About the Company

Eicher Motors Limited is an Indian manufacturer of motorcycles and commercial vehicles. Eicher is the parent company of Royal Enfield, a manufacturer of middleweight motorcycles. In addition to motorcycles business, Eicher has a joint venture with Sweden’s AB Volvo – Volvo Eicher Commercial Vehicles Limited (VECV).

 

Q3 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 2499.36 2490.47 0.36% 2326.82 7.42% 7367.12 7660.71 -3.83%
PBT 634.09 759.18 -16.48% 599.27 5.81% 1941.27 2378.13 -18.37%
PAT 488.94 501.41 -2.49% 570.46 -14.29% 1557.64 1574 -1.04%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 2505.71 2488.19 0.70% 2337.5 7.20% 7345.53 7597.67 -3.32%
PBT 644.09 789.41 -18.41% 600.51 7.26% 1908.05 2477.7 -22.99%
PAT 498.7 532.95 -6.43% 572.69 -12.92% 1523.16 1675.41 -9.09%

 

Detailed Results

    1. The company had a muted quarter with a 0.7% rise in consolidated revenues and an 18.4% decline in PBT.
    2. Volumes for 9MFY20 fell 14.4% YoY.
    3. EBITDA margins for 9M shrank to 25.4% from 30.8% a year ago.
    4. The dealer network expanded to 939 from 858 a year ago.
    5. The company still enjoys a market share of more than 90% in its segment of 250cc+ motorcycles and a market share of 25.7% in the 150+ cc category.
    6. Production ramp-up is underway in phase 2 of their Vallam Vadagal plant.
    7. The company has set up 500 studio stores till December 2019 so far. It plans to establish 1700 stores (Total) in 1400 towns across India by the end of FY20.
    8. The company also plans to increase exclusive international store count from the current figure of 67 to 90 over the next 12 months.
    9. In VECV, total volumes fell 28.6% YoY to 37,092 in 9MFY20. Total revenues fell 23.4% YoY in the same period.
    10. EBITDA margins for VECV fell to 5.7% in 9MFY20 from 8.3% a year ago.
    11. Despite a decline in both volumes and revenues, VECV has seen market share rise to 14.5% in 9MFY20 from 13% a year ago.

 

Investor Conference Call Highlights

  1. Sales volumes for the quarter were down 2% YoY while exports grew significantly to around 8400, mainly on the back of good demand for the Twins and the Himalayan.
  2. The management was satisfied with the company’s performance as the company had vastly outperformed the industry with a fall of only 5% vs an industry decline of 23%. This saw the company gain market share from 26% to 32%.
  3. The company has added 500 studio stores so far and aims to bring this number up to 750 by the end of the year.
  4. The company has also launched a customization platform called Make Your Own, allowing the customer to build their own bike using whatever array of paint colours that we have to, accessories and so on so that they don’t have to waste time or money doing it in the aftermarket.
  5. The management has mentioned that some of the segments of VECV have seen demand coming back on account of prebuying before BSVI transition. The company is working towards reducing its stock of BSIV vehicles as the deadline of 31st March approaches.
  6. The management feels that the company is suitably prepared for the BSVI transition with a wide range of BSVI engine offerings like 2-liter, 3-liter, nearly 4-liter, 5-liter, and 8-liter diesel-powered engines as well as 2 CNG-powered engines.
  7. The management has stated that there is indeed seasonality in export markets where sales of motorcycles drop from October to December and start picking up after February.
  8. The management expects all of its motorcycle production to move to the BSVI platforms by the end of the month.
  9. The company has around 2-3 weeks of inventory at present. The inventory of BSIV stock is around 10 days.
  10. The management has stated that in the short term margins will definitely be affected by raw metal prices after the advent of BSVI and it should stabilize in the medium term. This is an industry-wide phenomenon and not specific to the company.
  11. The management has mentioned that the price rise was necessitated by BSVI advent and it has seen no indication of a drop in demand due to this action. The company continues to have bookings higher than dispatches even in the current environment.
  12. The management has refrained from providing any sustainable figure for the run rate for 650 series and has stated that it will wait till May to understand current market dynamics and arrive at a reasonable figure.
  13. The management has mentioned that the breakeven point for the studios is around 7-8 vehicles per month and it feels that this format helps the company achieve deeper penetration while providing valuable after-sales services which are good for the brand and the company.
  14. The management has refrained from providing any projections of growth post BSVI but it feels that the industry should see a modest revival of around 5% in the coming year.
  15. The management has maintained that the margins have not been diluted due to the launch of lower-priced variants and the lower prices have been offset by corresponding cost reductions.
  16. The company will keep the capacity of 650 series at the current level of 5000 and will wait to observe to see the full impact of BSVI before thinking of expanding this capacity.
  17. The company will not be moving the 500 cc models into BSVI as the management believe that the 650 series is more than adequate to cover the demand in this segment.
  18. Around 1/3rd of the volumes sold in January were BSVI compliant.
  19. The management has stated that the company will stay in the air-cooled model engine design as it is an integral part of the brand image and it will continue to stay in this till regulations state otherwise.
  20. The management expects H1FY21 to be flat for VECV mainly due to the industry disruption caused by the BSVI transition.
  21. The Make Your Own system has received a good response and has already seen sales of more than 600 vehicles in the past month. The sales through this route have doubled each month in the last 3 months. The order to manufacturing time in this route is only 24 hours and then the product is directly dispatched.
  22. In the customer profile for the 650 series, the company has seen around 60% of them upgrading from RE while 40% are from outside.
  23. The management has mentioned that the 650 series has been very well received all across the world and thus exports for these bikes has risen 120% YoY in the period of 9MFY20. This is also the result of the company’s efforts to build export channels and sales teams over the past few years.
  24. The management has reiterated that the company’s goal is to become one of the top 3 players in the midsized segment in each market that it enters.

