Shares of Eicher Motors rose sharply in Wednesday’s trade after announcing the December quarter results. The stock jumped 5.20 per cent to hit a day high of Rs 3,340 over its previous close of Rs 3,174.85. The company reported a 62.42 per cent rise in its consolidated profit, at Rs 740.84 crore, for the third quarter that ended December 31, 2022 (Q3 FY23). The company posted a consolidated profit of Rs 456.13 crore in the same period last fiscal. Total income during the quarter under review stood at Rs 3,913.32 crore as compared to Rs 2,972.79 crore in the year-ago period. Total expenses, however, were higher at Rs 3,006.19 crore in Q3 FY23, up from Rs 2,415.79 crore in Q3 FY22.
Three out of four brokerages considered have assigned a ‘Buy’ call on the counter; while one has maintained its ‘Sell’ rating. Emkay Global Financial Services, Prabhudas Lilladher and JM Financial Institutional Securities recommended buying the stock with a target price of Rs 4,060, Rs 4,120 and Rs 4,100, respectively. Elara Securities, on the flip side, suggested a ‘Sell’ call with a target price of Rs 3,000.
Emkay Global said, “Going forward, revenue CAGR (Compound annual growth rate) is expected to be robust, at 15 per cent over FY23-25E, supported by new products. The recently-launched Hunter 350cc/Meteor 650cc models have received a positive response, and the upcoming product pipeline could include the new-gen Bullet 350cc, Shotgun 650cc and Sherpa 650cc. We expect EBITDA margin to expand, from 23.70 in per cent FY23E to 25.20 per cent in FY25E, buoyed by higher scale, improved net pricing and cost-reduction efforts.”
Prabhudas Lilladher stated that Royal Enfield would continue to focus on expanding the reach of Hunter model to rural and export markets to keep up the growth momentum. “RE has also planned multiple product launches over the next two years, which should aid volume growth. Operating leverage, a higher share of exports, increase in the mix of spares and merchandise revenue should help margins in the medium term, in our view,” it added.
Eicher’s two-wheeler arm Royal Enfield clocked total dispatches at 2,19,898 motorcycles in Q3 FY23, up 31.15 per cent over 1,67,664 in the same period last year.
JM Financial said, “Overall demand momentum is expected to continue with expanding distribution network and rising market share in international markets. Management expects the demand build-up to remain strong led by the affordable Hunter 350 model. Supply constraints have largely receded.”
In contrast, Elara Securities said, “Royal Enfield’s (RE’s) EBITDA per vehicle growth QoQ underperformed its peers despite higher volumes. This shows that to propel growth and expand the market, RE may seek lower price products, dragging EBITDA per vehicle. The improving Hunter mix could be detrimental to EBITDA per vehicle trajectory. We believe the scope for sustained market share gain is limited for RE. We do not believe that the contribution of existing RE customers upgrading to buying a new RE would increase substantially in the coming years; thus, major outperformance to industry growth is unlikely.”
Technical view
AR Ramachandran from Tips2trades said, “Even though Eicher Motors’ stock price looks bullish on the daily charts, it faces strong resistance at Rs 3,354. A close above this level could lead to targets of Rs 3,410-3,500 in the near term. Support will be at Rs 3,203.”
The stock was last seen trading higher than 5-day, 20-, 50- and 200-day moving averages but lower than 100-day moving averages. The counter’s 14-day relative strength index (RSI) came at 55.70. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company’s stock has a price-to-equity (P/E) ratio of 35.74.
Eicher Motors has an average target price of Rs 3,963, Trendlyne data showed, suggesting a potential downside of 19.58 per cent. The scrip has a one-year beta of 0.96, indicating average volatility on the counter.
Meanwhile, Indian equity benchmarks traded higher in late deals today, led by gains in automobile and technology stocks. As of 3:11 pm, the 30-share BSE Sensex pack rose 220 points or 0.36 per cent to trade at 61,252; while the broader NSE Nifty index moved 84 points or 0.47 per cent higher to trade at 18,014.
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