Eicher Motors - Twin drivers: New launches and better reach - ICICI Securities

Eicher Motors' Q1FY21 standalone performance was below consensus estimates as EBITDA just broke even primarily on account of higher fixed costs (employee costs). The key growth trigger for long-term investors remains the strong model pipeline (new product launch every quarter starting Q3FY21) along with network expansion. Royal Enfield (RE) continues to strengthen its domestic reach (both physical via small format stores, and digital) as well penetrate deeper into international markets. We believe, new launches coupled with strong existing brands (Classic 350, Interceptor, Himalayan), could help mitigate the near term impact of discretionary demand slowdown, could aid the premiumisation rebound in FY22. Valuations remain fair. Maintain ADD.

- Key highlights of the quarter: Eicher Motors reported ~67% YoY decline in revenues as volumes saw a similar drop and ASP continued to rise (~Rs134k/vehicle / ~5% YoY higher). ASP rise was driven by: a) price changes due to mandatory regulatory changes (BS-VI), and b) favourable mix with rising revenue contribution from 650cc twins. Standalone PAT saw a decline of ~98% YoY at Rs123mn aided by lower corporate tax (25%). VECV had a difficult quarter as revenues dropped 77% at Rs520mn while EBITDA margin dropped to -3.5%. VECV acquired Volvo India Bus business for Rs1bn to strengthen its bus portfolio.

- Key concall takeaways: Management indicated: a) Production lags bookings with backlog of 40k-45k units due to supply-side disruptions from sporadic lockdowns in Tamil Nadu; capacity utilisation stood at 40-45% (25% in CVs); b) ~90% of dealerships were operational with bookings and inquiries in August almost at pre-Covid levels; c) RE has expanded its reach with addition of 38 studio stores in Q1 to a total of 638 stores and 1,569 touchpoints across India; In international markets: Five exclusive stores and 32 multibrand stores have been opened across Europe and South-East Asia; e) exports are picking up with market share in the US up from 1% in FY19 to 2.5% currently; number of outlets in Brazil is up from one in 2018 to 20 now; capex is planned to remain at ~Rs5bn in FY21; and f) financing saw a decline to 45% from 55% pre-Covid.

- Maintain ADD: In the near term, discretionary demand is expected to remain weak as customers could tighten their purse strings. However, RE's strong brand equity and new product launches could help it limit the impact of this headwind. We upgrade our EPS estimates for RE by 5.3%/17.2% for FY21E/FY22E, and raise our RE valuation multiple to 24x FY22E EPS (earlier: 22x). Maintain ADD with a revised target price of Rs22,859 (earlier: Rs18,078).

Shares of EICHER MOTORS LTD. was last trading in BSE at Rs.20129.65 as compared to the previous close of Rs. 21671. The total number of shares traded during the day was 14321 in over 6189 trades.

The stock hit an intraday high of Rs. 21740 and intraday low of 20070.95. The net turnover during the day was Rs. 296324354.

Source : Equity Bulls

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