EUR 120.00 For Business Accounts Only

MOSL: EICHER MOTORS (Buy)-Earnings in line-Weak operating performance in RE/VECV

EICHER MOTORS: Earnings in line; Weak operating performance in RE/VECV

(EIM IN, Mkt Cap USD7.8b, CMP INR20417, TP INR25350, 24% Upside, Buy)

 

• Eicher Motors’ (EIM) 3QFY20 operating performance was weak, which is a reflection of volume weakness in both Royal Enfield (RE) as well as VE Commercial Vehicles (VECV). BS6 led volume weakness (op. leverage) and RM costs should drag margins over the next 2-3 quarters.
• Our estimates remain largely unchanged. We maintain Buy with TP of ~INR25,350 (Dec’21E SOTP-based). 

Reasonable replacement market growth, lower RM drives performance

• revenues/EBITDA/PAT grew ~1%/-13%/-6% YoY to ~INR23.7b/INR5.9b/INR5b. 9MFY20 revenue/EBITDA/PAT declined 5%/21%/9% YoY.
• RE’s net realization grew 7% YoY (-1% QoQ) to INR129k (v/s est. ~INR131k). Gross margins declined ~370bp YoY (-20bp QoQ) as it did not load contribution margins to pass-through of costs. This coupled with negative operating leverage resulted in EBITDA margin declining 430bp YoY (+20bp QoQ) to 25.2% (v/s est. 25.8%). Lower-than-estimated tax restricted PAT, which declined ~2.5% YoY to ~INR4.9b (v/s est. ~INR5b).
• VECV’s realizations increased ~5% YoY (-1% QoQ) to INR1.75m (v/s est. ~INR1.77m). Net revenues declined ~23% YoY (+8% QoQ) to ~INR25b (in-line). EBITDA margins were in line at 6.1% (-50bp YoY, +90bp QoQ) due to higher discounts and operating deleverage. PAT declined ~61% YoY to ~INR300m (v/s est. ~INR380m).