Weak Q3 margin, profit booking drags Eicher Motors 7%; analysts mixed

Eicher Motors posted weaker-than-expected Ebitda margin, which contracted 190 basis points (bps) to 24.2 per cent in Q3FY25, from 26.1 per cent a year ago

Shares of Eicher Motors, a two-wheeler and commercial vehicle major, slipped 6.7 per cent in trade on Tuesday due to lower profitability and profit booking. The company posted weaker-than-expected earnings before interest, tax, depreciation, and amortisation (Ebitda) margin, which contracted by 190 basis points (bps) to 24.2 per cent in the third quarter (Q3) of 2024-25 (FY25), from 26.1 per cent in Q3 of 2023-24 (FY24).

 

The stock had also hit an all-time high of Rs 5,551.75 on February 5, prompting investors to book profits. As a result, Eicher Motors’ share price dropped as much as 7.05 per cent, hitting an intraday low of Rs 4,953.35 per share. The stock, meanwhile, settled 6.56 per cent lower at Rs 4,980. In comparison, the BSE Sensex closed 1.32 per cent lower at 76,293.6.

 

 

However, over the past year, Eicher Motors has outperformed the market, surging 30 per cent compared to an 8 per cent rise in the Sensex.

 

Analysts at Motilal Oswal highlighted that while overall results were positive, the operating performance fell short of expectations. The 190-bp year-on-year (Y-o-Y) margin contraction reflected the company’s focus on growth initiatives. The management indicated that it would continue investing in demand-generation activities, including brand-building efforts, to drive future growth.

 

Despite improvements in exports during Q3FY25, sentiment remained weak, and the management maintained a cautiously optimistic outlook. 

 

Considering these aspects, Motilal Oswal analysts expect Royal Enfield to achieve 12 per cent annual earnings growth over FY24-27. However, given the anticipated slower earnings growth, they recommended a ‘sell’ rating with a target price of Rs 4,305, based on their December 2026 sum-of-the-parts valuation.

 

ICICI Securities analysts also noted that the margin performance for the standalone Royal Enfield franchise fell short of expectations, primarily due to pressure on gross margins (resulting from an unfavourable product mix) and high other expenses. These included increased marketing costs, with roughly Rs 70 crore spent on multiple product launches and the debut of the electric vehicle brand.

 

Nevertheless, Eicher Motors saw overall improvement. The company posted a 17.5 per cent increase in consolidated profit to Rs 1,170.5 crore in Q3FY25, compared to Rs 996 crore in Q3FY24. Revenue from operations jumped 19 per cent Y-o-Y to Rs 4,973.1 crore in Q3FY25, marking its strongest quarterly performance, up from Rs 4,178.8 crore in the same quarter the previous year. Ebitda increased 10.2 per cent Y-o-Y to Rs 1,201.2 crore, up from Rs 1,090.3 crore in Q3FY24.

 

Royal Enfield also achieved a major milestone, setting a new record with 269,039 motorcycles sold during Q3FY25, a 17 per cent increase from the 229,214 motorcycles sold in Q3FY24.

 

The VE Commercial Vehicles (VECV) division reported a 6 per cent increase in revenue to Rs 5,801 crore in Q3FY25, compared to Rs 5,483 crore in the same quarter the previous year. VECV sold 21,012 vehicles in Q3, surpassing the 20,706 units sold in the same period last year.

 

Analysts at Nuvama, meanwhile, maintained their ‘buy’ rating on Eicher Motors, raising the target price to Rs 6,100 from Rs 6,000 earlier. Nuvama noted that while Q3FY25 Ebitda was slightly below estimates, Royal Enfield’s domestic sales expanded 13 per cent during the quarter, outperforming the industry, which saw a 2 per cent decline.

 

Nuvama also raised its revenue forecast for FY25-27 by up to 4 per cent, expecting strong momentum for Royal Enfield, bolstered by new product launches and a strong marketing push.

 

Analysts at Nomura maintained their view that Royal Enfield’s volume growth has picked up, driven by a trade-off between volume growth and margins. While they believe the management is following the right strategy, the current valuation of 30x FY27 earnings suggests that the market expects both average selling prices and margins to continue expanding.

 

Analysts anticipate earnings growth of 11 per cent for FY25-27. Therefore, they have downgraded Eicher Motors to ‘reduce’ from ‘neutral’. Slower volume growth (3-5 per cent) is expected starting from the second half of FY26 due to a high base, potentially leading to a derating. However, Nomura has increased its target price for Eicher Motors to Rs 4,625 from Rs 4,391.

 

Goldman Sachs reportedly maintained a ‘buy’ rating but slightly reduced its target price to Rs 5,900 from Rs 6,000. The brokerage noted that despite a deeper product and marketing focus, the stock’s price correction due to higher expenses would likely continue, though volume momentum was expected to remain positive in the fourth quarter.