Eicher Motors Ltd (NSE: EICHERMOT) is a leading manufacturer of motorcycles and commercial vehicles in India. The company’s key brands include Royal Enfield for motorcycles and Eicher trucks & buses for commercial vehicles. With a dominant position in premium motorcycles and a growing presence in trucks & buses, Eicher Motors has emerged as a key auto sector stock for investors.
However, the stock has underperformed broader indices in the last 2-3 years as demand faced headwinds. In this detailed article, we do a broad analysis of Eicher Motors’ business model, financial performance, growth prospects and valuations to assess if this auto stock offers good upside potential for long term investors.
Overview of Eicher Motors’ Business
Here are some key facts about Eicher Motors’ business model and product profile:
- Incorporated in 1982, listed on NSE and BSE since 1992
- Market Cap of ₹79,000 crores as of Nov 2022
- Headquarters in Gurgaon, Haryana
- Manufacturing plants in Tamil Nadu, Uttarakhand
Royal Enfield – Wholly owned subsidiary operating in premium motorcycles segment (250cc to 750cc). Commands over 90% share in 250cc+ motorcycles in India. Presence across domestic and international markets.
VE Commercial Vehicles – A joint venture with Volvo group involved in manufacturing trucks and buses under Eicher and Volvo brands.
Other Businesses – Eicher Motors has a joint venture with US-based Polaris Industries to produce personal utility vehicles. It also manufactures components for automotive and aerospace sectors.
Eicher Motors has a strong management team led by Mr. Siddhartha Lal who plays a key role in the success of Royal Enfield brand. Let us now analyze the company’s financial performance.
Key Financial Performance Metrics and Results
Here are some of the key financial highlights and performance metrics for Eicher Motors:
- Revenue has grown at 13% CAGR over FY17-22 reaching Rs 35,661 crores in FY22
- EBITDA has risen steadily from Rs 4,032 crores in FY20 to Rs 5,707 crores in FY22
- EBITDA margins have remained healthy in the range of 19-22% over the last 5 years
- Royal Enfield sales volume has grown at 11% CAGR between FY15 to FY20 but declined in the last 2 years due to industry slowdown
- VE Commercial Vehicles saw 12% sales volume CAGR between FY17 to FY22
- PAT increased from Rs 2,203 crores in FY18 to Rs ₹2,646 crores in FY22
- EPS rose from Rs.789 in FY18 to Rs.943 in FY22, 3-year EPS CAGR at 6%
- Return on Capital Employed has averaged around 22% over last 5 years
On the balance sheet side, Eicher Motors has a strong net worth of over Rs 13,000 crores and comfortable leverage with debt to equity ratio of just 0.06 as of March 2022. Overall, the financial performance has been steady driven by Royal Enfield’s healthy profitability though growth moderated recently.
Share Price Trends and Valuation Analysis
Eicher Motors has been a wealth creator in the long term. Here are some key details about its share price trends and valuation metrics:
- Eicher Motors share price has risen from around ₹600 in Nov 2012 to current level of ₹3,350 (Nov 2022) resulting in multibagger returns of over 5.5 times in 10 years
- However, stock has declined nearly 25% from its 52-week high of Rs 4,300 touched in November 2021
- The correction in the last 1 year presents a good accumulation opportunity for long term investors
- Market Capitalization stands at ₹79,000 crores as of Nov 2022 compared to just ₹15,000 crores in Nov 2015
- Trailing P/E ratio of around 34x indicates the stock is trading at premium valuations on current earnings
- Price to Book value at 5.8x also appears high at current levels
- However, valuation ratios have corrected closer to 10 year average levels after the recent correction
To summarize, Eicher Motors stock appears to be trading at premium valuations currently. Investors need to buy on significant dips only.
Growth Outlook and Key Risks
Eicher Motors has several drivers that make it well positioned to deliver healthy growth over the next 5 years:
Royal Enfield Growth Potential – RE has achieved less than 10% penetration among premium bike customers in India and has huge headroom to grow domestically. Also aims to drive growth internationally.
New Product Launches – Royal Enfield plans to expand product portfolio into higher engine segments of 650cc and 750cc as well as electric motorcycles. This will aid premiumization.
Eicher Trucks – JV with Volvo is entering new export markets. Domestic CV demand is also picking up gradually aiding growth.
Financial Strength – Strong balance sheet allows the company to fund expansion plans smoothly. High return on capital gives room to chase growth aggressively.
However, some key risks to keep in mind are:
- Moderation in premium bike demand due to macro-economic challenges
- Intensifying competition in mid-size motorcycles and premium bikes space
- Chip shortages & supply chain issues plaguing the auto industry
- Elevated inflation and rising interest rate scenario affecting consumer sentiment
- Delay in new product launches or subdued response to new models
Overall, long term growth outlook remains strongly positive for Eicher Motors led by Royal Enfield’s potential despite some near term challenges and macroeconomic headwinds.
The Final Verdict: Is Eicher Motors a Good Buy?
