Connect with us

Hi, what are you looking for?

Share Market

Maintain ‘hold’ on Eicher Motors with unchanged TP of Rs 2,600

Financial Express - Business News, Stock Market News

Eicher’s story is in line with this overarching thesis.Eicher’s story is in line with this overarching thesis.

Perfect-storm is an understatement for Indian auto industry: BS VI transition, Covid-19, semiconductor shortages and, on top of everything, commodity price increases have significantly impacted sales and earnings. Royal Enfield (RE) has seen c20% EPS downgrades since early 2020. On the flip side, it also means over the medium term the sector is likely to perform strongly as some of these headwinds recede or normalize. Eicher’s story is in line with this overarching thesis. Strong traction in exports in recent quarters by most companies, including for RE, is a medium-term positive as well. For RE, in particular, the risk of an EV pick-up is low as well.

However, patience is in order to play the positive theme: Semiconductor shortages don’t look like they will normalise over the next few months. Also, from a demand perspective, while we see strong pent-up 2W demand (especially in the 125c-150cc segment), RE’s growth outlook remains in uncharted territory. Quality has significantly improved in the new products, however the price of RE bikes has risen by 20-30% over the past three years. This has been the biggest set-back to the penetration story. In the long term, sustaining margins will remain a challenge as well, while valuations leave little scope for further downside. Separately, on the CEO exit, while the timing is a bit disconcerting, we don’t see the transition to the current COO as a negative, although we look for Eicher to further expand/ strengthen the board.

1Q22 Highlights: RE business revenue of Rs 19bn was slightly ahead of our expectation (of cRs 18.4bn), while EBITDA margins (17.5%) were in line. Led by semiconductor shortages, management expects production to ramp up only gradually through the rest of FY22. Supply constraints are a concern, especially for the success of its imminent launches (the New Classic 350 is due to be launched later this month). An inability to fulfil festive demand could be a setback as well. We cut our volume estimates for RE by 11% and now factor in sales of c700K units for FY22. However, we expect the product mix to remain strong for the rest of the year and partially offset the current headwinds.

Maintain ‘Hold’ rating with unchanged TP of Rs 2,600. We remain positive on the long-term story, however, consensus earnings downgrades may continue in the near term and impact valuations, in our view. The success of new launches or better than expected production ramp-ups are the key upside risks.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Click to comment

Leave a Reply

Your email address will not be published.

You May Also Like

Technology

Cybercriminals Adopt the Blockchain to Broadcast confidential Messages A group of analysts from SophosLabs represents that programmers working the crypto-jacking malware, Glupteba, have been...

Technology

PUBG unban in India soon as PUBG Corp. Will The Government Of India Unban PUBG? PUBG Mobile was Ban in India, PUBG organization has...

Technology

A standard method to execute Bitcoin could be powerless against double-spending, the new examination has found. Blockchain sleuths at ZenGo, a wallet startup, have...

BlockChain News

HDD mining, also known as “storage mining”, is a process of obtaining cryptocurrency based on hard disk memory. Compared with traditional POW mining, hard...