Buy Eicher Motors; target of Rs 4008: YES Securities

YES Securities' research report on Eicher Motors

Eicher Motors (EIM) 1QFY24 consolidated results were better with ~3%/6% beat to our/street EBITDA leading to margins beat by ~100bp/160bp at 25.6% (+110bp YoY/ 110bp QoQ, 12 quarter high). This was largely due to positive impact of price hike (~150bp) and cost savings (~80bp), higher spares sales (RE and VECV at +25% YoY each) offsetting lower exports (-30.5%/-22.5% YoY/QoQ at 9% of vols vs 12% QoQ). However, margins expansion ahead will be gradual ahead as stable RM and price hike (+1.5% in 2Q in domestic) would be partially offset by launch expense related to new Bullet 350 in Aug’23. While demand outlook is mixed/weak for domestic/exports, the management sounded confident to navigate increased competitive intensity by playing on RE’s strength developed over period of past decade. Further, it has hinted slew of disruptive launches (rather will be spaced out), which should help expand overall mid-size market. We expect RE’s overall volumes to grow at ~11% CAGR over FY22-25E (vs -7% CAGR over FY20-22), despite new competitive launches. Recent launches could be an inflection point for RE as a completely new and improved platform should drive efficiencies. VECV would continue to see a cyclical recovery in volume and profit, in turn boosting consolidated PAT CAGR to 23.3% over FY23-25E.

Outlook

Stock trades at 24.3x/21x FY24E/FY25E consol EPS. We maintain BUY with SoTP based revised TP of Rs4,008 (v/s Rs3,939). We value S/A business at 25x (~15% discount to 10yr LPA).