ICICI Direct recommended hold rating on Eicher Motors with a target price of Rs 19750 in its research report dated February 07, 2019.
ICICI Direct's research report on Eicher Motors
Eicher Motors (EML) reported a muted Q3FY20 performance. Consolidated revenues were at Rs 2,371 crore (up 1.3% YoY), with ASPs for Royal Enfield (RE) at Rs 1.3 lakh/unit (down 1.2% QoQ) amid a sales volume decline of 6% YoY to 1.8 lakh units. EBITDA came in at Rs 592 crore (down 12.8% YoY), with accompanying EBITDA margins disappointing at 25.0% (up 30 bps QoQ). The subdued margin performance can be attributed to an increase in raw material costs as well other expenses as a percentage of sales. Consequent consolidated PAT was at Rs 499 crore, down 6.4% YoY. The company’ share of profit from VE-CV JV was at Rs 16.6 crore.
Outlook
Nevertheless, tough demand environment, associated margin pressures is a reality for now. We factor in 13.6%, 14.3% revenue, PAT CAGR in FY20E-22E, respectively, & value EML on SOTP basis at Rs 19,750 (22x P/E to RE; 14x P/E to VECV on FY22E numbers). Strength of demand and pricing environment in BS-VI are key monitorables. EML’s healthy capital efficiency parameters, however, provide some comfort.
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