Semiconductor shortage to resolve in 3-4 months: Eicher MotorsPratik Mate
Update on Indian Equity Market:
An alarming increase in the number of Covid-19 cases resulted in a bloodbath in India’s Equity Markets, with Nifty slipping 258 points to 14,359. Adani Ports (-4.8%), Power Grid (-4.1%), ONGC (-4.0%) were the top losers on the index while Dr Reddy’s (+1.4%), Britannia (+0.9%), and Cipla (+0.9%) were the top gainers for the day. Among the sectoral indices, PSU Bank (-4.3%), Realty (-4.1%), and AUTO (-2.8%) led the losers while Pharma (+0.2%) was the only index to end in the green.
Excerpts of Interview with Mr. Vinod Dasari, Whole-time Director, Eicher Motors and CEO, Royal Enfield with CNBC-TV18 dated 16th April 2021:
- Demand has picked up strongly owing to backlogs from last year. The industry is facing some problems due to fresh restrictions owing to the rising COVID-19 cases.
- Learning from the past lockdowns, the industry is better equipped to deal with the short-term uncertainties and continue to keep up with the demand in the short term.
- Royal Enfield expects supply-chain constraints in the first couple of months of FY22 and expects the recovery to be along the lines of FY21.
- Metals inflation is putting pressure on margins, and the import restrictions on steel have resulted in an increase of 20% in prices which is unfathomable.
- Optimistic about the semi-conductor and Anti-lock braking system (ABS) shortages, in the short run, there’s a notable pressure however recovery is expected within the next 2-3 months as all the stakeholders are coordinating to mitigate the issue.
Asset Multiplier Comments:
- Demand is poised to recover in the FY22, however, Q1FY22 may see muted growth due to lockdowns and supply-side issues.
- As witnessed in Q4FY21, the demand is robust irrespective of the ongoing pandemic, the outlook for the auto industry is favourable for FY22 subject to supply-chain improvements.
Consensus Estimates (Source: market screener website):
- The closing price of EICHER MOTORS was ₹ 2,377/- as of 19-April-2021. It traded at 27x/ 21x the consensus EPS estimate of ₹ 87/ ₹ 115 for FY22E/23E respectively.
- The consensus price target is ₹ 3,105/- which trades at 27x the EPS estimate for FY23E of ₹ 115/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”
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