Buy This Large-Cap Automobile Stock For A Target Price Of Rs 2,900, Says Motilal Oswal

Motilal Oswal Securities in its latest report has put a buy call on Eicher Motors. The company was founded in the year 1982 and is a large-cap company with a market cap of Rs 66,514 Crore. The company is the owner of Royal Enfield Motorcycles, and operates the brand in India. Automobile - 2 Wheelers, Traded Goods, Spare Parts & Components, Other Services, Export Incentives, and Scrap, are the company's key products. Currently, stocks of the company are trading near its 52 weeks high. The current market price of the stock on 16 May 2022 at IST 14:51 is Rs 2,601.55.

4QFY22 Results

In the report, the brokerage stated, "EIM's consolidated revenue/EBITDA/PAT grew 9%/11%/8% YoY to INR 31.9b/INR 7.6b/INR 6.1b, respectively, in 4QFY22. For FY22, its revenue/EBITDA/PAT rose 18%/19%/21%, respectively. RE realization improved 20.5% YoY to INR172.1k (est. INR173.3k) in 4QFY22, driven by price hikes and better mix (higher exports and nonmotorcycle). However, RE volumes declined 9% YoY. S/A revenue grew 8% YoY to INR31.5b (est. INR31.8b). Gross margin improved 240bp YoY to 42.7% (est. 39.2%), aided by stable RM cost, price hikes and mix improvement. EBITDA margin improved 70bp YoY to 23.6% (v/s est. 22.5%), as higher-than-estimated other expenses (due to higher freight cost in exports) offset the benefit of gross margin beat. Higher tax limited S/A PAT to ~INR5.5b (in line); grew 14% YoY. VECV: Realization improved 8% YoY to INR2.1m (in line). EBITDA margin stood at 6.7% (est. 7.6%), likely impacted by higher RM cost. Net profit stood at INR1b (v/s est. INR1.25b)."

Supply chain issue to ease

In its report, the brokerage expects the supply chain issue to ease after 2QFY23E. The brokerage has said, "Eicher Motors (EIM) reported an in-line result, as the good performance of RE was offset by the miss in VECV. With supply chain issues likely to ease post2QFY23E, the continued product portfolio expansion will aid domestic recovery and support a ramp-up in exports. We increase our FY23E/FY24E consolidated EPS by 5.5%/4.0% to reflect the better margins for RE and volume upgrades for VECV. "

Buy for a target price of Rs 2,900 per share

Demand for RE is crawling back to the pre-COVID levels and is expected to improve going forward aided by new launches and ongoing expansion in the international market. The near-term uncertainties due to supply chain issues notwithstanding, the expansion of the product portfolio on new improved platforms will help EIM expand its addressable markets and drive the next phase of growth for RE. According to the brokerage firm, "The stock trades at 24.3x/18.7x FY23E/FY24E consolidated EPS. We cut our target P/E multiple for RE to 20x (from 23x earlier), to reflect: a) a lower sustainable growth in the domestic market, b) rising competition and c) the impact of increase in risk-free rate. Maintain BUY with a TP of INR2,900 (premised on Jun'24E SoTP)."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Securities. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.