Report on Eicher Motors

Particulars
About the stock: Eicher Motors (EML) is the market leader in the >250 cc premium Particular ₹ crore
motorcycle segment (FY21 market share at 93.5%) through its aspirational models Market Capitalization 72,835
under the Royal Enfield (RE) brand, such as Bullet, Classic, Interceptor among others. Total Debt (FY21) 157
Cash & Investments (FY21) 7,806
• Via its JV with Volvo i.e., VECV (EML has 54.4% stake), the company has a EV (FY21) (₹ crore) 65,186
presence in the CV space as well (6.4% FY21 market share). 52 week H/L (₹) 3036 / 2072
Equity capital ₹ 27.3 Crore
• Strong net cash positive b/s with healthy return ratios metrics
Face value ₹1
Shareholding pattern
Dec-20 Mar-21 Jun-21 Sep-21
Q2FY22 Results: The company posted healthy Q2FY22 results that beat estimates.
Promoter 49.2 49.2 49.2 49.2
• Consolidated revenues were at | 2,250 crore, up 13.9% QoQ FII 28.9 29.1 28.8 30.3
• Reported EBITDA margins came in at 20.9%, up 250 bps QoQ DII 9.4 9.1 9.5 8.7
Other 12.5 12.6 12.5 11.9
• Consequent consolidated PAT was at | 373 crore, up 57.4% QoQ
Price Chart

Key triggers for future price performance:

• Expected 12.6% FY21-23E RE volume CAGR aided by low base, abating of
supply constraints, new product introduction (including Classic 350), network
expansion benefits and higher exports
• Continued VECV outperformance in CVs to lead to market share gains; we
build 31% FY21-23E volume CAGR as cyclical recovery gathers pace
Recent event & key risks
• Overall FY21-23E consolidated net sales CAGR expected at 27.1%, with
• Reported healthy Q2FY22 results
margins seen rising to 24.3% by FY23E riding on operating leverage gain
• Key Risk: (i) Faster than
anticipated sales volume growth
over FY21-23E, (ii) Input cost
pressure on margins

5 year CAGR 2 year CAGR

Key Financials FY19 FY20 FY21 FY22E FY23E
(FY16-21) (FY21-23E)
Net Sales 9,797.1 9,153.6 8,720.4 -11.1% 10,794.3 14,085.8 27.1%
EBITDA 2,903.1 2,180.3 1,781.3 -6.2% 2,382.7 3,417.6 38.5%
EBITDA Margins (%) 29.6 23.8 20.4 22.1 24.3
Net Profit 2,202.8 1,827.5 1,346.9 1.1% 1,827.1 2,750.1 42.9%
EPS (₹) 80.8 67.0 49.3 66.9 100.6
P/E 33.0 39.8 54.1 39.9 26.5
RoNW (%) 24.8 18.3 11.8 14.4 18.6
RoCE(%) 27.8 17.3 11.3 14.7 19.1
MANAGEMENT:-

SIDDHARTHA LAL
MANAGING DIRECTOR & CEO, EICHER MOTORS LTD

Siddhartha Lal is the Managing Director and CEO of Eicher Motors Ltd., the flagship company of
Eicher Group in India. Siddhartha has also been the Chief Executive Officer of Royal Enfield and the

Result Update
Chairman of VE Commercial Vehicles (VECV); a joint venture between Volvo group and Eicher
Motors Ltd. (EML).
He holds a Master’s degree in Automotive Engineering from University of Leeds and is a Cranfield
University qualified mechanical engineer. Siddhartha is also an Economics graduate from St.
Stephens College in Delhi and an alumnus of The Doon School.

B GOVINDARAJAN
EXECUTIVE DIRECTOR, ROYAL ENFIELD & WHOLETIME DIRECTOR, EICHER MOTORS LTD

B. Govindarajan is the Executive Director at Royal Enfield. He also serves as Wholetime

Director on the Board of Eicher Motors Ltd.
Govindarajan has spent over 23 years at Eicher Motors Ltd. and at Royal Enfield in two
stints. In his present stint, he joined Royal Enfield in June 2011 as the Senior Vice
President - Industry and has been the Chief Operating Officer at Royal Enfield since 2013.

KALEESWARAN ARUNACHALAM
CHIEF FINANCIAL OFFICER (CFO), EICHER MOTORS LTD

ICICI Securities – Retail Equity Research

Mr. Kaleeswaran Arunachalam is the Chief Financial Officer at Royal Enfield and has joined
in May 2020. Mr. Kaleeswaran Arunachalam is seasoned finance professional with over 17
years of experience across industries. Prior to joining Royal Enfield, Mr. Arunachalam was
the Chief Financial Officer for the Future Lifestyle Fashions Limited.

