Eicher Motors

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally lower at 15818 (-0.1%) as it could not sustain the higher level from previous day close. Among the sectoral indices, BANK (+1.0%), FINANCIAL SERVICES (+1.0%), and PRIVATE BANK (+0.9%) ended higher while AUTO (-1.7%), PSU BANK (-1.3%), and IT (-1%) led the losers. Among the stocks, ULTRACEMCO (+3.2%), SHREECEM (+3.0%), and HDFCBANK (+2.4%) led the gainers while TATAMOTORS (-8.5%), TECHM (-2.3%), and COALINDIA (-1.5%) led the losers.

Excerpts of an interview with Mr. Vinod Aggarwal, MD and CEO-VECV of Eicher Motors (EICHERMOT) published with CNBC TV18 on 5^th July 2021:

• CV sales of Eicher Motors in June ’21 were 2,438 units, which were 99% more than the CV sales in May ’21 of 1,223 units. Yet, the sales were much lesser than the average pre-pandemic levels of 5,500 to 6,000 units.
• The steel prices have fallen by 7% in the 1^st week of July and there has been some softening of prices due to an increase in production of steel in China. Yet, Eicher Motors hasn’t experienced any decrease in the raw material prices as there is a lot of pressure from steel mills to increase prices.
• Though the freight rates have gone up, the prices are required to increase further so as to reduce the pressure on margins caused due to an increase in fuel prices.
• Speaking on demand, Eicher Motors is facing an issue in South India due to a severe lockdown. East is also not doing so well, but the demand in North and West has returned to normal. As the construction sector is doing well, more demand can be seen coming from the infrastructure/construction trucks.
• The margin pressure has also been due to an increase in price related to BS-VI norm, steel price, tyre prices. Eicher Motors has better margins in FY21 due to better cost and price management, and it will be required to do the same in FY22 so as maintain or improve margins further.

Asset Multiplier Comments

• With the prices in steel falling in the 1^st week of July, we expect a reduction in the cost of raw materials for the auto manufacturers like Eicher Motors.
• As the oil prices rise further with the talks of OPEC+ nations being called off, we look forward to oil price related global cues to understand its effect of the auto industry. High petrol prices will likely reduce the demand for 2 wheelers.

Consensus Estimate: (Source: market screener website)

• The closing price of EICHERMOT was ₹ 2,713/- as on 06-July-2021. It traded at 33x/ 26x the consensus earnings estimate of ₹ 81/105 for FY22E/FY23E respectively.
• The consensus target price of ₹ 2,702/- implies a PE multiple of 26x on FY23E EPS of ₹ 105/-.

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.”

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.”

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.5% higher at 11,999. Zee Entertainment (+8.1%), Sun Pharma (+5.3%) and IndusInd Bank (+4.9%) were the top NIFTY50 gainers. Infratel (-3.2%), IOC (-1.5%) and Kotak Mahindra Bank (-1.4%) were the top NIFTY50 losers. Among the sectors, NIFTY Pharma (+3.3%) and NIFTY Media (+3.2%) were the sectoral indices that closed positive. NIFTY Realty (-1.5%) and NIFTY PSU Bank (-0.7%) were the worst-performing sectors.

Excerpts from an interview with Mr Vinod Dasari, Chief Executive Officer, Royal Enfield published in  Livemint on 20^th November 2019.

