IDEA2ACT - Buy: Eicher Motors


CMP (NSE) 12:22, 15 Jun

2,759.75 14.80.54%





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Last updated on

10 Mar, 2021

Eicher Motors is the flagship company of the Eicher Group in India and a leading player in the Indian automobile industry. Eicher manufactures the well-known Royal Enfield (RE) motorcycles in India. The company entered into a 50:50 JV with the Volvo Group to form VE Commercial Vehicles (VECV). Operational since July 2008, VECV comprises five business verticals – Eicher Trucks and Buses, Volvo Trucks India, Eicher Engineering Components and VE Powertrain. VECV undertakes the complete range of Eicher’s commercial vehicles, components and engineering design businesses as well as the sales & distribution of Volvo trucks.  

Best placed within the 2W pack 

The 2W industry’s near-term outlook is challenging, with softness in demand and pressure on margins due to a sharp rise in input costs. We expect Eicher to stand out within the 2W pack, with its better retail demand trajectory vs. industry, lower inventory levels, strong new model pipeline and relatively insulated margin/earnings profile. Market perception with respect to Royal Enfield (RE) order book and waiting period has come off to realistic levels post 3QFY21; so has the stock. Yet, there has not been any earnings downgrade. We expect Eicher to outperform the 2W industry in FY22, with a much higher volume growth (37% vs. 22% for the industry). Positive catalysts for the stock include better margin defence as against the rest of the industry, and new model launches (specifically, the upcoming all-new Classic 350).

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