Auto stock trades near record high. Brokerage sees more upside
Premium- Nirmal Bang remains positive about Eicher Motors' business prospects
Brokerage and research firm Nirmal Bang remains positive about Eicher Motors' business prospects, owing to healthy growth and model launches. It expects new launches and exports to drive next phase of growth for the auto maker.
“We are building in Revenue/EBITDA/EPS CAGR of 19%/32%/31% over FY22-25E. However, the stock has rallied by ~50% in the last 6 months; post this run-up, we see limited upside potential and believe that the current valuation has factored in the company’s positive business prospects and thus we have have a cautious view on Eicher," the note stated.
The brokerage house has maintained its Accumulate rating on Eicher Motors shares with a target price (TP) of ₹3,678 apiece. The auto stock has been trading near its all-time high level of ₹3,512 per share it had hit on August 25, 2022 on the BSE.
It expects Royal Enfield (RE) to surpass FY19 peak volume of 826k in FY24, largely on the back of pick-up in exports and also expects Eicher Motors' exports to clock 19% CAGR over FY22-25E, aided by an entry into new markets and market share gains in the existing markets.
Eicher Motors has about 8% share in the global mid-sized MC market with volume of about 1 mn units annually, resulting in a long runway for growth. “In terms of margins, despite an inferior product mix, we expect margins to be shielded by operating leverage benefits and increasing share of exports, thus limiting the adverse impact on margins. Currently, the company is operating at ~60% utilisation, and with volume coming back, we expect margins to expand by 510 bps over FY22-25E," Nirmal Bang added.
The brokerage has also noted that the increasing competitive intensity in the domestic market. While Honda (Hness CB350) and TVS (Ronnin) have already launched competing products while Bajaj-Triumph and Hero-Harley Davidson are expected to launch their products in the next 1-2 years. “However, historically, we have seen Royal Enfield safeguarding its market share amid rising competitive intensity," it said.
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