Buy Eicher Motors; target of Rs 34,891: Edelweiss

Edelweiss' research report on Eicher Motors

Our recent meeting with Mr. Siddhartha Lal, MD & CEO, Eicher Motors (EIM) reinforced our confidence about Royal Enfield’s (RE) bright long-term prospects. What we liked the most was: (1) Unwavering focus on selling an ‘experience’ rather than selling a ‘product’; (2) Decentralisation of decision making; (3) Strengthening of systems and processes (from product development to dealers) to gear up for next level of growth; and (4) Preparing the team for a mindset change amid limited order backlog. In exports, the aspiration is to create few India-like markets, where EIM can achieve leadership position.

Outlook
We estimate ~44% EPS CAGR over FY17-19 on strong demand for RE and margin improvement, which would benefit from scale and vendor consolidation. VECV is also focusing on profitable growth. At CMP, the stock trades at FY19E PER of 24.3x. Maintain ‘BUY/SO’ with TP of INR34,891 (30x core EPS (preferred band 25-35x), 17x VECV core EPS and INR2,576 cash per share).

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