Eicher Motors
Royal Enfield does well, CVs dip again; Sell
Key takeaways
Royal Enfield’s performance steadfast. The operating performance at
Royal Enfield (RE) is expected to be strong, helped by robust sales and
operating leverage. Following ~70% yoy volume growth, we expect income
to grow ~76% yoy, to `5.2bn. EBITDA margin is expected to be 18%, up
750bps yoy. As a result, we expect Eicher Motors’ standalone profits to be
`705m, up 2x yoy.
Lower CV sales to hit VE Commercial Vehicles’ performance. For the
subsidiaries, we expect ~14% decline in revenues and 39% yoy decline in
EBITDA. We expect EBITDA margin to be 4.4% (lower 120bps qoq, and
180bps yoy). Due to higher depreciation, profit is expected to decline 70%
yoy to `114m.
Consolidated profits to be led by RE. Consolidated revenues would be
impacted due to the current slump in M&H CV sales, but strong standalone
performance is likely to undo a lot of the damage. We expect revenues to
grow 2.1% yoy in the consolidated results. On weaker CV sales, we expect
EBITDA margin to come at 8.6% (down 70bps qoq). We expect the adjusted
net profit to be `819m, up 12.6% yoy.
Our take. Royal Enfield continues to be robust due to greater capacity and
sustained demand. The M&H CV slide, however, is expected to result in a
lower growth rate for VECV. The recent run-up in the stock price has
rendered valuations rich. While we are optimistic from a long-term
perspective, we downgrade the stock to a Sell to reflect the premium
valuations. Our target price is `4,220. At the ruling price, the stock trades at a
PE of 29.6x CY14e. Risks. Upside: Sequential improvement in operating
performance, recovery in the CV cycle in CY15, and quicker revenue
accretion from the engine plant.
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Royal Enfield does well, CVs dip again; Sell
Key takeaways
Royal Enfield’s performance steadfast. The operating performance at
Royal Enfield (RE) is expected to be strong, helped by robust sales and
operating leverage. Following ~70% yoy volume growth, we expect income
to grow ~76% yoy, to `5.2bn. EBITDA margin is expected to be 18%, up
750bps yoy. As a result, we expect Eicher Motors’ standalone profits to be
`705m, up 2x yoy.
Lower CV sales to hit VE Commercial Vehicles’ performance. For the
subsidiaries, we expect ~14% decline in revenues and 39% yoy decline in
EBITDA. We expect EBITDA margin to be 4.4% (lower 120bps qoq, and
180bps yoy). Due to higher depreciation, profit is expected to decline 70%
yoy to `114m.
Consolidated profits to be led by RE. Consolidated revenues would be
impacted due to the current slump in M&H CV sales, but strong standalone
performance is likely to undo a lot of the damage. We expect revenues to
grow 2.1% yoy in the consolidated results. On weaker CV sales, we expect
EBITDA margin to come at 8.6% (down 70bps qoq). We expect the adjusted
net profit to be `819m, up 12.6% yoy.
Our take. Royal Enfield continues to be robust due to greater capacity and
sustained demand. The M&H CV slide, however, is expected to result in a
lower growth rate for VECV. The recent run-up in the stock price has
rendered valuations rich. While we are optimistic from a long-term
perspective, we downgrade the stock to a Sell to reflect the premium
valuations. Our target price is `4,220. At the ruling price, the stock trades at a
PE of 29.6x CY14e. Risks. Upside: Sequential improvement in operating
performance, recovery in the CV cycle in CY15, and quicker revenue
accretion from the engine plant.
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