Eicher Motors

amangoklani · January 24, 2018, 3:03pm

Yes you are absolutely right. What PE ratio to assign is always tricky.

If we take a look at the consolidated EPS for last year it was 612.90 (data from screener). If we add 20% growth to that EPS we arrive at ~735. So FY18E PE works out to 35-36 at the current price. With 2 quarters to go, this maybe looks like fair valuation to get in at.

I think a PE of 35-36 looks fair considering the median 5 year PE of the stock is around 45-46 (data from valueresearch) and at the above PE (35-36) maybe the slow growth is being factored in.

Though as you’ve rightly pointed out, the speed of growth along with the duration it’ll grow at that speed will help us understand (a) the PE that can be assigned to the company (b) what speed the price will compound at as earnings growth is the only growth that we’ll see here. Unless of course the stock goes back to its median PE of 45 and thus helping us get those gains as well.

I’ll wait for the results and more visibility before deciding on whether to buy or hold. At the moment, very tempted to buy - though better visibility on growth will increase conviction to do so.

rahulshares · January 24, 2018, 3:37pm

It seems a very good buy at this price. Management is focusing on international markets and if they acheive similar success they have in the domestic markets, this could be huge even from these levels. They have a rockstar brand, their products are still best-sellers here. Also you dont get managements like these a lot. At 35PE it seems a real steal. The market time and again has these periods of under performance for Eicher and these are periods where doubts on can valuations sustain are made. And before you know it, it again zooms back to 45-50 pe.

Goldman Sachs has reiterated this as a strong conviction buy with 35k target price in next 1 year.

amangoklani · January 24, 2018, 5:36pm

Yes they have a wonderful brand and good management, without a shadow of a doubt.Their performance in the exports market is the real dark horse. If they replicate what they’ve done here, continued high growth ceases to be a problem.

As for brokerages, well - they change their targets in a heartbeat. They provide good guide posts for understanding business projections. As for price targets, I’m not sure how reliable they are.

rahulshares · January 24, 2018, 6:17pm

Well said. Agree with you totally. Just wanted to highlight that after recent fall there is a lot of upside possible.

dineshssairam · January 24, 2018, 10:07pm

Eicher Motors has almost 70% of their Assets in MF Investments/Cash/Liquid Assets (~Rs. 3800 Crs out of ~Rs. 5500 Crs), while PP&E + CWIP form only 20% of Total Assets (Rs. 1100 Crs out of Rs. 5500 Crs). They earn about 7% on the Liquid Investments (Well, roughly anyway - Other Income as a % of Financial Investments).

Does anyone know how much Eicher Motors plans to invest in future PP&E + CWIP (Business Expansion)? If I assume the Liquid Investments at Book Value and do a conservative DCF, I arrive at ~Rs. 21,500. That doesn’t sound like much of a bargain to me at current prices.

ad9 · January 25, 2018, 12:38pm

Can someone share link of Goldman report referred above, thanks.

dd1474 · February 1, 2018, 9:01am

Excellent Nos for Commercial vehicle and Royal Enfiled by Eicher. Mark the order of segments:grinning:

http://www.bseindia.com/xml-data/corpfiling/AttachLive/370a5ca4-0c62-4e77-b9bc-0498267f4ea0.pdf
http://www.bseindia.com/xml-data/corpfiling/AttachLive/032b5388-79d7-4676-aa83-47d95b7e3de3.pdf

MHS · February 1, 2018, 9:15am

spvk1 · February 5, 2018, 3:45pm

http://www.team-bhp.com/forum/commercial-vehicles/195117-eicher-skyline-pro-e-smart-electric-bus-launched.html

Courtesy team-bhp website.

dd1474 · February 8, 2018, 7:51am

Eicher conference Call Q3FY18 on Feb 8 2018

Key highlights:
New Product and “Cultivating” brand in Global market and “Nourishing” brand in Indian market*
The company launched two bikes with 650 CC named Continental GT and Interceptor in November 2018. It got very encouraging response to the new bikes in all the major Automobile show where same were presented. The company also organized First ride in Thailand for Royal Enfield fans which was well participated by more than 30 members.

In India, same bike was presented in Rider Mania, an annual event, which was well successful participation with more than 6500 riders joining for the event. It also launched New Garage Cafe in Goa. It has also used affiliation with NSG Black cat Commando who ride on 15 limited edition RE bikes riding on 8000 kms through 13 states. These bike were subsequently auctioned online which were sold out only in 15 second of auction opening and the proceeds were given to NGO “Prerna” associated with NSG units. Total dealer in India as on December are around 761 which would be reaching to 825 by end of March 2018 and further expected to increase by 100+ next year.

Demand drivers
Premiuminsation of Motor cycle has already started and has long run way. In some market like Kerala, Maharashtra, Karnataka and Delhi, the company has already reached near Double digit market share. In the pockets of North India, where the per capita income is lower than Urban/Developed state, would be key driver to growth for the company in medium term. Demand for UP/Bihar is shaping up well and driving sales. Since the company has become moderate market shareholder in key market Karnataka and Maharashtra, Demand slow down (due to higher tax on Two wheeler capacity of more than 1 Lakhs in Karnataka) has affected the company performance. However, despite headwind, the company managed to maintain its market share in these markets while expanding its sales in Interior market.

