Sell Eicher Motors Ltd. for Target Rs.4,306 by Elara Capital
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Stable quarter
Superior product mix drives margin improvement
Eicher Motors (EIM IN) Q4 consolidated EBITDA rose 21% YoY and 4% QoQ at INR 10.3bn, with 4% YoY and flat QoQ volume growth in Royal Enfield (RE). EBITDA margin improved 40bp QoQ to 26.5% but was below our estimates by 30bp, led by a rise in employee expenses. Standalone ASP rose 3.6% QoQ and 5% YoY, led by improved product mix. VECV revenue surged 14% QoQ while was flat YoY at INR 62.7bn, with an EBITDA margin at 7.8%, down 20bp QoQ, and a PAT of INR 2.3bn. VECV’s average selling price (ASP) improved 3.7% YoY.
Higher momentum likely in the exports markets
The company saw improvement in retail sales in the exports market in Q4, which led to higher wholesales. It expects its new completely knocked down (CKD) plants to support exports demand once momentum improves. EIM expects no major movement in commodity prices and margin to expand, driven by improving product mix and increasing nonmotorcycling revenue. It did not undertake any major price hikes in Q4. Management expects the middle weight motorcycle segment to grow in double digits in FY25, led by new launches; it plans to launch a product short term in the 450cc category.
Valuation: retain Sell with a higher TP of INR 4,306
While margin trajectory improved on improving product mix, we expect underperformance in the premium segment for RE going forward. New launches in the last few years for RE haven’t been able to garner market share gains owing to intra-company cannibalization. In FY24, RE lost market share YoY on the back of rising competition. We expect RE to largely grow inline with the MC industry in FY25 despite new launches. The proportion of current RE customers upgrading to a new model may not increase significantly, as has been the case with historical launches. While one single competitor has not been majorly successful till now, combined volumes of competition have effectively taken away the outperformance of RE. Aggressive pricing from competitors would constrain RE’s pricing power in the medium term. We expect a single-digit volume CAGR for RE during FY24-26E with margin peaking. We reiterate Sell with a higher TP of INR 4,306 from INR 3,650 on 24x (from 22x) June26E P/E for the RE business and 11x (from 10x) June26E EV/EBITDA for VECV.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
