Q4FY23 Review: Eicher Motors: Q4 beat as ASP and margins bounce back

12 May 2023 , 12:21 PM

Eicher’s Q4 Ebitda beat IIFL Capital Services estimate by 8%, due to positive surprise on ASP and margins. ASP improved 8% QoQ and was positive surprise after 2 consecutive quarters of decline (due to low-priced Hunter). Mgmt came across positive on end-demand for Royal Enfield (RE) motorcycles. While there are macro challenges in export markets, mgmt is confident of growth driven by new models and market-share gains. In India, the premiumisation trend into >250cc motorcycles had taken a pause at 6.0-6.5% of the motorcycle industry over FY17-FY22, but has gathered pace climbing to 7.8% in FY23.

Q4 Ebitda 8% above estimates: 

Eicher’s Q4 consol. revenue grew 19% YoY (3% beat), on an 18% volume growth. Ebitda margin expanded 150bp QoQ to 24.5% (120bp beat). Absolute Ebitda beat our estimate by 8%, due to higher revenue and margin. PAT beat also came in at 8%. Realisation per unit (measured at standalone level) improved 8% QoQ and was a big positive surprise, after two quarters of sequential decline. This was driven by lower share of Hunter 350 and higher share of export volumes. VECV results were also higher than expected, due to sharp jump in margins (+300bp QoQ, 100bp above est.).

Mgmt confident of growth in India and overseas: 

Mgmt mentioned that overall demand momentum in India is strong. Hunter 350 response has been good. Overall Hunter volumes may ramp-up from current levels as the model is rolled out in Tier2/3 cities. Meteor 650 has also been wellreceived; although analysts of IIFL Capital Services expect volume potential to be low. There are macro challenges in export markets. However, with new models (Hunter 350, Meteor 650) being introduced in export markets, volumes may grow.

Upgrade EPS by 3-4%; remains a good play on premiumisation: 

Premiumisation trend into >250cc segment motorcycles had taken a pause over FY17-FY22. Share of >250cc motorcycles was flattish at 6.0- 6.5% of the industry over this period. With a revival in the 2W industry in FY23, premiumisation trend is picking up. In FY23, the >250cc segment climbed to 7.8% of the industry. For FY24, analysts of IIFL Capital Services forecast 12% volume growth for Royal Enfield, which is slightly higher than their forecast of 10% for the overall domestic 2W industry.

Analysts of IIFL Capital Services upgrade EPS estimates by 3-4% (ASP, margins). Retain BUY with TP of Rs 3,800.