The company would continue to spend market development in a way which provide experiences to riders and add to Royal Enfield community ethos. The increasing rider events, aspirational marketing in form of Garage café, increased dealership focus on International market would continue to result in higher overhead. The company does not expect all this expenditure to contribute positively in short term, however, over a period of time that would assist Royal Enfield to engage with its community which shall drive its long term growth aspiration. Hence, despite higher sales, the EBITDA margin are likely to remain in current range as incremental spending on “Nourishing Brand” would continue to result in higher overhead.

The company does not evaluate its dealer on per dealership sales. It work on improving overall efficiency in various processes of sales. The first step being enquiry, which is followed with second step of test drive, progressing to third stage of booking order, followed up with Delivery and after sales. There are key parameters which is constantly evaluated by the company. The company believe in increasing volume by “Demand Pull” rather than only “Dealer Push”

The company has under price hike of 1% from Feb 1 2018 in India.

Production plan and technical centers
The company would be presenting is plan for capacity and production for FY19 in May 2018. Vallam Vadagal plant to reach full production capacity by March 2018. The new twin engine 650cc platform in development stage, likely to roll out by mid of 2018.

The UK technical center with 100 engineers is already in place. Second phase of UK technical center would be fully commenced by next financial year. Indian center as Chennai is expected start from Next financial year.

E vehicle
The company launched Fully electric bus with zero emission and 9 MT Air condition. The company is also working on E-bike in context of new development in market. However, it is still at very primitive stage and there is long path to be covered before any meaningful development.

Disclosure:
Eicher is my largest holding for last three years. Hence, my views may be biased. I have sold small portion of my holding in past 15 days while fine tuning my portfolio allocation among various asset class. Also, there is scope of transmission loss/miscommunication. Investor shall do his/her own due diligence before investing.

Investor presentation

Press release

Financial results

Yatharth · February 8, 2018, 10:57am

The key challenge is growth in no. of RE bikes to be sold next year. Capacity, as well as demand, constraints may decelerate growth to ~ 15% in my estimates.

Discl - Holding. May add.

ad9 · February 8, 2018, 1:37pm

Any idea what is the waiting period for Enfield now?

poddy · February 9, 2018, 5:23am

Around one month for the classic 350

StockDoc · February 9, 2018, 6:34am

Even with the growth slowing down to ~15% you think it’s a good time to add? What do you think will keep the current valuations afloat and even appreciate with such mellowed down growth over the the next year?

Disclosure: Holding ~8% of my portfolio. Evaluating different options on whether to hold or trim my existing holding.

atul1082 · February 9, 2018, 8:11am

The sales of m/c beyond 350 cc has come down

dineshssairam · February 9, 2018, 8:49am

I did the following valuation of Eicher Motors about a month back, but I have plugged in the current market price at the end:

Major Assumptions:

No major reinvestment plans in the near future (i.e. CapEx is stable)
Conservative valuation with a 3% Terminal Growth
D/E Ratio approximates to Industry D/E in Terminal period, but Cost of Debt is low
Tax rate remains the same (I could try accommodating the 5% rate cut, but I don’t think that will change the value by a lot)
Working capital position remains the same

Opinions? If anyone has a source or news about how the company is planning their new expansion, I could try accommodating it in the model.

Uservijay · February 9, 2018, 9:39am

I valued it close to 22k and awaiting a correction to add below 22k. Even Harley Davidson is in trouble and is looking at other options. If they want to enter aggressive games in emerging market, they could offer stripped down version of current model at close to RE price.

StockDoc · February 9, 2018, 10:10am

Assuming that when you say “add” you already own the stock, just wondering why you haven’t sold off your stake considering it is currently priced a good 30% above your valuation? I’m finding it hard to be able to justify the current price-earnings multiple considering the fact that the growth might normalise to ~20-25% in the next few years.

As to your other point about Harley Davidson, they’ve had that option all along and they’ve been struggling for quite a long time now (in fact, it’s current market cap was achieved by them close to 16 years ago and they’re struggling to breakout of that). Also considering the fact that their brand caters to a certain segment, it’s hard to fathom them pricing their products close to RE’s price; unless their global strategy takes a dramatic 180-degree turn and they decide to introduce products in lower segments as well, which looks highly unlikely.

Disclosure: Holding ~8% of my portfolio. Evaluating different options on whether to hold or trim my existing holding.

Yatharth · February 9, 2018, 10:26am

I think you have presumed someone else’s post as mine. I never said it is over valued. As per my assumptions, it is undervalued by 10-12% at least even if growth in the short term decelerates to 12-15%. How many large caps are there even with 15%+ sales and Profit growth for the next 3 years? However will wait till 26K and then add with whatever money I can get/have.

StockDoc · February 9, 2018, 10:29am

Yatharth, this post was in response to your post and not the most recent one.