Eicher Motors falls post Q1 results; should you buy?

Analysts on Dalal Street maintained a mixed view on Eicher Motors after the Royal Enfield maker on Thursday posted a consolidated net profit of Rs 237 crore for the quarter ended June 30. It had reported a loss of Rs 55 crore in the same quarter last year. Total revenue from operations increased to Rs 1,974 crore from Rs 818 crore in the corresponding quarter of FY 2020-21.

Shares of the company traded 1.97% lower at Rs 2563.85 at around 9.20 am (IST) on Friday, while the benchmark BSE Sensex was up 197 points, or 0.36%, at 55,041 at around the same time. Royal Enfield, a part of Eicher Motors, reported sales of 1,22,170 motorcycles in the first quarter, an over two-fold increase from 58,383 units sold in Q1 of last fiscal.

The company also said Vinod Dasari, Royal Enfield CEO, is stepping down with effect from August 13. The company has appointed B Govindarajan as executive director to head the Royal Enfield business.

Brokerages view

Axis Capital maintained a ‘Sell’ call on Eicher Motors with a target price of Rs 2,050. “Vinod Dasari has resigned from his role as CEO of Royal Enfield business to pursue family business in hospital segment. His resignation comes as a negative surprise considering he had become the face of RE business over the last 2 years spearheading various initiatives including network expansion through Studio Stores, aggressive focus on new product launches and exports, Make It Yours (customization) initiative etc,” Axis Securities said adding that it has cut FY22E EPS estimates by 12% given significant underperformance on volume front so far and continued delay in new model launches.

Commenting on the Q1 performance, Eicher Motors Managing Director Siddhartha Lal said with the second wave of the pandemic sweeping across the country and making its impact felt through the economic cycle, the previous quarter presented a challenging environment for the automotive sector overall. “However, we continue to believe in our strong business fundamentals and are positive about the long-term prospects and performance of both Royal Enfield and VECV. Despite the unprecedented situation, we stayed resilient and delivered the strongest ever quarter for Royal Enfield in international markets,” he noted.

In the domestic market, the company’s bookings saw an uptick in the month of June as local lockdowns and restrictions were gradually lifted across the country, Lal said.

The global shortage of semiconductors continues to be a concern and is likely to hamper production for the ongoing quarter, and possibly through the rest of the year as well, he added.

Edelweiss Securities has a ‘Neutral’ call on Eicher Motors with a target price of Rs 2,866. The brokerage firm added that the company’s Q1FY22 standalone EBIDTA of Rs 330 crore came 4% above estimate driven by gross margin surprise.

“Key development was the resignation of Vinod Dasari (CEO-RE) within 2.5 years of joining. While a setback, Eicher Motors has an institutionalised set up and we do not expect the sudden departure to entail a negative impact. We continue to pin hope on the ‘highest-ever model launches in a year to take advantage of scale-up in distribution reach (our FY23E volumes are 6% higher than FY19 peak). However, execution continues to be delayed due to external factors,” Edelweiss Securities said in a report.