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Eicher Motor Q4 CY11 results update by Nirmal Bang

Contributed by Nirmal Bang

Results good; Outlook remains positive

Eicher Motor results are good. Although parent company (12% of consolidated sales) saw some decline on account of lower sales on Bullet motorcycle but subsidiary continue to perform well. Outlook continues to remain positive.

Key Highlights

Eicher Motors Ltd (EML’s ) consolidated revenues increased 26.8% YoY to Rs 1,568 crs in Q4CY11 against Rs 1,235 crs in Q4CY10 due to 25% YoY volume growth in the VE Commercial Vehicle (VECV) business and 28% YoY volume growth in the Royal Enfield business.

Lower sales of 2W led by the annual maintenance shutdown caused consolidated EBITDA margin to drop by 65 bps QoQ, although it improved by 7 bps YoY to 9.8%. EBITDA margin of the two-wheeler business improved by 90 bps YoY to 9.2% (but down 360 bps QoQ) whereas EBITDA margin for VECV remain flat YoY but dropped by 60 bps QoQ to 9.8%.

PAT grew 55.7% YoY to Rs 85.4 crs in Q4CY11 against Rs 54.9 crs in Q4CY10. This was led by 79.8% YoY increase in other income to Rs 42.89 crs and lower tax rate which was at 22.6% in the current quarter as compared to 27.3% in Q4CY10.

Management is guiding the 2W monthly production to reach 8,500 units per month by the end of CY12 vs the current levels of 7,000 units per month. Despite the mining sector-related issues affecting demand for heavy duty CVs, VECV volume was up at 2,180 units in Q4 CY11.

Valuation & Recommendation

Eicher Motors has posted good growth in both top-line as well as bottom-line for yet another quarter. As Eicher Motors enjoys the premium position in the industry by being the only manufacturer of premium segment bikes in India and having JV with world’s largest player in HCV segment, it is well poised to increase its market share.

Considering the robust earnings growth and strong balance sheet, we believe that EML will continue with its growth story in the coming years. In addition to that, the company enjoys strong financial health and cash position which has helped the company to maintain debt at comfortable zone. On consolidated basis the cash per share stands at Rs 633.5.

At CMP, the stock is trading at P/E of 13.2x CY12E and 11.3x CY13E. Though the near term outlook for the stock is slightly subdued, we believe that the stock can be ‘accumulated on decline’ from a long term perspective as we see potential upside in the stock.