Eicher Motors Stock Research Report

Higher marketing spends impact profitability; focus on volume growth ahead…..

Eicher Motors’ (EIM) Q2FY25 standalone EBITDAM came in at 26.3%, down ~160bps QoQ (vs consensus estimate of 28%); margin decline was due to higher other expenses, including warehousing related one off items and increased marketing spends, amidst flat volumes QoQ. With volume growth likely to remain ~7%, we believe additional driver for EBITDA growth would be rise in ASP as 450cc/650cc model mix is set to rise, other than exports revival on a low base. We have cut our FY25/26E EPS by ~2% to factor in lower margins led by higher marketing expenses. Maintain ADD with DCF-based revised TP of INR 4,850 (earlier INR 4,827), implying ~26x FY26E EPS.

Takeaways from Q2FY25 conference call

• In Q2FY25, RE’s volume stood at ~228k, flat YoY and QoQ. From demand perspective, RE remains confident on continuity of premiumisation theme. It is taking the right steps to address demand across various potential segments in the form of adventure bikes, cruiser bikes, speedsters, caféracers etc. RE’s recent Bear 650 and Guerilla 450 launches have helped it expand its portfolio further, and have received good initial response. RE exports increased ~2% QoQ to 22k units in Q2, and it expects the scale of exports to pick up in the next couple of quarters. RE’s marketing initiatives have helped it revive demand, and post strong festive season sales (+26% YoY for RE), it is currently at lower-than-average inventory levels of ~3 weeks. We are building in ~79k/86k monthly average volume for RE in FY25/26E, against ~76k units monthly average in FY24.

• RE reported EBITDAM of 25.5% in Q2FY25 at consolidated level, down ~100bps QoQ led by gross margin worsening of 110bps and higher other expenses due to increased marketing spends and certain one-off items (related to warehousing costs); marketing spends are expected to be elevated going ahead as well. Though no price hike was implemented, ASP increased YoY by 8% and EBITDA/unit stood at ~INR 48k in Q2FY25 (up 1% YoY), despite RE’s volumes being flat YoY, at ~228k units. With 450cc and 650cc model demand rising in the mix, higher ASP would be sustainable and may grow hereon. Going ahead, RE is focusing on growth and EBITDA rather than EBITDA margin. We are building in ~0.94mn/1.04mn units for FY25/26E with mean EBITDAM of ~27.2%.