Domestic demand remains; uncertain export prospects
We sat down with the management of Eicher Motors (EIM) to gain insight into the business outlook amid the challenging global macroeconomic environment. Domestic demand momentum remains healthy, especially in the 350cc segment, where demand currently exceeds supply. On the contrary, demand in the 350 cc+ segment weakened following the increase in GST for this category, but is now gradually recovering due to multiple product interventions by RE. However, the export outlook remains mixed, as the outlook for regions such as Europe, the United States and Thailand (which account for half of EIM’s exports) remains challenging, while the outlook for the other half remains positive. The immediate risk posed by the ongoing geopolitical conflict is a potential gas supply shortage, which could disrupt production in the short term if the situation persists. Management emphasized its continued focus on profitable volume growth rather than margins. Due to global uncertainties, the stock has corrected about 17% from its high and now looks fairly valued at 29.8x FY27E and 26.0x FY28E. We upgrade the stock to Neutral with a revised TP of INR6,960. We value RE at 28x Dec’27E EPS and VECV at 12x EV EBITDA.
Domestic demand remains optimistic in the 350 cc segment
The GST rate cuts have helped RE maintain its demand momentum, especially in the 350cc segment, where demand currently exceeds supply and booking growth continues to outpace wholesale growth. In the 350+ cc segment, demand is relatively weak due to rising GST rates. However, given supply constraints, especially for 350cc models, RE is in the midst of a capacity expansion that will gradually increase its capacity from the current 1.2 million units to 2 million units per annum by FY28, with an investment of approximately INR 9.6 billion. While the two-wheeler industry’s growth prospects are expected to be in the high single digits for FY27E, renewables aim to outpace the industry’s growth.
Modest export prospects
About 50% of renewable energy exporting regions face demand headwinds, including Europe (due to macroeconomic slowdown), North America (due to high tariffs) and Thailand. In contrast, other regions continue to demonstrate healthy growth, including Brazil (a key growth driver), other LATAM regions such as Argentina and Colombia, as well as APAC regions such as Japan, Australia, New Zealand and South Korea. In the short term, renewables will focus on these growing regions while attempting to maintain volumes in regions facing challenges.
Rating and view
We project EIM to achieve a CAGR of 18%/17%/15% in revenue/EBITDA/PAT during FY25-28E. Amid global uncertainties, the stock has corrected about 17% from its peak and now appears to be fair valued at 29.8 times FY27E and 26.0 times FY28E. We upgrade the stock to Neutral with a revised TP of INR6,960. We value RE at 28x Dec’27E EPS and VECV at 12x EV EBITDA.
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