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Brokerages slash Eicher target price on Royal Enfield concerns

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Several brokerages slashed target price on motorcycle maker Eicher Motors following its second quarter result announcement.

Brokerages have cut target price by 7-28 per cent.

However, the stock recovered from its intraday low of 3.5 per cent and ended up nearly 6 per cent at Rs 23,247 after the company said that the strike at its Tamil Nadu unit has been called off. Brokerages cut estimates to factor in lower volume growth for Royal Enfield.

Volume growth for Eicher Motors in the September quarter was constrained by lower volumes in Kerala, supply constraints and the production loss at the Oragadam plant near Chennai. Eicher Motors on Monday reported a 5.9 per cent increase in consolidated net profit at Rs 548.7 crore for the quarter ended September.

“To factor in the demand challenges, no strong order book and expected increase in competition, we reduce our RE (Royal Enfield) volume and EBITDA margins estimates by 4/6 per cent and 240/210 bps respectively for FY19/20,” said Prabhudas Lilladher, downgrading the stock to ‘hold’. Kotak Institutional Equities believes that compliance cost pressures due to introduction of Anti-Lock Braking System (ABS) insurance cost increase for Royal Enfield in the second quarter and shift to BS-VI norms in FY21 could lead to significant cost increase for the company’s bikes, which could slow down volume growth for RE. However, CLSA has maintained its positive stance on the motorcycle maker and kept the target price unchanged.

“While the recent weakness at RE has raised concernHowever, CLSA has maintained its positive stance on the motorcycle maker and kept the target price unchanged.s on its demand outlook, we continue to believe that it offers one of the most differentiated products in Indian autos and will be a key beneficiary of premiumisation in a maturing motorcycle industry,” said CLSA.




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