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Eicher Motors -Q4 beat; Raise to Buy
„Upgrade rating to Buy
Following 52% net profit beat in Q4, we upgrade rating to Buy from Underperform.
This is solely driven by increase in profit forecasts by 10%-14% over CY11-12E,
despite moderating core multiples to align with mid-cycle earnings. Our revised
PO of Rs 1,410 is 7.5% higher than earlier Rs 1,312.
Margin assumptions raised following Q4 beat
Profit grew 169% to Rs549mn, with margins up 460bps yoy and 210bps qoq at
9.7% (our est 7.6%) on (1) better realisations, and (2) cost control. As a result,
EBITDA at Rs 1.2bbn, 60% ahead of our est Rs 754mn. We therefore raise
margin assumptions by 80bps-60bps over CY11-12E to 8.6%-9.0%.
Business fundamentals are intact
Eicher Motors’ CV volumes grew 57% in CY10 in line with expectations, but Two
wheelers was restricted by capacity constraints. We moderate forecasts to factor
macro-headwinds, but still expect CV sales to increase 20%, both in CY11E and
CY12E, driven by ramp up in heavier trucks. In two wheelers, we retain forecasts
thanks to strong franchise and secular demand for premium bikes. Engine export
to Volvo’s global facilities is expected to kick in late in CY12E.
Stock is attractively valued
Following 25% correction from recent peak, we believe stock is attractively valued
on our upgraded forecasts. Revised sum of parts based PO includes (1) core
autos and engine business at multiple of 12x, compared to earlier 13x FY12E, (Rs
873/sh and Rs 136/sh respectively) and (2) cash at face value or Rs 401/sh.
Price objective basis & risk
Eicher Motors (XEICF)
Our revised PO of Rs1,410 is based on sum-of-the-parts value comprising (1)
core business EPS valued at 12x FY12E, in line with mid-cycle multiple for CVs,
or Rs 873/share, (2) cash and equivalents at Rs 401/share, and (3) engine
business profit at 12x P/E, being discounted to FY12E (Rs 136/sh). Downside
risks: Prolonged economic slowdown, rising input costs, competition, and
company-specific risk related to execution and integration with Volvo. Upside
risks: Better than expected demand of new products and softening commodity
prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eicher Motors -Q4 beat; Raise to Buy
„Upgrade rating to Buy
Following 52% net profit beat in Q4, we upgrade rating to Buy from Underperform.
This is solely driven by increase in profit forecasts by 10%-14% over CY11-12E,
despite moderating core multiples to align with mid-cycle earnings. Our revised
PO of Rs 1,410 is 7.5% higher than earlier Rs 1,312.
Margin assumptions raised following Q4 beat
Profit grew 169% to Rs549mn, with margins up 460bps yoy and 210bps qoq at
9.7% (our est 7.6%) on (1) better realisations, and (2) cost control. As a result,
EBITDA at Rs 1.2bbn, 60% ahead of our est Rs 754mn. We therefore raise
margin assumptions by 80bps-60bps over CY11-12E to 8.6%-9.0%.
Business fundamentals are intact
Eicher Motors’ CV volumes grew 57% in CY10 in line with expectations, but Two
wheelers was restricted by capacity constraints. We moderate forecasts to factor
macro-headwinds, but still expect CV sales to increase 20%, both in CY11E and
CY12E, driven by ramp up in heavier trucks. In two wheelers, we retain forecasts
thanks to strong franchise and secular demand for premium bikes. Engine export
to Volvo’s global facilities is expected to kick in late in CY12E.
Stock is attractively valued
Following 25% correction from recent peak, we believe stock is attractively valued
on our upgraded forecasts. Revised sum of parts based PO includes (1) core
autos and engine business at multiple of 12x, compared to earlier 13x FY12E, (Rs
873/sh and Rs 136/sh respectively) and (2) cash at face value or Rs 401/sh.
Price objective basis & risk
Eicher Motors (XEICF)
Our revised PO of Rs1,410 is based on sum-of-the-parts value comprising (1)
core business EPS valued at 12x FY12E, in line with mid-cycle multiple for CVs,
or Rs 873/share, (2) cash and equivalents at Rs 401/share, and (3) engine
business profit at 12x P/E, being discounted to FY12E (Rs 136/sh). Downside
risks: Prolonged economic slowdown, rising input costs, competition, and
company-specific risk related to execution and integration with Volvo. Upside
risks: Better than expected demand of new products and softening commodity
prices.
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