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Eicher Motors

Reaping benefits from the engine

It started in 1959 as a tractor company, Eicher Motors (EML) is now a well known brand in both the consumer segment (Royal Enfield) and in the commercial segment (Volvo trucks). It’s also present in design & development, manufacturing & marketing and auto components businesses.

EML recently  underwent restructuring after entering a joint venture with AB Volvo. It transferred its commercial vehicle business to VE Commercial Vehicles, where both have equal controlling interest. Hence, from Q2FY2009, EML’s business spans just motorcycles.

EIL reported a revenue of Rs 927.2 crore for the Q3FY2009 (it follows calendar year) as against Rs 567.4 crore in the same period last year. Its profit for the quarter stood at Rs 44.1 crore compared to Rs 45.2 crore. It sold 7,113 units of EIL branded commercial vehicles (29.3% increase) compared to 5,500 units sold in the corresponding quarter of the previous year.

Institutional investors have raised stakes in EIL from 0.09 per cent in March, 2009 to 19.65 per cent in September, 2009. At the same time, the number of funds invested in it doubled.

The stock is trading at a level of Rs 557, which is a higher value than reached at the peak of the previous rally (Jun 15, 2006-Jan 8, 2008). Discounting its EPS of Rs 28.8 with a P/E of 37.08 (137 per cent higher than its 3-year median P/E), the stock is trading at quite a premium. Though its valuations are in for a re-rating, considering its tie-up with Volvo, it is worth accumulating at dips.

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