• He looks at downturn or short term difficulties as a blessing in disguise and according to him, one should never let go of a downturn as an opportunity.
• Looking at the long-term picture, whether it is their processes or manufacturing plant, they continued with the capex and completed it.
• Vallam phase II is done now, they have the capacity of a million bikes, they are not going to build any new big plants anytime in near future.
• The first strategy that they had is that they connected marquee rides to their hobbies. Every rider can do something to support a cause. So, when one thinks about Royal Enfield rider, one thinks of a gentler soul.
• The second major thing was making the stores much more accessible. Over the last ten years, there were 900 outlets across the country and mostly in cities but they came up with this concept, a Studio Store and they initially planned to put up around 200 stores during the year.
• But by October, they put up 500 and those are doing extremely well. More than 90% of them are profitable within two months. That has increased the reach and more and more people who are worried about not getting service they now want to do.
• Historically, whatever Royal Enfield was making was selling. When the downturn came, it was a blessing in disguise. They thought why they should make this and tell the customer you must buy this, they will make whatever is available for customers to choose. So customer chooses the colour, the branding etc.
• In November 2019, they launched ‘Make-Your-Own’. This is the first time in the world somebody can actually – on their mobile phone choose graphics, choose accessories, choose all of that and the order goes directly to the factory. So they brought down stock so much, they have less than three weeks stock now.
• In our country like many other places, a lot of things happen on sentiment. When they see that they had a record retail sale that helped boost the morale, reduce inventory, our dealers are excited.
• All those 500 studio stores that they have, 100% of them were done by existing dealers. That shows the confidence their dealers have in Royal Enfield and the product plans and things that they are willing to do.
• 90% of their sales were coming from products sold in India, less than 5% was from outside; this is a year ago, and less than 5% was from the aftermarket. In the long term, they will significantly want to grow that percentage from outside India and as much they get from the aftermarket.
• They had 900 stores in India, they have 600 outlets outside India, and in places like Barcelona, Madrid, Paris, London, all of these places where people go and visit and they see a Royal Enfield and they say this is our country’s product and I should buy it in India or wherever they go from.
• They are proud of the fact that an Indian company based in Chennai exporting worldwide and giving riding experience worldwide.
• The CKD plant will be announced shortly in the next few months. It is very small; it is maybe a USD 1 million investment. So, no plan changes.
• Good thing is even though they had a 20% volume drop in wholesale, revenue drop was only 9% and that was because they had newer products like the Interceptor with much higher average selling price than compared to a Bullet.
• They have had growth in the export market that has a much higher revenue base. So, according to him, they will not see a 10% growth, but they will continue to try and do as well as they did last year.

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

• The closing price of Eicher Motors Ltd was ₹ 21,485/- as of 20-November-2019. It traded at 28x/ 25x/ 22x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 774/ 870/ 998 respectively.
• Consensus target price of ₹ 20,606/- implies a PE multiple of 21x on FY22E EPS of ₹ 998/-.

Dated: 1st August 2019

1QFY20 Results
• Eicher Motors (EICHER) reported a ~7% YoY decline in revenues in 1QFY20 at Rs 23,819 mn (v/s Rs 25,478 mn in 1QFY19). The volumes declined by 18% YoY to 1,83,589 units. The effective realisation increased by 14% YoY from Rs 1,12,455 per unit in 1QFY19 to Rs 1,28,616 per unit.
• EBITDA declined by 24% YoY to Rs 6,145 mn and EBITDA margin declined by ~600 bps YoY to 25.8%. The margins were impacted by the increase in costs related to the ABS (Anti-Lock Braking System) conversion. 
• The effective tax rate was lower by ~290 bps YoY to 33% for 1QFY20. The consolidated PAT stood at Rs 4,518 mn, lower by 22% YoY. 
• The Volvo Eicher JV performance: The volumes in 1QFY20 were lower by ~18% YoY. The revenues reported a lower decline of 14% YoY to Rs 22,550 mn due to the realisation growth by ~5% YoY. The EBITDA margins declined by ~360 bps YoY to 5.6%. The JV reported lower profits of Rs 383 mn in 1QFY20 v/s Rs 1,182 mn in 1QFY19. EICHER’s share in JV profits stood at Rs 209 mn, a decline by ~68% YoY.

Management Commentary

• EICHER increased the dealer network by 13 dealers to 928 from 915 in 4QFY19. EICHER management is keen on focussing on increasing reach in rural areas by adding more touchpoints. Eicher also intends to expand its international presence by increasing the exclusive international store count from 48 now to 80 over the next 18 – 24 months.
• Management maintained the CAPEX plans of ~Rs 7,000 mn for FY20 for Phase-2 of Vallam Vadagal plant, construction of the Technology Centre, development of new products and to expand RE’s portfolio for global markets. The production will start in 1-1.5 months.
• Management maintained the production guidance for FY20E is 9,50,000 units. EICHER mentioned that the festive season sales will be key monitorable and the industry may also benefit from the pre-buying before the BS-VI implementation in April 2020.

Consensus Estimate (Source: market screener website)

• The closing price of Eicher was Rs 16,570/- as of 01-Aug-2019. It traded at 19x / 18x / 17x the consensus EPS for 20E /21E /22E EPS of Rs 852/ 943 / 991 respectively. 
• Consensus target price of Rs 19,441/- implies a PE of 20x on FY22E EPS of Rs 991/-