Buy Eicher Motors; target of Rs 13000: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com`s research report on Eicher Motors“Eicher Motors’ (EML) Q2CY14 results were largely in line with our estimates, especially on the topline and margins front while PAT came higher than expected. The performance from RE has been strong with highest-ever margin performance (24.9%), which has benefitted from operating leverage as the new “Oragadam” facility ramps up. VECV’s performance has also been admirable in a tough CV cycle, posting implied EBITDA margins of ~7%, easily the best in industry.” “Royal Enfield (RE), the world’s oldest active motorcycle brand, with its uniquely classical and powerful bikes, has over time developed a cult status among India’s emerging higher middle class and is perceived to be in a league of its own. RE’s performance has continued to be unaffected by the weakness in the overall auto industry with waiting periods still long for RE bikes despite the expanded capacity. We believe RE’s outperformance is likely to continue as the share of leisure bikes increases from measly levels of ~2% currently. With new products to cater to both domestic and international markets, RE’s growth appears on a strong wicket. With ~23% EBITDA margins and ~40% return ratios, Royal Enfield is a shining gem in the Indian two-wheeler industry with a dominant market share in the >250 cc leisure biking market. In our view, on business/financial front, the VECV JV boasts of the best business model among its peers, which is reflected in the fact that even in the worst CV cycle seen by the industry, VECV’s margins have stayed in the positive territory, declining to 5.3% in the last quarter vis-à-vis incumbents Tata Motors and Ashok Leyland whose operating margins have slipped considerably in the red. VECV has already managed to increase its market share in the M&HCV segment to ~12% in FY14 from ~8% in FY09. With the bulk of the capex in the five-year old JV already done, VECV’s performance is likely to improve whenever there is a recovery in the domestic M&HCV industry.” “EML has justifiably been commanding a premium over other auto OEs, with strong earnings growth. With RE’s business on full throttle and VECV benefitting from an economic revival, we upgrade our peer valuation parameters (relative valuation vis-à-vis HOG’s high growth phase multiple) and ascribe a higher multiple of 33x, 25x CY15E, CY16E EPS for RE (PEG ~0.4x CAGR CY13-15E/16E), VECV at 14x, 13x CY15E, CY16E EV/EBITDA, respectively, to arrive at an SOTP target price of Rs 13000. We upgrade the stock to BUY with an upside potential of ~40%,” says ICICIdirect.com research report.

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