Alpha | Eicher Motors Ltd.

March 4, 2024

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Eicher Motors Ltd. – Made Like A Gun

Included in 1982 and headquartered in Chennai, Eicher Motors Ltd. (EML) is a globally acclaimed vehicle firm. It’s the listed mum or dad firm of the long-lasting Royal Enfield (RE) model, the oldest motorbike model in steady manufacturing. With 3 world-class manufacturing websites in Chennai, India and a couple of analysis and growth (R&D) centres in Chennai, India and Bruntingthorpe, UK, EML is a key participant in mid-size motorbike phase, RE being the worldwide chief within the 250cc – 750cc, mid-weight bikes phase. The corporate can also be current in industrial autos phase by its subsidiary – VE Business Automobiles Ltd (VECV). VECV is a three way partnership between the Volvo Group and Eicher Motors Ltd. The three way partnership of EML (54.4%) and Volvo (45.6%) got here into existence with impact from July 1,2008. It manufactures vans throughout 4.9-55T and buses with a seating capability of 12-72 throughout mild, medium and heavy-duty functions.

Merchandise and Providers

The corporate operates below two enterprise segments:

Bikes – Bikes contains Royal Enfield’s premium line-up reminiscent of Hunter 350, Traditional 350, Meteor 350, the 650 parallel twin bikes – Interceptor 650 & Continental GT 650, Tremendous Meteor 650, the journey bikes – Himalayan journey tourer and the cram 411 ADV Crossover, and Bullet 350.

Business autos – VECV contains the entire vary of Eicher branded vans and buses, Volvo vans and buses in India, engine manufacturing and exports for Volvo Group, non-automotive engines, and Eicher part enterprise.

Subsidiaries: As of FY23, the corporate had 10 subsidiaries and 1 three way partnership.

Key Rationale

New launches – Throughout Q3FY24, the corporate launched Himalayan 450 that includes EML’s latest engine platform Sherpa 450. The market response to the brand new mannequin is encouraging and the corporate is planning to launch it in EU in coming months. The corporate additionally launched Shotgun 650 in EU and UK, a customized impressed motorbike. It was launched in international markets and the corporate has plans to begin retails in India additionally. It additionally launched Royal Enfield Wingman, a brand new characteristic on the pre-existing Royal Enfield app that allows a rider with important automobile info reminiscent of dwell monitoring, final parked location, journey abstract and so forth.

Promising VECV – VECV recorded highest ever Q3 gross sales of 20,706 models in FY24. Through the present quarter, the corporate additionally started deliveries of India’s first electrical 5.5-ton GVW truck, the primary Eicher Professional 2055 electrical automobile and continued delivering electrical buses. Heavy-duty vans, combining Volvo and Eicher achieved their best-ever Q3FY24 gross sales with 6,210 models as towards final yr in Q3FY23 of 5,241 models with a market share of 9.6%. Mild and medium-duty vans additionally hit a Q3FY24 file with 9,800 models as towards 9,239 models in Q3FY23, capturing 34.5% market share. The bus division, elements enterprise for each Eicher and Volvo and VE Energy models additionally reached an all-time excessive throughout Q3FY24.

Q3FY24 – Through the quarter, EML offered 229,214 bikes which is a rise of 4% in comparison with Q3FY23. It additionally recorded highest ever home retail for Royal Enfield to date with the worldwide gross sales enhancing by 11% YoY throughout the interval. EML (excluding income from VECV) generated highest ever income of Rs.4,179 crores, which is a rise of 12% in comparison with Q3FY23. EBITDA grew by 27% YoY to Rs.1,090 crores. The corporate reported web revenue of Rs.996 crores which is an upsurge of 34% in comparison with the corresponding quarter of the earlier yr. VECV revenues rose to Rs.5,483 crores, up 19% from Rs.4,604 crores in Q3FY23. EBITDA for the quarter is Rs.437 crores, up 44% from Rs.304 crores in Q3FY23 and EBITDA margin is 8% as towards 6.6% in Q3FY23. Revenue after tax is Rs.210 crores, up from Rs.117 crores in Q3FY23.

Monetary efficiency – The corporate has generated a income and PAT CAGR of 16% and 17% over the interval of three years (FY20-23). Common 3-year ROE & ROCE is round 16% and 21% for FY20-23 interval. The corporate has sturdy capital construction with a debt-to-equity ratio of 0.03.

Business

The Indian vehicle trade has traditionally been a superb indicator of how nicely the financial system is doing, as the car sector performs a key position in each macroeconomic growth and technological development. The 2-wheelers phase dominates the market when it comes to quantity, owing to a rising center class and an enormous proportion of India’s inhabitants being younger. India is the world’s largest producer of two-wheelers, with over 21 million produced yearly. The nation enjoys a robust place within the world heavy autos market as it’s the largest tractor producer, second-largest bus producer, and third-largest heavy truck producer on the earth.

Development Drivers

The PLI scheme (outlay of $3.5 Bn) for the car sector proposes monetary incentives of as much as 18% to spice up home manufacturing of superior automotive expertise merchandise and appeal to investments within the automotive manufacturing worth chain.

Authorities of India and Indian automotive trade has give you Automotive Mission Plan 2016-26 to put down the roadmap for the event of the trade.

The car sector acquired a cumulative fairness FDI influx of about US$ 35.40 billion between April 2000 – September 2023.

Rivals: Hero MotoCorp, TVS Motors, and so forth.

Peer Evaluation

Among the many above rivals, EML has larger return ratios in step with the expansion within the gross sales. This means the corporate’s capacity to generate higher earnings for the capital invested. EML has higher debt-to-equity ratio in comparison with Hero and TVS. This sturdy capital construction of EML gives it a further buffer towards the corporate’s monetary threat to boost extra capital.

Outlook

The RE & VECV phase is actively engaged on new product launches. The newly launched Himalayan 450 and Sherpa 450 is receiving encouraging response from the market and the corporate has plans to introduce it in newer markets. VECE is planning for the launch of latest small industrial autos ranging from Q1CY25. The corporate has additionally give you trade first buyback and reown packages. VECE is introducing new vary which span the GVW of 2-3.5 ton and addresses a market phase of over 300,000 models every year. This phase is predicted to develop with urbanization, progress of e-commerce and last-mile supply.

Valuation

The corporate is specializing in additional penetration within the present markets by its present line-up of merchandise along with well timed launch of latest merchandise. We anticipate sturdy progress potential in RE given its continued quantity outperformance and its growing acceptability among the many rider communities. We advocate a BUY score within the inventory with the goal value (TP) of Rs. 4,744, 32x FY25E EPS.

Dangers

Danger from rivals: Rising aggressive depth poses a threat to the corporate within the >250cc phase the place the corporate has the best market share.