Shares of Eicher Motors Ltd, the manufacturer of Royal Enfield motorcycles, jumped 4.4% on Thursday, i.e. 17 October, after global brokerage firm UBS upgraded its rating on the stock to ‘buy’ from ‘sell’.
At 11:45 am, shares of Eicher Motors were trading at Rs 20,000, up 4%, after hitting an intra-day high of Rs 20,070. Notably, the stock has risen over 10% in the last one week and over 22% in the last one month.
UBS has raised the target price on the Eicher Motors stock to Rs 23,000, citing likely volume growth in the second half of the financial year.The de-rating and downgrade cycle seem to be coming to an end and there is a high conviction of sequential volume growth for Royal Enfield in the second half of FY20, said the firm.
UBS also expected volume growth for the company to turn positive in FY21 on major product refresh and new model launches, with limited price increases seen from the implementation of BS-VI norms. The brokerage firm raised the target PE (price to equity) multiple to 23x one-year forward, a 25% discount to the five-year average.
Meanwhile, another brokerage firm Nirmal Bang Equitieshas also re-initiated the coverage on the Eicher Motors stock with a ‘buy’ rating and has set a 12-month target price of Rs 21,127 per share. “We expect 3.3% volume CAGR (compounded annual growth rate) for Royal Enfield (RE) over FY19-22. RE’s margin has been under pressure due to negative operating leverage, which we believe will continue for the rest of FY20 and gradually recover with volume growth,” the firm said in a report.
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