Eicher Motors dips 5% on profit booking post firm September quarter results

Shares of Eicher Motors dipped 5 per cent to Rs 3,523.85 on the BSE in Friday’s intra-day trade due to profit booking after the Royal Enfield maker logged its highest-ever net profit in the September quarter (Q2FY23). 

The company's net profit for the quarter rose 76 per cent year-on-year (YoY) to Rs 657 crore on account of improved sales. This was also supported by higher than expected other income.

The stock fell 6 per cent from its intra-day high of Rs 3,740.75 today. While in the past six months, the stock has appreciated by nearly 50 per cent as compared to a 14 per cent rise in the S&P BSE Sensex. In the last one year, it has surged 31 per cent as against a 3 per cent gain in the benchmark index. The stock had hit a record high of Rs 3,886 on November 1, 2022.

In Q2FY23, the company’s total revenue from operations grew 56.4 per cent YoY to Rs 3,519 crore. On a sequential basis, the company’s revenue was up 3.6 per cent and PAT rose 7.6 per cent.

Royal Enfield sold 203,451 motorcycles in the quarter, an increase of 64.7 per cent from 123,515 motorcycles sold over the same period last year. 

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin expanded by 250 bps, though it was lower by 110 bps quarter-on-quarter to 23.3 per cent due to reduced share of exports, addition of Hunter model to the product portfolio, and commodity inflation.

Analysts at Emkay Global Financial Services expect EBITDA margin to expand from 21.1 per cent in FY22 to 24.7 per cent in FY23E and to 26.9 per cent in FY25E driven by better scale, improved net pricing, and cost savings. The brokerage has retained its Buy rating with the SOTP-based target price of Rs 4,100, based on 25x P/E of the motorcycle business and 20x P/E of the CV business, on Dec-24E EPS (Sep-24E earlier).

According to ICICI Securities, Eicher’s Q2FY23 performance came in on expected lines with the company reporting a 154 bps gross margin decline largely attributable to adverse product mix (Hunter 350 sales volumes for the quarter is pegged at 35,300 units i.e. 17 per cent of total RE sales volume).

The management commentary hints at robust demand prospects for the product profile with share of first time buyers on the rise and near zero product cannibalisation post Hunter 350 launch. The management also indicated at expansion in gross margins in coming quarters as input cost normalises with no production constraint as this point in time, the brokerage said.