On Thursday, Ambit Capital initiated coverage on Eicher Motors (EIM:IN) with a positive outlook, assigning a Buy (1) rating along with a price target set at EUR 5,598.00. The firm's analysis indicates that Eicher Motors, known for its Royal Enfield motorcycles, is on a path to resurgence. With a focus on premium products that are both aspirational and accessible, the company is expected to achieve a compound annual growth rate (CAGR) of 10% in domestic volumes from FY24 to FY27E in India.
The optimism stems from Eicher Motors' strategy to launch six new models, including three in the 650cc category, aimed at upgrading its existing customer base of approximately 7 million. The firm's foothold in international markets is also seen as a significant growth opportunity, with Royal Enfield's products already gaining traction, as evidenced by market shares ranging from 7-11% in key regions.
Additionally, the expansion of the spares and accessories business is anticipated to contribute to Eicher Motors' overall revenue growth. Ambit Capital projects a consolidated revenue and profit after tax (PAT) CAGR of 14% and 16% respectively, for the period from FY24 to FY27E. Eicher Motors' strong net cash balance and robust return on capital employed (RoCE) further underpin the positive rating.
The fair value of EUR 5,598, derived from a discounted cash flow (DCF) model, implies a forward price-to-earnings ratio of approximately 27.8 times based on FY26E consolidated earnings per share (EPS). This valuation represents a roughly 12% discount to the company's 10-year average, factoring in the anticipated lower growth and increased competition.
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