ICICI Direct is bullish on Eicher Motors has recommended buy rating on the stock with a target price of Rs 35600 in its research report dated May 11, 2018.
ICICI Direct's research report on Eicher Motors
Eicher Motors reported its Q4FY18 numbers that were marginally below estimates on the profitability front. Revenues for Q4FY18 came in at Rs 2528 crore (up 33.9% YoY, 11.4% QoQ), almost in line with our estimates of Rs 2523 crore. The Royal Enfield (RE) volumes grew strongly at 27.2% YoY to 226907 units, VECV volumes were up 33.2% to 23101 units EBITDA came in at Rs 797 crore (up 36.3% YoY, 12.7% QoQ) in line with our estimates of Rs 799 crore. EBITDA margins were at 31.5% (up 56 bps YoY, 37 bps QoQ) below our estimate of 31.7%. The margin expansion on a QoQ basis was on account of positive operating leverage benefit, which resulted in lower-than-expected other expenses & employee cost per sales The VECV (truck business) revenues grew 29.9% YoY to Rs 3317 crore. VECV EBITDA margins came in at 9.5% vs. our estimate of 9.1% vs. 8.2% in Q4FY17. VECV PAT came in at Rs 176 crore Reported PAT came in at Rs 462 crore. However, post adjustment for the impairment loss towards winding down of operations of Eicher Polaris Pvt Ltd ( Rs 187 crore), PAT was at Rs 649 crore against our estimate of Rs 663 crore.
EML has justifiably commanded a premium over other auto OEMs as the RE business is in full throttle and VECV reaps the benefits of positive industry developments like stronger regulation of overloading, higher infrastructure development, stricter emission (implementation BS VI by 2020) & safety norms. We ascribe a multiple of 28x FY20E EPS for RE, VECV at 10x FY20E EV/EBITDA, respectively, to arrive at an SOTP based target price of Rs 35600. We have a BUY recommendation on Eicher with an upside potential of 16%.
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