Author: Dipti Sharma

Eicher Motors is racing ahead of the curve – here’s what is fuelling interest in Royal Enfield parent

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Lately, investors have been smitten with the business of Eicher Motors, the listed parent of Royal Enfield (RE) that makes the Bullet and Hunter bikes.

The rising investor interest is evident from the 13 percent gain in the stock in the past month and a 30 percent rally in the past three months. Though the stock suffered a bit of a hit on the exit of chief financial officer Kaleeswaran Arunachalam, year-to-date, the scrip has gained more than 30 percent.

Many analysts are also bullish on the business model of Eicher Motors. They see growth in volumes because of new product launches, a rise in export volume from channel expansion and market share gains.

Additionally, as the operating leverage kicks in, the market is confident about the motorcycle company’s operational performance improvement.

Why is the market riding high on Eicher Motors?

New product launches

The RE maker has a strong pipeline of launches planned. Market participants believe the new Hunter 350cc would draw incremental volumes given its attractive price of about Rs 1.5 lakh for the factory model and differentiated product offering that is light in weight, non-cruiser, and urban fit.

The company is focused on getting new customers with the launch of Hunter. During its launch, RE global website visits increased sharply by 48.2 percent to 4.7 million. Analysts noted that RE targets to launch multiple products over the next 18-24 months, providing an upgrade option to its existing customers.

To factor in improved demand momentum from Hunter, HDFC Securities raised its estimates for FY23 and FY24 by 3 percent each.

Eicher management realised that there is a set of customers who are RE enthusiasts, but none of the RE bikes suits their needs. Such customers wanted cruiser bikes, but those that are lighter than RE, much more accessible and could be manoeuvred smoothly. Hence, it conceptualised the Hunter in 2016, which is almost 13 kg lighter in weight and easy to handle.

Axis Securities said, “Launch of Hunter 350 at lower price raises the accessibility of RE, while its agile and light features fill the gap in RE’s portfolio, which the company believes will lead to increase in volumes from an exclusive customer base who likes RE as a brand but wants an affordable and light motorcycle”.

Even HDFC Securities thinks RE could be a key beneficiary of the premiumisation trend in India because of its dominant position in the >250cc market in India.

Despite operational headwinds, RE has delivered healthy operating cash flow over the last few years. The average operating cash flow for the last four years was Rs 16 billion.

RE has been forced to take an almost 30 percent price hike in the last three years due to regulatory compulsion and a sharp rise in input costs which seems to have weighed on volumes slightly, analysts believe.

Given this backdrop, RE is now looking at a re-balancing strategy, wherein they intend to secure a balance between growth and profitability.

RE dominates the market share of more than 85 percent in the 250cc+ segment in India, and it has increased its market share to 36 percent in the first quarter of FY23 from around 33 percent in the first quarter of FY22 in the 125cc+ segment. The company now holds the first position in the 125cc+ market, Axis Securities highlighted.

Demand remains strong for RE’s Classic and Meteor, analysts pointed out.

RE continues to maintain around 85 percent of the market share in the 250cc category. It has gained share in the >125cc segment as well from approximately 33 percent sequentially to about 36 percent currently.

UBS, meanwhile, downgraded the stock rating to neutral as post the stock rally, the brokerage sees limited upside potential.

Exports

The bullet manufacturer sees a strong demand pull from its key markets. Regarding exports, the firm believes that RE is in a stage where it was in the domestic market in FY11 and expects to see sustained growth in the coming years.

Prabhudas Lilladher noted that RE recorded its highest quarterly exports of around 29,000 units in the first quarter of FY23 against about 25,000 in the fourth quarter of FY22.

“We expect export business to witness significant growth over the next few years (we build in 30 percent volume CAGR over FY22-24E) led by channel expansion and market share gains,” Prabhudas Lilladher said in a note.

Ease in semiconductor shortage and the EV story

The management of the Indian multinational automotive company indicated ease in the supply chain situation and softness in commodity prices. It expects a gradual improvement in production from hereon to help further improve margin.

Eicher Motors’ management indicated that they currently understand the electric vehicle (EV) technology and how it could be introduced in RE bikes without disturbing the DNA of the product.

However, the management has also indicated that any tangible EV product from RE is at least 3-5 years away.

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Tata Motors’ JLR makes fewer retail sales than peers but this brokerage believes it can compensate

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Jaguar Land Rover (JLR), the UK-based subsidiary of Tata Motors, made 6 percent lesser retail sales during the April-June quarter at a time when its peers like Audi, BMW, and Mercedes Benz retailed about 3.5 percent more.

The main reason for the dip was the firm’s limited production of the higher-margin model, the Range Rover Sport, of merely 6,000 units as compared with its typical run-rate of approximately 25,000 units, according to brokerage firm ICICI Securities.

