Last Updated:
Eicher Motors shares surged over 8 per cent in early trading after brokerages shared their views; Should you invest?
Royal Enfield Bullet 350. (Photo: Shahrukh Shah/ News18)
Eicher Motors shares surged over 8 per cent in early trading after brokerages shared their views about the company’s Q2 earnings. At 10:57 am, shares of the company were up 8.02% to 4,957.25 on the Bombay Stock Exchange (BSE).
For the quarter gone by, Eicher Motors reported an 8.3 per cent year-on-year (Y-o-Y) increase in consolidated profit at Rs 1,100.3 crore compared to Rs 1,016.3 crore in Q2FY24. Revenue also grew 3.6 per cent Y-o-Y, rising to Rs 4,263.1 crore from Rs 4,114.5 crore in the same period last year.
At the operating level, earnings before interest, tax, depreciation and amortisation (Ebitda) rose slightly to Rs 1,087.7 crore, up from Rs 1,087.2 crore in Q2FY24. However, the company’s margin squeezed 90 basis points (bps) to 25.5 per cent from 26.4 per cent in the previous year.
Both domestic and international brokerages showed optimism about Eicher Motors, the parent company of Royal Enfield, after its announcement of the Q2FY25 financial results on Tuesday, November 13.
What Should Investors Do?
Nomura has upgraded Eicher Motors to a ‘Neutral’ rating from ‘Reduce’ and raised its target price from Rs 4,102 to Rs 4,391. The upgrade reflects Eicher’s shift in strategy toward focusing on volume growth over high margins, addressing Nomura’s previous concerns regarding long-term growth and competitive threats.
While the company anticipates lower average selling prices (ASPs) and increased marketing costs, Nomura sees this approach as a strategic defence against competition from brands like Bajaj, Hero, Honda, Jawa, and TVS. For example, Bajaj Auto aims to expand its lineup and dealership network, potentially affecting Royal Enfield’s market share. However, Nomura believes Eicher’s new approach will help mitigate competitive pressures, which justifies the upgraded rating.
Nomura has also adjusted its Royal Enfield sales volume forecasts for FY25 and FY26 upward by 3-5 per cent, now expecting sales of 988,000 units (+8 per cent Y-o-Y) and 1,065,000 units (+8 per cent Y-o-Y), respectively. The ASP estimates, however, were reduced by 3-4 per cent, and Ebitda margin projections were revised down by 20-40 basis points to 26.8 per cent for FY25-FY27. Additionally, Nomura lowered its earnings-per-share (EPS) forecast by approximately 2 per cent.
Those at Nuvama Institutional Equities also provided a positive update, noting that Q2FY25 Ebitda was flat Y-o-Y, slightly below its estimate due to increased marketing expenses. Net profit grew 8 per cent, aligned with expectations, supported by higher other income.
Royal Enfield’s domestic sales dipped 1 per cent Y-o-Y in H1FY25, but Nuvama expects a strong recovery with a projected 12 per cent Y-o-Y increase in H2FY25, driven by festive demand, focus on key models (Classic and Bullet), new product launches, and marketing efforts. Consequently, Nuvama raised its FY25–27 revenue and EPS forecasts by up to 8 per cent and 6 per cent, respectively.
Jefferies echoed the optimism, also setting a target price of Rs 5,500, as it anticipates benefits from the rising trend of premium two-wheeler purchases.
Emkay Global, raising its target price to Rs 5,300, pointed to Eicher’s focus on driving volumes with launches like the Bullet Battalion Black and robust festive sales.
Meanwhile, Citi noted that the company’s pivot to prioritise volume growth, even at the cost of margin expansion, is a strategic response to market competition.
On the other hand, Morgan Stanley maintained an ‘Underweight’ rating with a target of Rs 3,655, citing missed earnings expectations and ongoing competitive pressures.
