Eicher Motors rallies as CLSA initiates coverage with ‘Buy’ call

MUMBAI: Shares of Eicher Motors gained over 2.7 per cent intraday after CLSA initiated coverage on the stock with a ‘Buy’ recommendation. The brokerage has set a target price of Rs 21,800, an upside of over 25 per cent, in the next 12 months.

The brokerage is of the view that Eicher’s motorcycle business – Royal Enfield (RE) – is a structural growth story and will be a key beneficiary of rising replacement demand and shift in motorcycle demand profile towards premium bikes.

"RE enjoys a unique position in Indian premium motorcycles, as its distinctively-styled bikes fulfil customers’ key aspiration of owning differentiated products at a reasonable price. RE’s customer base is rapidly expanding to the commuter segment and younger buyers," the report said.

The launch of two new platforms over the next two years and a rapid expansion in dealer network should boost growth, the CLSA report says.

The company’s commercial vehicle business should also deliver strong growth, led by CV cycle recovery and market share gains in heavy truck segment driven by new products.

Eicher’s 54 per cent CV subsidiary – VECV – is the number 2 player in medium-duty trucks in India and is well placed to benefit from the ongoing CV cycle recovery. VECV has a weaker presence in heavy trucks but new products, developed with Volvo, should drive market share gains here.

"We expect Eicher to deliver 52 per cent consolidated EPS Cagr over next 3Y with strong growth sustaining beyond FY18 as well. Eicher’s premium valuations should sustain given the strong long-term growth outlook and low competitive threat for RE," the report said.