairly valued. Reiterate Neutral with a TP of INR7,598. We value RE at 30x FY28E EPS and VECV at 12x EV EBITDA.
Earnings in line with estimates
* Consolidated revenue grew 32% YoY to INR66.3b (5% above est), aided by strong volume growth from the RE and VECV businesses. RE realizations were marginally higher YoY at INR189k (+2), while VECV realization grew ~1.5% YoY in 1Q.
* Consolidated EBITDA margin was largely flat YoY at 24% (down 90bp QoQ), 60bp higher than est.
* Standalone margin declined 80bp YoY to 24.3% due to RM inflation (in line). Standalone PAT was up 15% YoY at INR15b (in line).
* VECV EBITDA margin declined 80bp YoY to 8.2% (above our est. of 7.8%) and recurring PAT grew 4% YoY to INR3b (above our est. of INR2.7b).
* Recurring PAT for the consolidated entity grew ~21% to INR14.6b (in line).
Valuation and view
We project RE to record a 14% volume CAGR over FY26-28E. We expect the domestic business to deliver a 15% CAGR, though exports are likely to post a much slower 5% CAGR, that too largely back-ended. Given management’s focus on volume growth and the recent surge in input costs, we expect margins to remain under pressure. Overall, we expect EIM to post a 14% earnings CAGR over FY26-28E. At 34x/29.6x FY27E/FY28E, the stock appears fairly valued. Reiterate Neutral with a TP of INR7,598. We value RE at 30x FY28E EPS and VECV at 12x EV EBITDA.
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