Results in line with estimates: Eicher Motors Ltd (EML)s 3QFY2016 results
(company has changed accounting year from December to March) have come in
line with our estimates.
EML’s consolidated revenues grew 37% yoy to Rs3,123cr (in line with our estimate
of Rs3,105cr). The growth was led by Royal Enfield (robust growth of 59% yoy to
Rs1,301cr). The commercial vehicle segment’s (VE Commercial Vehicles [VECV])
revenues grew 25% yoy to Rs1,821cr, led by recovery in volumes and increase in
engine supplies to Volvo. Operating margin, at 15.8%, improved 240bp yoy,
coming in line with our estimates of 16.1%. Royal Enfield’s margin, at 27.7%,
improved sharply by 270bp yoy led by strong operating leverage and price hikes.
VECV margins grew marginally by 40bp yoy to 7.3%, due to volume surge and
soft commodity prices. Given the robust operating performance, the net profit, at
Rs255cr, grew strongly by 55% yoy, coming broadly in line with our estimates of
Outlook and Valuation: The demand for Royal Enfield continues to remain strong
on increasing acceptance of leisure biking trend in India. However, Royal Enfield’s
growth rate is likely to slow down given the high base and the time required by
company and the ancillary suppliers to ramp capacity. Going ahead, the growth
rate is likely to normalize to 30% levels as against 60% rates achieved earlier.
Given the growth moderation, we have lowered our earnings and target multiple
for Royal Enfield. We maintain Buy recommendation on the stock with a revised
SOTP based target price of Rs19,036.

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