Eicher Motors rating – Buy: Performance in line with estimates

EPS by 7%, accounting for the COVID impact on volumes and commodity inflation, while maintaining FY23e earnings estimates. Maintain Buy, with TP of Rs 3,200 (Mar’23 SOTP).

Eicher Motors (EIM)’s Q4FY21 performance was in line, supported by good volume recovery in both RE and VECV. Despite cost inflation, Ebitda margins per unit were stable q-o-q. Good response to Meteor, upcoming launches of the new Classic, and normalised production would support RE volume recovery going forward. VECV is also firmly on the recovery path.

We cut FY22e consol. EPS by 7%, accounting for the COVID impact on volumes and commodity inflation, while maintaining FY23e earnings estimates. Maintain Buy, with TP of Rs 3,200 (Mar’23 SOTP).

RE’s Ebitda/unit stable despite cost pressures; VECV misses estimates
Consol. revenues/Ebitda/PAT grew 33/58/ 85% y-o-y to ~Rs 29.4/ 6.8/5.6 bn. FY21 consol. revenues/Ebitda/PAT declined 5/16/24% y-o-y. RE’s Q4FY21 realisations grew 6.7% y-o-y (+1.7% q-o-q) to Rs 142.8k (v/s est Rs 146k), driven by price hikes (~9% hike in FY21 and 3–8% across models since Jan’21) and a better mix. S/A revenues grew 34% y-o-y to Rs 29.2 bn. S/A gross margins declined 322bp y-o-y to 40.3%. S/A adj. Ebitda grew 47.5% y-o-y to Rs 6.7 bn. Adj. Ebitda margins grew 210bp y-o-y (-60bp q-o-q) to 22.9%. Ebitda per unit grew 17% y-o-y on low base, but was stable q-o-q at Rs 32.7k (v/s Rs 33k in Q3FY21).
VECV realisations grew 10% y-o-y (-5% q-o-q) to Rs 1.99m. Ebitda margins were 8.9% (+710bps y-o-y, +30bps q-o-q). PAT stood at Rs 1.26 bn (v/s est Rs 1.73 bn).

Highlights from commentary
RE demand remains strong on the back of a strong order book, expected pent-up demand, and a surge in export numbers. It has 2–3 months of order backlog, which would be catered to once the lockdowns are lifted. It expects to achieve 80k units/month in H2FY22. Royal Enfield has a very exciting pipeline of new products, with FY22 having the highest ever number of model launches. Royal Enfield has reduced its rhodium consumption by 66%; however, the benefit of this would be reflected in the coming quarters. Royal Enfield added a total of 535 stores, including main stores (>100 stores) and studio stores (>430 stores), in FY21, taking the total number of outlets to 2,056 across 1,750 cities (from 1,200 cities). Network expansion in India is largely complete, except in one state.

Valuation and view
We believe the recently launched Meteor and upcoming products would help expand addressable markets and drive the next phase of growth for RE. The stock trades at 28.9x/21.6x FY22e/FY23e consol. EPS. Maintain Buy.