Pulling together all the analysis, here is a conclusive view on Eicher Motors:
Positives – Dominant player in premium bike segment, iconic Royal Enfield brand has pricing power, rural penetration still low, new product pipeline includes EV bikes, financially strong company with high return ratios and lean balance sheet.
Negatives – Moderately expensive valuations, macro and competitive risks in the near term, business concentration risk as bulk of profits come from Royal Enfield currently.
Eicher Motors has the potential to grow earnings at ~15% CAGR over the next 5 years despite some short term challenges. At current valuations, the risk-reward for long term investors turning positive.
Investors with at least 3-5 year investment horizon can consider buying the stock in a staggered manner. Eicher Motors stock can be accumulated on 10-15% corrections as it offers healthy upside potential driven by Royal Enfield’s growth prospects.
Frequently Asked Questions on Eicher Motors Stock
Is Eicher Motors a good long term stock?
Yes, Eicher Motors is a good stock for long term investment given its leadership in premium bikes, strong brand equity of Royal Enfield, new product pipeline including electric bikes and reasonable growth outlook. Though valuations appear stretched currently, the stock can deliver healthy returns over 3-5 year period.
Is the current market price of Eicher Motors attractive for investment?
Eicher Motors is currently trading at elevated valuations with one year forward P/E of ~34x and P/B of 5.8x based on FY23 projected earnings. While long term growth outlook remains positive, investors may be better off waiting for 10-15% price corrections to accumulate the stock at better entry levels.
Should I buy Eicher Motors shares at current level for 2-3 years?
Eicher Motors stock can deliver decent returns over a 2-3 year period driven by Royal Enfield’s growth in premium bikes segment. However, given the stretched valuations, potential investors are advised to adopt a buy on decline strategy instead of chasing the stock at current levels. Look to accumulate on dips for good entry points.
What is the expected share price target for Eicher Motors in 2023?
Most analysts have a buy/accumulate rating on Eicher Motors with average price target of ₹3700-3800 for end of 2023. This points to nearly 10-15% upside from current levels of Rs 3,350. The stock may remain rangebound unless earnings growth picks momentum.
What is the right strategy for buying Eicher Motors shares?
The ideal strategy is to accumulate Eicher Motors in a staggered manner on every 10-15% price correction instead of lumpsum buying at current levels. For example, accumulate 25% of intended amount at 10% fall, next 25% at 15% dip and so on. This helps gain exposure at better valuations and manage risk.
Does Eicher Motors pay dividend? How has dividend history been?
Yes, Eicher Motors has consistently paid dividends over the last 10 years. The average dividend payout ratio has been around 30-40% in the last 5 years. For FY22, Eicher Motors paid a dividend of Rs 21 per share. At current price, this translates to a dividend yield of just 0.6% which is low.
What are the key risks to investing in Eicher Motors?
Key risks are slowdown in premium bike demand, delay in new product launches, growing competition in mid-size bike segment, chip shortages affecting production, high valuations leaving little margin of safety and Eicher’s dependence on Royal Enfield for growth currently.
Is Eicher Motors a better investment than Hero MotoCorp?
While both companies have leadership in their respective segments, Eicher Motors scores better in terms of higher growth potential, lean balance sheet, robust return ratios and reasonable valuations post the recent correction. Eicher Motors is better positioned currently compared to Hero MotoCorp from a long term investment perspective.
What is the forecast for Eicher Motors share price by 2025?
Eicher Motors share price can potentially double over the next 5 years reaching Rs 6000-7000 by 2025. This upside is driven by 25-30% earnings CAGR on the back of Royal Enfield’s domestic and international expansion, new product launches and growth in CV business. However, returns will be gradual over 5 years rather than short term sharp upside.
Conclusion
Eicher Motors has emerged as a leading player in India’s two-wheeler and commercial vehicle market driven by the strong performance of Royal Enfield and VE Commercial Vehicles. The company enjoys dominant market share in premium motorcycles segment and has a globally renowned brand in Royal Enfield.
While recent growth has moderated due to industry slowdown, the long-term growth levers remain intact for Eicher Motors. The company aims to drive premiumization by entering higher engine categories and launching electric motorcycles under Royal Enfield brand. Eicher’s commercial vehicle JV with Volvo Group is also well positioned to benefit from pick up in economic activity.
Valuations appear stretched at current levels. However, investors with investment horizon of 3-5 years can consider accumulating the stock on corrections given Eicher’s leadership position, robust return ratios, healthy balance sheet and positive industry growth prospects. At current valuation, Eicher Motors stock offers potential for reasonable upside in the long run driven by earnings CAGR of ~15% over the next 5 years. But investors need to adopt a systematic accumulation strategy and buy on dips rather than chase prices.
Overall, Eicher Motors remains a core portfolio stock to ride India’s premiumization wave in two-wheelers and commercial vehicles space. Long term investors would be well rewarded for patiently holding this auto sector leader in their portfolios.
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