ICICI Direct Suggest Buy This Multibagger Large Cap Auto Sector Stock, Shares Can Jump 20%

The brokerage firm ICICI Direct in its recent report has suggested 'buy' the stock of Eicher Motors Ltd. for a target price of Rs 4,170 apiece. Considering the stock's current market price and the brokerage's estimated target price, stocks could surge up to 43% in 12 months. Eicher Motors is a large cap auto sector company having a market cap of Rs 94,965.94 crore.

Eicher Motors Limited 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.

Stock Outlook

The current market price of the stock is Rs 3,473.15 apiece. The 52-week high of the stock is Rs 2,159.55 and the 52 week low of the stock is Rs 3,513.70 apiece, respectively. On intraday, the stock's low is Rs 3,427.05 and the high is Rs 3,483, respectively.

 

Returns on Investments

The stock of the company surged 1.49% in the past 1 week It gained 11.44% in the past 1 month. Over the past 1 year, the stock surged 23.24%. In the past 3 years, the stock gave a positive return of 114.3% and in the past 5 years, it gave a positive return of 6.48%.

Key Highlights

Addressing the customer need of an affordable RE product, which is easy to manoeuvre, EML has recently launched Hunter 350 at an ex-showroom price of | 1.5 lakh/unit. Domestically, with Hunter 350, EML wants to tap the first-time buyers and upgrades from the 100 cc+ segment and sees >125 cc segment as its addressable market with market size pegged at ~32 lakh units (sales in FY22 at 5.2 lakh units). Internationally, the addressable market size is pegged at ~10 lakh units (sales in FY22 at 80,000 units).

RE's recent volume prints were encouraging with total volumes in August 2022 pegged at 70,000 units, up 26% MoM, vastly outperforming its peers.

Continued focus on Rebalance strategy wherein it will focus on all aspects of growth including EV development, superior product offering & increasing revenue from non-auto business (mainly accessories & spares).

Buy for a target price of Rs 4,170 apiece

Eicher Motors' stock price has grown at ~2% CAGR in last five years from Rs 3,200 in September 2017, underperforming broader Nifty Auto index. "We maintain BUY amid healthy volume growth prospects over FY22-24E. Upgrading our numbers, we now value EML at Rs 4,170 on SOTP basis; assigning 34x PE to RE business & 30x PE to VECV business on FY24E," the brokerage has said.

Key triggers for future price performance

According to the brokerage firm, the key triggers for future price performance are:

• Healthy response to Hunter 350 and intent to shift consumer preference to more superior offerings. We expect RE volumes to grow at a CAGR of 25% over FY22-24E. CV volumes are expected to grow at a CAGR of 22%. 
• Steady improvement in motorcycle production amid diversified product offering and increasing market share in international market to bring in operating leverage benefits with margins seen reaching 26.1% in FY24E.

Business Overview

Eicher Motors (EML) is the market leader in the >250 cc premium motorcycle segment (market share ~85%+) through its aspirational models under the Royal Enfield (RE) brand, such as Classic, etc. With the launch of 650 cc twins, its market share in international markets is pegged at ~8-10% in mid-weight segment. Via its JV with Volvo, VECV (EML has 54.4% stake), the company has a presence in the CV space as well (6.6% FY22 market share). Strong net cash positive b/s with healthy return ratios metrics.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective 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 making any investment decision.