Eicher Motors hits over three-month high, rallies 11% in one week

Shares of Eicher Motors surged for the fifth straight day and hit an over three-month high of Rs 20,067 apiece, up 4 per cent on the BSE on Thursday. The stock of the two-wheeler company was quoting at its highest level since July 5, 2019.

In the past week, it has rallied 11 per cent as compared to a 2 per cent gain in the S&P BSE Sensex. The stock hit a 52-week low of Rs 15,197 on August 26.

Analysts believe that worst is behind for Eicher Motors, the manufacture of premium motorcycle brand Royal Enfield (RE) in India, as it is taking promising initiatives to address the declining sales performance. Recently, RE planned to set up low-cost studio stores to create touch-points in semi urban and rural regions to tackle the slowdown. It plans to open 450-500 such stores before 2019 Diwali festival. The premium motorcycle firm also plans to launch lower priced variants of Bullet and Classic 350.

“We believe that these steps will help RE to arrest FY20’s decline and should help turn around sales in FY21-22. We expect 3.3 per cent volume CAGR for RE over FY19-22. RE’s margin has been under pressure due to negative operating leverage, which we believe will continue for the rest of FY20 and gradually recover with volume growth,” analysts at Nirmal Bang Equities said in report. The brokerage firm has re-initiated the coverage on the stock with a ‘buy’ rating and has set a 12-month target price of Rs 21,127 per share.

HDFC Securities, too, recently upgraded Eicher Motors to ‘Neutral’ as the brokerage firm believes the reduced tax out-go will off-set the revenue/margin pressure from the reduction of ‘Classic’ and the ‘Bullet’ prices.