Why CLSA, MS, Jefferies are bullish on Dalal Street's second most expensive stock

This stock is drawing a lot of attention. Despite riding high, as far as price is concerned, it is still managing to generate investor interest. Eicher Motors share price rallied over 3 per cent on BSE after the auto major, which owns the iconic Royal Enfield (RE) motorcycle franchise, on Tuesday announced capex plan of Rs 800 crore for FY19 for various activities, including the construction of second phase of its Vallam Vadagal plant near Chennai.

Reacting to the news, Eicher Motors stock, the second most expensive on Dalal Street, gained as much as 3.5 per cent to Rs 29,050 on BSE. Most foreign brokerages such as Jefferies, CLSA etc raised target price on Eicher Motors following Tuesday's announcement. The highest target price came in at Rs 39,300 by CLSA, an upside of over 35 per cent from the current levels.  

"Our demand continues to exceed supply, and we continue to see strong growth from all our markets. Therefore, we have decided to expand our production capacity with the second phase of our Vallam Vadagal plant near Chennai," Eicher Motors MD and CEO Siddhartha Lal said in a statement.

The company also plans to complete construction of its Chennai-based technology centre this year and invest further in the development of new products to meet upcoming regulations and to expand its portfolio for global markets, he added.

The company had earmarked Rs 800 crore capex in 2017-18 fiscal year as well.

Here's what foreign brokerages recommend on the stock:

CITI ON EICHER MOTORS

• Demand remains strong and despite capacity expansion
• Management has guided to a capex of nearly Rs 8 bn for FY19
• Significant headroom for growth given a market share of only 6 per cent
• Dealership expansion and capacity augmentation should buoy volumes
• New target price is Rs 37,200 from Rs 35,600 earlier

JEFFERIES ON EICHER MOTORS

• Maintains Buy with a target price of Rs 31,880
• Production guidance for the current fiscal raised to 950k units versus 900k.
• Vallam Phase 2 will take capacity to over 1.2 million units
• Reiterates strong demand environment

MORGAN STANLEY ON EICHER MOTORS

• Maintains overweight rating with a target price of Rs 34,104
• Increase in FY19 capacity indicates confidence for RE bikes' demand

CLSA ON EICHER MOTORS

• Maintains Buy with a target price of Rs 39,300
• Announcement of capacity expansion indicates good growth visibility.
• New capacity to come on-line by H2FY20; Full ramp-up in FY21.
• Expect 15 percent compounded growth rate in volume through the financial years till March 2021.
• Expansion indicate strong demand growth outlook for next 2-3 years.