Eicher Motors saw its share price surge by over 8% in early trading, as brokerages shared their perspectives on the company's second-quarter (Q2) earnings. At 10:57 am, the stock was up 8.02%, trading at Rs 4,957.25 on the Bombay Stock Exchange (BSE). This rise came after the company, which is the parent of Royal Enfield, reported a year-on-year (YoY) net profit increase of 8%, reaching Rs 1,100 crore compared to Rs 1,016 crore a year earlier. While the earnings were solid, they fell slightly short of market expectations, particularly in terms of EBITDA performance, which remained flat at Rs 1,087 crore.
Despite the profit increase, Royal Enfield’s Q2 motorcycle sales saw a slight decline, with 2.25 lakh units sold compared to 2.29 lakh in the same period last year. Additionally, the company’s EBITDA margin contracted to 25.5% from 26.4% in the previous year, which was below the anticipated 29%. These mixed results prompted a variety of reactions from analysts and brokerages.
Brokerage firms have expressed diverse views on the stock, though the majority have maintained a positive outlook, with a "BUY" recommendation. Nuvama upgraded Eicher to a "Buy" with a revised target price of Rs 5,500, citing a potential boost from strong festive demand for Royal Enfield motorcycles, especially for popular models like the Classic and Bullet. The brokerage also emphasized the company's strategic shifts and its enhanced focus on marketing efforts, projecting a compound annual growth rate (CAGR) of 9% in revenue and 11% in earnings over the FY24-27 period.
Jefferies echoed this optimism, also setting a target price of Rs 5,500. It pointed to the ongoing trend of rising premium two-wheeler purchases as a key factor that would likely benefit Eicher Motors. Meanwhile, Emkay Global raised its target price to Rs 5,300, highlighting the company’s focus on volume-driven growth through new launches like the Bullet Battalion Black and expectations for strong festive sales.
Citi, however, took a more cautious stance, noting that Eicher's pivot towards prioritizing volume growth, even at the expense of margin expansion, is a strategic move in response to competitive pressures. This shift in focus to volume growth could help Eicher navigate market share risks, especially in a competitive landscape.
On the other hand, Morgan Stanley maintained an 'Underweight' rating with a target of Rs 3,655, citing the company’s missed earnings expectations and ongoing challenges in dealing with competitive pressures. Similarly, Nomura upgraded Eicher to "Neutral" with a target price of Rs 4,391. It acknowledged the company's strategy to prioritize volume growth but also highlighted the ongoing margin pressures that may weigh on future performance.
Despite the mixed views, the overall sentiment remains largely positive, with about 50% of the 40 analysts covering Eicher Motors rating the stock as a “Buy.” This indicates that many investors still view the stock as an attractive option, particularly for those looking at long-term growth potential despite short-term challenges related to margins.
Eicher Motors’ strategy of focusing on volume growth, particularly through new launches and a strong emphasis on festive sales, seems to resonate well with most brokerages. However, concerns around margin compression and competitive pressures could continue to pose challenges in the near term. The company's ability to balance volume growth with maintaining margins will be key to its future performance, and investors will be watching closely to see how Eicher navigates these dynamics.
