Eicher Motors Ltd: Galloping ahead

India Infoline News Service | Mumbai |

Total industry volumes registered a growth of 19.4% yoy in FY12 as compared to 38.7% and 27.5% in FY10 and FY11 respectively.

CMP Rs4,777, Target Rs5,729, Upside 19.9%

Royal Enfield: Firing all cylinders

With a cult brand being created by the ‘Bullet’ brand and management re-designing the bike to give a modern touch (while retaining the marquee features), Royal Enfield has seen waiting periods extending to 6 months for few of its models. With demand for leisure biking set to grow in India on back of rising incomes and demographic dividend and capacity expansion in place, Royal Enfield is all set to see 36.4% CAGR in volumes during CY13E-15E.


VECV: Outperforming industry

While the CV demand in India is at its nadir, VECV has seen an industry beating performance in terms of its volumes. We expect the recovery in industry demand to happen in H2 CY14. Given Volvo’s expertise in technology, Eicher’s understanding of the Indian markets and well acclaimed product portfolio, we expect VECV to see a continued outperformance vis-à-vis the industry.


Engines: The new growth trigger

VECV’s engine business is a critical segment for Volvo’s global strategy. Over the next few years, Volvo groups global demand for Euro 5 and Euro 6 engines would be met by VECV. Furthermore, it will provide superior technology engines for the local markets as well, improving its positioning when compared with competition. This will also provide stability to Eicher Motors consolidated performance.


Valuations: Deserves a premium

Eicher is currently trading at premium valuations of 21.2x CY14E earnings. We believe, the stock deserves the premium given the robust earnings growth prospects. During CY13E-15E, we expect revenue CAGR of 30.7%, OPM expansion of 430bps and PAT CAGR of 48.9%. RoE and RoCE, during the same period are expected to see a jump of 9.1ppts and 12.6ppts respectively. We value the stock on SOTP basis whereby we arrive at a target price of Rs5,729. We initiate coverage with a BUY rating.


Financial summary
Y/e 31 Dec (Rs m)
CY12
CY13E
CY14E
CY15E
Revenues
63,899
70,380
88,800
120,212
yoy growth (%)
12.4
10.1
26.2
35.4
Operating profit
5,490
6,502
10,253
16,245
OPM (%)
8.6
9.2
11.5
13.5
Reported PAT
3,243
4,119
6,070
9,132
yoy growth (%)
5.0
27.0
47.4
50.4
EPS (Rs)
120.1
152.5
224.8
338.2
P/E (x)
39.8
31.3
21.2
14.1
Price/Book (x)
7.3
6.2
5.0
3.8
EV/EBITDA (x)
21.5
18.5
11.6
6.9
Debt/Equity (x)
0.0
0.0
0.0
0.0
RoE (%)
20.0
21.5
26.0
30.6
RoCE (%)
22.6
23.3
29.1
35.9
 Source: Company, India Infoline Research
BSE 28,666.00 55.90 (0.20%)
NSE 28,720.80 122.15 (0.43%)

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