Q3FY23 Review: Eicher Motors: Q3 miss estimates as margins disappoint

16 Feb 2023 , 08:58 AM

Eicher’s Q3 Ebitda missed analysts of IIFL Capital Services estimate by 7% due to lower than expected margins. The rise in revenue share of Hunter has resulted in further fall in ASP and gross margin. While Q3 volumes are up 18% vs Q1 (pre-Hunter launch), absolute Ebitda is up only 3%. Mgmt mentioned that part of the margin disappointment is attributable to old high-cost inventory and delay in flow-through of price hikes in Hunter. Some of this may ease in the coming quarters as high-cost inventory is exhausted and price hikes in Hunter take effect.

RE’s domestic volumes (ex-Hunter) are flattish YoY, which seems to indicate that Hunter is having some cannibalisation impact on other models. Typically, 2W/PV OEMs gain market-share from competition, when new models do well. However, with RE already accounting for 90%+ market-share in 350cc & above, successful new models end up partly eating into RE’s existing models. While Meteor 350 and Hunter 350 have gained volume share in recent years, Classic 350 quarterly volumes are now 40% lower than FY18/FY19.

Analysts of IIFL Capital Services believe Hunter 350 is cannibalising into sales of existing 350cc models. As a result, overall volume performance has moderated after a two-month spike in Sep/Oct. Their checks with dealers reveal that waiting period is non-existent for most Royal Enfield (RE) models, except few variants of Hunter (up to one month). They have trimmed their FY24/FY25 EPS estimates by about 3% following these results.

Analysts of IIFL Capital Services maintain ADD with Target Price of Rs3,570.