Results in line with estimates: Eicher Motors’ 4QFY2016 consolidated results have
come in in line with our estimates. Consolidated revenues grew 45% yoy to
Rs3,316cr, coming broadly in line with our expectation. The 2W business (Royal
Enfield)’s top-line grew strongly by 55% yoy to Rs1,284cr, driven largely by volume
growth. The VECV segment’s revenues grew 39% yoy, driven majorly by strong
demand in the commercial vehicle (CV) segment and market share gains.
Consolidated operating margins at 15.6% were in line with our estimates of
15.3%. Royal Enfield posted its highest ever margins of 28.6% (a 90bp sequential
improvement despite slightly lower volumes due to disruption by Chennai rains).
Royal Enfield’s margins were better than our estimate of 26.5%. The VECV
segment’s margins at 7.4% were lower than our estimate of 8.1%. The
consolidated net profit at Rs271cr was in line with our estimate.
Outlook and Valuation: Demand for Royal Enfield continues to remain strong on
increasing acceptance of leisure biking in India. The company continues to have
an order backlog with higher number of orders being taken per month than the
actual production despite huge capacity addition. Also, the company has recently
introduced the 400cc adventure tourer bike “Himalayan” which is likely to boost
demand going ahead. Also, commercial vehicle (VECV) business is witnessing
strong demand given the recovery in the CV segment. We have marginally
increased our earnings estimates given the margin beat at Royal Enfield. We
maintain our Accumulate recommendation on the stock with a revised SOTP
based target price of Rs20,044.

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