Eicher Motors jumps after foreign brokerage initiates coverage

Eicher Motors rose 4.10% to Rs 14,938.65 at 12:19 IST on BSE after a foreign brokerage resumed coverage on the stock with a 'Buy' rating, citing strong demand for Royal Enfield.

Meanwhile, the BSE Sensex was almost flat at 28,444.98.

On BSE, so far 4,678 shares were traded in the counter, compared with an average volume of 6,246 shares in the past one quarter.

The stock hit a high of Rs 14,984.80 and a low of Rs 14,599 so far during the day. The stock hit a record high of Rs 15,145 on 20 November 2014. The stock hit a 52-week low of Rs 4,405 on 12 February 2014.

The stock had outperformed the market over the past one month till 2 December 2014, rising 12.38% compared with 2.07% rise in the Sensex. The scrip had also outperformed the market in past one quarter, rising 40.35% as against Sensex's 5.27% rise.

The large-cap company has an equity capital of Rs 27.10 crore. Face value per share is Rs 10.

The brokerage forecasts strong earnings growth for the company going forward on two factors. One is that ramp-up of the Royal Enfield motorcycle business will address the long customer waiting list, with limited competition from Harley Davidson and Triumph going forward due to the huge price gap.

The second is that VE Commercial Vehicles (VECV), a 50:50 truck joint venture between the Volvo Group and Eicher Motors, should remain the most profitable among peers, being the only one to see positive return on equity (ROE) in the downturn year of calender year 2013, brokerage said.

According to the brokerage, sales volume for Royal Enfield bikes will reach 1 million by 2019 estimates, driven by niche positioning in the lifestyle motorcycle segment (over 250cc), further capacity expansion to meet the growing order backlog, low penetration, and expanding store network.

On top of that, Eicher plans a new range of vehicles through its joint venture with Polaris Industries in 2015. The brokerage expects this joint venture to roll out niche recreational vehicles. Key risks are lower lifestyle bike demand, slower commercial vehicle recovery, and launch failures.

On a consolidated basis, net profit of Eicher Motors rose 53.62% to Rs 165.03 crore on 35.48% rise in net sales to Rs 2251.25 crore in Q3 September 2014 over Q3 September 2013.

Eicher Motors, the flagship company of the Eicher Group, is a leading player in the Indian automotive space. Its 50-50 joint venture with the Volvo group, VE Commercial Vehicles, designs, manufactures and markets reliable, fuel-efficient trucks and buses. Eicher Motors also owns the iconic Royal Enfield motorcycle business, which leads the premium motorcycle segment in India.

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