Morgan Stanley sees more headroom for growth in Eicher Motors; overweight on stock

Eicher Motors was on the radar of investors on Wednesday after a global research firm released a note on the company’s annual report that said there was headroom for growth.

Morgan Stanley maintained its overweight stance on the stock and kept a target price of Rs 30,967. The global research firm believes that low-income states could be the next big opportunity for the company.

Explaining this observation, the research firm said that its pan-Indian market share was at 6 percent, but skewed towards high-income states. So, there is enough headroom to grow in the low income states as incomes expand.

Moreover, volumes may be growing in high income states, but the rate of growth is much higher in lower income states “Royal Enfield has 9% market share in HiS (high income states and these states and UT form 65% of RE sales and 40% of Pan-India motorcycle sales. However, while low-income states are seeing more growth in sales for RE (47% in F2017), sales in HiS grew at 27% in F2017 as well over the same period,” the brokerage house said in its report.

Speaking on the company’s financials, Morgan Stanley highlighted the reduction in ad spends for Royal Enfield from 0.5 percent to 0.2 percent of sales.

"RE's R&D costs as a % of sales stood at 1.6%. While this has ticked up over the last three years as RE continues to invest in development of newer models, it remains below Hero at 2.3% and TVS at 1.9% and in line with Bajaj at 1.6%,” the report added.

The stock gained over 4 percent over the past three days. At 12:16 hrs Eicher Motors was quoting at Rs 29,146.05, up Rs 577.95, or 2.02 percent.