Eicher Motors share price falls 4.5% on weak quarter earnings as COVID-19 lockdown hit sales

The company, however, witnessed an encouraging consumer sentiment which was evident in sales for the month of June

Eicher Motors shares dropped 4.5 per cent to Rs 20,686.05 apiece after the company reported a consolidated net loss of Rs 55 crore for the April-June quarter as sales were adversely hit due to COVID-19 pandemic. The company had registered a net profit of Rs 452 crore in the same period a year ago. The company’s management admitted that the previous quarter put forth unprecedented challenges for the industry and for Eicher Motors. However, it still believes that the long term potential for both Royal Enfield and (VE Commercial Vehicles) VECV seems to be very promising. “We believe new products would help expand the addressable markets and drive the next phase of growth for RE. Volume recovery, led by new product launches, would drive margin recovery in FY22,” Motilal Oswal Financial Services said in a report post quarter earnings.

The brokerage firm has maintained a buy rating to the stock with a price target of Rs 24,750, a 24 per cent upside from yesterday’s close. Eicher Motors hit a 52-week low of Rs 12,460 apiece in April this year, since then the stock price has rallied over 66 per cent. The company, however, witnessed an encouraging consumer sentiment which was evident in sales for the month of June. The company expects this trend to continue into this quarter as well.

Analysts at Spark Capital, on the other hand, have a sell rating with a target price of Rs 17,650, a downside of 18 per cent from the previous close. “Our multiples factor in the long-term growth opportunities for RE particularly in exports markets, aided by its expected higher CC launches and increasing presence, while maintaining domestic volume growth at CAGR of 7% through FY20-24E,” it added. The brokerage firm factored in the slow, but steady rise in the contribution of ‘rural heavy’ states, including UP, in the overall volumes, which it believes could impart a degree of cyclicality to volumes.

On a standalone basis, Royal Enfield business reported a profit after tax of Rs 12 crore. The bike maker sold 58,383 motorcycles in the quarter, a decline of 68 per cent from 1,81,966 motorcycles sold over the same period year ago. The management noted that there is pent up demand and the company is optimistic about stronger recovery once supply chain stabilises. “Demand from semi-urban and rural towns has picked up well, and our network of studio stores across the country have been able to cater to this demand,” said Royal Enfield CEO Vinod K Dasari.

VECV, the company’s joint venture with Volvo Group, reported a 72 per cent drop in revenue to Rs 641 crore during the first quarter as against Rs 2,255 crore a year ago. The company has signed an agreement for the integration of Volvo Bus India (VBI) business into VECV.