Brokerage firm Goldman Sach has initiated coverage on Eicher Motors and Ashok Leyland, CNBC TV-18 reported.
Goldman initiated coverage on Eicher Motors with a 'buy' rating and target price at Rs 3660 a share. The investment case for the company looks promising as it is expected to face lower risks than its peers from EV disruption over the next five years. This can be attributed to its longer R&D cycle and higher standards for premium electric motorcycles' specifications.
On Wednesday, brokerage firm Macquarie Research downgraded its rating on Eicher Motors to 'neutral' and cut its target price to Rs 3,258 a share. As per the CNBC report, the brokerage firm has reduced its projected earnings for FY24 and FY25 by 12 percent and 10 percent. This revision is attributed to decrease in both volumes and margins.
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Eicher is trading at a price-to-earnings ratio of 24x based on FY25 projections. This represents a 16 percent discount from its 10-year average of 28x. The report states that this discount is reasonable given the slower growth outlook for earnings.
The brokerage firm estimates a compounded annual growth rate (CAGR) of 13 percent for Eicher's earnings for 2023-2025 period. This represents a significant slowdown compared to a 35 percent growth rate observed during 2014 to 2019, according to the CNBC TV-18 report.
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For Ashok Leyland, Goldman initiated a coverage with a 'neutral' rating and set the target price at Rs 140 a share. Analysts believe that the company's fast growth in the past two years could start to normalise as it enters the mid-cycle phase in the Indian commercial vehicle market. However, they still expect steady progress in the LCV segment to drive a 25% EBITDA CAGR over FY23E-FY26.
Ashok Leyland, the second-largest commercial vehicle manufacturer in India, has experienced a consistent increase in its market share over the past decade, thanks to the introduction of LCV products and stable M&HCV market share. However, according to GS, the rapid growth observed in the past two years could begin to stabilize as the Indian CV market enters the mid-cycle phase. This normalization of growth could be influenced by the current high-interest rate environment, which may result in a lag in demand normalization.
GS has addressed the ongoing market debates surrounding fleet owner profitability and the DFC to assess three key areas. Firstly, they have looked into the affordability of commercial vehicles (CVs) following the implementation of OBD-2 norms. Secondly, they have analyzed the amount of freight that could potentially shift from roadways to rail transportation. Finally, they have examined the direction of profitability shift for listed fleet operator customers, particularly as the top 100 fleet customers account for over 60% of the M&HCV market.
According to GS, logistics companies' profitability has been normalizing in 2HCY22, which could lead to some moderation in CV volume growth. In addition, they have analyzed over 170 CV models across categories and concluded that Ashok Leyland's list prices are, on average, -7% more affordable than those of its key competitors.
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