Aug 11, 2017 04:50 PM IST | Source:

Buy Eicher Motors; target of Rs 34,891: Edelweiss

Edelweiss recommended buy rating on Eicher Motors with a target price of Rs 34,891 in its research report dated August 09, 2017.

Buy Eicher Motors; target of Rs 34,891: Edelweiss

Edelweiss' research report on Eicher Motors

Eicher Motors’ (EIM) Q1FY18 operating performance for Royal Enfield (RE) was largely in line with estimates. Operating leverage benefits are not yet visible as the company is re-investing in the business. We expect the benefits to start filtering in from FY18. The average waiting period for Classic 350 is of ~2 months and it is ~1 month for other models; high resale value and strong brand equity are key drivers for Classic 350. FY19 indicative capacity guidance of ~900K units is conservative in our view and likely to be upgraded in coming quarters. Brazil, Columbia, Thailand and Indonesia continue to remain key focus markets for exports and EIM is focusing on enhancing both quality and reach of its distribution network. Maintain ‘BUY’.

Our ~44% EPS CAGR over FY17-19E is driven by strong demand for RE and margin improvement, led by scale and vendor consolidation benefits. VECV is also focusing on profitable growth and has enhanced market share riding new launches. At CMP, the stock trades at FY19E PER of 25x. We maintain ‘BUY/SO’ with TP of INR34,891 (30x core EPS, 17x VECV core EPS and INR2,576 cash per share).

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