Eicher Motors' Q2 Review: High Marketing Spends Draw Mixed Analyst Reactions

Analysts remain cautiously optimistic on Eicher Motors Ltd. although the Royal Enfield maker reported a record revenue in its September quarter results. Brokerages noted a glaring uptick in marketing spend and potential near-term pressures on Ebitda margins. 

Consensus among Emkay, Citi, Nuvama, and Nomura points to higher marketing investments as a strategic move to boost volume growth, albeit at the expense of Ebitda gains. Brokers also agree that the management's focus has shifted towards absolute profit growth over percentage margins, which may limit margin expansion in the near term but could drive sustainable revenue growth.

Eicher Motors reported a record revenue, with consolidated net profit climbing 8.3% year-over-year to Rs 1,100 crore for the July-September quarter, against Bloomberg analysts' expectations of Rs 1,086 crore. Revenue increased by 3.6% to Rs 4,263 crore, though this fell short of the estimated Rs 4,414 crore. Operational profitability remained stable, with Ebitda flat at Rs 1,088 crore, versus a projection of Rs 1,158 crore, resulting in an Ebitda margin of 25.5%—a 90-basis point gain.

Brokerages On Eicher 

• Emkay Global upgraded Eicher to "Buy," setting a target price of Rs 5,300. 

• Citi Research maintained a "Buy" rating with a revised target of Rs 5,350, reflecting a 16.3% upside from the previous close. 

• Nuvama Institutional Equities also held a "Buy" recommendation, increasing its target price to Rs 5,500. 

• Nomura upgraded the stock to "Neutral," adjusting its target to Rs 4,391, implying a 4.3% downside.

Emkay highlighted Eicher's renewed focus on volume growth with robust festive sales and the launch of the Bullet Battalion Black. The brokerage is optimistic about operating leverage improving margins as volumes rise, aligning with past trends seen post-Hunter launch.

Citi noted Eicher's strategic pivot to prioritise volume growth over margin percentage, acknowledging elevated marketing costs. The company is addressing dealer stock levels and plans to support future volume increases through upcoming model launches.

Nuvama expects Eicher's revenue growth to benefit from a recovery in domestic sales driven by new product introductions and higher festive demand. Increased marketing spends and the launch of retro-styled models like the Battalion Black are seen as positive growth drivers.

Nomura views Eicher's volume-centric approach as essential to mitigate long-term competitive risks from brands like Bajaj, Hero, and TVS. However, the brokerage maintains a cautious outlook due to potential margin pressures and industry competition.

Shares of the company closed 3.16% lower at Rs 4,588.70 per share, compared to a 1.36% decline in the NSE Nifty 50. The stock has risen 10.74% year-to-date and 25.88% over the past 12 months.