Maintain REDUCE on Eicher Motors - Demand recovery priced in - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Eicher Motors (Eicher) reported 4QFY21 consolidated PAT at INR 5.3bn (-1% QoQ). The OEM expects production to ramp up in 2HFY22 as the supply bottlenecks are resolved and the management is committed to launching one new model every quarter. However, the stock price is adequately factoring in the recovery, in our view. We value the core RE business at 23x PE on FY23E EPS, which is at a 25% premium to the mass market OEMs. Maintain REDUCE with an unchanged target price of INR 2,400. Key risks: faster-than- expected economic pick-up and encouraging response to new launches.

4QFY21 financials: Standalone: Volumes for RE at ~204k units grew 25/3% YoY/QoQ. Average realisation, at INR 142k, has risen 7/2% due an average price hike of INR 12k (3-8%) taken in FY21. Revenue at INR 29.2bn grew 4% QoQ. EBITDA margin at 22% contracted 145bps QoQ. PAT declined 4% QoQ. Consolidated: Revenue grew 4% QoQ. EBITDA/PAT declined 6/1% QoQ. EBITDA margin at 21.6% contracted 220bps QoQ, owing to higher RM costs and other expenses (INR ~500mn one-off due to forex differences and provision for vendor advances). VECV: Volumes/revenue grew 42/38% QoQ. Margin at 8.9% surprised. PAT came in at INR 1.27bn vs a loss YoY.

Key takeaways: (1) New models and network expansion: The management has reiterated its intention to launch a new model every quarter. RE's large stores and small studio count have reached 1,056 and 1,000 respectively, which has led to wider network expansion. (2) Production ramp-up: As the supply chain issues get resolved, the management expects production levels to reach 80k units/month in 2HFY22. RE has upped the capacity for Meteor (15k units from 8k earlier), Twins and Himalayan. (3) VECV: As volumes witnessed a sharp increase in 4QFY21, EBITDA margin expanded to 8.9% (+30bp QoQ). VECV has gained market share across segments, especially in the HCV segment, post the BSVI launches. (4) Commodity price inflation: The OEM has raised prices by 3-8% across models with an average price increase of INR 12K in FY21 to offset the price inflation. Further, the company is reducing usage of precious metals (rhodium) through value engineering.

Shares of EICHER MOTORS LTD. was last trading in BSE at Rs.2636 as compared to the previous close of Rs. 2605.3. The total number of shares traded during the day was 122264 in over 12478 trades.

The stock hit an intraday high of Rs. 2709.2 and intraday low of 2621. The net turnover during the day was Rs. 326110524.

Source : Equity Bulls

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