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Eicher Motors: Enfield supports consolidated numbers - Views on News from Equitymaster
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  • Nov 13, 2013 - Eicher Motors: Enfield supports consolidated numbers

Eicher Motors: Enfield supports consolidated numbers
Nov 13, 2013

Eicher Motors declared its results for the quarter ended September 2013. The company's revenues grew by 14% YoY, while profits were higher by 63% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated revenues rise by 14% YoY during the quarter ended September 2013 (3QCY13). Growth led by the company's standalone (2-whweeler) business.
  • Operating profits increase by 41% YoY as margins expand by 1.8% YoY to 9.3%.
  • Consolidated profits rise by 63% YoY during the quarter.
  • Commercial vehicle volumes decline by 13.4% YoY as compared to corresponding quarter last year.
  • Standalone revenues grow by 66% YoY during the quarter. Growth is led by a 60% YoY increase in two-wheeler volumes. The same stood over 48,000 units for the period.


Consolidated financial performance
(Rs m) 3QCY12 3QCY13 Change 9mCY12 9mCY13 Change
Net sales 14,832 16,834 13.5% 47,363 50,776 7.2%
Expenditure 13,718 15,262 11.3% 43,053 45,837 6.5%
Operating profit (EBDITA) 1,115 1,572 41.1% 4,311 4,939 14.6%
EBDITA margin (%) 7.5% 9.3%   9.1% 9.7%  
Other income 246 153 -38.0% 1,095 808 -26.3%
Depreciation 213 336 57.8% 577 907 57.2%
Interest 12 23 90.0% 28 41 46.6%
Extraordinary items 527   527  
Profit before tax 1,136 1,893 66.7% 4,801 5,326 10.9%
Tax 198 437 121.2% 1,104 1,284 16.3%
Effective tax rate 17% 23%   23% 24%  
Profit after tax/(loss) 938 1,456 55.2% 3,697 4,042 9.3%
Minority interest 277 382   1,182 1,065 -9.9%
Net profit after tax/ (loss) 661 1,074 62.5% 2,515 2,977 18.3%
Net profit margin (%) 4.5% 6.4%   5.3% 5.9%  
No. of shares (m)       27.0 27.0  
Diluted earnings per share (Rs)*         117.7  
Price to earnings ratio (x)          35.7  
(*On a trailing 12-month basis)

What has driven performance in 3QCY13?
  • Eicher Motors' consolidated revenues were higher by 14% YoY during the quarter. Similar to the previous quarter, growth was led by the company's standalone (Royal Enfield) business, which reported a stellar volume growth of 60% YoY. As for the trucks and buses business, the same was impacted by the overall slowdown in the industry. Volumes in this segment declined to 9,204 units, which is lower by about 13.4% YoY. As per the management, total industry volumes in the 5 tonne and above segment came in at 70,837 units, which is a decline of 26.5% YoY. Given the sharper decline in industry volumes, Eicher's market share increased to about 13% on a year on year basis.

  • Eicher Motors' two-wheeler volumes (Royal Enfield business; standalone business) were higher by 60% YoY during the quarter ended September 2013. Standalone revenues and profits rose by 66% YoY and 87% YoY respectively. The company's margins expanded by 4.2% YoY to 19.3% during the quarter. Margins during the preceding quarter stood at 17.8%. As per the management, lower input costs, coupled with cost cutting efforts led to this expansion.

  • Revenues of the CV business (VECV) grew by 1% YoY, while operating profits declined by a marginal rate of 1.6% YoY. At the profit before tax level, the figure was down by about 26% YoY (adjusted for the onetime item).

  • During 9mCY13, the company's revenues and profits came in higher by 7.2% YoY and 18.3% YoY. On adjusting profit before tax level for the onetime item, the numbers came in flat. Despite a margin expansion to 9.7% from 9.1% during 9mCY13, the company's profit before tax remained flat due to lower other income and higher depreciation charges. This is largely to do with new two-wheeler plant coming on stream.
What to expect?
At the current price of Rs 4,195 the stock is trading at a multiple of 35.7 times its trailing twelve month consolidated earnings.

Eicher continues to perform well on the back of strong growth of its two-wheeler business. The company expects the momentum to continue on the back of strong demand coupled with a new launch - the Continental GT - that is scheduled for this month. It may be noted that during the quarter gone by, Eicher launched this particular model in the international markets and expects demand from the same to remain strong given the good response.

As for the commercial vehicles business, the same continues to remain weak on the back of the overall slowdown in the economy. However, VECV's volumes have been falling at a slower pace as compared to the overall economy. This has led it to gain market share in the process. Having said that, Eicher's management does not expect the scenario to improve anytime soon! It has been nearly a year and a half where the industry has been reporting weak volumes on a consecutive basis. A sharp decline of 13% on a QoQ basis is a point that proves so. Managements of other commercial manufacturing companies share similar views,

What may be a trigger for the company is the fact that it is launching an entire range of new vehicles soon. It remains to be seen whether this would allow Eicher to change its fortune in the short term.

Given that commercial vehicles volumes have been on a decline for long, as and when things turn, it would be a great boost for the companies given the pent up demand. Coupling that with the solid growth in the two-wheeler business, the long term outlook for Eicher remains strong.

While we were positive on the outlook of the company at the time of recommendation, our view at the time was of buying the stock at lower prices. But since the company's two-wheeler volumes surpassed our estimates by far, we seemed to have missed the bus on the stock's sharp run up in recent times. Having said that, we are of the opinion that current valuations do factor in strong growth. As such, we believe the same to be above our comfort zone. We stick to our view of buying the stock at lower prices.

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