PL Stock Report: Eicher Motors (EIM IN) - Q1FY24 Result Update - Management unswayed, but competition real - Accumulate

Eicher Motors (EIM IN) - Himanshu Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs3,380 | TP: Rs3,520

Q1FY24 Result Update - Management unswayed, but competition real

Quick Pointers:

♦ Inventorisation leads to beat on margins

♦ Expects premium segment to grow faster and ok with 80-85% market share

We marginally trim our FY24E consol. EPS estimate by c1% to factor in 1Q results and management commentary. Eicher Motors’ (EIM) 1QFY24 consolidated EBITDA margin at 25.6% came c140bps above BBG consensus (24.2%) and in line with PLe (25.4%); margins expaned c110bps QoQ given (1) lower commodity prices, (2) price hikes, (3) inventorisation benefit, despite lower than-expected ASPs on inferior mix. RE noted that festive season demand looked good and customer spending was coming back. On the CV side, VECV would benefit from continued profitable growth in the CV industry.

Recent increase in competitive landscape has marred EIM’s near to medium term growth prospects and rising competition could chip away RE’s growth volumes. However, (1) volume growth from new product launches, (2) focus on increasing export revenue mix, (3) higher mix of spares and merchandise revenue to aid both revenue growth and margin expansion. Maintain ‘ACCUMULATE with a revised SoTP based TP of Rs 3,520 (at 23x Mar-25E standalone EPS and 12x EV/EBITDA for VECV).

In line revenues, beat on consensus margin estimates: (1) Revenue grew by 17.3% YoY, and came in line with Bloomberg consensus estimates (BBGe) and was lower than our estimates. EBITDA margins at c25.6% were largely in line with our higher than consensus estimates (25.4%) and beat BBGe (24.2%). Other operating expenses were slightly lower than expected while employee costs came in line. Higher other income aided beat on PAT. Standalone: Revenue at Rs 39.0bn grew by 1.8% QoQ, led by decline in ASP of 2.3% on the back of inferior product mix and lower exports mix. EBITDA margin came in at 26%, up c130bps QoQ, helped by inventorisation benefit and lower other expenses, despite inferior mix. PAT came in at Rs 9.1bn. (2) VECV: Revenue grew by 27% YoY, with volume growth of c12%. EBITDA margin at 7.8% expanded 250bps YoY, led by lower commodity price, better realization. PAT came in at Rs 1.8bn vs Rs 0.6bn YoY.

Key takeaways: (1) RE noted that demand is good and has improved after a seasonal lull in June and July. RE noted that festive season demand is looking very bullish and discretionary spending is coming back. (2) Exports market is seeing some softness due to macro-economic issues in Europe and USA, and it has reduced dealer inventory. RE added 22 new retail touch points in the international markets. RE reached 9% market share in APAC & EMEA and 8% in America, and has room to expand further. (3) On competitive intensity, RE said that it has faced tough competitions over the last 15 years from Japanese OEMs but has come out as winner. It noted that competition may not be able to hold to the current pricing, and it will focus on own launches and products. RE sees the 250+ cc segment growing faster than industry and RE is fine with lower market share levels of 80-85% in an expanding market. (4) RE’s margins benefited from price hike of 1.5% in May (1.5% in July) and due to saving in sourcing (0.8%), >25% YoY growth in non-motorcycle revenue. (5) Management noted RE’s EV plans have reached the implementation phase and it has started onboarding suppliers for key parts. (6) On the CV side, VECV continued to gain market share in 1Q across segments.

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