Eicher Motors Q4 Review: Brokerages Expect Launches, Pent-Up Demand To Aid Volumes, But…

Analysts expect Eicher Motors Ltd.’s volumes to improve from the second quarter of the ongoing financial year, aided by new launches and pent-up demand. But supply chain issues are likely to sustain in the near term.

That prompted most of them to maintain their bullish investment recommendation for the maker of Royal Enfield motorcycles.

The company, however, saw its profit fall 1% sequentially in the quarter ended March, while its revenue rose. Royal Enfield sold 3% more units than the preceding quarter in the January-March period, aided by rising demand in its more than 250cc segment of motorbikes.

Shares of Eicher Motors rose as much as 4% to Rs 2,710 apiece before paring gains. Of the 44 analysts tracking the motorcycle maker, 21 have a ‘buy’ rating, nine suggest a ‘hold’ and 14 recommend a ‘sell,’ according to Bloomberg data. The average of the 12-month consensus price targets implies an upside of 63.7%.

Here’s what brokerages have to say about Eicher Motors’ fourth-quarter results...

Nirmal Bang Institutional Equities

• Maintains ‘accumulate’ with a price target of Rs 2,514 apiece.

• Overall operational performance was broadly in line with expectations.

• Rising commodity costs a concern and to impact profitability during the first half of FY22.

• Near-term outlook remains uncertain.

• New launches and pent-up demand to cushion volumes.

Dolat Capital

• Recommends ‘accumulate’ with a price target of Rs 2,884 apiece.

• Strong order backlog and new launches to drive dispatches.

• Strong order backlog (3 months), pent-up demand and spurt in export numbers to aid volume growth from Q2FY22.

• Best placed to benefit from urban recovery and increasing premiumisation trend.

• Expects Eicher largely to pass on commodity costs, which will help in strong margin expansion.

Prabhudas Lilladher

• Maintains ‘accumulate’ with a price target of Rs 2,895 apiece.

• Aggressive launch pipeline at Royal Enfield — FY22 to see highest new launches.

• Supply challenges are expected to persist in near term.

• Volvo Eicher Commercial Vehicles results, too, were in line as revenue grew 74% YoY.

Emkay Global

• Maintains ‘buy’ rating with a price target of Rs 3,180 apiece.

• Expects swift volume recovery from Q2FY22.

• Production expected to increase to 80,000 units per month in coming months as supply challenges ease.

• Several new models in the pipeline, and one new model or major refresh will be launched every quarter.

• Lockdowns and supply chain challenges related to electronic components impacting production in the near term.

Jefferies

• Maintains ‘buy’ rating with a target price of Rs 3,250 apiece.

• Q4 consolidated Ebitda and PAT fell 1-6% QoQ, but were broadly in line.

• Royal Enfield has managed the cost inflation well.

• Well-placed to benefit from the potential two-wheeler demand recovery due to strong franchise and new product plans.

CLSA

• Reiterates ‘underperform’ rating with a target price of Rs 2,600 apiece.

• Profitability has underperformed its mass-market peers for the past several quarters.

• Eicher’s mass-market two-wheeler peers reported significant positive surprises in 4Q, driven by better-than-expected gross profit/vehicle.

• Eicher Motors 4QFY21 operating results were marginally above CLSA’s expectations.

Axis Securities

• Rates ‘hold’ with a target price of Rs 2,450 apiece.

• Performance came in lower than estimates.

• Performance in the VE Commercial Vehicle business was strong.

• Remains cautious going ahead on account of the near-term headwinds, commodity price impact, and increasing competition in the premium motorcycle segment.