Analyst’s View

Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. The company is seeing impressive industry outperformance in both the RE and VECV businesses. This is evident from the fact that despite revenue and volumes declines, both of these divisions have gained market share in their respective industry segments. The company has also done well to maintain robust export growth in the year so far with exports expected to rise from February onwards as seasonal sales decline goes away. The company still faces the major challenges plaguing the industry like the likely disruption from BSVI transition and the raw material price volatility from the disruption in China. It remains to be seen whether the company will be able to maintain its promise of outperforming the industry and how its various initiatives like studio stores and Make Your Own platforms pan out in the future. Nonetheless, given its resilient performance in its various segments and the strong brand and industry position of the company, Eicher Motors remains a critical stock to watch out for every auto sector investor.

 


Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 2326.82 2499.34 -6.90% 2540.94 -8.43% 4867.76 5170.24 -5.85%
PBT 599.27 758.83 -21.03% 707.91 -15.35% 1307.18 1618.95 -19.26%
PAT 570.46 481.37 18.51% 498.24 14.50% 1068.7 1072.59 -0.36%

 

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 2337.5 2502.12 -6.58% 2502.32 -6.59% 4839.82 5109.48 -5.28%
PBT 600.51 826.47 -27.34% 663.45 -9.49% 1263.96 1688.29 -25.13%
PAT 572.69 548.76 4.36% 451.77 26.77% 1024.46 1124.94 -8.93%

 

Detailed Results

    1. The company had a muted quarter with a 7% decline in consolidated revenues and a 27% decline in PBT.
    2. PAT rose 4% YoY mainly on account of lower tax expenses.
    3. Volumes for the quarter fell 17% YoY in H1FY20.
    4. EBITDA margins for H1 shrank to 25.5% from 31.5% a year ago. The EBITDA margin for Q2 was at 25% which is the lowest since FY15.
    5. The dealer network expanded to 932 from 858 a year ago.
    6. The company still enjoys a market share of more than 90% in its segment of 250cc+ motorcycles.
    7. Market share in the 150+ CC segment fell to 23.5% from 24.7% a year ago.
    8. Production has commenced in phase 2 of their Vallam Vadagal plant. The company is also ramping up production of its new models of Interceptor 650 and Continental GT 650.
    9. The company has set up 500 studio stores till October 2019 so far. It plans to establish 1500 stores (Total) in 1200 towns across India by the end of FY20.
    10. The company also plans to increase exclusive international store count from the current figure of 57 to 80 over the next 12 -18 months.
    11. In VECV, total volumes fell 29.4% YoY to 24701 in H1FY20. Total revenues fell 23.6% YoY in the same period.
    12. EBITDA margins for VECV fell to 5.4% in H1FY20 from 9.1% a year ago.
    13. Despite decline in both volumes and revenues, VECV has seen market share rise to 13.9% in H1 from 12.7% a year ago.

