Eicher Motors -Trucks gaining acceptance; Raise estimates 􀂄 BofA Merrill Lynch

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Eicher Motors
Trucks gaining acceptance;
Raise estimates
􀂄 Preferred mid cap pick; Raise PO
Eicher Motors is our preferred pick in mid cap autos. We are positive on business
prospects of the company’s key operating segments i.e. Commercial vehicles and
premium bikes, and also excited about outsourcing of engines to meet Volvo’s
global requirements. Our revised PO of Rs 1,500 (up 6%) highlights increased
earnings visibility and attractive valuations.
Commercial vehicles set to outgrow industry
Eicher Motors’ strong franchise in light vehicles and growing acceptance of higher
tonnage trucks has prompted upward revision to our volume assumptions by 5%
in CY11. We also introduce CY13E. We expect the company to register 20%
sales CAGR over next 2 years, ahead of industry average.
Two wheelers a proven franchise
Eicher Motors’ competitive positioning in premium bikes reflects on YTD growth of
36%. With additional capacities in place, we expect this business to also register
20% CAGR over forecast period, similar to other popular models within this
space. We also see upside risk to profit margins through better efficiencies.
Cash and engine contract cushions volatility
Eicher Motors’ cash and equivalents at Rs 401/share (including proportionate
share in JV) is equivalent to 31% of market capitalization. Additionally, engine
supplies, which will likely commence in CY13E, contribute Rs 134/share (~9%).