Eicher Motors Ltd Q2FY20 Results Update – Beat expectation marginally

08 Nov
motor

Eicher Motors Ltd Q2FY20 Results Update – Beat expectation marginally

Eicher Motors Ltd Q2FY20 Results Update – Beat expectation marginally

Hits

·         Net revenue observed a sharp decline of 9% yoy to INR 2,192 cr in Q2FY20. Despite significant drop in volumes by 21% yoy, increase in realisation by 15% yoy due to favourable product mix was able to offset sharp volume drop by some extent.

·         Eicher is currently having the lowest inventory levels in the industry which is less than 3 weeks.

·         New models like new RE Classic, RE Thunderbird 350X and RE Interceptor 650 are getting good response from customers in domestic and export market

·         EBITDA came in at INR 541 cr, observing a decline of 26% yoy. However as far as expectation was concerned EBITDA was higher by 2%. EBITDA margins dropped by 560 bps yoy to 24.7%

·         PAT came in at INR 573 cr, observing 4% yoy growth. Lower tax outgo post change in corporate tax rate and higher other income benefited.

·         The capex expected for FY20 will be INR 700cr and major portion of the capex will be towards new product development.

Misses

·         Gross margins dropped by ~340 bps yoy despite of softening in commodity prices. Competitive pricing across models in order to maintain market share both in domestic and export market pulled down gross margins.

·         Depreciation has increased by a sharp 24% to INR 90 cr. Major portion of this increase was due to accelerated depreciation on BS IV equipment.

Valuations & Outlook

·         At CMP of INR 21700, the stock is trading at 21x of FY21E EPS

Our View

·         Eicher results marginally exceeded expectation. Although management shared that festive demand was healthy, post festive season buying is low despite healthy liquidity in the market. Further management’s inability to completely pass on the cost escalation in the new premium segment motorcycles will continue to weigh down the margins going ahead as well, which can be depicted from Q2FY20 results that despite lower commodity prices gross margins have dropped sharply. Hence in the light of current weak demand scenario combined with margin pressure, we believe limited upside for the stock from these levels.

Financials

  2QFY20 2QFY19 YoY (%) Q1FY20 QoQ (%) H1FY20 H1FY19 YoY (%)
Revenue (INR cr) 2192 2408 -9.0% 2382 -8.0% 4,574 4,956 -7.7%
Gross Profit (INR cr) 1008 1189 -15.2% 1105 -8.8% 2,112 2,425 -12.9%
Gross profit margin (%) 46.0% 49.4% 46.4% 46.2% 48.9%
Other expenses (INR cr) 280 284 -1.2% 279 0.5% 559 539 3.6%
% sales 12.8% 11.8% 11.7% 12.2% 10.9%
EBITDA (INR cr) 541 729 -25.8% 614 -11.9% 1156 1539 -24.9%
EBITDA margin (%) 24.7% 30.3% 25.8% 25.3% 31.1%
PAT (INR cr) 573 549 4.4% 452 26.8% 1024 1142 -10.3%
PAT margin (%) 26.1% 23.5%   19.0%   22.4% 23.1%  

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