Brokerages mixed on Eicher Motors after Q2 results; stock jumps 8%

Brokerages on Eicher Motors: Both domestic and international brokerages showed optimism about Eicher Motors, the parent company of Royal Enfield, after its announcement of the Q2FY25 financial results on Tuesday, November 13.

 

For the quarter gone by, Eicher Motors reported an 8.3 per cent year-on-year (Y-o-Y) increase in consolidated profit at Rs 1,100.3 crore compared to Rs 1,016.3 crore in Q2FY24. Revenue also grew 3.6 per cent Y-o-Y, rising to Rs 4,263.1 crore from Rs 4,114.5 crore in the same period last year.

 

At the operating level, earnings before interest, tax, depreciation and amortisation (Ebitda) rose slightly to Rs 1,087.7 crore, up from Rs 1,087.2 crore in Q2FY24. However, the company’s margin squeezed 90 basis points (bps) to 25.5 per cent from 26.4 per cent in the previous year.

 

The results spurred a rally in the stock, which jumped 7.58 per cent to hit an intraday high of Rs 4,937.40 per share. At 9:48 AM, the stock was trading 7.39 per cent higher at Rs 4,928.25, while the BSE Sensex was up 0.08 per cent, trading at 77,753.75.

 

What do brokerages say?

 

Japan-based brokerage Nomura has upgraded Eicher Motors to a ‘Neutral’ rating from ‘Reduce’ and raised its target price from Rs 4,102 to Rs 4,391. The upgrade reflects Eicher’s shift in strategy toward focusing on volume growth over high margins, addressing Nomura's previous concerns regarding long-term growth and competitive threats. 

 

While the company anticipates lower average selling prices (ASPs) and increased marketing costs, Nomura sees this approach as a strategic defence against competition from brands like Bajaj, Hero, Honda, Jawa, and TVS. For example, Bajaj Auto aims to expand its lineup and dealership network, potentially affecting Royal Enfield’s market share. However, Nomura believes Eicher’s new approach will help mitigate competitive pressures, which justifies the upgraded rating.

 

Nomura has also adjusted its Royal Enfield sales volume forecasts for FY25 and FY26 upward by 3-5 per cent, now expecting sales of 988,000 units (+8 per cent Y-o-Y) and 1,065,000 units (+8 per cent Y-o-Y), respectively. The ASP estimates, however, were reduced by 3-4 per cent, and Ebitda margin projections were revised down by 20-40 basis points to 26.8 per cent for FY25-FY27. Additionally, Nomura lowered its earnings-per-share (EPS) forecast by approximately 2 per cent.

 

Those at Nuvama Institutional Equities also provided a positive update, noting that Q2FY25 Ebitda was flat Y-o-Y, slightly below its estimate due to increased marketing expenses. Net profit grew 8 per cent, aligned with expectations, supported by higher other income. 

 

Royal Enfield’s domestic sales dipped 1 per cent Y-o-Y in H1FY25, but Nuvama expects a strong recovery with a projected 12 per cent Y-o-Y increase in H2FY25, driven by festive demand, focus on key models (Classic and Bullet), new product launches, and marketing efforts. Consequently, Nuvama raised its FY25–27 revenue and EPS forecasts by up to 8 per cent and 6 per cent, respectively.

 

Analysts project a revenue and earnings compound annual growth rate (CAGR) of 9 per cent and 11 per cent over FY24–27E. Further, Nuvama has upgraded its rating to ‘Buy’ from ‘Hold’ and increased the target price to Rs 5,500 (previously Rs 4,500), based on a Sep-26E price-to-earnings (P/E) ratio of 30x for Royal Enfield (up from 26x) and 20x for VECV.

 

Analysts at ICICI Securities said, “With volume growth likely to remain about 7 per cent, we believe additional drivers for Ebitda growth would be a rise in ASP as 450cc/650cc model mix is set to rise, other than exports revival on a low base. We have cut our FY25/26E EPS by about 2 per cent to factor in lower margins led by higher marketing expenses. Maintain ‘Add’ with DCF-based revised target price of Rs 4,850 (earlier Rs 4,827), implying about 26x FY26E EPS.” 

 

Apart from that, Morgan Stanley has assigned an 'Underweight' rating to Eicher Motors, setting a price target of Rs 3,655, according to reports. In contrast, Jefferies has maintained a 'Buy' recommendation on the stock, with a price target of Rs 5,500.