Q1 impact: Eicher Motors hits 44-month low as global brokerages cut target

Shares of Eicher Motors fell more than 3 percent intraday to hit 44-month low on August 1 as global brokerages cut price target after subdued earnings in June quarter.

The stock corrected more than 40 percent in last one year on weakening sales amid subdued demand. It was quoting at Rs 16,350, down Rs 0.15 on the BSE at 1150 hours IST, after hitting a day's low of Rs 15,800, the lowest level since December 2015.

Most brokerages cut price target sharply after Royal Enfield maker reported a 21.6 percent year-on-year decline in June quarter consolidated profit amid subdued volume performance and weak operating income.

While having an equal-weight rating, Morgan Stanely slashed its price target for Eicher Motors by 20 percent to Rs 17,052 per share.

"The regulation-driven price hikes have led to a sharp slowdown in volumes. We built in a 7 percent decline in volumes in FY20 and cut FY20 & FY21 EPS estimates by 17 percent and 15 percent," the brokerage said.

Eicher's consolidated revenue during the quarter declined 6 percent year-on-year to Rs 2,381.9 crore as Royal Enfield volumes fell 19 percent YoY due to weak demand and high ownership cost.

Its share of profit of joint venture (VE Commercial Vehicles) stood at Rs 20.85 crore in June quarter 2019, falling sharply compared to Rs 64.29 crore reported in year-ago.

Company's earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 22.8 percent year-on-year and margin contracted 560bps YoY to 25.8 percent in quarter ended June 2019.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 15,200 | Return: -7 percent

While maintaining neutral call on the stock and cutting target price to Rs 15,200 from Rs 19,900 earlier, the brokerage said margin continued to trend down and the picture in the commercial vehicle segment is equally bleak.

It cut FY20/21 EPS estimates by 17 percent and valued Royal Enfield at Rs 14,000 and VECV at Rs 1,200 per share while building in (-6 percent)/+5 percent for FY20/21 volumes estimates, the brokerage said.

Brokerage: Jefferies | Rating: Hold | Target: Rs 17,800 | Return: 9 percent

While having hold rating, Jefferies also slashed target to Rs 17,800 from Rs 19,300 per share as EBITDA was 7 percent below its estimate and VECV also reported a weak quarter with EBITDA/PAT down 48/67 percent.

It sees significant uncertainty and risks in near-term to both volumes & margins and hence cut volume & margin estimates for FY20-21 leading to 7 percent reduction in EBITDA.

Brokerage: Morgan Stanley | Rating: Equal-weight | Target: Rs 17,052 | Return: 4 percent

The regulation-driven price hikes have led to a sharp slowdown in volumes, Morgan Stanley said, adding BS-VI is the next headwind and the margin of safety is limited.

It built-in a 7 percent decline in volumes in FY20 estimates and cut FY20 & FY21 EPS estimates by 17 percent & 15 percent, said the brokerage which lowered FY23-29 expected margin assumption from 26 percent to 24 percent.

It has equal-weight rating on the stock and slashed price target to Rs 17,052 from Rs 21,331 per share.

Brokerage: CLSA | Rating: Outperform | Target: Rs 19,000 | Return: 16 percent

CLSA remained positive on the stock maintaining outperform call on the stock, but cut price target to Rs 19,000 from Rs 21,000 earlier as Royal Enfield's near-term outlook remained weak given depressed auto demand.

Gross-profit-per-vehicle for Royal Enfield has been flattish in recent quarters, said CLSA which believes premium 2-wheelers are better placed than the mass market segment.

It cut FY20-21 EPS estimates by 6-7 percent.

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