Eicher Motors – Will this king survive on Indian Roads? A primer on the stock

“At Royal Enfield, we launched the Hunter 350 and the Super Meteor 650 this year, and the consumer response to these motorcycles has been incredible across the world. We are also making confident strides in our EV journey as we’ve made considerable progress on our EV motorcycle plans, and also had a great start to our partnership with Stark Future.”

Mr. Siddhartha Lal, Managing Director

Stock data

Ticker	EICHERMOT
Exchange	BSE and NSE
Industry	Automobile

Price Performance:

Last 5 days	-11.5%
YTD	-1.6%
Last 1 year	+4.2%

Company description:

Incorporated in 1982, Eicher Motors Limited is the listed company of the Eicher Group in India and a leading player in the Indian automobile industry and the global leader in middleweight motorcycles. Eicher has a joint venture with Sweden’s AB Volvo to create Volvo Eicher Commercial Vehicles Limited (VECV). VECV is engaged in truck and bus operations, auto components business, and technical consulting services business.

Business Verticals:

1. Motorcycles – The Iconic Brand:

It is the owner of the iconic Royal Enfield brand which is focused on mid-sized motorcycles (250-750 cc). Classic, Bullet, Himalayan are some of the brands that come under its Royal Enfield brand. It is sold in 60+ countries globally. It also provides protective riding apparel, urban casual wear, and Motorcycle accessories.

It has launched two BS-VI Compliant Motorcycles, i.e. “Hunter 350” and “Super Meteor 650” in FY23.

2. Commercial Vehicle segment:

Its VECV segment makes- light & medium-duty trucks, heavy-duty trucks and buses, engineering components, and aggregates. It is also the manufacturer of medium-duty base engines for Euro VI requirements of the Volvo Group. It has launched India’s first BS-VI compliant CV range in FY20.

Manufacturing Facility:

It has 3 Manufacturing Facilities around Chennai. Its VECV’s manufacturing plant in Pithampur, Madhya Pradesh produces medium-duty five- and eight-liter engines. Its VE Power Train plant is the first engine plant in India to produce a Euro-6 compliant base engine. A new body shop for Pro 2000 and Pro 8000 trucks has been commissioned and installed.

Capacity expansion:

Its Pithampur Plant has the capacity to produce ~90,000 trucks per annum. Its Phase 1 capacity expansion for the Bhopal plant is 40k vehicles per annum. Its VE PowerTrain plant current capacity is 50,000 engines, scalable up to 100,000 engines.

Distribution:

As of March 2022, It has 2100 Premium retail outlets across India, which has a mix of studio stores and the dealership outlet. Its network has grown 3 times in the last 5 years. It has 308 dealers, 27 distributors for its Bus Segment. It has added 35 new stores across international markets in FY19-20, increasing its overall touchpoints to over 660 stores including 77 exclusive stores and 585 multi-brand outlets.

Market Share:

Mid-size Motorcycles segment: >90% in FY23

VE Commercial Vehicles market share in domestic LMD segment: 31.5% in FY23

Above 125cc segment: 30% in FY23 

Commercial Vehicle: 17.1% in FY23

Overall Motorcycle segment: 7.1%

Eicher HD Trucks Market Share: 7.7% in FY23 

R&D

It has 2 technology centers, one each at Leicestershire, UK and Chennai, India

Financials:

What we like:  

1. The current export market is underserved: 

Royal Enfield  launched Super Meteor-650 in Europe, which will now soon be launched in APAC and the Americas. So far, the company has dispatched ~4K+ Super Meteor-650 in the exports market. Meteor has received a good response and RE is now ramping up its production. The Hunter 350 has been launched across APAC, Europe and America. In the international market, the company has third-party stores with 1,150+ touchpoints which include 207 exclusive stores and 950+ multi-brand retail outlets. RE currently has only ~8-9% market share in the midsize segment across the key international markets, while the addressable market size is huge with a potential market size of ~1m units (currently exporting only 100K units). The current export market is underserved and RE has a huge headroom to grow in future. The company is focussing on getting the right product to the global market, like RE has brought Classic 350 in J platform, Hunter 350, Super Meteor 650 and refresh on twins platform motorcycles on Continental GT and Interceptor-650 to the global markets. In FY23, the export market revenue stood at Rs 2,080 Cr (14.4% of total revenue).

2. Strong Brand and Market Position:

Eicher Motors’ Royal Enfield brand enjoys a strong and iconic status in the motorcycle industry. Royal Enfield motorcycles have a loyal customer base and a distinct positioning, particularly in the leisure and adventure motorcycle segment. Investing in Eicher Motors allows investors to capitalize on the brand’s popularity and market position.

3. Consistent Financial Performance:

Eicher Motors has demonstrated a track record of consistent financial performance over the years. The company has achieved robust revenue growth and maintained healthy profitability margins. Its ability to generate consistent earnings provides investors with a sense of stability and potential for long-term returns.

4. CV upcycle to continue in FY24: 

Management expressed confidence in the possibility of the double-digit growth of the CV industry to continue in FY24. Management said that the CV volumes in FY23 are still lower

than the earlier peak of FY18-19. CV industry upcycle will likely continue as 

1.  The replacement market is going to be very strong as old trucks are not able to meet the customer demand towards efficiency. 
2. Heavy Duty trucks will continue to grow led by infra push also their earlier peak of 295K units is yet to surpass as total sales stood at only 247K units in FY22.
3. The light and Medium duty trucks have also not reached their earlier peak.
4. For buses, the market demand from the state transport undertaking will be strong as they have got an old fleet, also the demand from the school segment is becoming strong for light and medium-duty buses. Demand slowdown is only in the export markets mostly in Bangladesh, Nepal and Srilanka. 

5. Experienced Management Team: 

Eicher Motors has an experienced management team that has successfully navigated the company through various challenges and opportunities. The management’s strategic vision, operational expertise, and prudent decision-making contribute to the company’s growth and sustainability. Investing in a company with a capable leadership team can instill confidence in investors.

Factors to consider:

1. Macroeconomic headwinds driving lower exports for longer could pose a downside risk.
2. Weak rural demand impacting the 2W market for FY24/25E.
3. Interest rate hikes may result in delaying purchases from the consumer end.
4. Significant increase in competition to hurt growth momentum.