Add Eicher Motors, target price Rs 18,078: ICICI Securities

ICICI Securities has given an add rating to Eicher Motors with a target price of Rs 18,078. The share price moved up by 1.58 per cent from its previous close of Rs 16857.30. The last traded stock price is Rs 17,124.

The brokerage says Eicher Motors’ Q4FY20 standalone performance was in line with consensus estimates as adjusted EBITDA margin came in at 23.1 per cent (down 209 bps quarter on quarter). The earnings call provided a key growth trigger for long term investors via the management confirmation on the future product pipeline (new product launch every quarter starting Q2FY21). Royal Enfield continues to strengthen its domestic reach (both physical via small format stores and digital top-10 brand in digital engagement).

The brokerage believes this coupled with new launches could help mitigate the discretionary demand slowdown. This could also in-turn aid premiumisation ( over 200cc/~7 per cent motorcycle share in FY20) rebound in FY22 and augment Royal Enfield’s category market share (83 per cent). According to the brokerage,, post 35 per cent rally since Mar’20 valuations have turned fair.


Investment Rationale

According to the brokerage, discretionary demand is expected to remain weak in the near term, as customers could tighten their purse strings. However, Royal Enfield’s strong brand equity and new product launches could help it limit the impact of this headwind. Over the medium to long term, the premiumisation theme will play out in two-wheelers. The brokerage will trim its EPS estimates for Royal Enfield by 9.2 per cent/2.8 per cent for FY21E/FY22E, and raise its Royal Enfield valuation multiple at 22 times FY22E EPS (earlier: 21 times). The brokerage has downgraded the stock to add from buy with a revised target price of Rs18,078 (earlier Rs 17,815).

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2190.32 crore, down -6.81 per cent from last quarter sales of Rs 2350.45 crore and down -10.95 per cent from last year's same quarter sales of Rs 2459.68 crore. The company reported net profit after tax of Rs 318.29 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 49.28 per cent stake in the company as of March 31, 2020, while FIIs held 27.71 per cent, DIIs 11.72 per cent and public and others 11.75 per cent.