Buy Eicher Motors; target of Rs 19100: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com's report on Eicher Motors Technical View

The share price of Eicher Motors has been a strong outperformer within the auto sector as it strides northward in a rising peaks and troughs manner amid continued investor participation at elevated levels. Considering the strong bullish price structure, the sideways consolidation over last four months provides an attractive entry opportunity to ride the larger up trend. The stock hit an all-time high of Rs 17200 towards mid-February 2015 and, thereafter, entered a sideways consolidation phase to work off the short-term overstretched conditions developed after the strong rally from October 2014 low of Rs 10860 to February 2015 high  (Rs 17200). The corrective decline from got arrested around Rs 13900 levels, which is a key value area for the stock.

The entire corrective price action in the last four months has occurred in a well defined sideways trending channel as highlighted in the adjoining weekly chart. On Monday, the stock has pierced through the upper band of this channel to mark an end of the four month corrective phase and signals start of fresh up move within the larger uptrend. Following the bullish price breakout, we expect the stock to enter a sustainable uptrend and head towards 19262 levels over the medium term. Measuring implication of the bullish consolidation breakout, i.e. the price parity of current move originating from the recent trough of 13900 with the preceding major rising segment from Rs 11838 to Rs 17200 (5362 points) projects upsides towards 19262 levels over a medium term horizon.

Eicher Motors’ (EML) strong motorcycle brand “Royal Enfield” seems unfazed by the slowdown in the Indian economy. We believe RE is set for a high growth phase, as demand continues to remain high coupled with high waiting periods reflecting customer loyalty and association. With unrelenting demand likely to render expanded capacity inadequate in coming two years, RE is likely to double capacity beyond the ~600,000 unit capacity post CY16E. With demand remaining high, we believe RE is set to trace a similar path to Harley-Davidson’s (HOG) high growth phase (1998-2003). During this period, the topline, bottomline grew ~2.5x, ~3.5x, respectively. The EBITDA margins expanded from ~19% to ~27% while RoEs improved from 23% to 29%. HOG’s average valuations were ~30x on a forward basis. We believe with similar financials for RE, its valuations may also trace a similar premium path akin to HOG.

EML has justifiably commanded a premium over other auto OEs as RE’s business is in full throttle and VECV reaps benefits of economic revival. We maintain our positive stance on the stock considering the fact that RE business would continue with its strong growth momentum while VECV is expected to recover on the back of expectation of demand revival thereby improving overall financial performance of the company.

Strategy: "Buy Eicher Motors in the range of Rs 15900-16150 for a target price of Rs 191000 with a stop loss below Rs 14500 on a closing basis", says ICICIdirect.com research report.

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