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Recommendations India

Eicher Motors Q1CY14 results update

May 13, 2014, Tuesday, 13:52 GMT | 08:52 EST | 17:22 IST | 19:52 SGT
Contributed by Nirmal Bang


Eicher Motors Ltd (EML) continued to report another strong set of numbers for Q1CY14. Standalone business – Royal Enfield (RE) continued to deliver strong performance and EBITDA margins stood at stupendous 23.1%. VECV volumes continued to witness decline in line with industry trend. Consolidated PAT increased 42% YoY; while standalone PAT increased 65.2% YoY.

Going forward, we are positive on the company as we believe Eicher Motor will benefit from:


Revival in macro to drive the overall CV segment:

The current demand environment in the CV segment remains challenging with heavy discounts across most of the players. However, we expect some revival in the overall CV segment post election and revival in economic environment with recovery in industrial activity. Moreover, the launch of new “Pro” range of trucks will provide a boost to the declining sales and also help in increasing the market share of the company.


Continuous outperformance from Royal Enfield:

RE continues to witness good order book. Order book continues to remain strong and new launches have received strong response. Management seems confident of achieving 280,000 production target for CY14E. Eicher Motors will invest Rs 600 cr over the next two years in RE business to expand capacity to 500,000 units in Oragadam plant. We believe that RE will continue to perform well on the back of strong order book, continuous capacity expansion, expanding dealership and focus on international markets.


Engine project to contribute to profits from CY14E:

EML has exported 2,630 engines in Q1CY14 vs 2,500 engines in CY13. We believe that this will give VECV a huge technological edge along with additional revenue stream. Management expects to ramp up the engine production upto 25,000 units per annum by CY15E.


Partnership with Polaris:

The JV is progressing well on track for CY15E and will design, develop, manufacture and sell a full new range of personal vehicles (Passenger cars) suitable for India and other emerging markets.

Eicher has reported strong earnings growth driven by robust demand and favorable product mix in the Royal Enfield business. However, VECV has remained subdued on account of weak demand. RE is highly scalable and consolidated performance will be further aided by revival in the CV segment and contribution from engine business.

We expect profitability to increase at CAGR of 45.6% over CY13-CY15E. At CMP, EML is trading at P/E of 29.7x CY14E and 21.6x CY15E. The stock has generated returns of 111.1% over the last one year driven by the stupendousperformance of RE and resilience of VECV to overall slowdown in the CV industry as compared to other CV players. We maintain our positive outlook and suggest to HOLD the stock and accumulate on dips from long term perspective for a target price of Rs 6,750; an upside of 4.1% from current levels.