“As against peers, JLR’s June quarter retails were relatively more affected as it was undergoing the RR/RR Sport run-out phase, resulting in loss of volumes,” the brokerage firm said, adding this was over and above the impact of China lockdown.

The brokerage said JLR would need to put together around 80,000 units per quarter in the rest of FY23 to maintain flat wholesale volumes year-on-year, excluding China.

With an outlook suggesting around 90,000 units in the second quarter, ICICI Securities believes JLR is on course to compensate for its under-performance in the June quarter.

The brokerage firm believes that wholesale of about 30,000 units per month in the coming months would be good enough for JLR to meet its FY23 free cash flow guidance of GBP 1 billion. This would mean free cash flow breakeven volumes at approximately 25,000 units monthly.

Margin outlook

JLR’s guided earnings before interest tax (EBIT) margin of 5 percent seems on the higher side for FY23 currently, and to achieve it, the brokerage firm believes the luxury carmaker needs to deliver earnings before interest tax depreciation and amortisation (EBITDA) margin of 15 percent for the remaining quarters of FY23.

“With operating margin guidance for global peers being slightly subdued year-on-year due to input cost inflation, we are building in an EBIT margin of 1.5 percent for JLR (up 150bps YoY) versus the guidance of 5 percent (FY23E EBITDA margin at 10.5 percent vs Q1 at 6.3 percent),” the brokerage firm said.

ICICI Securities has maintained its ‘buy’ rating on Tata Motors shares with an unchanged target price of Rs 646, implying a percent upside in the stock.

Capex and R&D expenses

With a focus on electric vehicles (EVs) and product development, the outlook for capital expenditure and research and development expenses remain largely unchanged on a year-on-year basis for most peers as well as JLR.

The British luxury carmaker has guided for a capex of around GBP 2.5 billion for FY23, similar to FY22.

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IndusInd Bank gains as Jefferies raises target by 23%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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IndusInd Bank share price rose as much as 2 percent on Wednesday as the foreign brokerage firm Jefferies sees about a 23 percent upside in the stock from the current market price. Jefferies has set its target price on the stock at Rs 1,330. At 9:34 am, shares of the lender were trading 1.3 percent higher at Rs 1,085.2 on the BSE.

The foreign brokerage firm has a ‘buy’ rating on the stock. It believes that new initiatives on liabilities, corporate and rural banking can turnaround return on asset.

Jefferies also sees further improvement in retail deposit franchise for the lender.

Net interest margin—the difference between the interest income earned and the interest paid by a bank or financial institution—was at an 8-year high while return ratios were best in 10 quarters during the June quarter.

Additionally, loan growth was also the best in 10 quarters on a year-on-year basis.

The lender has recently launched two digital banking units, one each in Punjab and Tamil Nadu.

“This announcement is in line with the recent Digital Banking Unit advisory, to accelerate and widen the reach of digital banking services in the country,” the bank had said in an exchange filing.

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SpiceJet shares fly 3% as airline plans to raise funds worth Rs 2,000 crore

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of SpiceJet rose as much as 3 percent on Wednesday after the financially troubled Indian carrier said it is open to investment from external parties, including other airlines, as it seeks to raise Rs 2,000 crore.

At 9:23 am, shares of the airline were trading 1.8 percent higher at Rs 47.1 on the BSE.

As per reports, the budget carrier is also tapping a government programme that extends emergency credit lines to businesses hit by the pandemic, said SpiceJet Chairman Ajay Singh. The company will also raise capital via the sale and leaseback of at least seven additional Boeing Co. 737 Max aircraft this year, he added.

Lately, SpiceJet has faced challenges especially after many flights suffered from technical snags. Subsequently, the airline has been on the aviation regulator’s radar. Singh added that the airline is doing its utmost to work through the stress that it has faced and the strategy is to raise resources, reports said.

He told CNBC-TV18 that flying at 50 percent capacity has not hit the airline’s schedule, “This was the lean season and most airlines including SpiceJet, were flying well below the 50 percent approved schedule. So there has been absolutely no impact on schedule and as the season picks up the schedule will increase.”

Besides, the board of private carrier SpiceJet will be meeting on August 31 to consider and approve the financial results of Q4 FY22 and Q1 FY23.

On May 27, the company had said that a ransomware attack on IT systems had affected its audit process, due to which, the results had been delayed.

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Sensex, Nifty end higher as Reliance, ICICI Bank, Kotak Bank, Eicher Motors, M&M surge

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian benchmark indices ended Tuesday’s session higher driven by gains in index heavyweight Reliance Industries, financial services stocks such as ICICI Bank, Kotak Mahindra Bank, and automobile stocks such as M&M and Eicher Motors.

On Tuesday, Nifty50 closed at 17577.5, up 0.5 percent while Sensex ended 0.4 percent higher at 59031.3.

