Q2FY19 results
Key positives: Improved RE gross margins; robust VECV performance
Key negatives: Higher than expected other expenses
Impact on Financials: We cut our FY19/20 estimates by ~10% to account for the lower than expected volume growth.
Valuation and View
While RE faces near term company specific issues (the strike) and regulatory concerns (insurance/rear disc), we believe that over the medium term the RE franchise will continue to expand its appeal to premium commuters, led by high brand equity and little competition in its niche segment. While growth rates are likely to be slower than previous years, we believe RE can continue to grow well above industry growth. Further, value growth will likely outstrip volume increases as new products (including the twins) improve realisations. We believe the strong growth (FY18-20E EPS CAGR 17%) justifies current valuation of ~20x FY20 EPS. Maintain Outperformer with a SOTP based TP of Rs27,000 (24XFY20).
Eicher Motors is engaged in the Indian automobile industry. Its 50-50 joint venture with the Volvo group, VE Commercial Vehicles Limited, designs, manufactures and markets reliable, fuel-efficient commercial vehicles of modern technology, engineering components and provides engineering design solutions. Co. manufactures and markets Royal Enfield motorcycles and exports its bikes to over 25 countries including developed countries such as U.S., Japan, U.K. and several European countries. Co.'s business activities fall within a single business segment, automobile products and related components.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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