Hold Eicher Motors; target of Rs 2600: ICICI Direct

ICICI Direct's research report on Eicher Motors

Eicher Motors' (EML) Q2FY21 performance was healthy. Consolidated revenues for Q2FY21 were at Rs 2,134 crore (down 2.7% YoY), tracking 9.6% YoY decline in Royal Enfield (RE) volumes to 1.5 lakh units while ASPs were at Rs 1.40 lakh/unit (up 4.9% QoQ). EBITDA margins were at 22.1% (down 262 bps YoY). Hence, consolidated PAT was down 40% YoY to Rs 343 crore. Company’s share of loss from VECV JV was at Rs 3.9 crore vs. profit of Rs 8.3 crore in Q2FY20. EBITDA margins at the VE-CV segment encouragingly were at 6.9%, up 150 bps YoY despite ~28% volume decline for quarter YoY.

Outlook

For EML, we factor in 9%, 10% sales, PAT CAGR, respectively, in FY20-23E. The company continues to innovate (studio stores, MIY) to bolster its leadership position. Financials remain healthy as well (cash surplus B/S, double digit return ratios). Pace of RE ramp up and recovery in export volumes are key monitorables going forward. We maintain our constructive stance but await firmly positive rebound in volumes. Downgrading EML to HOLD, we value it at Rs 2,600 on SOTP basis (33 P/E to RE; 20 P/E to VECV on FY22E & FY23E average PAT numbers).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More