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RE margins improve on the back of festive growth

VECV performance disappoints

* Eicher Motors’ 3QFY26 consolidated PAT at INR14.3b was largely in line with our estimate. While RE performance was better than expected, VECV performance was below expectations.

* The robust domestic volume growth for RE in FY26 so far has largely been a function of GST rate cut benefits. However, demand seems to have now normalized after an initial surge in pent-up demand. Further, given that management would continue to focus on “growth over profitability,” it would mean that margin upside is likely to be capped from hereon. We factor in RE to post a CAGR of 16%/16%/14% in revenue/EBITDA/PAT over FY25-28E. Given the expected slower earnings growth, we see no reason for the stock to trade at premium valuations. We reiterate our Sell rating with a TP of INR6,313. We value RE at 26x Dec’27E EPS and VECV at 11x EV EBITDA.

Earnings in line as RE outperforms, while VECV misses

* Eicher's consolidated revenue grew 23% YoY to INR61.1b (in line), aided by strong volume growth from the RE and VECV businesses. RE realizations were flat YoY at INR182k, while VECV realization declined 3% YoY in 3Q.

* Consolidated EBITDA margin grew 130bp YoY to 25.5% (up 100bp QoQ) and was 100bp higher than our estimates.

* Standalone margin improved 160bp YoY to 26.6%, led by operating leverage benefits and low marketing costs due to healthy festive demand.

* EBITDA margin at VECV improved 50bp YoY to 9.3% (estimate of 9.6%).

* PAT share of VECV grew 12% YoY to INR1.8b, below our estimate of INR2.2b.

* Recurring PAT grew 22% to INR14.2b on the back of strong revenue growth (in line)

Key highlights from the management commentary

* Management expects high single-digit growth for the industry in FY27 and expects to outperform industry growth.

* The company implemented a price hike on select models in January and plans to increase prices across the portfolio, though not significantly. The blended price increase across models was approximately 0.5%.

* Export growth has been impacted by weakness in end markets.

* The company plans to expand its capacity at the Cheyyar facility in Chennai, aiming to increase the current total capacity from 1.4 million to 2 million units, with an investment of INR9.6b over the next two years.

* At VECV, currently, there are no capacity constraints at existing volumes. However, if industry volumes continue to grow in FY27, the company will need to expand capacity at its Bhopal facility.

Valuation and view

The robust domestic volume growth for RE in FY26 so far has largely been a function of GST rate cut benefits. However, demand seems to have now normalized after an initial surge in pent-up demand. Further, given that management would continue to focus on “growth over profitability,” it would mean that margin upside is likely to be capped from hereon. We factor in RE to post a CAGR of 16%/16%/14% in revenue/ EBITDA/PAT over FY25-28E. Given the expected slower earnings growth, we see no reason for the stock to trade at premium valuations. We reiterate our Sell rating with a TP of INR6,313. We value RE at 26x Dec’27E EPS and VECV at 11x EV EBITDA.

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