Shares of Eicher Motors fell 5.03% to ₹3,515.65 on BSE on November 11, a day after the company announced its September quarter scorecard.
The company reported a 76% jump in consolidated net profit at ₹656.86 crore in Q2FY23 against a net profit of ₹373.20 crore in the same quarter a year ago.
Revenue from operations jumped 55.8% year-on-year to ₹3,453.43 crore in the September quarter from ₹2,216.40 crore in the corresponding quarter last year.
Brokerages mixed
The September quarter numbers of Eicher Motors fetched mixed reviews from brokerages. However, some of them have raised their target prices.
Kotak Institutional Equities highlighted that Eicher Motors reported Q2FY23 standalone EBITDA of ₹800 crore which was 6% below its expectations due to weaker-than-expected gross margins and marginally lower-than-expected average selling prices (ASPs). EBITDA margin came in at 23.7% (-60 bps quarter-on-quarter), which was 90 bps below the brokerage's expectations.
The brokerage firm retained a 'sell' call on the stock but raised the target price to ₹2,800 from ₹2,580 earlier.
"We have fine-tuned our FY2023-25E EBITDA estimates. Though we have increased our volume assumptions by 3-6% for FY2023-25E, we have cut our ASP assumptions by 2-3% for the company. We expect Hunter to deliver 1,40,000 and 2,16,000 volumes in FY2023E and FY2024E, respectively," said Kotak.
"Although we expect upgrade demand to drive sales of Hunter 350 partly, we are also witnessing cannibalization of the Classic and Bullet models (current monthly sales are much below 2019 levels). An increase in competitive intensity over the next few years would also impact Royal Enfield’s volume growth, in our view," said Kotak.
Emkay Global Financial Services has a 'buy' call on the stock and raised the target price slightly to ₹4,100 from ₹4,050 earlier.
Emkay expects FY23E revenue growth to be robust at 38%, and the uptrend is likely to endure with FY23-25E revenue CAGR at 15%.
It also expects the EBITDA margin to expand from 21.1% in FY22 to 24.7% in FY23E and to 26.9% in FY25E, driven by better scale, improved net pricing, and cost savings.
"We retain a 'buy', with our SOTP-based target price of ₹4,100 ( ₹4,050 earlier), based on 25 times P/E of the motorcycle business and 20 times P/E of the commercial vehicle business, on Dec-24E earnings per share (Sep-24E earlier). Lower-than-expected demand in key geographies, increased competitive intensity, failure of new products, and adverse commodity prices or currency rates are the key downside risks," said Emkay Global.
Brokerage firm Nirmal Bang Institutional Equities has an 'accumulate' call on the stock with a target price of ₹4,116.
The brokerage firm expects domestic volume to clock a healthy CAGR of 20% over FY22-25E, mainly driven by solid demand for Hunter 350 and a series of new model launches and refreshes planned over the next two years.
"We expect Royal Enfield to surpass FY19 peak volume of 8,26,000 in FY24. We expect exports to clock 19% CAGR over FY22-25E. The company has sold more than 55,000 units of the newly launched Hunter 350 to date and the order book continues to remain strong," Nirmal Bang said.
The brokerage firm pointed out that the company has also launched Super Meteor 650 recently and the management has reiterated its robust model pipeline for the next two years. It expects at least four new model launches over two years.
"We continue to remain upbeat about the volume expectations of Royal Enfield in both domestic as well as export markets. We also don’t see a major impact on profitability despite the increasing share of lower margin products on the back of improving utilization and moderating commodity costs," said Nirmal Bang.
"We are building revenue/EBITDA/EPS CAGR of 24%/34%/34% over FY22-25E. We have tweaked our volume estimates for FY24/FY25 by 5%/3% besides marginally fine-tuning our FY25 margin estimate by 50bps," Nirmal Bang said.
Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of ₹4,150 as it believes the benefits of softening raw-material costs should start reflecting from Q3FY23 onwards which coupled with easing supply chain pressures and continued product expansion, will aid domestic recovery and support ramp-up in exports.
“We tweak our EPS estimates for FY23E/FY24 (down 2%/up 4%), as we wait to see Hunter’s impact on volumes, ASPs, and margins,” said Motilal Oswal.
ICICI Securities maintained an ‘add’ call and raised the target price to ₹3,938 from ₹3,795 earlier.
“Declining input commodity prices, strong order book and securing of chip supply to help Royal Enfield scale up ahead, and in turn improve profitability in coming quarters,” said ICICI Securities.
According to a MintGenie poll, an average of 40 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.
