Eicher Motors Valuation Excel Model and Intrinsic Value of Shares

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Eicher Motors Valuation: About the Company

Eicher Motors Limited is the listed parent company of Royal Enfield, the global leader in middleweight motorcycles.

Additionally, Eicher has a joint venture with Sweden’s AB Volvo to form the company Volvo Eicher Commercial Vehicles Limited (VECV). The company has a complete range of trucks and buses from 5-55 tonnes in its integrated manufacturing plant in Pithampur, Madhya Pradesh.

The company’s shares have a 52 weeks price band of INR 23,450-12,600 and a total market capitalization of INR 345 billion which makes it a Large-Cap company. The shares have a P/E ratio of 16.65 and a dividend yield of 1.49%

The business model of the company is focused on leading the under-served global mid-sized motorcycle segment (250-750cc).

The company has a production capacity of 10+ lakh motorcycles in a year and a five-year new product pipeline. In the commercial vehicle segment with Volvo JV, the company has the capacity to produce up to 90,000+ trucks from a single facility and a new plant is under development to take capacity to 130,000 per annum.

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The other business of the company is biker accessories which includes Royal Enfield range of premium helmets, jackets and other exclusive motorcycling gear. From here, we go ahead with Eicher Motors Valuation.

Read more here: Eicher Motors Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows.

DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares

You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Eicher Motors Valuation.

Financial Year Revenue Growth Rate
Year 1 -6%
Year 2 -14%
Year 3 29%
Year 4 18%
Year 5 13%
Revenue Growth Rates: Eicher Motors Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast :Eicher Motors Valuation
Financial Statements Forecast :Eicher Motors Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 29059 21182 18665 24873 30463
Free Cash Flow to Equity 29481 21246 18964 25210 30838
FCFF and FCFE values: Eicher Motors Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 30462.85
Growth Rate 5.00%
Cost of Capital 12.95%
Terminal Value 402466.90
Terminal Value: Eicher Motors Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Eicher Motors Valuation.

WACC Calculation for Eicher Motors Valuation
WACC Calculation for Eicher Motors Valuation

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Eicher Motors Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Eicher Motors Stock Price Prediction
PV of FCFF and FCFE for Eicher Motors Valuation

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFF and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Eicher Motors Valuation Units
PV in INR Million 304502
No of Shares Outstanding (In Million) 270
Intrinsic Value 1127.79
Current Market Price of Share 2432.00
Current Discount/Premium 116%
Intrinsic Value of the Shares: Eicher Motors Valuation

Eicher Motors Valuation and Intrinsic Value of Share = INR 1127.79

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References: Investopedia
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You can read more about the company on its website!
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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