Brokerages stay bullish even as Eicher Motors’ Q2 PAT disappoints

MUMBAI: Shares of Eicher Motors witnessed selling pressure on Wednesday after the company disappointed the Street with its net profit number for the quarter ended June. However, global brokerage houses remain bullish on the company.

The stock fell as much as 2.72 per cent to touch an intraday low of Rs 20,755. It settled the day at Rs 21,164.00; down 0.81%, on the BSE.

The company announced a 41 per cent jump in net profit at Rs 221.8 crore in April-June an against ET Now poll estimate of Rs 240 crore. The company had reported a net profit of Rs 157.4 crore in the corresponding quarter last fiscal.

Revenues rose to Rs 2,916 crore, up 29.9 per cent, compared with to Rs 2,245 crore in the same quarter last fiscal. The ET Now poll had estimated revenues at Rs 2,875 crore.

EBITDA margin came in at 14.8 per cent as against 12.7 per cent a year ago. The poll had pegged it at 15.3 per cent.

“We believe Royal Enfield business, the primary driver of Eicher Motors consolidated valuation, continues to perform well, largely in line with our volume & margin growth assumptions,” said a Goldman Sachs report.

According to the brokerage, key factors to watch out from the earnings call would be the average waiting period for RE bikes across product portfolio post increase in recent monthly production and plans around how to penetrate deeper into targeted exports destinations.

“The steady margin improvement at VECV has been largely overshadowed by the strong volume and margin expansion at Royal Enfield. However, with the revival of the CV cycle and launch of a new range of CVs, we see VECV benefiting from structural/cyclical tailwinds,” the report said.

Nomura, in its analysis, said the miss at the net profit level was due to lower other income of about Rs 68 million against the estimate of Rs 250 million.

“Overall, these are a good set of results, in our view,” the report added.

The brokerage has a target price of Rs 19,915 on the stock.

According to Siddhartha Lal, MD & CEO, Eicher Motors, Royal Enfield business has grown well this quarter with sales crossing 1 lakh units. Order book remains strong and international business sales will pick-up in the coming months.

Meanwhile, Morgan Stanley is of the view that while the company has reported in-line operating results on a consolidated basis, Royal Enfield business EBITDA was 2 per cent below estimate.