Brokerages Advise to ‘HOLD’ Eicher Motors Despite Declining Earnings

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Brokerages Advise to ‘HOLD’ Eicher Motors Despite Declining Earnings
Credit: © Reuters.

By Malvika Gurung

Investing.com -- The Indian multinational automaker Eicher Motors (NS: EICH ) has gained over 7% in less than a week, on the expectations of better than expected earnings result for the quarter ending September. The automotive stock closed 1.9% lower than its market price at Rs 511 in the Tuesday-ending session.

A sudden spike of 14.1% in average realizations on a QoQ basis, majorly supported by a suitable product mix of price hikes undertaken to offset the rising input costs, paired with higher sales of spares/accessories. 

As a result of the strong growth in realizations, the automotive company’s operating revenues grew 2.8% YoY to Rs 2,182 crore, even though its volumes declined 18%. The net realisations surged by 25%.

Furthermore, EIM’s EBITDA declined 8.5% YoY to Rs 442 crore, which is still way above Street’s estimates, due to an increase of 10% in ASPs, along with a profit of Rs 40 crore to unvested ESOPs in staff expenses.

The demand for Eicher remained solid, with the newly-launched Classic 350 receiving higher booking volumes. The sales of Royal Enfield (RE) reduced by 17.2% YoY, due to the global semiconductor shortage, while the Bullet’s performance grew over 130% in international markets. EIM expects the semiconductor supply constraint to improve in H2FY22, which would improve the sales of RE.

Edelweiss has maintained a ‘HOLD’ call on the automaker’s stock with a target price of Rs 2,804, backed by volume ramp-ups outlook and new launches. Brokerage IDBI Capital Equity Research too maintains a ‘HOLD’ call on the stock at a TP of Rs 2,926 and has estimated an EPS of Rs 117 for FY24.

Ambit Capital, on the other hand, has slashed its FY23E volume by about 7%, backed by a probable chip shortage which could affect the production of the Royal Enfield.

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