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Eicher Motors Q4CY12 results update

Contributed by Nirmal Bang

Eicher Motor consolidated results were marginally below estimates reflecting slowdown in the overall commercial vehicle segment. Standalone business continued to witness demand momentum. However, higher other expenses (launch expenses of Thunderbird 500) led to a sharp decline in margins on QoQ basis in the standalone business. Moreover, lower other income reflecting the change in accounting policy to adhere to revised schedule VI (impact of Rs 40.8 cr) also impacted the bottom line performance. This was somewhat compensated by lower tax rate which arrested a steep decline in PAT.

Eicher Motors has witnessed the impact of the slowdown evident in the overall commercial vehicle industry in line with industry trend. Despite the overall slowdown in the industry the company has been able to increase its market share in the CV segment which is encouraging. Moreover, the company’s standalone business (Royal Enfield) continues to witness strong demand for its two wheelers and the company’s upcoming engine project with Volvo will also add to revenues from CY13E onwards.

Consolidated net cash stands at Rs ~804 cr. We have introduced CY14 estimates.

Although in short term we may see some correction in the stock considering the challenging CV environment, we believe that the stock can be accumulated at such declines. At CMP the stock is trading at P/E of 17.43x CY13E and 13.22x CY14E. We maintain our positive outlook on the stock considering the strong fundamentals of the company. Assigning a target multiple of 15x on CY14E EPS we arrive at a target price of Rs 3,023 indicating an upside of 13.5% from current levels.

Key positive

Eicher Motors is doubling the installed capacity of Royal Enfield to 150,000 units p.a. by setting up a new plant in Chennai by early CY13 to meet increasing demand. The capex plan is on track which will enable the company to reach a run rate of 12,000-13,000 units per month from current 11,000 units per month.

Moreover, Volvo Eicher Commercial Vehicles (VECV) will produce medium-duty engines for the Volvo group globally. The company is setting up an engine plant with a capacity of 85,000 units p.a, which will commence in early 2013. It will manufacture Euro 3 and 4 compliant engines and the Euro 5 & 6 base engines. This project will give VECV a huge technological edge along with additional revenue stream from CY13E.

- Eicher Motors Ltd (EML’s) consolidated revenues increased 3.9% YoY to Rs 1,654 crs in Q4CY12.

- The top-line growth was driven by increase in revenues from Standalone business (RE), which was partially offset by dip in revenues from VECV. EBITDA declined 22.8% YoY and EBITDA margins stood at 7.1%.

- PAT declined 14.9% YoY led by higher depreciation and lower other income. On sequential basis PAT witnessed improvement.