PL Stock Report - Eicher Motors (EIM IN) - Q2FY24 Result Update - Focus on new product launches and exports - ACCUMULATE

Eicher Motors (EIM IN) – Himanshu Singh – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs3,547 | TP: Rs3,800

Q2FY24 Result Update – Focus on new product launches and exports

Quick Pointers:

§ Margin beats consensus on cost savings, lower commodity and inventorisation

§ Festive season growth at 15%; sees new launches helping demand

We increase our FY24/FY25/FY26 consol. EPS estimate by 5%/4%/2% to factor in 2Q results, higher other income and management commentary. Eicher Motors’ (EIM) 2QFY24 consol. EBITDA margin at 26.4% came c90bps above BBG consensus (25.5%) and slightly below PLe (26.7%); margins expanded c80bps QoQ helped by (1) lower commodity prices, (2) price hikes, (3) inventorisation benefit. RE noted that festive season demand was good with a growth of ~15% until now and both rural and urban market performed well. On the CV side, VECV would benefit from profitable growth as peers work towards lowering discounts in the industry.

Recent increase in competitive landscape has marred EIM’s near to medium term growth prospects and could chip away RE’s growth volumes. However, (1) volume growth from new product launches, (2) focus on increasing export revenue mix, (3) higher mix of spares and merchandise revenue should aid both revenue growth and margin expansion. Maintain ‘ACCUMULATE with a revised SoTP based TP of Rs 3,800 (previous TP at Rs. 3,730) (at 23x Sep-25E standalone EPS and 11x EV/EBITDA for VECV in line with Ashok Leyland).

Beat on revenues, beat on consensus margin estimates: (1) Revenue grew by 16.9% YoY to Rs. 41.1bn, and came above Bloomberg consensus estimates (BBGe) (Rs.40.3bn) and PLe (Rs.40.4bn). EBITDA margins at c26.4% slightly lower than PLe (26.7%) and beat BBGe (25.5%). Higher other income aided beat on PAT. Standalone: Revenue at Rs 39.3bn grew by ~16% YoY, in line with PLe. EBITDA margin came in at 27.9%, up c430bps YoY, helped by inventorisation benefit and lower other expenses. PAT came in at Rs 9.4bn. (2) VECV: Revenue grew by 22% YoY, with volume growth of c11%. EBITDA margin at 7.9% was up 200bps YoY, led by lower input price, better ASP. PAT came in at Rs 1.9bn, 128% YoY.

Key takeaways: (1) Festive season demand was positive for Royal Enfield (RE), despite the period being spread over two months unlike last year and it experienced a 14% YoY growth. RE is cautious about building inventory and aims to maintain its market share. (2) RE faced some volatility in export markets however, it has maintained its market shares in key regions like APAC, Europe, North America, and America. New products like the Super Meteor will start getting sold in the United States and it has partnered with AW Rostamani Group for distribution in the UAE. RE market share was ~7% in Americas and 9% in APAC. (3) Management sees the increased competition leading to market growth, which could benefit RE even if it loses some market share. They remain bullish and are not worried about the competition. (4) RE’s margins benefited from material cost savings (100bps), portfolio mix and price hikes. (5) On the CV side, VECV continued to gain market share in 2Q across. (6) Around 89% to 90% of consumers who buy RE bikes also purchase accessories. RE network consists of 1050+ touchpoints spread across 60+ countries. (7) Newly launched Himalayan based on the new Sherpa-450 engine, a liquid-cooled, dual overhead camshaft engine received a positive response globally. It plans to scale up international volumes on the back of newly launched Himalayan. An electric version of the Himalayan was unveiled as a concept. It plans to collaborate with Stark Future on potential for joint development and sourcing for electronics, EV parts.

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