Eicher Motors FY17 Q1 standalone (Royal Enfield) business performance exceeded expectations driven by lower than expected raw material costs. RE’s EBITDA (Rs4.8bn) and EBITDA margin (30.8%) came in 6% and 130bps higher than expected. Due to changeover to Ind AS, the company now accounts for Volvo-Eicher Commercial vehicles (VECV) under ‘equity method’ (from earlier full consolidation method) hampering our ability to analyse VECV’s operating performance. Consolidated net earnings at Rs3.8bn came in 6% higher than our estimate. We remain uncertain of RE’s success in the export markets (need for portfolio and distribution ramp-up) and believe RE’s current punchy valuation more than captures medium and long term growth potential.
Ambit Capital Analyst has the following view on Eicher motors,
We retain SELL with a target price of Rs17,575. The stock is currently trading at 27.8x FY18E net earnings
