Bulls remained in control of Eicher Motors as the stock rallied more than 10% in a week, and over 25% in the past three months.
The recent run-up in prices pushed the stock to a fresh record high of Rs 3,886 on November 1 but the rally may not be over yet.
Investors who missed the rally can look at buying the stock now or on dips for a possible target of Rs 4,232 in a year which will surpass its current record high of Rs 3,886, suggest experts.
“With around 7.75 lakh motorcycles expected to be sold for FY23 and margins to further increase as raw material prices average out lower than last year, Eicher Motors’ stock price can go beyond Rs 4,232,” Anmol Das, Head of Research, Teji Mandi, said.
Das lists five reasons why Eicher Motors is a top buy:
1) Increase In Demand
Motors has already sold 4,77,204 2-wheelers (up 63.9% over YTD FY22) by end of Oct 2022 (in just 7 months), which is +79% of as many motorcycles sold over the entire last year. The company can end the fiscal year with more than 7.75 lakh motorcycles, i.e. around 30% sales volume growth.
On average, the company has sold around 68,000 motorcycles over the last seven months of FY23, and even going conservative, we are assuming another 3 lakh (base case) motorcycles to be sold in the remaining five months.
2) Price Hikes
With numerous new variants launched, average sales per motorcycle sold is also going to go up along with the price hikes taken in the last couple of quarters. We believe the net revenue per motorcycle sold will go up by 4-5% this year.
3) Fall in Raw Material Prices
The way the prices of key raw materials have corrected by 15-20% over average prices last year, e.g. steel, aluminium, and plastics & rubber, the company will see improvement in margins by more than 200 bps for FY23.
Any further deterioration or even if prices of raw materials stabilise at current levels, EBITDA & PAT margins could inch higher up to around 25% and 20% respectively.
4) Commercial Vehicle
On the VE Commercial Vehicles joint venture front, we see revenues between Rs 500-600 crore for the current fiscal, generating profits of more than Rs 100 crore for Eicher Motors’ shareholders.
In our base case for FY23E, assuming with the passing of the Dussehra & Diwali festivals sales may soften slightly in the next month or so, Eicher can yield EPS of Rs 94 selling 60,000 2-wheelers per month in the remaining five months of FY23, valued at a P/E of 45 gives a Target price of Rs 4,232.
Eicher Motors will also benefit from the raw material price cool-off over the last quarter or so, where even with softer sales volumes, the company will see an increase in margins by around 200 bps at current raw material price levels.
Therefore, with the external macro environment supportive at current levels for the Indian equity markets, we see a 12% upside for Eicher Motors at a target price of Rs 4,232 within a year from the current price of Rs 3,755.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)