“The way we are looking at markets today is that, especially over the last one to one and a half months, we have seen a significant move in the market and that has been led by three key things one, of course, some amount of FII flows coming back,” said Shibani Sircar Kurian, Senior Executive VP & Head-Equities Research at Kotak Mahindra AMC.

She added, “Secondly, expectations at margin start bottoming out in Q2, especially given the kind of trajectory on commodity price and third, India growth looks fairly robust on a relative basis”.

However, Kurian cautioned that the market is looking somewhat stretched now given the rising valuations.

Therefore near term, one could see some degree of either consolidation or volatility, she added.

Here’s how the Rupee performed:

Elsewhere, gold prices edged higher from a near one-month low in the previous session, as investors were caught between worries of a recession and hawkish central bank views ahead of the Jackson Hole Symposium this week.

Having slipped in the last six sessions, spot gold rose 0.2 percent to $1,739.20 per ounce. Prices had dipped to $1,727.01 on Monday, their lowest since July 27.

Global markets

Key indices in Europe were mixed while MSCI’s Asia Pacific ex-Japan index was down 0.6 percent.

There was nervousness about tightening Federal Reserve monetary policy that kept investors edgy.

Markets are looking forward to this week’s economic symposium in Wyoming.

Investors continued to take some money off the table amid caution ahead of the symposium for additional clues about the pace of future interest rate hikes.

(With inputs from agencies)

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Gland Pharma up 4% as Goldman Sachs expects double-digit growth on back of new launches

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Gland Pharma surged about 4 percent after Goldman Sachs initiated ‘buy’ rating on shares of the pharmaceutical company with a target price of Rs 2,830. Following a slow FY23 due to raw material shortage, Goldman Sachs expects a rebound in FY24 after baking in 27 percent growth in topline.

The growth is expected to be driven by pick up in rest of the world and India sales as supply constraints ease off while demand remains robust. Double-digit growth on the back of new launches as well share gains in existing products will also aid growth, according to the brokerage firm.

At 11:41 am, shares of the company were trading 0.7 percent higher at Rs 2,386.3 on the BSE.

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The global brokerage firm sees the pharmaceutical company becoming a leading global generic injectable player with addressable generic market size of $138 billion by financial year 2027.

Increasing production capacities and utilisations at its key facilities is another growth driver, as per Goldman Sachs.

Last week, BofA Securities said it has maintained a ‘buy’ rating on Gland Pharma with a target price of Rs 3,200 per share.

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Eicher Motors vrooms to 52-week high riding on Royal Enfield volumes

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Royal Enfield-parent firm Eicher Motors share price gained over 3 percent on Tuesday as global brokerage CLSA raised its target price on the stock to Rs 4,154, suggesting a potential upside of around 20 percent. At 9:47 am, shares of the auto major were trading 3.3 percent at Rs 3,475.3 on the BSE. The scrip hit a 52-week high price of Rs 3,478.05.

CLSA which has a ‘buy’ rating on the stock, sees exports as a key growth area for Eicher Motors. It said that Royal Enfield volumes grew at 33 percent compounded annual growth in FY12-19, and added that most of these customers will be looking to replace their bikes over the next 7-8 years.

CLSA is of the view that Royal Enfield capturing 80-85 percent of this demand would help grow volumes at a significant pace. This is a plausible scenario as customers do not have much choice apart from a brand like Royal Enfield to upgrade to in the ultra-premium motorcycle category, it added.

The global brokerage sees Royal Enfield’s EBITDA (earnings before interest, tax, depreciation and amortisation) per vehicle rising to Rs Rs 46,500 from the current Rs Rs 42,000 driven by softening commodity prices.

Eicher Motors is confident about continued and sustained growth for Royal Enfield in forthcoming quarters with the festive season starting.

Better market and consumer sentiment, along with an improvement in supply chain and part availability, would also help, it had said while detailing June quarter earnings.

Jefferies had said that it sees multiple positives for Royal Enfield and expects the New Hunter Motorcycle to expand its addressable customer base.

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Nifty, Sensex settle deep in the red — factors that caused the markets’ fall today

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The market saw a decent bout of profit-taking on Monday with the benchmark Indian indices posting their biggest single-day fall in over two months.

On Monday, Nifty50 closed at 17,490.70, down 1.5 percent, while Sensex ended 1.5 percent lower at 58,773.87.

In the past one month, Nifty50 has gone up up 4.6 percent while Sensex went up 4.8 percent.

All sectoral indices on the NSE ended in the negative.

Losses in financial services and information technology stocks contributed the most to today’s sell-off.

With investors taking some money off the table, equities witnessed a sell-off. Meanwhile, foreign investors flocked to have- asset dollar, pushing the dollar index to a five-week high.

