Maintain REDUCE on Eicher Motors - Mixed bag - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities.

Eicher Motors (Q4FY20): Mixed bag. Maintain REDUCE
(TP Rs 15,020, CMP Rs 16,857, MCap Rs 460bn)

Eicher's 4QFY20 results were a mixed bag - while RE's adj. EBITDA margins came in at 23.1% (-210bps QoQ), which was above estimates, VECV reported a loss of Rs 260mn due to the challenging demand environment. We will monitor the margin trajectory at RE, particularly at a time when the demand environment remains uncertain. We re-iterate our REDUCE rating on the stock.

4QFY20 Financials: Volumes for RE at ~163k units were down 17/11% YoY/QoQ. Realization grew 5% YoY to Rs 133k owing to BSVI transition (over 60% of sales were of BSVI variants in 4Q). Standalone revenue fell 13/8%. YoY/QoQ. While reported EBITDA margins came in at 20.8% (-700/-440bps YoY/QoQ), it included Rs 500mn of one-offs (recall of faulty brake callipers from Europe and US; provisions for forex). Standalone PAT declined 30% YoY to Rs 3.46bn, while consolidated profit declined 44% YoY to ~Rs 3bn due to the weak performance at VECV (loss of Rs 260mn).

Call & other takeaways: (1) Small format stores: In 4QFY20, the co has added 100 small format stores; 600+ stores were opened till Mar-20. (2) BSVI transition: The co successfully made the BSVI transition and share of BSVI vehicles was 60% in 4QFY20. The OEM has taken a price increase of Rs 3,000 on its products in April. (3) Situation post lockdown being lifted: 85-90% of dealerships are now open and the co is witnessing encouraging booking trends. North and South have seen positive traction; however, West is lagging due to COVID affected states like Maharashtra and Gujarat. (4) New launches and expansion: While Eicher is launching products for the export markets, the models will have to be relevant for India as well. This will drive scale and enable competitive pricing. In overseas markets, exclusive stores have now almost doubled from 42 stores in 18 countries to 77 stores in 21 countries; 10 stores were added during this quarter. (5) Other highlights: A significant component of RE's demand comes from consumers replacing their older bikes with the higher powered 350cc products. (6) All the major capex programs such as the Vallum plant have now been commissioned.

Maintain REDUCE. We increase our FY21/22E EPS by 3/4%. We continue to value the RE business at 20x PE and set a revised Mar-22 SOTP based TP of Rs 15,020. Key risks: Faster than expected economic recovery, encouraging response to new product launches.

Shares of EICHER MOTORS LTD. was last trading in BSE at Rs.16484.2 as compared to the previous close of Rs. 16861.05. The total number of shares traded during the day was 10564 in over 4964 trades.

The stock hit an intraday high of Rs. 17367.85 and intraday low of 16290. The net turnover during the day was Rs. 177037667.

Source : Equity Bulls

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