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Eicher Motors Q4CY13 results update

February 18, 2014, Tuesday, 10:54 GMT | 05:54 EST | 15:24 IST | 17:54 SGT
Contributed by Nirmal Bang


Eicher Motors Ltd (EML) reported results in line with expectation. Standalone business – Royal Enfield (RE) continued to deliver strong performance and EBITDA margins stood at stupendous 20%. VECV volumes continued to witness decline in line with industry trend and higher discounts impacted margins. Going forward, we remain cautious over the performance in the CV industry in the near term, however we believe Eicher Motor will continue to benefit from:


Launch of new products in CV segment:

The current demand environment in the CV segment remains challenging with heavy discounts across most of the players. However, Management is all set to start production of the new Pro series (5-49 tonne) in the next 12-18 months which will provide a boost to the declining sales and also help in increasing the market share of the company. Moreover, any recovery in industrial activity will also further aid in volume growth.


Continuous outperformance from Royal Enfield:

RE continues to witness good order book. Waiting period has now come down from 7-8 months earlier to 4-5 months as the Oragadam plant got operational. Continental GT (Café racer) has received very strong response globally. Management has also increased its production target at its Oragadam plant from earlier 250,000 units to 280,000 units for CY14E. Capex plans for CY14-15 stands at around Rs 600 cr. Eicher has also started focusing on export markets by reducing prices in the US led better distribution and depreciation of USD. RE had 307 dealers and VECV 262 dealers as of Dec’13.


Engine project to contribute to profits from CY14E:

EML has exported 2,500 engines in CY13. We believe that this will give VECV a huge technological edge along with additional revenue stream. There is no change in strategy as of now, despite weak MHCV environment and management expects to ramp up the engine production upto 25,000 units per annum by CY15E.


Partnership with Polaris:

The JV is progressing well. The JV company will design, develop, manufacture and sell a full new range of personal vehicles (Passenger cars) suitable for India and other emerging markets which is expected to start from CY15E.

Despite the ongoing challenges in the overall CV environment, EML has been able to report healthy performance on account of stupendous show from RE demonstrating strong fundamentals and superior execution skills of the management. 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 35.1% over CY13-CY15E. At CMP, EML is trading at P/E of 23.4x CY14E and 18.5x CY15E. We arrive at target price of Rs 5,261 based on SOTP which offers an upside of 7.3% from current levels. We maintain our positive outlook and suggest to HOLD the stock and accumulate on dips from long term perspective for further re-rating.