Target price increased from 30500 To 35000
Securities house CLSA is upbeat on Eicher Motors Ltd, which makes hot-selling Royal Enfield motorcycles. “Order inflow remains above production and is growing at 15 per cent year-on-year on same-store sales growth basis. This is despite multiple disruptions such as demonetisation and transition to GST in the last one year,” it said in a report.
The iconic brand’s production capacity will rise 40 per cent over 2017-19, and earnings are likely to grow at a compounded annual growth rate (CAGR) of 29 per cent over the next three years, the brokerage said, adding the company is rapidly expanding its dealer network to meet robust demand.
After CLSA set a price target of Rs39,300, the stock jumped to Rs33,483.95 on Friday before profit-taking pulled it down to Rs32,628.70 by close. Still, the share is up nearly 50 per cent so far this year, more than double the 19 per cent rise in the benchmark auto index.
“The stock is trading at 35 times one-year forward PE (price-to-equity) but its premium valuations should sustain given strong growth outlook and low competitive threat for Royal Enfield,” the brokerage said.
Eicher also makes trucks and buses in a joint venture with Sweden’s Volvo group
What could be the future of such companies if ,within next few years, we get 4/2 wheelers that operate on batteries and not internal combustion engines? The current Govt of India policies strongly indicate in this direction.
Will macho guys still like soundless sissy Royal n fields.
Its a fair question. But when and how that happens remains an even bigger question. Will bikes running on internal combustion engine vanish in 10 years ? or 100 years ? or 1000 years ?.. Nobody knows… Predicting government policy is difficult in my opinion… And much more difficult is predicting when that policy will come into action …
Disc: Invested. For the long term.
India ideally lags behind the west. We don’t have any hot selling premium electric bikes. When that happens, we may have to reevaluate Eicher as India will catch-up sooner or later. As some learned man said, we will look at it when we come to the bridge. For all we know, the bridge could be far far away.
Courtesy team bhp.com
Royal Enfield have unveiled their two new 650 cc bikes. Interceptor and Continental GT 650. The interceptor looks damn cool, very retro and simple / minimalistic design. Reminds me a little of the Rajdoot 350. Hope these bikes are well received by the RE cult and do well globally too and keep the Eicher stock thumping for folks invested in the company ️. I’m certainly excited!
The bikes will start being sold starting April 2018.
What are the price targets according to your chart reading sir? Sorry I am complete novice when it comes to charts.
From the head to the neckline the distance is roughly 3500 points. You can minus that amount from the point where the neckline ( the slightly upward sloping trend line) is broken. That should be the possible target for an entry. Eicher is moving up the value chain and hopes to expand the market for 650cc bikes which is currently very small along with developing the export market for its current bikes.
With competition heating up in their current space with companies like Honda,TVS etc entering their territory and developments around EV - the future is perceived to be uncertain as it gets into new markets + defends its current monopoly. This is what has probably caused the top.
On the plus side - it has great return ratios, a well developed & purposeful cult brand, free cash flows and overall a pristine balance sheet.
My view is that - challenger companies will increase category penetration and take the onus off eicher to constantly expand the market. The challenger brands will have to do all the hardwork now & the market leader benefits from the increased category expansion - its better to have a reducing market share in a fast expanding market than a constant market share in a stagnant one.
An excellent article summarizing the thought process of its charismatic owner
Disc - not invested.
ROYAL ENFIELD GARAGE CAFE GOA
Disc:- From google.
An article in ET Brand Equity on how Royal Enfield looks to build its brand and stay away from run of the mill advertising to break the clutter.
Recently I was in Indonesia. Saw a Royal Enfield showroom at a nice prime locality. If they can try and crack this market or at least 10% as successful they are in India, it would be a good thing.
Places like Bali with high tourists particularly Australians, RE should do well. Now with the new 650CC models, I feel they should try and focus to do better in international markets.
I see that there is continuous downward pressure on this stock from past week. Any specific reason for this.
As I observe that result for the previous quarter (sept, 2017) was also good, 12.71% increase with respect to the previous quarter.
I think it is because the growth in RE is slowing down more than expected along with all the noise around how will Eicher manage in the era of electric vehicles (a good 10-15-20 years away). I think both these reasons are leading to the PE ratio deflating. PE ratio deflating is the reason for the drop in my opinion.
First reason leading to the PE ratio deflating maybe legitimate (maybe!), with growth slowing valuation should ideally deflate (haven’t seen that happen in Page, Jubliant, Titan however).
The other one is way too far in the future to worry about (at least in my opinion).
From valuation angle, what PE it deserves at what growth rate with few years of visibility is the key. I remember doing this exercise with a basic DCF model during demonetization with 25% growth rate on RE and 8% on CV. If I remember correctly, i got a valuation range between 18k-20k which justified a PE of 36-38 at that time. May be we need to incorporate change in assumptions occurred in last 1.5 years and see what it deserves and what a comfortable valuation for interested parties. The difficult part is how accurate we are in projecting those assumptions