Time Ripe To Buy Eicher Motors, Says Jefferies
The brokerage see limited impact on Royal Enfield from the new launches so far.
It's now the ideal time to buy Eicher Motors Ltd. shares given the strong recovery in two-wheelers' demand, industry premiumisation, and potential to grow exports, according to Jefferies Financial Group Inc.
The brokerage revised its target price to Rs 4,150 per share from Rs 4,000 apiece, implying a potential upside of 22%, according to a note on Monday.
Jefferies prefers Eicher Motors, along with TVS Motors Ltd., over Bajaj Auto Ltd. and Hero MotoCorp. among two-wheeler manufacturers. The risk to Royal Enfield's market share was now alleviated and, hence, raised in the pecking order after having previously pushed the company lower due to rising competition, it said.
Competitive Concerns
Eicher Motors's stock has risen 5% so far during the calendar year, underperforming the benchmark Nifty Auto by 24%. That was mainly due to a relative valuation contraction rather than a downward impact on the earnings outlook, according to Jefferies.
It said the company's valuation came under pressure due to a fresh wave of competition against Royal Enfield from the launch of new motorcycles launched by Hero-Harley and Bajaj-Triumph collaborations.
The new launches of Harley-Davidson bikes co-developed with Hero MotoCorp and Triumph bikes in collaboration with Bajaj Auto have each received approximately 20,000–26,000 bookings since their launches in early July, compared to sales of 69,000 per month for Royal Enfield in India during the April–August period, the brokerage said.
It sees limited impact on Royal Enfield from the new launches so far. "Google search activity shows that customer interest in RE has held up despite fresh competition, while the search trends for new competing models are moderating after the initial launch excitement."
Royal Enfield has seen a lack of any significant impact so far, as per its channels.
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Strong Underlying Performance
Eicher Motors delivered the highest volumes and earnings per share for Royal Enfield in the last financial year despite the downturn in the two-wheeler industry, Jefferies said.
Market share for medium and heavy commercial vehicles grew from around 10–13% in fiscal 2012–20 to 17% in the last fiscal and 19% in the first quarter of the current fiscal.
Operating profit during the June quarter also rose 23% to a record high. It estimated a rise in Ebitda and EPS by 62% and 81%, respectively, over fiscal 2023–26, with a three-year compound annual growth rate of 17% and 22%, respectively.
Shares of Eicher Motors were trading 3.71% higher at Rs 3,512 apiece compared to a 0.09% gain in the benchmark NSE Nifty 50 as of 10:17 a.m. The stock rose 4.5% to an intraday high of Rs 3,539.20 apiece, the highest since July 4.
The average traded volume so far in the day stood at 2.24 times its monthly average, while the relative strength index was at 62.
Twenty-five out of the 44 analysts tracking Eicher Motors maintain a 'buy' rating on the stock, 13 recommend 'hold', and six suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies an upside of 3%.