Buy Eicher Motors; target of Rs 2578: Nirmal Bang

Nirmal Bang is bullish on Eicher Motors and has recommended buy rating on the stock with a target of Rs 2578 in its May 17, 2012 research report.

“Eicher Motor results were good and ahead of estimates. Standalone business benefitted from strong demand and price hikes. Despite tough operating environment, the company benefited from strong demand for light and intermediate commercial vehicles, while it gained market share in heavy commercial vehicles. Outlook continues to remain positive.”

“Eicher Motors’s consolidated revenues increased 21.6% YoY in Q1CY12 due to 12.5% YoY volume growth in the CV business to 14,289 units and 40.8% YoY volume growth in the Royal Enfield business to 23,899 units.   On consolidated basis, EBITDA margin declined 100 bps YoY due to higher cost of sales. EBITDA margin of the two-wheeler business improved tremendously by 467 bps QoQ and 83 bps YoY to 13.9% in Q1CY12. PAT grew 28.2% YoY and 49.5% QoQ to Rs 110 crs in Q1CY12. This was led by 22.9% YoY and 111.9% increase in other income and lower tax rate which was at 24.3% in the current quarter as compared to 28.3% in Q1CY11. Eicher Motors is doubling the installed capacity of Royal Enfield to 150,000 units p.a. by setting up a new plant in Chennai by early CY13 to meet increasing demand. The capex plan is on track which will enable the company to reach a run rate of 12,000-13,000 units per month from current 9,000 units per month.  Moreover, Volvo Eicher Commercial Vehicles (VECV) will produce medium-duty engines for the Volvo group globally. The company is setting up an engine plant with a capacity of 85,000 units p.a, which will commence in early 2013. It will manufacture Euro 3 and 4 compliant engines and the Euro 5 & 6 base engines. This project will give VECV a huge technological edge along with additional revenue stream from CY13E.”

“Eicher Motors has constantly focused on improving its volumes and market share by expanding its distribution and production capabilities along with effective cost management. Strong balance sheet and credible management continues to remain positives for the company. The company enjoys strong financial health and cash position which has helped the company to maintain debt at comfortable zone. On consolidated basis the cash per share stood at Rs 633.5 in CY11. At CMP, the stock is trading at P/E of 14.5x CY12E and 11.8x CY13E. We arrive at a target price of Rs 2,578 based on P/E multiple of 15x on CY13E EPS of Rs 172 indicating a potential upside of 27% from current levels. We maintain our BUY rating on the stock from a long term perspective and believe that the stock can be purchased on any decline,” says Nirmal Bang research report.  

Institutional holding more than 40% in Indian cos  

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