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Eicher Motor Ltd. |
Margins to remain under pressure in short term |
NOT RATED
CMP: Rs1,423 Target Price: NR
n EBIDTA margin disappoints at 7.2% (est. of 9.2%) due to lower topline (Rs 11.0bn vs est. Rs11.6bn) & higher staff cost. Lower other income impacts APAT ( Rs 387mn vs est. 675mn)
n Price increased by 2% to 4%in CVs to pass on the emission cost and some of the other cost pressures. Margins under pressure in the short term due to focus on HCVs
n Valued the stock on SOTP basis with TP of Rs 1,326 (current business – Rs 1,173, NPV of engine business – Rs 153).
n Was a preferred play in the CV space since last two quarters. Find valuations unattractive, post the strong outperformance
Net Sales – below expectation despite favorable product mix
Net sales at Rs 11.0bn was below expectation of Rs 11.6bn resulting from unfavorable
product mix. Share of 7.5t -12t segment in MHCV portfolio declined during the quarter.
Share of M&HCV increased by 740 bps QoQ to 33% in 3QCY10 of overall portfolio.
Share of HCVs increased by 200bps QoQ to 18%. Also, Volvo truck sales at 220 units
were lower both YoY and QoQ, which affected average realization.
EBIDTA lower due to lower topline and higher staff cost and RM cost
EBIDTA stood at Rs 839mn vis-à-vis est. of Rs 1.1bn. Margins at 7.6% were below our
est. of 9.2%. EBIDTA was lower due to lower topline and higher staff cost. Staff cost
stood at 6.3% of sales against est. of 5.6%. Also, RM was marginally higher than our
est. RM to sales was at 75.5% against our est.75.2%.
Lower other income impacts APAT
APAT at Rs 387 mn was lower than est. of Rs 675mn due to lower EBIDTA, coupled
with lower treasury income. Other income stood at Rs 183mn against est. of Rs 384mn.
This is due to maturity of some treasury in earlier quarter, which was not there in current
quarter.
Valuations and View
At CMP of Rs 1,423, the stock trades at PER of 22.0x and 15.8x and EV/EBIDTA of 7.4x and
4.9x our CY10 and CY11 estimates respectively. We have revised our EPS estimate
downward by 8.7% & 9.5% to Rs 64.7 & Rs 90.3 for CY10 and CY11 respectively due to
lower volume assumption for two wheeler business and margin pressure. We have valued
the stock on SOTP basis with a TP of Rs 1,326, valuing existing business at Rs 1,173 and
engine business at Rs 153. EML was our preferred play in the CV space since last two
quarter. However, post the strong out performance, we find the valuations unattractive, given
the expected pressure on margins.
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