Eicher Motors Ltd. share price target

Eicher Motors’ (EIM) Q2FY23 EBITDA margin at 23.3% was down 112bps QoQ due to 154bps QoQ gross margin (GM) contraction on account of rise in Hunter mix.

We value RE standalone business at 27x (from 24x earlier) on Sep'24 EPS (Rs 3,675) and VECV at 12x EV/EBITDA (from 11x earlier) Sep'24 EBITDA (Rs 448), implying an upside of 11% from the CMP.

Further, VECV is likely to be amongst a key beneficiary of the CV uptrend and is confident of gradually gaining share in some of its key segments as their technically superior products are gradually gaining customer mind share. Reiterate Add with a revised PT of INR3,333 (from INR 3,118 earlier). Given its dominant position in the >250cc market in India, RE is likely to be a key beneficiary of the premiumisation trend in India. It targets to launch multiple new products over the next 18-24 months, which would provide an upgrade option to its existing customers. Also, given the sharp price increase in RE over the last few years, it now targets to secure a balance between growth and profitability. The recent launch of the Hunter is a case in point, wherein incremental capital employed would be negligible and, hence, the RoCE on the product would be impressive, despite its aggressive pricing. On exports, RE is seeing a strong demand pull from its key markets. Management believes that, in exports, it is at a stage where they were in the domestic market in FY11, and expect to see sustained growth in the coming years.

Royal Enfield’s (RE) domestic portfolio declined ~35% in FY19-FY22, in line with domestic 2W market, though 4x volume increase in exports volume arrested overall volume decline at 27% during the period.