Reduce Eicher Motors; target of Rs 3086: HDFC Securities

HDFC Securities' research report on Eicher Motors

We downgrade Eicher Motors to REDUCE (from ADD earlier) as a significant increase in competitive intensity has changed the business dynamics unfavourably for RE. Over the last two days, both Harley Davidson (in partnership with Hero MotoCorp) and Triumph (in partnership with Bajaj Auto) have launched cruiser bikes at extremely competitive and similar price points, which are marginally higher than RE’s best-selling Classic350cc (Chrome). What leaves us confused is the fact that while pricing is aggressive, both players seem to have very limited capacity to start with. We hence believe that this is likely to be introductory pricing and unlikely to be sustainable in the long run for the features/brands on offer. Nevertheless, RE would be forced to reconsider its pricing/brand strategy very quickly, which will in turn drive margin pressure.

Outlook

Accordingly, we have now lowered our earnings estimates by 16-18% over FY24-25E as we revisit our growth and margin estimates. As a result, our TP is reduced to INR 3,086 per share (from INR 3,715 per share earlier). We expect RE to be in a much better position to fight back once this competitive pricing stabilizes. However, if these competitive price points sustain for a higher-than-expected time, it would lead to further downside risks to our estimates.