Adds background in paragraphs 7-9, brokerage comment in paragraph 10, updates share levels throughout

Feb 11 (Reuters) - Shares of Eicher Motors EICH.NS rose nearly 7% to a record high on Wednesday after the Indian automaker announced plans to boost capacity and forecast that its Royal Enfield motorcycles business would outperform industry growth.

The Himalayan 450 motorcycle maker's shares were up 6.5% at 7,770 rupees as of 10:45 a.m. IST, on track for their biggest single-day percentage gain since January 2025.

The stock was the top performer on the blue-chip Nifty 50 .NSEI and Nifty Auto .NIFTYAUTO indexes, which were trading up 0.1% and 2%, respectively.

On Tuesday, Eicher Motors said it planned to increase capacity at an existing plant in Tamil Nadu state by over a third to 2 million annual units to cater to fast-growing domestic demand.

UBS said the capacity boost "reinforces" its thesis that India's tax cuts on most motorcycles would drive premiumisation, with Royal Enfield "emerging as a key beneficiary."

Jefferies added that Royal Enfield's "toughest phase of competition as well as margin concerns are behind," after a few years of rising competition in the mid-sized segment from rivals such as Triumph and Harley-Davidson's locally-produced models.

Eicher's earnings beat on Tuesday was led by strong demand for its motorcycles with an engine capacity up to 350cc, for which the tax rate was cut to 18% from 28%.

That helped boost Royal Enfield's domestic sales by 24% in the December quarter, compared with industry-wide two-wheeler sales growth of 17%.

Eicher also expects to outperform the Indian two-wheeler industry's "high-single digit" percentage growth in the fiscal year to March 2027, its managing director B Govindarajan told analysts.

With strong sales of 350cc models and a recovery in larger models, whose tax rate was raised, volumes and margins are both "witnessing encouraging trends," Citi said in a note.

At least 12 brokerages raised their target price on Eicher after the results, lifting the median to 7,500 rupees from 7,190 rupees earlier, per data compiled by LSEG.

($1 = 90.5800 Indian rupees)

(Reporting by Nandan Mandayam in Bengaluru; Editing by Mrigank Dhaniwala and Sonia Cheema)

((Nandan.Mandayam@thomsonreuters.com; Mobile: +91 9591011727;))