A tad pricey, Eicher Motors ticking over smoothly is still a draw

ET Intelligence Group: The stock of Eicher Motors commands price-earnings (PE) ratio of 28 on FY19 projected earnings, which makes it among the most expensive automobile stocks. Despite this, it is likely to appeal investors considering early commissioning of the new unit at its motorcycle plant and sustained demand for its bikes.

The company's management has revised the FY18 production target to 8.25 lakh units from an earlier projection of 7.75 lakh units. This implies an estimated year-on-year growth of 23%.Analysts had predicted volume of 7.9-8.1 lakh units for the fiscal.A higher estimate by the management means there is room for analysts to upgrade their current forecast of 3-5% growth in EPS for the year.

Improved capacity has also reduced the waiting period to deliver bikes. The same store growth for its motorcycle dealers was 15% in the March quarter, and network addition will further support volume growth.

The total number of dealers for the company reached 675 in the March 2017 quarter, compared with 640 in the December quarter. It will add 150 dealers in the next two years.

On the valuation front, analysts are ascribing PE similar to Harley Davidson's PE of 38 during its peak ear nings growth period between 1999 and 2002 when earnings grew 30% annually . Eicher's profit is likely to grow by 43% between 2014 and 2019. In a note after the March quarter results, CLSA and Citi have estimated Rs 31,500 and Rs 32,800 respectively as target price for Eicher's stock reflecting a forward PE of 32 and 34 in that order.