Tata Engineering and Ashok Leyland will soon have company. Eicher Motors' shareholders won't mind that one bit
Adominant player in the light commercial vehicle (LCV) segment, the Rs 527 crore Eicher Motors has managed to successfully outperform overall industry growth for the sixth straight year.
Against a near 12 per cent drop in LCV volumes in FY02 for the segment, Eicher managed an eight per growth. Claims A K Birla, marketing director: "Apparently, the consumer sees more value in our products and services, as our operating costs are lower". Indeed, if consumers seem to have spotted value in the company's product, the stock market has also taken note of the value in its stock.
We, at the Smart Investor, had recommended Eicher Motors' stock last year at the then prevailing price of Rs 19.5. Since then, the scrip has raced ahead to reach its current level of Rs 64.
So, does more value still exist in the stock at current levels? Actually, yes. For a start, in the first four months of the current fiscal, the company has continued its robust growth.
Although on a lower base, the company's volumes in the passenger category have surged from 184 units to 537 units -- a jump of 192 per cent. Overall volume growth for the category was a little over 60 per cent, while market leader, Tata Engineering, saw volumes rise by 65 per cent. In the goods category too, while Tata Engineering posted a volume growth of 23 per cent, the overall category grew by 36 per cent. Against this, Eicher Motors reported a volume growth of 35 per cent.
Overall, while the LCV segment clocked a 42 per cent growth in April-June 2002, Eicher Motors outperformed with a 57 per cent growth. In the medium and heavy commercial vehicle (M&HCV) segment, though, at 34.23 per cent, the company fell behind the overall segment growth of 41 per cent. All the same, according to Birla, the company is confident of achieving an overall growth of 25 per cent (to 12,000 units) in FY03.
What's more, the company seems to be slowly but surely driving into the heavy commercial vehicle terrain (HCV), a segment so far dominated by heavyweights Tata Engineering and Ashok Leyland. Notes a confident Birla: "We don't expect to grab a huge share of the market immediately. But we will surely begin to make our presence felt gradually."
While the company incurred capex of Rs 45 crore in FY02 (of which Rs 20 crore was related to product development expenses on its HCV project), Rs 30 crore and Rs 15 crore are expected to be further incurred in capital expenditure in this fiscal and the next. Future product development expenses relating to its HCV project are not expected to hurt the company's resources though -- cash generated from operations was Rs 45.35 crore in FY02, a 42 per cent increase over FY01.
Led by a healthy rise in volumes, the company registered a 45 per cent increase in topline to Rs 122.18 crore. With an overall control over costs, expenditure as a percentage of net sales has dipped by 350 basis points.
Consequently, operating margins have surged by 350 basis points to 9.44 per cent. This year, analysts expect Eicher Motors to improve earnings by 30 per cent to Rs 12, which discounts its current market price 5.33 times. The gradual emergence of Eicher Motors as the third contender in vying for space in the growing commercial vehicle market continue to make current valuations to look attractive.
