Eicher Motors Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Eicher Motors Ltd (EICHERMOT) Q3 FY22 Earnings Concall

Management Update:

• EICHERMOT said its international success has been outstanding. Exports during the quarter stood at about 17,036, a growth of 57.3% and more than two times increase compared to Q3 of FY ’20.

Q&A Highlights:

• Raghunandhan of Emkay Global asked which markets hold strong potential ahead over the medium term. B. Govindarajan, ED answered that for Royal Enfield is doing well in almost all the export markets, namely North America, Thailand, LATAM, and EU markets. For forward guidance, the company doesn’t provide any color.

• Raghunandhan of Emkay Global also asked considering the healthy order book, how the company sees the production ramp up in coming months. B. Govindarajan, ED replied that the company had only one vendor and subsequently, started adding the second vendor and now are looking for another vendor also. The production is slowly ramping up and situation is going to continuously improve.

• Pramod asked that on the export side, ASPs are higher, but it’s not still accretive and will exports be accretive on the EBITDA margin front. B. Govindarajan, ED said that it is accretive. Different markets are at different levels of maturity. So some of the markets have already hit the accretive numbers and some of the market is still in growth phase where margins will be seen further getting added.

• Pramod  also asked about the demand in terms of monthly bookings and other activities, like customer inquiries, conversion and everything. B. Govindarajan, ED replied that the demand is slowly inching up. The booking rates are slightly going up and on a week-on-week basis, it is the positive sign.

• Pramod  also asked about the new launch pipeline. B. Govindarajan, ED replied that the company has a very good pipeline of new products, which are lined up. At a particular interval where the company has to launch those motorcycles into the market, it will be doing that.

• Jinesh Gandhi enquired that on the supply side, if it’s fair to say that the month of December was a proper reflection of normalization of supply chain. B. Govindarajan, ED said that earlier the company had only one source and inducted one more source. Now the second source have to actually source the subcomponents across. Therefore, month-on-month, supply will be ramping up.

• Jinesh Gandhi also asked about the distribution network expansion and if the company is largely done with the studio network expansion. B. Govindarajan, ED said that as of now studio stores is about 1,100 numbers. Apart from that, the company looks at where is the cluster, what’s the kind of a growth which is available and how can the company go close to the consumer.

• Jinesh Gandhi enquired that on the commodity side, what kind of inflation was seen in third quarter versus second quarter and if there was any one-off in staff costs. Kaleeswaran Arunachalam, CFO said there was no one-off in staff cost. From a commodity perspective, it’s about INR 2,000 per bike in 3Q. On the ad spends, the company had larger spends of about INR 60 crores that was incurred in 3Q.

• Hitesh Goyal asked about the outstanding bookings of Royal Enfield for past three quarters. Kaleeswaran Arunachalam, CFO said that as a process, the company doesn’t comment on the actual booking number that is available. However, the booking is extremely healthy. Let me hand it over to Siddhartha to talk more on VECV.

• Hitesh Goyal asked about the plans for electric motorcycle segment. Siddhartha Lal, MD replied that on EV, the company has a strong internal team, infrastructure, capability, product roadmap. However, though the work is in progress on EV, the company is not coming out in the near future at all with any product. EICHERMOT thinks that it requires a lot more thought than what’s perhaps being given currently to stick a electric driveline into an existing type of vehicle.

• Amyn Pirani of J.P. Morgan asked that despite volumes being down the other expenses were materially higher. Kaleeswaran Arunachalam, CFO said that one was the marketing spend of INR60 crores and secondly sequentially, the other increase is on account of the production ramp up that happened last quarter to this quarter. Thirdly, EICHERMOT had to incur about extra warehousing charges of about INR7-8 crores more to store the vehicles and keep it ready for classic.