ICICI Direct recommended hold rating on Eicher Motors with a target price of Rs 21250 in its research report dated February 12, 2019.
ICICI Direct's research report on Eicher Motors
Eicher Motors reported a subdued Q3FY19 performance Consolidated revenues for Q3FY19 were at Rs 2,341 crore (up 3.4% YoY). ASPs for Royal Enfield (RE) were at Rs 1.19 lakh/unit, up 10.4% YoY while sales volumes were at 1.94 lakh units, down 5.9% YoY. ASPs were higher due to introduction of ABS in certain models EBITDA came in at Rs 680 crore (down 5.4% YoY) with corresponding EBITDA margins at 29.0% (down 270 bps YoY, down 126 bps QoQ) The deterioration in margin profile is attributable to higher employee as well as other expenses, that increased 206 bps YoY and 72 bps YoY as a percentage of sales, respectively PAT in Q3FY19 was down 1.3% YoY to Rs 533 crore. It was, however, supported by higher other income, which came in at Rs 147 crore VECV (truck business) revenues came in at Rs 2,818 crore, up 9% YoY with corresponding EBITDA at Rs 186 crore, down 18% YoY. EBITDA margins declined to 6.6% vs. 8.7% in the base quarter primarily tracking aggressive discounting despite sustained demand.
Outlook
We value Eicher at Rs 21,250 using SOTP valuation technique thereby assigning a P/E multiple of 19x on base RE business (FY20E numbers), 15x P/E on VECV segment and assign a HOLD rating on the stock. We derive comfort from superior return ratios at Eicher with FY18-20E average RoCE at 36% & RoE at 27%.
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