Eicher Motors Q3 earnings in line; Jefferies, Motilal Oswal cut estimates

Jefferies maintained its buy rating on Eicher Motors and slashed its target price to Rs 23,100 from Rs 27,100 earlier. The global investment bank also slashed its revenue estimates over FY19-21 by 2-6 percent.

Eicher Motors stock fell on Tuesday after the company posted an in-line set of numbers amid concerns over volume growth due to subdued consumer sentiment. Global brokerage firms maintained positive rating but slashed earnings estimates to factor in weak operating performance.

At 09:30 am, Eicher Motors was trading flat at Rs 20,814. It hit intraday low of Rs 20,100 and an intraday high of Rs 20,869 in morning trade on February 12.

The consolidated profit grew 2.4 percent year-on-year to Rs 533 crore with low revenue growth and weak operating income. Profit in the same quarter last year stood at Rs 530.9 crore.

Revenue from operations in Q3 increased 3.2 percent to Rs 2,341 crore year-on-year, but Royal Enfield sales volume declined 6 percent YoY against 3.6 percent rise in Q2.

At the operating level, consolidated EBITDA (earnings before interest, tax, depreciation, and amortisation) declined for the first time in last eight years and margin fell below 30 percent for the first time since March quarter 2016.

EBITDA dipped 3.9 percent year-on-year to Rs 679.5 crore and margin contracted 220 bps to 29 percent in Q3FY19.

Reacting to the results, Jefferies maintained a buy rating on Eicher Motors and slashed its target price to Rs 23,100 from Rs 27,100 earlier. The global investment bank also slashed its revenue estimates over FY19-21 by 2-6 percent.

It also cut its FY19-21 EBITDA estimates by 5-10 percent to reflect lower volumes. Jefferies also slashed estimates for VE Commercial Vehicle to factor in weaker volumes and margin growth. The global investment bank expects the company to outperform industry growth in the medium to long term.

Another brokerage firm, Motilal Oswal, maintained buy rating on Eicher Motors post December quarter results but slashed its EPS estimates for FY20-21.

“We cut our FY20-21 consolidated EPS estimate by 2-3 percent, as we cut VE CV earnings by 8%/9% to factor in weak operating performance,” said the brokerage.

Earnings call highlights:(a) 650cc Twins has a waiting period of ~6 months, with production to scale-up to 4.5-5k/month by Apr-May’18 (from ~2k/month in Jan-19).
(b) Production guidance of 870k-880k for FY19.
(c) RE’s dealer inventory under two weeks
(d) Kerala market is yet to make a comeback post floods, with a loss of few thousands per month
(e) It has a product pipeline in place for five years
(f) Took price hike of Rs 1,400 in Jan’19 to pass through cost inflation, and(g) 80% of portfolio shifted to ABS.

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