Elara Capital

Eicher Motors (Accumulate)

CMP: ₹23,267.95

Target: ₹26,103

Eicher Motors Standalone EBITDA grew 7 per cent y-o-y at ₹740 crore (5 per cent below our est); while margin declined 130 bps y-o-y at 30.6 per cent vs our est of 32.9 per cent; mainly due to sharp increase in other expenses which grew by 160 bps y-o-y and employee exp which grew 110 bps y-o-y while RMC/sales declined 150 bps y-o-y and 90bps q-o-q at 50.6 per cent. Standalone revenues increased 11 per cent y-o-y to ₹2,400 crore (2 per cent above our est) mainly led by 7 per cent y-o-y growth in net realisation. Standalone Adj.PAT increased 3 per cent y-o-y at ₹500 crore (10 per cent below our est) led by operational miss and lower other income.

We believe Royal Enfield would continue to face demand headwinds in the next six months owing to a sudden increase of about 12-15 per cent price of RE vehicle issues. We were impressed by the realization/ vehicle increase of 5 per cent in 1HFY19 given the value addition of ABS dual channel in almost all RE bikes. We believe in the long-term RE would continue to outperform the MC industry growth and gain market share. We reduce our FY9-20E EBITDA estimates by 9-10 per cent given the volume cuts and consequent margin cuts.

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