The next 2-3 years will be very good for the CV segment: Eicher Motors

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 15,097 (+0.77%). Top gainers in NIFTY50 were Coal India (+8.6%), UPL (+7.3%), and Adani Ports (+5.9%). The top losers were ICICI Bank (-1.9%), Nestle (-1.4%), and Divis Labs (-1.4%). The top sectoral gainers were METAL (+3.9%), REALTY (+1.7%), and MEDIA (+1.3%) and sectoral losers were FMCG (-0.3%) and FIN SERVICES (-0.2%).

Excerpts of an interview with Mr Vinod Aggarwal, MD & CEO, Eicher Motors (EICHERMOT) with CNBC -TV18 dated 24^th February 2021

• Tata Motors, addressing auto analysts, gave very positive comments on the commercial vehicle (CV) industry saying it is likely to grow 36-38 per cent in FY22 and Mr Aggarwal, Eicher motors analyzed the demand trends.
• This year first half was a washout. Based on this low base, there will be good growth next year.
• Growth will be better than FY20 and it should be somewhere between FY19 and FY20. They are expecting the industry to do much better in FY22.
• They are already at pre-COVID levels as far as the truck industry is concerned. Buses are down but hopefully, schools will be opening soon so next year it will be much better
• He expects replacements to be very strong in the CV industry. Within two years, the company should reach its earlier peak ofFY19 or even cross that.
• He expects that for the CV industry, the next two-three years will be very good because they have a lot of pent-up replacement demand.
• The sentiment is positive. Since the economic sentiment is positive, people have started replacing their old trucks.
• Electronic control units (ECU) shortage is one of the major supply constraints. They are trying to cope up and manage the situation.
• The transport industry runs on economic growth therefore diesel price increase might increase freight levels and increase inflationary pressures.
• Tippers performance is back to peak levels now and they have grown more than 20%.

Asset Multiplier comments:

• Overall Industry growth is picking up in the January-March period for the two-wheeler industry, which has witnessed a recovery in the festive period from COVID-19 induced disruptions.
• As economies start gaining momentum, the Indian CV industry is also picking up demand faster. January-March volumes are better than pre-covid levels.
• Eicher Motors is targeting export markets and aiming at new product launches in the coming two years. ‘Make you own’ initiative which allows customers to customize the bikes is also gaining momentum especially in millennials.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of EICHERMOT was ₹ 2,554/- as of 25-February-2021.  It traded at 48x/ 30x/ 24x the consensus earnings estimate of ₹ 52.8/ 85.1/ 106 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 2,773/- which trades at 26x the earnings estimate for FY23E of ₹ 106/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”