Eicher Motors Q1 Review - RE Inline, VE Commercial Vehicles PAT Boost Led By Tax Credits: Yes Securities

Yes Securities Report

Eicher Motors Ltd.'s Q1 FY25 consolidated results were in-line as both standalone and VE Commercial Vehicles Ltd. performance were steady. Ebitda margins of S/A expanded 190 basis points (+30 bp QoQ) at 27.9% (estimate 27.5%) led by record average selling price at Rs 186.5k/unit due to favorable product mix as price hikes were not taken during Q1 FY25.

VECV operating performance though were in-line with margins were at 7.6% (flat QoQ, estimate 7.5%), PAT boosted by tax credits. Royal Enfield's margins expansion ahead will be guided by stable raw material (positive impact of 60 bp YoY), higher share of non-motorcycle revenues, platform related VAVE and exports.

The demand outlook is positive for domestic as middle weight motorcycles segment growth guided at high single digit in FY25E while exports to see gradual volume improvement. The management sounded confident to improve RE’s volume trajectory backed by healthy response to new launches (Himalayan 450 and Guerilla 450).

Further, it has re-iterated slew of launches such as Classic and initiatives such as branding for Hunter and Bullet, which should help expand overall mid-size market.

We expect RE’s overall volumes to grow at ~9% CAGR over FY24-26E, despite competitive launches. Recent launches could be an inflection point for RE as a completely new and improved platform should drive efficiencies. However, we remain watchful of domestic average monthly run-rate as exports recovery to be only gradual.

On the other hand, VECV is approaching a cyclical decline in volumes, in turn restricting consolidated revenue/Ebitda/adjusted profit after tax compound annual growth rate to 10%/12%/9% over FY2426E.

We cut FY25/FY26 EPS by 1.5% each as we cut RE volumes by ~0.5% each for FY25/26. Stock trades at 28x/26.3x FY25E/FY26E consolidated earnings per share.

We maintain Buy with SoTP based revised target price of Rs 5,307 (versus Rs 5,383 earlier). We value S/A at 30 times P/E and VECV at 11 times Enterprise value/Ebitda.

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