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Eicher Motors Ltd Research Report - 21st Jan 2016

Automobile | Published on Nov 13th 2015


Results in line with estimates: Eicher Motors Ltd (EML)s 3QFY2016 results (company has changed accounting year from December to March) have come in line with our estimates. EML’s consolidated revenues grew 37% yoy to Rs3,123cr (in line with our estimate of Rs3,105cr). The growth was led by Royal Enfield (robust growth of 59% yoy to Rs1,301cr). The commercial vehicle segment’s (VE Commercial Vehicles [VECV]) revenues grew 25% yoy to Rs1,821cr, led by recovery in volumes and increase in engine supplies to Volvo. Operating margin, at 15.8%, improved 240bp yoy, coming in line with our estimates of 16.1%. Royal Enfield’s margin, at 27.7%, improved sharply by 270bp yoy led by strong operating leverage and price hikes. VECV margins grew marginally by 40bp yoy to 7.3%, due to volume surge and soft commodity prices. Given the robust operating performance, the net profit, at Rs255cr, grew strongly by 55% yoy, coming broadly in line with our estimates of Rs271cr. Outlook and Valuation: The demand for Royal Enfield continues to remain strong on increasing acceptance of leisure biking trend in India. However, Royal Enfield’s growth rate is likely to slow down given the high base and the time required by company and the ancillary suppliers to ramp capacity. Going ahead, the growth rate is likely to normalize to 30% levels as against 60% rates achieved earlier. Given the growth moderation, we have lowered our earnings and target multiple for Royal Enfield. We maintain Buy recommendation on the stock with a revised SOTP based target price of Rs19,036.

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CMP 1,587
Target Price 1,903
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others9.0
Grand Total100.0

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