Sell Eicher Motors Ltd For Target Rs.4,305 by Motilal Oswal Financial Services Ltd
Margin miss as management prioritizes growth
Continues to invest in demand-generation activities.
* Eicher Motors’ (EIM) 3QFY25 operating performance missed estimates, with a 190bp YoY margin contraction to 24.2%, as management is now focused on driving growth. Management has indicated that it would continue to invest in demand-generation activities, including brand building, to help drive growth going forward. While exports improved in 3QFY25, sentiments are likely to remain weak and management maintains a cautiously optimistic outlook.
* We expect RE to deliver a 12% earnings CAGR over FY24-27E. Given the expected slower earnings growth, we see no reason for the stock to trade at premium valuations. Reiterate Sell with a TP of INR4,305 (premised on Dec’26E SOTP).
Focus on growth hurts margins
* EIM’s 3Q consol. revenue/EBITDA/adj. PAT grew 19%/10%/18% YoY to INR49.7b/INR12b/11.7b (est. INR50.4b/13.1b/INR11.2b). 9MFY25 revenue/EBITDA/Adj. PAT grew 11%/8%/15% YoY.
* RE volumes grew ~19% YoY, while ASP grew 1% YoY at INR180.2k per vehicle (in line).
* Gross margin contracted 90bp YoY/140bp QoQ to 45.1% (est. 45.5%). EBITDA margin contracted 190bp YoY/140bp QoQ to 24.2% (est. 26%).
* The QoQ margin contraction is attributed to the company’s focus on growth. It launched models like the Goan Classic, Batallion Bullet, and Scram 410 with enhanced features but without any price increases, which impacted margins. Additionally, after the launch of the Batallion Bullet model, the mix shifted in favor of the Bullet segment in 3Q. Alongside this, the company incurred expenses related to the Motoverse and the global launch of its EV brand, Flying Flee. New launch expenses stood at INR700m (of which, the EV brand launch accounted for INR200m). The company also spent on market activation activities in 3Q to boost demand (impact 70bp).
* VECV: Volumes/realizations grew 1%/4% YoY, leading to a 6% YoY growth in revenue to INR58b (est. INR55.4b). EBITDA margin expanded 80bp YoY to 8.8% (est. 7%). PAT stood at INR3b, up 42% YoY (est. INR2b).
Highlights from the management commentary
* Focusing on growth: Management has indicated that it will continue prioritizing growth and will start shortlisting products that need marketing support to drive growth. It intends to push brand-building activities towards models like Hunter and Guerilla to drive demand.
* Exports: While sentiment in export markets remains weak, management maintains a cautiously optimistic outlook for export growth in FY26E. It plans to invest in brand-building activities in export markets during FY26E.
* VECV: Management has indicated that discounts have been trending downward and are expected to continue as all OEMs recognize the importance of pricing discipline in the industry. While CV demand has remained weak for 9M, management is hopeful of a recovery in the upcoming quarters as the government focuses on infrastructure spending
Valuation and view
We factor in a 10% volume CAGR for RE over FY24-27E as the company plans to continue prioritizing growth. We expect margins to remain under pressure, as any benefit from an improving mix (higher spares and apparel sales) is likely to be invested by RE in demand-generation activities. Overall, we expect RE to deliver a 12% earnings CAGR over FY24-27E. Given the expected slower earnings growth, we see no reason for the stock to trade at premium valuations. Reiterate Sell with a TP of INR4,305 (Dec’26E SoTP).
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