As per our opinion, Eicher Motors results were as expected. So the net profit has increased to 38% YoY in Q4, the increase was supported by the profits from the commercial vehicle. Revenue has grown by 34%, which was led by 27% growth in the motorcycle (Royal Enfield) volumes. Also, the margin has increased to 48.4%, growth is a result of 5% price hike on vehicles and is also supported by a control over raw material expenses. So now the raw material cost has come down from 52.9% to 51.6% year on year.
If we believe analyst, we expect that margins will sustain at these levels due to the strong demand of Royal Enfield. However, there are key challenges as the volume increase in Royal Enfield is expected to be 16% volume growth this year, and unless export shows a sharp increase, it would be the lowest annual increase in the volume compared to previous many years.
So the future growth depends on new product development in FY 19. Even though Eicher Motors has made an investment of 8 billion rupees to increase the capacity to penetrate into International markets. In the future, growth depends on whether Eicher Motor can sustain the increase in volume for coming years. So that it would justify the current price as it is on to the 38 times of the earnings of FY 18 earnings.
Even though Eicher motors is a wonderful company. But if the growth of volume in Royal Enfield doesn’t maintain 23% increase. It would be hard to justify current valuation of this stock. So wait and watch but no buy call as of now definitely at this valuation it doesn’t make sense to us.
Experience of 8 years in stock investment. I learned everything by making a lot of mistakes and losing a good amount of money, I am here to make sure you don’t lose on either: Hope or Money.