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The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.20 percent to 108.38.

The dollar index jumped after a US Federal Reserve official indicated that the central back would maintain its hawkish stance ahead of the Jackson Hole Symposium in Wyoming on August 25-27.

Nervousness ahead of the symposium, was another factor contributing to the market fall today.

Nilesh Shah of Kotak AMC pointed out that the global scenario does not look too good.

He told CNBC-TV18 — echoing the US Fed official’s take — that the markets will be mindful of the fact that the US Fed and other central bankers may try to be hawkish at Jackson Hole.

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Further, action ahead of the monthly expiry of futures and options contracts this week kept investors on the edge.

“Markets respond to liquidity and a lot of liquidity was sucked out today from the Indian markets by FIIs based out of Mauritius,” pointed out Suman Bannerjee, CIO, Hedonova, an alternative investment fund firm investing in alternative assets such as NFTs, Crypto and P2P lending.

Meanwhile, Kush Ghodasara, an independent market expert, said,  “Today we saw short covering at 17,600 and 17,500 puts for August 25 expiry, while on the call side, heavy writing was seen from 17,600 to 17,900 strike price”.

He added, “But longs were seen at 17,000 strikes prices too, which suggests that the markets are heading for the 17,000-mark with 17600 as strong resistance for next three days.”

Shah believes, “Now, the market has to take a little bit of respite and even correct a little bit. This will be driven by a variety of factors”.

Firstly, the recently earnings for June quarter are marginally below expectations, driven mainly by some large stocks; the overall breadth of the earnings has been positive. “So clearly, the market has discounted the breadth of the earnings, but it probably has to discount some disappointments in larger names driven in the automobile or in oil marketing companies,” he said.

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Sensex, Nifty see biggest single-day fall in 2 months as Bears rule the roost on D-Street

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian benchmark indices ended deep in the red for the second consecutive day with losses in IT and financial stocks weighing the most.

The market posts its biggest single-day fall in over two months.

On Monday, Nifty50 closed at 17,490.70, down 1.5 percent while Sensex ended 1.5 percent lower at 58773.87.

Nilesh Shah of Kotak AMC, said “Now, the market has to take little bit of respite and even correct a little bit. This will be driven by variety of factors”.

Firstly, the recently concluded quarterly earnings for June quarter is marginally below expectation driven mainly by some large stocks and overall breadth of the earnings has been positive. So clearly market has discounted breadth of the earning, but it probably has to discount some disappointments in larger names driven in automobile or in oil marketing companies.

Secondly, globally, the scenario does not look that good. There is a meeting at Jackson Hole where US Fed and other central bankers may try to be hawkish that will be on the mind of the market. “So we are at a stage where there is need for consolidation and the next move of the market will be dependent upon whether global uncertainty starts receding or starts increasing,” Shah highlighted.

Here’s how the Rupee performed:

The Indian rupee slipped to a four-week low against the dollar on Monday as the euro and the Chinese yuan extended losses.

The rupee dropped to 79.9125 per US dollar, lowest level since July 27, compared with 79.7750 in the previous session.

Global markets

There is jitteriness over global growth as most central banks keep raising rates, while a modest easing by China served only to highlight troubles in its property market.

MSCI’s broadest gauge Asia Pacific ex-Japan was down 1 percent whereas key European indices were also trading in the red.

Meanwhile, S&P futures were down 1.3 percent hinting at a lower start for US equities.

(With inputs from agencies)

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

This multibagger shot up 5,695% in past 3 years, further gains likely

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Adani Green Energy surged more than 6 percent on Monday. The stock has been gaining for the past six days and has risen over 16 percent during the period.

At 14:21 IST, shares of the Ahmedabad-based renewable energy company were trading 4.7 percent higher at Rs 2,524 on the BSE.

This multi-bagger has soared 5,695 percent in the past three years.

The stock saw a spurt in volumes today, with a total traded quantity of 2.39 lakh shares as compared to its two-week average of 1.02 lakh shares.

Technical chartists believe the stock shows a positive trend.

“The stock is heading towards Rs 3,000-3,250,” said Arpan Shah, Senior Research Analyst, Monarch Networth Capital. The stock is seen drawing support at Rs 2,050, he added.

Last week, a report said that the Adani Group company had received provisional approval from the Sri Lankan government for two wind projects in Manner and Pooneryn with an investment of $500 million.

With regards to this, BSE had sought clarification from the company.

Adani Green said in an exchange filing: “We wish to submit that the company, in its normal course, keeps on exploring various business opportunities. Please note that at this point in time, the company has received the provisional approval only, but it has yet to sign any definitive agreement that would require any disclosure”.

The company’s total income during the June quarter came in at Rs 1,701 crore from last year’s Rs 1,079 crore.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow