UBS upgrades Eicher Motors to buy, sees 34% upside on 'compelling' risk-reward

Brokerage firm UBS upgraded Eicher Motors Ltd., renowned for its production of Royal Enfield motorcycles and other commercial vehicles, shifting its rating from "neutral" to "buy." Alongside this upgrade, UBS has elevated the stock's price target to ₹5,000 from its previous valuation of ₹4,300.

This revised target suggests a potential 34% increase from Tuesday's closing rates for Eicher Motors, a significant uptick. Highlighting Eicher Motors' potential, the brokerage firm has included the company in its prestigious "APAC Key Call" list. UBS's rationale for upgrading

Eicher Motors stems from its assessment of the risk-reward balance as "compelling," particularly noting Royal Enfield's resilience against electrification risks.

UBS foresees Royal Enfield's forthcoming 450 cc platform launch as pivotal in addressing competitive pressures and growth uncertainties. The brokerage firm points out that the market underestimates Royal Enfield's sustained market strength, its robust customer engagement, and the commencement of a multi-year upgrade cycle among existing customers.

According to UBS, Eicher Motors' Royal Enfield segment is poised to witness a Compound Annual Growth Rate (CAGR) of 10% between fiscal years 2024 and 2026, outperforming the industry's anticipated growth of 6% to 7%.

This optimistic outlook is underpinned by a projection that Eicher Motors' Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) will grow at an 18% CAGR.

Despite the positive outlook, shares of Eicher Motors are currently trading at a 20% discount compared to Bajaj Auto's one-year forward price-to-earnings multiple, a notable shift from the 50% premium observed over the past five years.

Presently, Eicher Motors trades at a one-year forward price-to-earnings multiple of 23.11 times, compared to Bajaj Auto's 28.64 times.

Shares of Eicher Motors concluded Tuesday's trading session with a 0.8% increase and have exhibited a commendable 27% growth over the last 12 months.

In contrast, during the same period, Bajaj Auto shares surged by 127%, while Hero MotoCorp's shares saw a 93% increase. UBS maintains its bullish stance on Eicher Motors, driven by robust domestic demand and a favourable export environment.