Eicher Motors' Q3FY18 results (Outperformer) - Another steady quarter
Q3FY18 results
- Consolidated PAT inline: Eicher Motors consolidated PAT at Rs 5.2bn (up 25% yoy) was largely in-line with consensus/our estimates. RE operating performance was in–line while VECV registered strong growth on operating leverage benefits. This was partially offset by higher depreciation costs/lower other income.
- RE margins steady: RE revenues at Rs22.6bn (up 23% yoy) were driven by a robust volume growth of 19% yoy, while realizations supported with a 3% qoq growth on a stronger product mix and price hikes. EBITDA margins at 31.7% (-10 bps yoy, -20bp qoq) were in line with expectations. Gross margins continued to improve (up 100 bps qoq) despite commodity cost pressures – this likely reflects the improved scale linked bargaining power with vendors. Other expenses though increased partially on account of higher promotional expenses and ramp up costs.
- VECV shines: Income from VECV was at Rs25.9bn – a growth of 37% yoy inline with the volume growth. The operating leverage and cost cutting measures lead to margins expanding to 8.7% (up 180 bps yoy; -50bp qoq). The expansion in margins despite higher discounting resulted in a PAT of Rs133mn (up 129% yoy).
- Concall highlights- (a) The company will announce its full year production plan for FY19 in May. While the current capacity is 900,000 units, the company has historically exceeded its rated capacities. (b) While some of the company’s markets where it has high marketshare have matured, there are still states where the company in underpenetrated and this should drive growth going forward. (c) The company took a price hike of 1% across all 350cc models effective from 1ST Feb 2017 - the first price hike in 6 quarters. (c)It sees strong domestic demand in CVs; operating at 100% capacity. (e) It aims to achieve India like market share in export markets over the long term.
Key positives: Steady RE EBITDA margins; Improved VEC performance
Key negatives: Lower other income and higher depreciation
Impact on Financials: We keep our estimates unchanged.
Valuation and View
The RE franchise continues to expand its appeal to premium commuters, led by high brand equity and little competition in its niche segment. VECV is equally well placed to take advantage of a potential recovery in the LCV space. The on-going phase of multi- year, well above industry CAGR growth (FY17-20E EPS CAGR 26%) justifies current valuation of ~23x FY20 EPS. Maintain Outperformer with a SOTP based TP of Rs35,000.
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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