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Eicher Motors shares to turn ex-dividend on 12 Aug. Should you buy?

The company is confident about sustaining growth for its flagship motorcycle Royal Enfield in the forthcoming quarters. (Mint)Premium
The company is confident about sustaining growth for its flagship motorcycle Royal Enfield in the forthcoming quarters. (Mint)

  • Eicher has announced a dividend of 21 per equity share having a face value of Re 1 each for FY22.
  • During Q1FY23, Eicher's profit after tax was at 611 crore as compared to a profit of 237 crore during the same period last year.

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Royal Enfield manufacturer, Eicher Motors will be in focus on Friday as the shares will turn ex-dividend. The auto major has announced a dividend of 21 per equity share. The sentiments of the company are also driven by its June 2022 quarterly results. Eicher registered the highest ever quarterly revenues and EBITDA on the back of record international sales volumes. The company is confident about sustaining growth for its flagship motorcycle Royal Enfield in the forthcoming quarters. Eicher shares have clocked a new 1-year high on stock exchanges.

On BSE, Eicher shares settled at 3,175 apiece up by 20.45 or 0.65%. Earlier on Thursday, the company hit a fresh 52-week high of 3,260.85 apiece. The company's market cap is around 86,813.66 crore.

Eicher has announced a dividend of 21 per equity share having a face value of Re 1 each for FY22. The company has announced to close its register of members and share transfer books from August 18 to August 24, 2022. That said, its shares will turn ex-dividend on August 12, 2022.

In general terms, when a company earns profit they share a portion of the surplus with shareholders who have a portion of their stocks and that is called a "dividend". Meanwhile, the ex-dividend date for a stock is the business day before the record date of declaring eligible shareholders for the payout. This also means that investors who buy the stock on the ex-dividend date or later will not be eligible for dividends announced for a particular fiscal by the company.

During Q1FY23, Eicher's total revenue from operations stood at 3,397 crore up 72% as compared to 1,974 crore in the corresponding quarter of FY 2021-22. Meanwhile, EBITDA was at 831 crore as compared to 363 crore in the same quarter of the previous financial year. Profit After Tax was at 611 crore as compared to a profit of 237 crore during the same period last year.

Further, in Q1FY23, Royal Enfield sold 186,032 motorcycles --- an increase of 52% from 122,170 motorcycles sold over the same period in FY 2021-22.

Siddhartha Lal, Managing Director, Eicher Motors Ltd., said, “We have had an excellent quarter to begin this financial year. Our international volumes continued to record consistent growth with more than 60% increase as compared to the previous year. We have registered the highest ever quarterly revenues and EBITDA on the back of record international sales volumes. We recently launched the exciting new, neo-retro styled roadster, the Hunter 350."

Going forward, B. Govindarajan, CEO - Royal Enfield and Wholetime Director, EML said, "With products like the Scram 411 and the Hunter 350, we are building refreshed formats to experience pure motorcycling. With the upcoming festive season, an uptick in market and consumer sentiment, and improvement in supply chain and part availability, we are confident about continued and sustained growth for Royal Enfield in forthcoming quarters."

Should you invest in Eicher shares?

Mansi Lall - Research Associate at Prabhudas Lilladher said, "Eicher delivered a positive surprise with a consolidated EBITDA margin of 24.5% (+80bps QoQ) vs our estimates of 23.2%. RE has recently launched Hunter 350, which is expected to bring on board new customers owing to its attractive pricing (~ 1.5 lakhs for factory model) and differentiated product offering (light in weight, non-cruiser, urban fit). It delivered its highest ever quarterly exports of ~29k units in 1QFY23 (vs ~25k in 4QFY22). We expect the export business to witness significant growth over the next few years (we build in 30% volume CAGR over FY22-24E) led by channel expansion and market share gains. With new model launches in the pipeline, commodity cost moderation, and chip supply stabilizing, we expect operating leverage to kick in. At VECV, demand continues to witness traction led by cyclical recovery."

Lall added, "We maintain BUY on Eicher Motors as we anticipate (1) volume growth from new product launches (2) rising exports volume from channel expansion and market share gains and (3) margin expansion as operating leverage kicks in (we build in ~380bps EBITDAM expansion over FY22-24E). We increase our EPS estimates by 2/5% for FY23/24 and assign a revised SoTP based TP of 3,400 (at 28x FY24E EPS for standalone business vs 27x earlier to factor in positive outlook and 18x for VECV)."

Also, ICICI Direct Research analysts Shashank Kanodia and Raghvendra Goyal upgraded their outlook on Eichers. The duo said, "With attractive pricing for Hunter 350 (lowest price point offering by RE at 1.5 lakh/unit, ex-showroom), network optimisation & increasing global presence, we expect RE volumes to grow at a CAGR of 22% over FY22-24E," adding, "with CV cyclical upswing domestically, CV volumes at VECV are expected to grow at a CAGR of 21% FY22-24E amidst market share gains."

Overall on a consolidated basis, the ICICI Direct analysts said, "we expect net sales to grow at a CAGR of 22.1%. With operating leverage gains & stable input costs, margins are seen improving to 26.1% with consequent RoCE placed at ~21% by FY24E."

ICICI Direct analysts said, "We upgrade EML from HOLD to BUY amid affordable offering in premium segment (Hunter 350) thereby supporting volume growth over FY22-24E." They have set a target price of 3,650 on the company.

On the other hand, Analysts at Nirmal Bang in their note said, " The company recorded its highest-ever sales in the international market in 1QFY23. We expect exports to clock 17% CAGR over FY22-24E, aided by entry into new markets and market share gain in the existing markets. We expect exports to be one of the key growth drivers for Eicher over the medium term. Furthermore, we also expect VECV to benefit from the CV upcycle. Despite improvement in volume, we expect margin expansion to remain constrained due to the change in product mix and difficulty in fully passing on the inflationary effect to consumers."

Further, Nirmal Bang analysts added, "We remain positive on Eicher’s business prospects, owing to healthy growth and model launches. We are building in Revenue/EBITDA/EPS CAGR of 21%/30%/30% over FY22-25E and tweak our FY24E Revenue/EBITDA/PAT estimate by (0.8)%/1.6%/1.6%. However, over the last one month, the stock has rallied by ~22%. We believe that the current valuation has factored in the company’s positive business prospects and thus we have a cautious view on the stock. We downgrade Eicher to ACCUMULATE (BUY earlier). We value RE standalone at 25x Sept’24E EPS and VECV at 12x EV/EBITDA on Sept’24E to arrive at a target price (TP) of Rs3,446."

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