 

Investor Conference Call Highlights

  1. The exports for the company have been very good with 12700 vehicles exported in the quarter. This is 1.6 times the number exported in Q2FY19.
  2. The company added 9 new international stores in the quarter.
  3. The management has asserted that the company stands ready for the BS-VI transition.
  4. The company has seen a good response in the 3.5 to the 5-ton truck category where its market share has risen to 31% from 25%.
  5. Depending on the location, the company expects monthly sales of 8 to 10 bikes from each studio store. Not only sales but also these spots will  act as service centers thus bringing in additional revenue.
  6. The management has refrained from giving any comments on price increases with the BS-VI transition.
  7. Financing levels have been higher at 59% in Q2 as opposed to 54% in last quarter.
  8. The setup of each studio store is such that it is at least 20-40 km away from a mainstream dealer store so as to prevent any cannibalization. The breakeven level for each studio store is roughly 8 bikes per month.
  9. The management aims to add around 200-300 studio stores by March.
  10. The management has guided that the company will do less Capex in FY21 than it has done in the past few years as it has been building up capacity in the tech centers and product development which is already done.
  11. The current Capex for FY20 shall be the same as guided in Q1 which is Rs 700 Cr.
  12. The management believes that the main reason behind the rise in Bullet X sales is not the price reduction as compared to the classic version but the personalization and customization options that appeal more to a customer in this segment.
  13. The management maintains that the current festive season sales numbers have been the best the company has ever seen and it is easily >10% rise from festive sales last year.
  14. The inventory level (dealer+company+goods-in-transit) is at < 3 weeks according to the management.
  15. The management have stated that the Twins products have seen a good response in export markets and have remained at similar levels as Q1 in the domestic market.
  16. The management attributes the fall in margins to the changing product mix.
  17. The management maintains that the company stands ready to ramp up production of the Twins products should demand rise in the coming quarters.
  18. The management has refrained from providing any specific margin guidance but they maintain that they will continue to outperform the industry in this front.
  19. The company is still in the growth stage in many of its export markets and so the management does not expect any big rise in exports until the distribution network is expanded in these markets.
  20. The company has seen good sales in the North and West parts of India and states like UP have done better sales than Maharashtra. The company has also seen higher penetration of the extended warranty program than expected.
  21. The management has admitted that a decrease in steel prices would be beneficial for them but have refrained from commenting on any specific increase it may have on margins.
  22. The management has clarified that along with raw material price decrease, many other competitors have also instituted selling price increases which may have contributed to margin expansion for many players. While this was not the case for Eicher Motors.

Analyst’s View

Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. Currently, the sales of the company have stagnated and margins have fallen a bit for the Royal Enfield and the VECV JV. The main cause for this has been the demand slowdown in the broad auto industry. The fall in volumes is less than the industry declines indicating the strength of the company’s brands. The studio initiative seems to be working well for the company and is expected to help provide penetration and support in underpenetrated areas in the country and enhance the company brand accessibility and reach. The export demand is also looking up for the company which highlights the demand and durability for the company’s brands internationally. It remains to be seen how long will it take for the company to get back to its growth path and whether it will be able to do so before the industry revival and steal a march on its major competitors. Nonetheless, based on its brand resilience and dominant market share in its segment, Eicher Motors remains one of the prime auto sector stocks in the country today.


 

 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 2541 2671 -4.87% 2642 -3.82%
PBT 707.91 877.64 -19.34% 754.85 -6.22%
PAT 498.24 591.22 -15.73% 480.44 3.70%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 2502 2607 -4.03% 2643 -5.33%
PBT 663.45 861.82 -23.02% 819.6 -19.05%
PAT 451.77 576.2 -21.59% 544.84 -17.08%

 

Detailed Results

    1. The company had a muted quarter with a 4% decline in consolidated revenues and 22% decline in PAT.
    2. Volumes for the quarter fell 19% YoY in Q1FY20.
    3. EBITDA margins shrank to 25.9% from 32.3% a year ago.
    4. Dealer network expanded to 928 from 837 a year ago.
    5. The company still enjoys a market share of more than 90% in its segment of 250cc+ motorcycles.
    6. The company is setting up phase 2 of their Vallam Vadagal plant to ramp up capacity. They are also ramping up production of their new models of Interceptor 650 and Continental GT 650.
    7. Capex planned for FY20 is around Rs 700 Cr.
    8. In VECV, total volumes fell 18% YoY to 13331 in Q1FY20. Total revenues fell 14% YoY.
    9. EBITDA margins for VECV fell to 5.6% in Q1FY20 from 9.2% a year ago.
    10. The company is planning a new plant set up in Bhopal which would add 40,000 in overall capacity. This plant is expected to commence commercial production from April 2020 onwards. The planned capital outlay for this plant is around Rs 400 Cr.

