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Operating performance in line

* Eicher Motors (EIM)’s 1QFY25 operating performance was in line. RE’s ASP grew 9% YoY despite a 1% YoY decline in volumes. RE’s margins also remained stable despite weak volume growth, led by a richer mix. Management expects domestic demand to pickup on the back of its new launches ahead of the festive season.

* We cut our FY25E/FY26E EPS by 5%/3% to factor in weaker-than- expected RE volumes for FY25YTD. Reiterate Sell with a TP of INR3,920 (premised on Jun’26E SOTP).

Demand weakness visible in 1QFY25

* EIM’s 1QFY25 consol. revenue/EBITDA/adj. PAT grew ~10%/14%/20% YoY to INR43.9b/INR11.6b/INR11b (est. INR42.5b/11.2b/10.1b).

* The RE volumes declined 1% YoY, while realizations grew 9% YoY to INR187.2k per unit (vs. est. INR182.3k/unit). ASP improved QoQ due to improved mix in favor of exports and >350cc products.

* Gross margin expanded 230bp YoY (-10bp QoQ) to 46.4% (est. 46.2%).

* EBITDA margin came in at 26.5% (+90bps YoY v/s est. 26.3%). EBITDA grew 14% YoY to INR11.65b (est.INR11.2b).

* Adj.PAT grew 20% YoY to INR11b (est.INR10.1b).

* VECV: Volumes/realizations grew 1% YoY, leading to 2% YoY growth in revenue to INR50.7b (est. INR49b). EBITDA margin slightly contracted by 20bp YoY to 7.6% (est. 7.5%) for the quarter.

Highlights from the management commentary

* Domestic- EIM is currently seeing improving conversion rates. Hence, management is hopeful that demand for middle weight motorcycles and especially for RE will pick up in the festive season.

* Management targets to focus on promotional activities to help revive demand. It has realized that RE’s brand salience in rural regions needs to be improved. On the other hand, in urban regions, it intends to collaborate with colleges to connect with the youth. The company would also invest in brand building around the Hunter to help revive its sales in the coming months.

* Exports for RE grew in 1Q after many quarters. EIM is witnessing some green shoots in its key export regions. It is experiencing a healthy growth in Latin America. Even APAC demand is picking up. The company has also recently introduced the Super Meteor in Brazil. Hence, it expects exports to improve in the coming months.

* At VECV, while near-term demand remains weak, management expects the CV demand to revive in 2H given the government’s infra push and driven by steady replacement demand.

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