Apr 10, 2023
Rating: sell: Eicher Motors: Hunter 350 continues to ride strong
Eicher Motors reported standalone Ebitda of `860 crore, 3% below our expectations due to weaker gross margin print. Gross profit and Ebitda per vehicle remained flattish on a q-o-q basis despite commodity tailwinds mainly on account of a weaker product mix (higher mix of Hunter). While newly launched Hunter 350 continues to do well, we expect demand for the company’s remaining 350 cc portfolio to remain under pressure due to high upfront cost and cannibalisation from Hunter. This will limit the recovery in profitability metrics for the company. SELL stayswith a revised FV of `2,825.
Q3FY23 standalone Ebitda 3% below our expectations
Eicher Motors reported Q3FY23 standalone Ebitda of `860 crore, 3% below our expectations due to weaker-than-expected gross margins and marginally lowerthan-expected ASPs. Revenues increased by 6% q-o-q, led by (i) 7% q-o-q increase in volumes due to strong sales performance of Hunter 350 and (ii) 1% q-o-q decline in ASPs. Decline in ASPs can be attributed to (i) higher mix of Hunter (lower priced product) and (ii) lower exports mix. Ebitda margin came in at 23.9% (+20 bps q-o-q), 50 bps below our expectations. Gross margins improved by 20 bps on a q-o-q basis. The company reported standalone net profit of `680 crore, broadly in line with our expectations due to higher other income.
VECV reports strong quarter driven by better-than-expected ASPs
VECV reported revenues of `4600 crore (+27% y-o-y) in Q3FY23, 7% above our estimates mainly on account of (i) better-than-expected ASPs and (ii) lower discounts in Q3FY23. The company reported Ebitda margin of 7%, 10 bps below our estimates in Q3FY23.
Cut our FY2023-25E Ebitda estimates by 2-3%
We have cut our FY2023-25E Ebitda estimates by 2-3% due to lower volumes and gross margin assumptions for FY2023-25E; we expect Hunter to deliver 135k and 216k volumes in FY2023E and FY2024E, respectively. While we expect upgrade demand to partly drive sales of Hunter 350, we are also witnessing cannibalisation of Classic and Bullet models (current monthly sales are much below 2019 levels). Also, increase in competitive intensity over the next few years will impact RE’s volume growth in our view. SELL stays with a revised FV of `2,825 (from `2,800 earlier), valuing the standalone business based of DCF methodology.
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