Eicher Motors rallies 5% on better than expected Q3 earnings

Shares of Eicher Motors, the maker of Royal Enfield motorcycles, rallied 5 per cent to Rs 3,340 on the BSE in Wednesday’s intra-day trade in an otherwise subdued market after the company posted a better-than-expected 62 per cent year-on-year (YoY) jump in net profit at Rs 741 crore, on back of higher motorcycle sales and other income. On sequential basis, net profit grew 5.7 per cent.

Analysts on an average had expected profit of around Rs 700 crore for the quarter. In comparison, the S&P BSE Sensex was up 0.04 per cent at 61,056 at 11:38 AM.

Eicher’s consolidated revenues for Q3FY23 stood at Rs 3,721 crore, up 29 per cent YoY and 5.7 per cent quarter-on-quarter (QoQ). The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, a key profit metric, stood at 23 per cent, up 300 bps YoY and down 30 bps QoQ.

In Q3FY23, Royal Enfield sold 219,898 motorcycles in the quarter, an increase of 31 per cent from 167,664 motorcycles sold over Q3FY22. VECV recorded highest ever third quarter sales at 18,162 units, a growth of 13.2 per cent over the corresponding period last year.

With new motorcycles, the Hunter 350, and the recently launched Super Meteor 650, and with upcoming launches at Royal Enfield, the management said it intend to bring a strong and compelling portfolio in the middleweight segment which has immense growth potential in markets around the world.

With the increasing focus and opportunities in the electric vehicles (EV) industry, Eicher Motors has made a strategic investment of € 50 million in the European, high-performance electric motorcycle manufacturer Stark Future SL.

Management commentary suggests some raw material decline benefits along with price hike to come in effect from Q4FY23 onwards amid robust demand for its product profile and near zero product cannibalization post Hunter 350 launch.

Further management also informed about setting up CKD units in Nepal & Bangladesh to strengthen its export market aided by continuing brand building exercise.

For Q3FY23, ASP’s at Royal Enfield (despite adverse product mix) & profitability on VECV front surprised positively whereas margin performance lagged peers wherein company witnessed ~64 bps QoQ gross margin depletion, ICICI Securities said.

Analysts at Prabhudas Lilladher said Eicher Motors remains our preferred pick in the 2W space as we anticipate volume growth from new product launches, higher export revenue mix, increase in mix of spares and merchandise revenue to aid both revenue growth and margin expansion. The brokerage firm maintain ‘BUY’ with a revised SoTP based target price of Rs 4,120 (at 28x Dec-24E standalone EPS and 12x EV/EBITDA for VECV).