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Business News/ Markets / Stock Markets/  Eicher Motors share price falls over 3% as analysts expect competition to hit Royal Enfield volumes; Should you buy?
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Eicher Motors share price falls over 3% as analysts expect competition to hit Royal Enfield volumes; Should you buy?

Eicher Motors posted a consolidated net profit of ₹995.97 crore for the quarter ended December 31, recording a growth of 34.43% from ₹741 crore in the year-ago period, led by price increases and higher volumes.

Royal Enfield’s domestic demand trajectory has not witnessed any material uptick after the launch of Hunter 350, analysts said. (Photo: Bloomberg News)Premium
Royal Enfield’s domestic demand trajectory has not witnessed any material uptick after the launch of Hunter 350, analysts said. (Photo: Bloomberg News)

Eicher Motors share price declined over 3% in early trade on Wednesday after the company reported its Q3 results. Eicher Motors shares declined as much as 3.31% to 3,729.05 apiece on the BSE.

Eicher Motors posted a consolidated net profit of 995.97 crore for the quarter ended December 31, recording a growth of 34.43% from 741 crore in the year-ago period, led by price increases and higher volumes.

The company’s revenue from operations in Q3FY24 rose 12.28% to 4,179 crore from 3,721 crore, year-on-year (YoY).

The auto major’s EBITDA during the quarter increased 27% to 1,090 crore from 857 crore, while operating margin improved to 26.08% from 23.03%, YoY.

Most analysts highlighted that the rising competition for Royal Enfield may impact volumes going ahead. Here’s what brokerages have to say about Eicher Motors’ Q3 results and Eicher Motors stock price:

Kotak Institutional Equities

Royal Enfield’s domestic demand trajectory has not witnessed any material uptick after the launch of Hunter 350, hence, Kotak Institutional Equities expects the >250 cc industry growth trajectory to remain below the Street’s expectations. Scale-up of Bajaj-Triumph and Hero-Harley will further moderate volume growth trajectory for the company. 

The export segment is expected to remain muted in the near term, but Eicher Motors continues to improve its profitability, Kotak Institutional Equities noted.

It has fine-tuned FY2024-26E consolidated EPS estimates, with lower volume assumptions for the Royal Enfield business and lower share of profit from JV (lower volume assumptions for CV industry), offset by higher consolidated EBITDA margin assumptions. 

The brokerage has a ‘Sell’ rating on the stock but raised the target price to 3,000 per share from 2,900 earlier.

Also Read: Zee Entertainment share price drops over 4% after Q3 results; brokerages cut target; Should you buy?

Emkay Global Financial Services

Eicher Motors reported largely in-line Q3 with ASPs rising ~2% QoQ and margins dipping 33 bps QoQ to 26.1%. Contrary to the long-term premiumization trend, we highlight the over-250 cc category is witnessing a slowdown over the past two quarters. Moreover, rising competition with aggressive ramp-up plans and muted response to recent launches have impacted RE’s market share, Emkay Global Financial Services said. 

It cut FY25E and FY26E volumes estimates by ~5.6% and ~10.6% on muted volume outlook; EPS downgrade is softer (flat for FY25E, ~9% cut in FY26E) due to higher other income. 

The brokerage downgraded Eicher Motors to ‘Sell’ from ‘Add’ and cut the target price to 3,250 per share from 4,300 earlier.

Motilal Oswal Financial Services

Royal Enfield is now facing credible competitive pressure after the launch of new models from the partnerships of Hero-Harley and Bajaj-Triumph. Despite the launch of the new Himalayan 450 and the Shotgun650, we have not seen any material rise in RE volumes in 3Q. Further, RE continues to face demand headwinds in its key export markets given the ongoing geo-political crisis, Motilal Oswal said. 

As a result, it expects RE to post a much lower 11% volume CAGR over FY24-26. It believes valuations at 26.2x/23.1x do not reflect the potential risk from the rising competitive intensity and the weakness in exports. 

Hence, the brokerage reiterated its ‘Neutral’ rating with a target price of 3,930 per share.

Also Read: Hindalco share price volatile: Should you Buy, Sell or Hold the stock?

Antique Stock Broking

Antique Stock Broking believes going ahead as the share of higher cc models increase, exports will pick up along with growth in volume leading to continued improvement in margins. In terms of volumes, although performance has been muted as compared to peers over the last few months, it believes it is more to do with supply issues than with demand. 

The brokerage firm expects limited impact from new competition and expects demand to remain strong and drive volumes for Royal Enfield going ahead in both the domestic as well as export markets, leading to 12% volume growth over FY23-26E.

It also sees a 17% increase in EBITDA/vehicle and believes the receding concerns about the impact of competition on Royal Enfield should further help drive re-rating of the stock.

Antique Stock Broking reiterated the ‘Buy’ call and cut the target price by 1% to 4,764 per share.

At 11:15 am, Eicher Motors shares were trading 0.83% lower at 3,825.00 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 14 Feb 2024, 11:16 AM IST
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