ICICI Direct is bullish on Eicher Motors has recommended buy rating on the stock with a target price of Rs 17,150 in its research report dated May 26, 2020.
ICICI Direct's research report on Eicher Motors
Eicher Motors (EML) is the undisputed leader in the domestic premium motorcycle (>250 cc) segment through its established Royal Enfield (RE) franchise that has a strong product portfolio comprising popular models such as Classic, Bullet and Himalayan. The aspirational status associated with RE brand’s ‘pull factor’ as a lifestyle statement has remained intact over the years. RE domestic volume CAGR of 31.6% in CY10-FY20 has comprehensively outpaced overall 2-W industry’s FY10-20 6.4% CAGR, with the company’s domestic motorcycle market share in its product segment (> 250 cc) as of FY20 at ~96%. Volume performance for the industry as well as EML in FY18-20, has, disappointed (-9.5% EML CAGR, -7.1% 2-W industry CAGR) chiefly on the back of slowing discretionary spend. The stock price of EML, however, saw a sharp fall in recent months tracking expectations of further pressures to be exerted on income levels & consequent purchasing power in the Covid-19 aftermath. We feel valuations have climbed down adequately, with the company now trading at 20x FY22E EPS against average two year forward P/E multiple of ~30x over last five years. We feel EML presents an attractive risk-reward opportunity post steep price correction; with its undiminished brand loyalty seen acting as a catalyst for an eventual recovery once pandemic effects subside.
Outlook
In FY20E-22E, we build flattish PAT performance on a conservative basis. We value EML on SOTP basis (24x P/E on FY22E RE EPS, 15x FY22E VECV EPS) to arrive at a target price of Rs 17,150 and upgrade the stock from HOLD to BUY. Traction in exports and studio stores concept and CV cycle revival would be key monitorables for EML.
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