Eicher Motors is India's leading tractor manufacturer company. Royal Enfield brand too belongs to this firm. The company has shown tremendous growth since last recession when interest costs and less demand on the agriculture front had put steep pressure on the bottom line.
With new economic horizon, the working environment for this company has changed. Both Central and State Governments are now focussing on the agriculture sector which would help the company in increasing its sales. Also it has exclusive tie-up with International HCV manufacturer -Volvo - for trucks manufacturing. Thus the company foray into Rural India space would help it continue to grow in the near future.
In terms of financials, the company was into tremendous interest costs pressure in 2008 where Sales/ Interest Expenses ratio was around 14% which now has been reduced to mere 2%. The reduce in interest expenses along with improved sales has helped the firm notch 100% increase in Net Profit on Y-o-Y basis.
Valuation-wise the stock used to trade in PEX of 18-20 times during recession period. In the current bull market, it traded at PEX of 45-50 times. Currently, it is trading at PEX of 35. With better financial prospects in the future and its working in "Agriculture" domain, it should demand PE of at least 35 times. With estimated EPS of 35 Rs (30% gains Y-o-Y) and PE of 35X, its fair price comes at 1250 Rs for next one year which provides returns of 20% from current market price.
Technically, it has good support at 1020-1050 levels. If this level is broken, the stock can be accumulated at around 850-860 levels, which is extremely attractive. After this level, one may buy around 600-650 levels where exists Stop-loss as well for this stock (Ref: graph).
My advise is to buy around 50% at current levels and 50% at 850 levels for optimal gains. In case of last resort, put 100% more at 650 levels with strict stop-loss of 580.
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