Buy Eicher Motors, target price Rs 16,955: Emkay Global

Emkay Global has upgraded Eicher Motors to buy from hold rating with a revised target price of Rs 16,955 (Rs 20,800 earlier), based on 19 times P/E for motorcycle business (20 times earlier). Valuations have corrected, with FY21E P/B at 3 times, versus historical average of 9 times.

The brokerage expects a CAGR of 10 per cent in revenues and 12 per cent in earnings over FY20- 22E, driven by a volume up-cycle and margin expansion. It has cut earnings estimates by 18 per cent/15 per cent for FY21E/F22E to factor in near-term volume pressures.

The share price of the company moved up by 10.46 per cent from its previous close of Rs 13371.35. The last traded price is Rs 14770.35. Incorporated in 1982, Eicher Motors has a market cap of Rs 40318.58 crore.


Investment Rationale

Under the new management, aggressive efforts on new products and network expansion are expected to aid market share gains. Introduction of new products based on new platforms (P, J, Q, K) in light-weight and higher-displacement categories over the subsequent quarters, are expected to support in widening addressable customer base in both domestic and overseas markets.

Network expansion has been a focus area with opening of studio stores in the domestic market, which have reached over 500 outlets, resulting in better reach in rural areas. The only concern relates to emergence of new competition over the medium term. However, the company has been able to gain market share in the domestic two-wheeler segment in FY20, despite the entry of Jawa motorcycles.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 2350.45 crore, up 8.24 per cent from last quarter sales of Rs 2171.54 crore and up .95 per cent from last year's same quarter sales of Rs 2328.25 crore. The company reported net profit after tax of Rs 482.13 crore in the latest quarter.