Edelweiss Securities' Chirag Shah and Siddhartha Bera released a note on Eicher Motors (EIM) with a Buy rating and a Rs 19,780 price target. They have given three driving reasons for the rating:

1. EIM's Q1CY15 numbers were in line with our estimates. Strong show in standalone (Royal Enfield - RE) business was offset by disappointment in VECV. Consolidated EBITDA, at INR3.7bn (margin 14.3%), was in line with our estimate. Adjusted PAT, at INR1.95bn, came below estimate due to lower other income/higher tax rate. Standalone reported a strong quarter with EBITDA at INR2.5bn (26.1% margin), 5% ahead of estimates, driven by the sharp 200bps QoQ improvement in gross margins. However, VECV's EBITDA at INR1.1bn (margin at 7.1%) disappointed due to cost pressures across line items.

2. Management highlighted key initiatives to capitalise on the huge demand potential – 6-8 dealer addition per month, better customer experience by expanding new retail format identity to all stores in 2015, improving aftermarket servicing capability and new product development focusing on exports. The company is betting on Columbia as a big export market for RE.

3. We believe building blocks are in place for EIM to register strong 78% earnings CAGR over CY14-16E. We maintain 'BUY/SO' with a revised SOTP-based target price of INR19,780  (16x PE for VECV, 30x for RE; INR19,000 earlier).

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