Eicher Motors share price zooms nearly 8% after Q2 numbers beat estimates. Should you buy?

Shares of Eicher Motors, the global leader in the middleweight motorcycle segment, surged nearly 8% to ₹4,940 per share in early morning trade on Thursday, November 14, following the company's report of a larger-than-expected quarterly profit on Wednesday. The beat was driven by strong sales of higher-margin motorcycles with engine capacities above 350 cc.

This growth comes despite intense competition from other players in the premium bike segment. Following the company's strong Q2 performance, brokerage firms have maintained a positive outlook on the stock.

Jefferies kept its 'buy' rating with a target price of ₹5,500 per share, noting that Royal Enfield volumes are showing signs of picking up and that the company stands to benefit significantly from the two-wheeler premiumisation trend.

Jefferies believes that the most challenging phase of competition for Eicher Motors is now behind it. Japanese brokerage firm Nomura upgraded its rating for Eicher to 'neutral,' citing a stronger growth strategy and raising its price target to ₹4,391 per share.

On the other hand, Morgan Stanley maintained its 'underweight' rating on Eicher Motors with a price target of ₹3,655 per share due to concerns over valuations. Meanwhile, Nuvama Institutional Equities upgraded the stock to 'buy' and increased its target to ₹5,500. It projects a 9% revenue CAGR for Eicher Motors from FY24 to FY27.

Q2 earnings snapshot

For Q2 FY 2024-25, Eicher Motors reported its highest-ever Q2 revenue from operations at ₹4,263 crore, compared to ₹4,115 crore in the same quarter of FY 2023-24. EBITDA was ₹1,088 crore, slightly up from ₹1,087 crore in the corresponding quarter of the previous financial year, while margins remained flat at 26%.

Profit after tax stood at ₹1,100 crore, marking an 8.3% increase from ₹1,016 crore during the same period last year. The company saw a more than 36% year-over-year rise in motorcycle sales with engine capacities above 350 cc, such as the 'Interceptor 650', driven by demand from its core demographic of urban consumers.

These higher-margin motorcycles accounted for 15.3% of total sales, up from 11.1% a year earlier. This growth helped offset the 12% decline in domestic sales of motorcycles with engine capacities up to 350 cc, like the 'Hunter 350', which still makes up the majority of Eicher's sales.

During the quarter, Royal Enfield sold 2,25,317 motorcycles, slightly lower than the 2,29,496 motorcycles sold during the same period in FY 2023-24, as per the company's Q2 earnings filing.

Earlier this month, the company launched two new motorcycles on its 650-Twin platform: the Bear 650 and the Classic 650. Additionally, Royal Enfield ventured into electric mobility with a new EV brand, the Flying Flea.

Eicher also made significant progress in expanding its international footprint. It debuted the Royal Enfield brand in Bangladesh with a new flagship store in Dhaka and established a manufacturing and assembly unit in the country.

Furthermore, the company is setting up a second CKD unit in Brazil later this year, building on the strong groundwork laid during Q2.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.