 

Investor Conference Call Highlights

  1. Exports for the quarter were up to 9600 from 5600 last quarter mainly on the back of good response to the Twins models from international markets.
  2. The company added 13 stores in India in this quarter. They also added 6 international stores and entered South Korea, Brazil, Indonesia, Vietnam, and Argentina.
  3. The company is on track for the upcoming BS-VI regulations and they plan to bring their pre-BS-VI stock levels to zero by 31st March 2020.
  4. In VECV, the company saw a decline in volumes and revenues mainly due to the general economic slowdown and EBITDA margins fell as discounting continues at all-time high levels.
  5. VECV is on track for BS-VI and they have also unveiled their new compliant light duty platform Pro 2000 for this.
  6. The management expects a pickup in the CV industry with the onset of the festive season and a bit of prebuying in Q4FY20 before the BS-VI regulations kick in.
  7. At the start of the year, the company had planned to work towards a production capacity of 950,000 but the demand slowdown has led them to stay put and monitor the situation. They will plan for this expansion depending on how the economic and industry unfolds in the near future.
  8. The company has planned to set up 500 studio stores at the start of the year to enhance walk-ins and enable greater conversion. They expect to have these stores operational by the end of Q2FY20.
  9. The waiting period for the Twins models in India is around 3-4 months. The company has already ramped up production to 5000 to keep up with the demand.
  10. The management has clarified that they do not have any plans currently to make a 250cc product.
  11. The channel inventory level currently is at less than 1 month. The company has worked to keep it down to help provide some relief to dealers in the current low demand environment.
  12. The management has refrained from providing any guidance on demand but they are making all the efforts they can to enhance and generate additional demand. This is evident from their plans for the studio stores.
  13. The vintage stores initiative is not doing well for the company mainly because the sourcing of old Royal Enfield bikes is proving difficult for the company. The company will continue to operate the current vintage stores and start moving here once things lookup.
  14. The management does not expect any extra promotional expenses other than the normal run rate.
  15. The company has seen softening of raw materials in the last 4-5 months and they expect to see this to continue as long as overall world demand remains soft.
  16. The company is investing a lot in seeding efforts as a lot of their market shares are concentrated in a few urban settings where they recognize that incremental sales will require a lot of extended efforts. Thus they are working to expand their network as much as possible and are focusing on newer concept products like the Himalayan and Twins models for mature markets.
  17. Top 20 cities form 25% of the total demand for RE.
  18. With the studio stores, the company is basically pushing into markets where the motorcycle market is high but the company presence is low due to lack of access to sales and servicing. Thus the company hopes to penetrate semi-urban markets where there may be underlying demand for their products.
  19. The company sees 95% of all customers as new ones while only 5% are replacement customers. Around 1/3rd of all customers would be graduating from commuter bikes to RE while the majority of customers would be moving up from the 150cc+ segment.
  20. The management believes that on demand revival, the company sales shall rise faster than the market mainly because they are an aspirational brand.

Analyst’s View

Eicher Motors has been one of the highest-rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. Currently, the sales of the company have stagnated and margins have fallen a bit for the Royal Enfield and the VECV JV. The main cause for this has been the demand slowdown in the broad auto industry. The company still has robust exports and has been preparing to expand into newer markets both domestic and abroad. It remains to be seen how fast the company can expand successfully into newer regions and bring back sales growth and how long the industry demand slowdown shall continue to remain. Nonetheless, being an aspirational brand, the company should see a faster rise and revival should demand comes back to the industry. Thus given their strong product portfolio, aspirational brand value and their dominant status in their industry segment, Eicher Motors remains a good stock to watch out for, particularly given their recent fall in the share price.


Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 2642 2615 1.03% 2490 6.10% 10303 9544 7.95%
PBT 755 525* 43.81% 759 -0.53% 3133 2648* 18.32%
PAT 480 260 84.62% 501 -4.19% 2054 1713 19.91%

 

                                                                Consolidated Financials (In Cr)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 2643 2613 1.15% 2488 6.23% 10240 9499 7.80%
PBT 820 913 -10.19% 789 3.93% 3297 3116 5.81%
PAT 545 462** 17.97% 533 2.25% 2203 1960*** 12.40%

* Includes exceptional item of impairment loss of Rs 312 Cr in Eicher Polaris Pvt Ltd.

