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Inline operating performance

Rising competitive intensity remains a key cause of concern

* EIM’s 4QFY24 operating performance was in line. Unexpectedly, VECV EBITDA margin remained stable QoQ despite a strong 24% volume growth. RE is likely to face rising competitive pressures in the coming years, both in domestic and export markets, potentially limiting its volume growth prospects.

* We have cut our FY25E/FY26 EPS estimates by 4%/7% as we expect RE margins to be under pressure, led by rising competitive intensity. Given the recent stock run-up, we downgrade Eicher Motors to Sell from Neutral with a revised Mar’26E SoTP-based TP of INR4,020.

ASP improvement mainly due to better mix

* 4QFY24 consolidated revenue/EBITDA/adj. PAT grew ~12%/21%/18% YoY to INR42.6b/INR11.3b/INR10.7b (vs. est. INR42.1b/11.1b/10.8b). FY24 revenues/EBITDA/adj. PAT grew 14.5%/26%/37% YoY.

* RE volumes grew 4% YoY, while realizations grew 5% YoY to INR184.1k per unit (vs. est. INR181.4k/unit). ASP improvement was led by better mix (higher exports and higher share of 650cc motorcycles).

* Gross margin expanded 220bp YoY (+50bp QoQ) to 46.5% (vs. est 46.2%) as the RM basket remained stable sequentially.

* EBITDA margin came in at 26.5% (+200bp YoY vs. est. 26.3%). EBITDA grew 21% YoY to INR11.3b (vs. est. INR11.1b).

* The share of PAT from VECV came in at INR1.3b (vs. INR1.7b in 4QFY23 vs. our estimate of INR2b).

* Adj. PAT came in at INR10.7b (in line with est); grew 18% YoY.

* The company declared dividend of INR51/share (vs. INR37/share in FY23).

* FCFF stood at INR29.1b (vs. INR21.5b in FY23), led by strong operating cash flow, which stood at INR37.2b (vs. INR28.2b in FY23). Capex for FY24 stood at INR8.1b (vs. INR6.7b in FY23).

* VECV: Volume declined 2% YoY, but realizations improved 4% YoY, leading to 1% YoY growth in revenue to INR62.75b (vs. est. INR67.6b). EBITDA margin contracted 220bp YoY to 7.7% (est. 10%). Unexpectedly, VECV EBITDA margin remained stable QoQ despite a strong 15% volume growth.

Highlights from the management commentary

* Domestic- Anticipating double-digit growth in the mid-weight motorcycle segment for FY25E, with RE poised to outperform due to upcoming new launches.

* Exports: Retail sales are seeing green shoots in some export markets with stable market share across key geographies.

* Margins- Commodities are stable. It is focusing more on the revenue growth from other levers such as export and the non-motorcycle segment.

* E-SCV- Scheduled for commercial launch from January’25, marking its debut in the SCV category, with diesel and CNG variants slated for release in FY26.

Valuation and view

We reduce our FY25E/FY26E EPS estimates by 4%/7% as we expect RE margins to be under pressure, led by rising competitive intensity. We have factored in a 10% volume CAGR for RE over FY24-26E. We now expect margins to see a 70-bp decline by FY26E as any benefit from improving mix (higher spares and apparel sales) is likely to be offset by the rising competitive intensity. Overall, we expect EIM to deliver 12% earnings CAGR over FY24-26. Given the recent stock run-up, we downgrade Eicher Motors to Sell from Neutral with a revised Mar’26E SoTP-based TP of INR4,020. We value RE at 22x FY26E EPS and VECV at 10x EV EBITDA on FY26E.

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