Scrip: Eicher Motors Limited
CMP: Rs.26,500
Recommendation: BUY
Horizon: Long Term (1 to 2 years)
Company Background
Eicher Motors Limited (EML) (BSE: 505200, NSE: EICHERMOT Bloomberg: EIM IN Reuters: EICH.NS) is the listed parent of Royal Enfield, the global leader in middleweight motorcycles. The world’s oldest motorcycle brand in continuous production, Royal Enfield has made its distinctive motorcycles since 1901. Focused on bringing back simple, yet engaging and accessible motorcycling, Royal Enfield operates in India, and over 40 countries around the world. With modern development facilities in Leicestershire, UK and Chennai, India, Royal Enfield makes its motorcycles in Tamil Nadu for the world
In addition to motorcycles, Eicher has a joint venture with Sweden’s AB Volvo - Volvo Eicher Commercial Vehicles Limited (VECV) - which is driving modernization in India's commercial vehicle space, and in other developing countries. VECV has a complete range of trucks and buses from 5-49 tonnes, and its integrated manufacturing plant in Pithampur, Madhya Pradesh is the global hub for medium duty five- and eight-litre engines for Volvo Group. Since 2012, Eicher has an equal joint venture with US-based Polaris Industries Inc - Eicher Polaris Private Limited - and introduced the Multix 3-in-1 vehicle
Financials
- The company has managed 593450 units of Royal Enfield which is quite impressive by any standard
- At FY18E earnings, the company would be trading at a PE ratio of around 33.5 which is substantially justified given the growth prospects
- Despite depreciation provision, net profit has been impressive for the company
- EBIDTA Margins stand close to 32 percent which shows strong relative position
- Company continues to enjoy strong presence across market with around 24% of market share in FY17 and a similar number expected in the current year
Future prospects
- Demand for Royal Enfield has historically remained healthy and is expected to continually do so with constant waiting period for its flagship "Classic 350" variant
- Company is planning to launch 3 new models in Apr'18 which will further garland the demand meter
- Company has re-iterated production target of approximately 825000 units in current financial year. It is however expected that the production would end up being way above this ballpark figure
- There are 30 exclusive dealers of Royal Enfield in international markets and the company is constantly expanding its footprint both in India and abroad
Synopsis
Considering the continual strong position of the company and maintenance of its market position, the strong track record and visible growth prospects, it is recommended to buy the stock at current levels with objective of incorporating it as a strong pillar in the portfolio with a long term time horizon of 1 to 2 years
