â??Eicher Motors, Q2CY12 results broadly in-line; while RE surprised positively on margins, VECV margins relented to higher discounting. Capacity expansion plans on track on both VECV and MDEP. Structurally we remain positive on VECV and expect market share gains; capacity expansion to aid RE growth in FY13. At 15x/12x FY13/FY14E P/E stock looks fully valued.

Results broadly in-line; while RE margins were ahead of expectations at 15.3%, VECV margins came in a tad lower at 7.6% owing to higher discounts/incentives. Consol.net sales stood at Rs 15.9 bn (+22% YoY, -6.5% QoQ), broadly in-line. EBITDA at Rs 1.4 bn (10.6% YoY, -22.6% QoQ) was below est. EBITDA margins stood at 8.8% vs est. of 9.5%. VECV margins disappointed at 7.6% (-140 bps YoY, -250 bps QoQ) vs est. of 8.5%; mgmt suggests higher discounting/incentives in trucks impacted margins. Standalone margins surprised positively and reached an all time high of 15.3% (200 bps YoY, 140 bps QoQ); notably, this was despite staff costs increasing 70 bps QoQ to support higher production. Net profit at Rs 760 mn was ~5% below estimates, dragged down by lower margins at VECV.

While we like Eicher Motors as a structural long term story we have HOLD recommendation on the stock owing to rich valuations. The stock is currently trading at 15x/12x FY13/FY14E P/E and 9.3x/7.2x on adj. EV/EBITDA. We have an SOTP based target price of Rs 2,000 on Eicher, valuing the RE/VECV businesses at 9.0x/7.5x CY13E EV/EBITDA and cash at book value,â?? says Emkay Global Financial Services research report.

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