Eichermot 4900 CE Recommended abv 75.50, Sl 62, Trgt 87-96.

The Indian Auto Industry comes in the top 5 largest auto industries in the world. India is also a prominent auto exporter and has strong export growth expectations for the near future. The support from the government is providing the auto companies with a boost needed in their development. But will it sustain?

During five years of share price growth, Eicher Motors achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is slower than the share price growth of 22% per year, over the same period. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. And that’s hardly shocking given the track record of growth.

• The mainstream of revenue for the Auto Sector is their sales, Eicher Motors has reported decent sales growth of 14.30 % and in the latest quarter, sales were Rs 4,231.28 Cr. To judge whether the company’s inventory is being sold or not and whether the sales picture is true, the inventory turnover ratio plays a major role, which is 16.35 times for Eicher Motors. It is managing its inventory poorly.
   
• Eicher Motors reported Profit growth of 42.97 % over the year, where the latest year’s profit is Rs 3,749.42 Cr compared to the previous year’s Rs 2,622.59 Cr. The new permits by governments and increasing demand will lead to an increase in profits in the coming year.
   
• The operating profit of Eicher Motors in the latest quarter is Rs 1,178.59 Cr. It helps in measuring the company’s operating performance which is used to make financing decisions.
   
• Eicher Motors has a healthy ROE of 26.36 %. The ROE is an important financial parameter because Auto companies work with high equity investments. Also, they have to take huge debt to incur the research and manufacturing work so their Debt to Equity ratio should be evaluated. Eicher Motors has a low Debt to Equity ratio of 0.01.
   
• Eicher Motors pays a dividend of 51 Rs per share. It tells us that a company likes to share profits with its shareholders. The dividend yield is low at 1.03 %.
   
• The share of the promoter in Eicher Motors is low at 49.11 %, where the pledging is 0 %.
   
• What the market is willing to pay for the company for its earnings can be determined by PE multiple. The current PE of Eicher Motors is 34.55 compared to the 5-year average PE of 34.96.

Eicher Motors shareholders have received returns of 43% over twelve months (even including dividends), which isn’t far from the general market return. Most would be happy with a gain, and it helps that the year’s return is better than the average return over five years, which was 23%. Even if the share price growth slows down from here, there’s a good chance that this is a business worth watching in the long term. 

The stock price opened today above yesterday’s high and shrugged off the consolidation zone with a strong volume. The momentum was expected to continue for bullish trades, hence the recommended ATM Call option.