It was just last week only when Royal Enfield brand owner Eicher Motors slumped by 6% and many analysts gave a sell call in the stock. However now looks like the company has recovered losses on stock exchanges, as investors have boosted the stock price by more than 5% in three days of trading this week. On Wednesday, the Eicher Motors stock price was trading higher by Rs 270.50 or 0.89% to Rs 30,705.75 on BSE, ahead of fourth quarter ended March 2018 result which will be announced anytime soon. 

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It needs to be noted that in today’s trading session Eicher Motors has touched an intraday high of Rs 30,750 on BSE as analysts have given optimistic views in the upcoming business performance. 

Following which, from May 07 to till date, Eicher Motors has gained over Rs 1,500 or 5.24%. The stock price was trading over Rs 29,000-level. 

In last week’s trading session, the company slumped by nearly Rs 2,950 or 10.08%. 

SBICap last week said, “we expect growth to normalize with 20% CAGR over FY18e-20e and hence, argue for a multiple de-rating to 25xPE (from 32x). They added, “We draw parallels from Harley Davidson, a similar cult biking brand, to demonstrate the possibility of such de-rating.”

However, now tables have turned and considering the current performance of Eicher Motors looks like the company is coming back strong. The company is second most expensive stock on exchanges after MRF. 

Edelweiss Financial Services interacted with Royal Enfield dealer in Lucknow, Mumbai and Bengaluru to get some demand flavour. 

From their interaction the agency noted down six pointers. They are: 

  • Gun Metal Grey (GMG), launched in September 2017, now accounts for 25-35% of Classic 350 sales. In Bengaluru, the share was as high as 70%. 
  • Brand appeal intact, but model fatigue leading to volume slowdown in certain markets.
  • Robust demand for new variants leading to higher waiting period across Classic 350.
  • GMG & Thunderbird X (launched in February 2018) are priced 7-10% higher, implying better realisation & gross margin. 
  • No inventory pile up—dynamic booking system ensures dispatches only against advance booking. 
  • RE is sharpening focus on after sales & service. 

Looking at the demand of Royal Enfield, the company is set to present good financial performance in Q4FY18. 

Analysts at Prabhudas Lilladher said, “On a standalone basis, Royal Enfield's Q4FY18 volumes have grown by 26% YoY to 227K units, while VECV volumes too have grown a robust 36% YoY at 23K units. We expect EIM to report consolidated revenue growth of 35% YoY to Rs25.5bn, with an EBITDA margin of 31.6%, higher 60bps YoY.”

Raghunandhan NL and Mumuksh Mandlesha analysts at Emkay also said, “We expect consolidated revenue to grow by 33% yoy (+11% qoq) to Rs25.2bn, led by 27% yoy (+10% qoq) growth in 2W volume. EBITDA margin would expand by 40bps qoq (+60bps yoy) to 31.6%.”

The duo added, “Overall, adjusted PAT is likely to increase by 33% yoy (+18% qoq) to Rs6.1bn. We expect share of profits from associates to increase to Rs935mn (+77% yoy; +51% qoq).”

Similar views were from IDBI Capital as well. 

Meanwhile, Edelwiess said, “ We expect operating margins to improve sequentially by 70bps to 32% led by benefits of improving scale and vendor consolidation.”

Even market price of Eicher Motors has been increased, Chirag Shah and Nikhil Kale at Edelweiss said, “We maintain ‘BUY/SO’ with TP of Rs 35,500 (30x core FY20E EPS, 17x FY19E VECV EPS and Rs 3,107 cash/ share). At CMP, the stock trades at FY19E/20E PER of 28.8/23.4x.”