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Axis Securities Report
Financial Performance:
Eicher Motors Ltd. reported a strong set of numbers with Ebitda and profit after tax beating our estimate. Revenue stood inline with our estimate (up 20%/2% YoY/QoQ).
Eicher Motors' sales volume (reported earlier) was up by 22%/4% YoY/QoQ to 2.27 lakh units in Q1 FY24. Ebitda grew by 29%/7% YoY/QoQ, a 6% beat versus our estimate to Rs 1,013 crore driven by improvement in gross margins (up 63/42 bps YoY/QoQ and 42 bps beat versus our estimate), lower other expenses, partially offset by higher employee expenses (increments in Q1).
Ebitda margins improved to 26% (versus 24.3% in Q1 FY23 and 24.7% in Q4 FY23) beating our estimate by 136 bps despite the higher mix of the hunter and lower exports mainly due to the price hikes taken in May 2023 and ~80 bps savings from sourcing cost.
Profit after tax grew by 57%/22% YoY/QoQ led by Ebitda growth, lower depreciation and amortisation expense and higher other income.
Outlook:
Eicher Motors' initiatives in community building and retail outlet expansion along with the transition to the uniform J series platform provide a robust foundation for the export market.
The untapped domestic rural market for models such as Hunter provides the potential for domestic volume growth. The increasing competitive intensity in the more than 250cc segment is an evolving area and needs monitoring and could emerge as a key risk for the stock if the consumer acceptance of the competitive products increases in future.
We slightly reduce our FY25 volumes and average selling prices downwards as the tailwinds wane post the strong Q1 FY24 numbers.
Valuation and recommendation:
We maintain our 'Buy' rating on the stock with a target price of Rs 3,800/share (From Rs 3,900share).
We value Royal Enfield standalone business at 26 times on FY25 EPS and VE Commercial Vehicles Ltd. at 12 times enterprise value/Ebitda on FY25 Ebitda, implying an upside of 12% from the current market price.
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