Nirmal Bang has given Accumulate recommendation for Eicher Motors with a target price of Rs. 3918 in its research report issued on Sep 29, 2022
Nirmal Bang’s research report on Eicher Motors
We recently hosted a leading Royal Enfield dealer from Western India to gauge the demand environment and response to the new model – Hunter 350. He also shared his estimates and opinions regarding volume expectations for the upcoming festive season and post the festive season. He sounded very optimistic about the future prospects of the company. He opined that RE has successfully plugged the product portfolio gap by introducing the Hunter 350 and has extended its reach to those customers, which it was not catering to earlier. He acknowledged that the Hunter 350 is attracting higher interest from the younger set of customers and first-time buyers besides addressing the affordability concerns. He also stated that the Hunter 350 is cannibalising volume of the Classic 350 and Meteor to the extent of ~40%. But, he felt that the Hunter 350 will add an incremental volume of ~10k-15k/month. He added that the Hunter 350 has also attracted interest from the customers of Bajaj Pulsar, TVS Apache and Jawa due to an array of features and aggressive pricing. Overall competitive intensity remains low in the segment. He stated that overall bookings for the Hunter 350 across the country are ~70k while production capacity stands at ~18k/month. He also hinted at a strong new model pipeline from RE over the next 6-12 months. The interaction also reinforced our positive stance on the company, which we have highlighted in our note. We continue to remain upbeat about volume growth from RE in both domestic as well as exports market. Despite the rising share of lower margin products, we don’t see a major impact on profitability on the back of improving utilization and moderating commodity costs. We are thus building in Revenue/EBITDA/EPS CAGR of 19%/32%/31% over FY22-25E. However, after the recent run-up in the Eicher stock, we see limited upside potential.
Outlook
We maintain ACCUMULATE on Eicher. We are keeping our estimates unchanged. We are valuing RE’s standalone business at 28x Sept’24E EPS (26x earlier) and VECV at 12x EV/EBITDA on Sept’24E to arrive at a target price (TP) of Rs3,918.