REDUCE on Eicher Motors - 'Meteor' to drive sales; valuations remain expensive - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Eicher reported 2QFY21 PAT at Rs 3.4bn (-34% YoY, up sharply QoQ). The OEM has rolled out the 'Meteor 350cc' on a new platform along with personalisation options (MIY), which is expected to be a 'differentiator'. The new launch comes at a time when the competition is increasing - the Honda H'ness CB350 has just been launched. We value the RE business at 23x PE, which is at a 25% premium to the mass market OEMs. The stock is trading at 43.7/29.8x FY21/22E. We set a revised Sep-22 TP of Rs 2,100 (we are raising our FY22/23E by 5%). Key risks: Faster-than-expected economic pick-up, encouraging response to new launches.

2QFY21 financials: Standalone: Volumes for RE at ~150k units declined 10% YoY. However, the realisations grew ~8% YoY to Rs 141k, owing to better product mix and price hike taken in Sep-20. Revenue at Rs 21.2bn declined 3% YoY. EBITDA margin at 22.8% was up sharply QoQ, (-220bps YoY). PAT declined 36% YoY to Rs 3.6bn, owing to a lower tax rate in the base quarter. Consolidated PAT declined 34% YoY to Rs 3.4bn. VECV: Volumes/revenue declined 28/13% YoY. Margin at 6.9% surprised positively due to higher realisation and cost savings. Loss reduced to Rs 70mn (vs a loss of Rs 1.2bn QoQ).

Call and other takeaways: (1) Meteor 350 launch: The newly launched Meteor has secured 8k bookings. As per management, the vehicle personalisation option (MIY) is a significant differentiator and has been well accepted by customers. RE plans to launch a revamped model on its new platform every quarter. (2) Demand pick-up: Expansion of studio stores (133 opened in 2Q, total ~770 stores) has led to demand penetration, especially in tier-II and III cities. Demand in urban cities is now picking up. Bookings in Oct-20 exceeded that of the previous year and currently stand at 125k units. (2) Supply chain constraints: While RE has a capacity of 1mn units, the OEM is facing constraints for specific models or due to bottlenecks from the vendor's side. The company produced 72k units in Oct-20. (4) CVs: VECV volumes were down 28% in 2Q (sharply higher QoQ). The industry is witnessing signs of improvement, led by a ramp-up in constructions/mining activities.

Shares of EICHER MOTORS LTD. was last trading in BSE at Rs.2545.8 as compared to the previous close of Rs. 2536.05. The total number of shares traded during the day was 54844 in over 4933 trades.

The stock hit an intraday high of Rs. 2563.05 and intraday low of 2494. The net turnover during the day was Rs. 138795140.

Source : Equity Bulls

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