Eicher Motors (EIM IN, INR 1,991, Buy)
We met the management of Eicher Motors (Eicher) to get the company’s latest business update. Waiting period for Royal Enfiehld motorcycle continues, with the company not being able to meet demand. Thunderbird 500 launch is due in Q3CY12. Additional capacity is coming on stream in Q1CY13. On the truck side, the company is still gaining market share, although demand has slowed down. Increase in discounts could pose margin risk in near term. Maintain ‘BUY’ with TP of INR2,807.
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Motorcycle business intact
Royal Enfield demand has not been affected by the ongoing economic downturn. Waiting period ranges from 2-9 months on different models. Also, new Thunderbird 500cc is likely to be launched in Q3CY12 and could act as a positive trigger. Additional capacity is likely to come on stream in Q1CY13 (we have built in Q2CY13).
Truck business a mixed bag
The company has been gaining market share in the heavy-duty truck business even though demand is shrinking. The concern is increasing discounts. Intermediate commercial vehicles and bus demand still exists. Bank funding is available in abundance. Delinquencies remain very low.
Commercial production is likely to start from Q2CY13. Further, trucks with new platforms and engines are likely to be launched by Q4 CY13.
Outlook and valuations: Favourable; maintain ‘BUY’
A diversified business model, strong balance sheet, robust demand for motorcycle and strengthening CV business make outlook favourable. We maintain ‘BUY’ with SoTP based target price of INR2,807. Key risks include increasing discounts in truck business and weak economic growth affecting truck demand.
Regards,
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