SWOT ANALYSIS

STRENGTHS

Company with Low Debt

Increasing Revenue every quarter for the past 2 quarters
Increasing profits every quarter for the past 2 quarters
Strong cash generating ability from core business - Improving Cash Flow from operation for
last 2 years
Company with Zero Promoter Pledge
FII / FPI or Institutions increasing their shareholding
Strong Momentum: Price above short, medium and long term moving averages
MFs increased their shareholding last quarter

WEAKNESS

Companies with growing costs YoY for long term projects

Broker downgrades in price or recommendation in the past one month
Companies that Declared Results in Past One Week, Showing Declining Net Profit YoY OR
QoQ (subscription)
Inefficient use of capital to generate profits
Inefficient use of shareholder funds - ROE declining in the last 2 years
Inefficient use of assets to generate profits - ROA declining in the last 2 years
Decline in Quarterly Net Profit with falling Profit Margin (YoY)
Annual net profit declining for last 2 years

OPPORTUNITY

Brokers upgraded recommendation or target price in the past three months

High Momentum Scores (Technical Scores greater than 50) 319.5% returns for Nifty 500 over
5 years
Weekly Momentum Gainers
Stocks near 52 Week High with Significant Volumes

THREATS

Recent Broker Downgrades in Reco or Target Price

Stocks with Expensive Valuations according to the Trendlyne Valuation Score
Stocks with high PE (PE > 40)
Declining profitability: Falling ROCE
Red Flag: Companies seeing significant coronavirus impact

COMPETITION

Tata Motors Ltd is an automobile company that manufactures motor vehicles and operates
in 160+ countries across the world. It is engaged mainly in the business of automobile
products comprising all types of commercial and passenger vehicles including financing of
the vehicles sold. Its business segments include automotive operations and other non-
automotive operations. Its automotive segment includes all activities related to the
development, design, manufacture, assembly and sale of vehicles including vehicle
financing as well as sale of related parts and accessories. It manufactures and sells
passenger cars, utility vehicles, light commercial vehicles and medium and heavy
commercial vehicles. The non-automotive operations includes IT services, machine tools
and factory automation services.
JLR (Jaguar Land Rover) is expected to outperform the industry, driven by a favorable
product pipeline with six launches planned over the next 12-15 months including three
new rollouts (Velar, E-Pace and I-Pace), one upgrade (Evoque) and two refreshes (RR and
RR Sport). TML expects JLR’s retail sales to grow 10% in FY18 (v/s +4% in FY18 YTD and
+16% in FY17). Its forex hedge losses are likely to start moderating substantially Q4FY18
onwards. Based on the current spot rates, hedge losses for FY19 will be negligible.
JLR has revised its hedging policy from May 2017, with one-year forward hedging of up to
65% of net forex exposure (v/s up to 85% hedge earlier). It plans to launch Jaguar I-Pace
(full electric variant [EV]) by September 2018. It plans to offer an EV (including hybrids) of
each new JLR model line from 2020.
Competition is very high especially in the US market. This is fairly evident from the high
incentives on premium sedans compared to the relatively low incentives on SUVs. With
several new products and refreshes of RR/RR Sport, incentives are expected to start
moderating from Q4FY18.
It expects EBIT margin of 6% in FY18, in line with our estimate and compared to 1.2% in
Q1FY18, driven by moderating incentives from Q4FY18, operating leverage and favorable
forex. For the medium-term, it expects an EBIT margin of 8-10%, in line with our estimate
of 9.5% for FY19 and 8.8% for FY20. It targets cost savings of ~Rs.15 bn in FY18, driving
PAT breakeven in FY18. Our estimates for the domestic business do not factor in for this
swift turnaround in FY18. In fact, our current estimates indicate PAT breakeven in FY20.
Ashok Leyland Ltd is the 2nd largest manufacturer of commercial vehicles in India the 4th
largest manufacturer of buses in the world and the 12th largest manufacturer of trucks
globally. The company's products include buses trucks engines defense and special
vehicles. From 18 seater to 82 seater double-decker buses from 7.5 ton to 49 ton in
haulage vehicles from numerous special application vehicles to diesel engines for
industrial marine and genset applications Ashok Leyland offers a range of products.
Meanwhile, sales of total commercial vehicle (CV) sales rose 11.3% sequential in January
2022 from 12,518 units sold in December 2021.While the total sales of medium & heavy
commercial vehicles (M&HCV) rose 17% to 8,663 units, while sales of light commercial
vehicles (LCVs) declined 8% to 5,276 units in January 2022 over January 2021.Ashok
Leyland, flagship of the Hinduja group, is among the largest manufacturer of commercial
vehicles in India and also among the biggest manufacturers of buses and trucks
globally.The company reported a lower standalone loss of Rs 83 crore in Q2 FY22 as
against a standalone net loss of Rs 146 crore posted in Q2 FY21. Revenue from operations
rose 57% increase to Rs 4,458 crore in Q2 FY22 from Rs 2837 crores posted in Q2 FY21.
The company said that Switch Mobility, the EV arm of Ashok Leyland, continues to grow its
order book in India, UK and EU and has generated significant interest at COP26, being the
first automotive manufacturer to commit to achieving net zero carbon in its operations for
2021.

CONCLUSION

As seen above facing its competition could be tough task but Eicher motors have prove to
be the leader in the space and I presume with improvement in factory output, expansion
of dealer network in tier-2 / tier-3 cities it could well be a market leader and event
collaborations with Volvo will also prove to a goodwill for the company to meet future
aspects. They should also focus on EV segment and with Royal Enfield as the go to brand
for Indian Bike lovers producing low end bikes for consumers would help them too.