Eicher Motors Ends At 26-Month High Despite Mixed Street Verdict

Shares of Eicher Motors Ltd., the owner of Royal Enfield, surged to their highest in two years on higher demand even as it continues to face supply-chain hurdles.

Shares of the maker of the Bullet and the Classic motorcycles ended 7% higher at Rs 2,514 - the highest since September 2018. It was the top gainer on the Nifty 50 index. The stock has been rising for nine straight sessions, the longest stretch since March 2011. It surged 24% during the period.

"We have a robust order book and booking numbers are ahead of pre-Covid levels," Managing Director Siddhartha Lal said in a post earnings statement.

But supply-chain issues continue to be a drag on its operating performance. The company's order backlog rose threefold to 1.25 lakh units as on Nov. 12 from 40,000 in August. Chief Executive Officer Vinod Dasari said during an analyst call that the firm is facing "certain supply issues at its vendors and specific models”.

Analysts Cite Expensive Valuations

The street is divided on the outlook. Of the 45 analysts tracking Eicher Motors, 22 have a 'buy' recommendation, eight say 'hold', while 15 have a 'sell' rating, according to Bloomberg. Among Nifty 50 peers, the stock has the highest 'sell' calls.

Kotak Institutional Equities cited expensive valuations behind its 'sell' rating. "Competitive intensity in the mid-sized motorcycle segment is going to increase over the medium term, which needs to be closely monitored," analysts Hitesh Goel and Rishi Vora wrote in their note. Kotak's 12-month price target of Rs 1,910 implies a 19% potential downside from Thursday's close.

JM Financial also cited expensive valuations as a key reason for its 'sell' call. The recovery seen during the second quarter is more than priced in, it said.

"Increasing commodity costs are expected to weigh on margins," JM Financial's Vivek Kumar wrote in a post-earnings note. "We believe that the complete cost pass-through of BS-VI will be difficult in the near term, limiting the margin recovery."

JM Financial's price target of Rs 2,000 implies a 14.9% downside from Thursday.

Others Retain Faith

Other analysts are betting on the launch of the Meteor to cushion overall retail sales during the seasonally weak period of December-January.

"We firmly believe in the affordable premiumisation of the Indian two-wheeler market in the long run and expect Royal Enfield to be the prime beneficiary of it," Ambit Capital's Basudeb Banerjee and Karan Kokane wrote in their post earnings note.

Ambit increased Eicher's price target to Rs 2,668 apiece from Rs 2,448, implying a potential upside of 13.5%.

Morgan Stanley also maintains its overweight stance on the stock with a price target of Rs 2,650. "Eicher has been the best new model cycle in autos and the long-term trend in replacement demand should aid volume recovery," analyst Binay Singh wrote in a note. "New models could help Royal Enfield gain more mind share among customers and this could lead to more market share gains."