March 22, 2023
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EICHER MOTORS, In-line result; stable performance despite weak mix
Call & Research Report by Motilal Oswal
Sector: Automobile – LCVS/ HVCS
CMP Rs. 3175, Target Rs. 3625 (14% upside potential)
Target Period: 12 Months
Full benefits of softening RM costs and price hikes to reflect in 4Q
● EIM’s 3QFY23 consol EBITDA margin of 23% missed our estimate of 23.9% as it did not reflect full benefits of RM cost softening and price hikes (due to price protection offered to customers). With supply issues largely behind and a good response to Hunter, the key growth catalyst is a recovery in the core 350cc portfolio in India and exports.
● While we largely retain our FY23E EPS, we cut FY24E EPS by 11% as we lower our 1) volume estimates for domestic and exports and 2) margin estimates. Maintain Buy with our SoTP-based TP of INR3,625 (Mar’25).
In-line; EBITDA margin miss offset by higher other income
● Consol. revenue/EBITDA/PAT grew 29%/47%/62% YoY to INR37.2b/ INR8.6b/INR7.4b in 3Q, and grew 50%/77%/88% YoY in 9MFY23.
● 3QFY23 RE volumes grew 31% YoY. Realizations declined 3% YoY to INR162.2k/unit (est. INR165.1k/unit) due to a weak mix (higher Hunter contribution and lower exports).
● Consol. gross margin expanded 150bp YoY (-60bp QoQ) to 41.8% (est. 42.1%), supported by price hikes and partial benefits of commodity cost savings. Higher-than-expected operating costs led to an EBITDA margin miss at 23% (+280bp YoY/-30bp QoQ, est. 23.9%).
● The share of PAT from VECV came in at INR639m (in line, +78% YoY). Higher other income boosted adj. PAT to INR7.4b (+62% YoY, in line).
● VECV: Volume/realizations growth of 13%/12% YoY led to 27% YoY revenue growth to INR46b (est. INR43.6b). EBITDA margin expanded 20bp YoY (+100bp QoQ) to 6.9% (est. 7%). Net profit grew 83% YoY to INR1.18b (est. INR1.22b).
Highlights from the management commentary
● Domestic booking trends continue to be healthy as new launches have received a positive response. Moreover, management indicated that the supply chain is normalizing and production is no longer a major constraint. It expects recovery in other models to be led by industry recovery.
● Installed capacity for Hunter is sufficient to fulfill medium-term demand. However, if required, the supply can be increased by 25-30% largely through de-bottlenecking.
● 3QFY23 partially factored in the benefits of softening commodities, while more benefits are expected to flow in 4QFY23. Also, the price increase of 1.5% for Bullet and Hunter during 3QFY23 did not fully reflect in P&L due to price protection offered to customers against their bookings.
●VECV – BS6-Phase 2 (RDE) to result in a price increase of 3-5%.
Valuation and view
● Improving supply, new product launches and the ramp-up in exports will drive the next phase of growth for RE. This coupled with stable commodity prices will support margins and drive earnings growth.
● The stock trades at ~23.6x/18.6x FY24E/FY25E consolidated EPS. Maintain Buy rating with our SoTP based TP of INR3,625 (Mar’25E).
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