Eicher Motors - 4QCY12 Results Update - Motilal Oswal

Eicher Motors' (EIM) cons. revenue grew 3% YoY (+9.7% QoQ) to INR16.3b (v/s est INR16.8b). EBITDA margin stood at 7.3% (v/s est 8.7%) as standalone margin declined 340bp QoQ on higher other expenditure and staff cost. PAT (after minority) declined 14.8% YoY (+10.3% QoQ) to INR723m (est INR666m). Higher other income and lower tax rate led to higher-than-estimated PAT.

Royal Enfield's margins at 11.5% (v/s est 15.4%) were impacted due to higher staff and other cost. While staff cost increased due to higher hiring for new plant, other expenditure rose due to Thunderbird model launch (one-time) and higher power & fuel cost.

Despite demand slowdown, margins for CV business improved by 50bp QoQ (-340bp YoY) to 6.3% (est 6.6%) aided by better cost management.

EIM indicated that given the expansion mode, on a quarterly basis there might be few aberrations at margin levels. Royal Enfield's demand remains strong, with 6-8 months waiting, despite sharp increase in production.

Valuation and view

With several projects commencing in CY13-14 and driving 27% sales CAGR and 34% EBITDA CAGR over CY12-15E, EIM is at an inflection point. Motorcycle business will benefit from capacity expansion, new launches and network expansion. CV subsidiary will benefit from commencement of MDEP and ramp-up in HCVs.

We marginally lower by 0.7%/0.4%/0.2% CY13E/CY14E/CY15E EPS factoring margin pressure on Royal Enfield's business due to higher power & fuel cost, partially offset by an upgrade in volumes.

The stock trades at 22.2x/15.3x/11.3x CY13E/CY14E/CY15E EPS of INR120/174.8/236.2 respectively. Maintain Buy with a two-year target price of INR3,820 (CY15E SOTP).

Source : Equity Bulls

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