Eicher Motors’ shares fell over 3 percent on Friday, a day after the company’s chief financial officer (CFO) Kaleeswaran Arunachalam resigned from his post to join Crompton Greaves as CFO in September. Global brokerage UBS too has downgraded its rating from buy to neutral on the auto maker’s stock.

At 10:33 am, shares were trading 2.39 percent lower at Rs 3,398.95 on BSE. Though the stock is in red today, it has given a return of more than 30 percent in the last six months as compared to the benchmark Sensex which has risen a little over 5 percent during the period.

The downtrend follows the CFO’s resignation on Thursday. Kaleeswaran Arunachalam was part of the management team at Royal Enfield, where a mass exodus has been the big overhang for the company’s stock. Multiple exits at Royal Enfield over the past few years have been a concern.

The auto major saw Vinod Dasari stepping down as CEO of Royal Enfield in August 2021, followed by chief commercial officer Lalit Malik and global head of marketing Shubranshu Singh’s exit in September, and then Asia Pacific head Vimal Sumbly’s resignation in February.

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Meanwhile, UBS has lowered its rating on Eicher Motors to "neutral" but it still sees a 5 percent upside in the stock from Thursday’s closing price.

“Eicher Motors' share price has rallied 34 percent in the past six months, outperforming the broader market by 30 percent and the auto index by 14 percent. Post this rally, we see limited upside potential and lower our rating to Neutral with a revised price target of Rs 3,675,” the brokerage said in its latest report.

According to UBS, the Hunter 350 launch should address domestic demand concerns in the near term but a sustainable recovery in Royal Enfield volumes will have to wait for material macro improvement.

It noted that the estimated FY24 domestic volumes of c790k units (150k of Hunter) are still lower than the FY19 peak of 805k units, underscoring the demand fatigue facing the category.

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UBS added that the Street is increasingly constructive on Royal Enfield seeing a replacement demand revival as older customers upgrade to new launches from the company. Though the brokerage believes in the replacement aspiration, it said the absolute number of such customers may not be meaningful for the following reasons:

1) customers who bought a 350cc Classic at Rs145k (on-road price) seven years ago would have to fork out more than Rs350k to buy a 650cc Interceptor, making it a steep jump for commuting needs

2) a lack of any demand improvement post the 2020 J-platform launch, which was a step change in product quality.

The brokerage estimates Royal Enfield’s domestic volumes will grow 36 percent/11 percent over FY23/24 aided by economic recovery, success of Hunter 350 launch (estimate 10-12,500 monthly demand) and low FY22 base (production impacted due to semis shortage).

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According to Gurmeet Chadha, Managing Partner & Chief Investment Officer at Complete Circle, there will be some short term reaction to any management exit and Eicher has probably had a little more to its share in last few years.

"From FY19 to FY22, the volumes have shrunk by about 32 percent, which is in line with the industry. The average price of the vehicle for various seasons has gone up by 20 to 23 percent. Now, there is a slightly differentiated strategy. They made up something to exports, which is up almost 3-4x. So now they are shipping like 10,000-12,000 units. So in India, they're trying to focus on 125-150 CC segment where the average price is Rs 1.5-2 lakhs," he told CNBC-TV18.

Commeting on the stock, he said, "it's almost priced to, I won't say perfection, but at Rs 3,500, if you pay 27-28 times to FY24 earnings, then you have to be growing what they have been doing when Eicher used to do well. So you have to see how the growth pans out."

From current price point view, the way TVS has done in last four quarters despite all headwinds and the progress in their EV offering IQ, wealth management firm Complete Circle prefers TVS over Eicher.

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