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Here’s why Eicher Motors shares are down 5% despite a strong September quarter

Here’s why Eicher Motors shares are down 5% despite a strong September quarter

Here’s why Eicher Motors shares are down 5% despite a strong September quarter
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By Sonia Shenoy   |Sonia Shenoy Nov 11, 2022 1:08 PM IST (Published)

Morgan Stanley believes that valuations of Eicher Motors are currently "full."

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Shares of Eicher Motors fell over 5 percent in trade on Friday despite the company reporting its highest ever revenue and net profit for quarter ended September 2022.

Eicher Motors, the manufacturer of the Royal Enfield motorcycle, on Thursday announced that its profit rose 76 percent year-on-year to Rs 656.8 crore in Q2 FY23, while revenue also jumped 56.4 percent to Rs 3,519.4 crore compared with the year-ago quarter.

Here are some factors as to why the shares may be trading lower on Friday:
Margin Pressure:
The company's EBITDA margin for the September quarter stood at 23.3 percent, which may be higher by nearly 500 basis points from the same period last year, but is down over 100 basis points compared to the June quarter level of 24.4 percent.

The margin is also impacted due to a higher share in the sales mix of the low-margin "Hunter."

EBITDA per Vehicle: The same higher share of the "Hunter" brand has impacted the company's EBITDA per vehicle or the operating profit a company earns after every vehicle it sells. That metric was 8 percent lower than the June quarter.

Key Monitorable: Whether higher scale and cooling raw material prices can offset margin dilution due to "Hunter" sales.
Unconvinced Brokerages: Morgan Stanley believes that the upside to consensus EBITDA per unit estimates for the upcoming financial year as well as EBITDA margin is limited. It also termed the company's valuations as "full."
Morgan Stanley has an equal-weight rating on Eicher Motors with a price target of Rs 4,065. It did mention that the company is on the right path by choosing to focus on growth over margin.

Shares of Eicher Motors are trading 4.7 percent lower at Rs 3,526.

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