**Includes Loss of Rs 187 Cr from Eicher Polaris Pvt Ltd.

***Includes Loss of Rs 220 Cr from Eicher Polaris Pvt Ltd.

 

Detailed Results

    1. The company saw a muted Q4 performance with sales growth of just over 1%.
    2. The Royal Enfield division maintained an EBITDA margin of more than 30%.
    3. The quarterly EBITDA margins have fallen to 27.8% in Q4FY19 from 32.3% in Q1FY19.
    4. The company still enjoys more than 90% market share in the 250cc-750cc motorcycle segment.
    5. The commercial vehicles JV has a market share of 29.4% in 4.9 to 15 ton commercial vehicles category.
    6. In order to rejuvenate sales in the domestic segment, the company has launched special versions of their flagship Bullet, Classic and Thunderbird motorcycles.
    7. They have also launched the Interceptor 650 & Continental GT 650 models in FY19 to expand and develop their brand overseas.
    8. The company’s volumes have stagnated with only 0.4% volume growth in FY19.
    9. The company has added 90 new dealerships in the last financial year to bring total dealer count up to 915 currently.
    10. The company states that there is still room for opportunity for Royal Enfield as its segment of 250cc-750cc motorcycles is the only segment in the motorcycle industry globally that is growing. The other segments of <250cc and >750cc are both in decline. Thus the room to grow for the company should be through overseas sales.
    11. The company plans to double their exclusive international store count to 42 in the next 18-24 months. They also plan to reach 1000 domestic dealer count by the end of FY20.
    12. The company is targeting a production plan of 950,000 motorcycles in FY20. This can be difficult to achieve since the total sales of the company has stagnated at around 820,000 in FY18 and FY19.
    13. The company is also planning a capex of up to Rs 700 Cr for phase 2 of their Vallam Vadagal plant, construction of a new technology centre, development of new products and to expand Royal Enfield to global markets.
    14. In VECV, total CV volumes for the year grew 9.64% in FY19 with exports rising more than 11% and Volvo trucks volumes rising 16%.
    15. The 5-15 tonne truck volumes grew 14.5% while the 15+ tonne truck volumes grew only 7% in FY19. Bus volumes stayed stagnant with only 2% growth in FY19.
    16. The total FY19 revenues for VECV grew 15% while profit growth was negligible. EBITDA margins fell to 8.4% in FY19 as compared to 9% in FY18.
    17. The JV has commenced construction of its new plant with annual capacity of 40,000 units. This project is expected to stay on track with production expected to start from April 2020. The planned capital outlay for this is around Rs 400 Cr.
    18. The Eicher Engineering Components division achieved annual revenues of Rs 1008 Cr in FY19.

 

Investor Conference Call Highlights

  1. The normalised PAT for Q4 was down 16% YoY and normalised PAT for FY19 was up only 2% YoY.
  2. Motorcycle sales volumes for Q4 were down 13% YoY.
  3. The expenses have seen sharp increase in last quarter due to cost of upgrading the entire fleet of motorcycles to Anti-Braking System (ABS).
  4. The company is optimistic that they will be able to deliver on selling their production target in FY20.
  5. The management believes that inventory is at comfortable levels and it is led by dealer demand.
  6. For the new 650cc bikes, the company expects the domestic to exports sales mix to be equal. They also expect production to be at around 5000 units per month for these bikes. The current booking period for these bikes is 4 months in India.
  7. The sales for these new bikes has been around 1800 in the last one month.
  8. The company is confident of meeting the BS VI norms and assert that they do not need to make wholesale changes in their engines to comply with the new norms.
  9. In the medium to long term, the management firmly believes in the shift towards premiumization in the motorcycle market. They also believe that they can certainly add value for customer in other ways like apparel, accessories and select experiences like rides rather than just price reduction.

Analyst’s View

Eicher Motors has been one of the highest rated auto companies in India. This was mainly on the back of their successful turnaround of Royal Enfield and the emergence of the mid-sized (250cc-750cc) motorcycle market. But currently the company’s sales volumes have stagnated over the last year with less than 1% growth in sales volumes. Despite the dominant market share of more than 90% in its segment, the company is struggling to maintain their previous growth rate which had seen them become one of the investment world’s darlings. Thus the challenge ahead for the company is to find ways to achieve sales for their production target of 950,000 and to expand their brand and offerings to international markets where they hope to replicate the same meteoric rise that they have shown in the domestic market over the last decade. Thus, Eicher Motors remains an exciting idea for investors to evaluate. While the past track record gives a lot of confidence to investors, it remains to be seen how Eicher deals with its biggest challenge of slowing growth at high base.

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