Markets
Eicher stays ahead with upgrades but rivals are catching up
Summary
- Motilal Oswal Financial Services reduced its FY25 and FY26 earnings-per-share estimates for the company by 4% and 7%, respectively, as it expects Royal Enfield’s margins to come under pressure from increased competition.
Eicher Motors Ltd looks set to maintain its momentum on the back of premiumisation, an expanding portfolio and export growth, but increased competition in high-end bikes could be a speed bump in the coming quarters. Eicher makes commercial vehicles and Royal Enfield motorcycles.
Despite bike volumes staying flat sequentially at nearly 2.28 lakh units in the March quarter (Q4FY24), the company’s average selling price (ASP) rose 3.6% to ₹1,84,127 because of a better product mix. Standalone Ebitda margin came in above 27% for the third straight quarter. While benign raw-material prices supported this trend, the main impetus was its continued shift towards premiumisation, as evidenced by the 4% sequential growth in Ebitda per bike to ₹50,743 in Q4.
Also read | Chart Beat: Will Royal Enfield lose its market clutch?
“From a demand perspective, Royal Enfield remains confident in the continuity of the premiumization theme and is taking the right steps to address demand across various potential segments in the form of adventure bikes, cruiser bikes, speedsters, café-racers, etc," ICICI Securities said in a note.
Royal Enfield’s upcoming 450cc launch will expand its portfolio further, after the recent launches of Himalayan 450 and Shotgun 650. Eicher is also working on an electric motorcycle (on the Him-E platform) and expects to launch it in 2025.
Competition, domestic and foreign
While Royal Enfield bikes have a cult following in India, Eicher cannot take its success for granted. Analysts have flagged the underperformance of its recent models such as Himalayan 450. Rivals Hero MotoCorp and Bajaj Auto, as well as global brands such as Triumph, are giving Royal Enfield a tough fight in the 250cc+ segment, which now comprises 8% of India’s overall motorcycle market, which stood at 11.7 million units as of FY24.
Also read: Can Himalayan accelerate Royal Enfield's market share?
Against this backdrop, Motilal Oswal Financial Services reduced its FY25 and FY26 earnings-per-share estimates by 4% and 7%, respectively, as it expects Royal Enfield’s margins to come under pressure from increased competition. The brokerage has factored in a 10% compound annual growth rate for Royal Enfield’s volumes over FY24-26.
Royal Enfield won't be easy to beat
That said, it won’t be easy to dislodge a marquee brand like Royal Enfield, which commands an 85% market share. Despite growth headwinds in developed countries, Royal Enfield has maintained its market share at 8% in America and around 9% in the Asia-Pacific and Europe, Middle East & Africa markets. The company is looking to launch new models such as the Himalayan 450 and Super Meteor in the US and EU in the next few months.
Also read: Hero gets a lift from cool bikes, festive spirits
Eicher’s joint venture with Volvo Group, VE Commercial Vehicles Limited (VECV), posted a 42% jump in net profit to ₹823 crore for FY24. The management said it was confident about the commercial vehicles industry on account of strong economic growth, replacement demand, and robust infrastructure spending.
Eicher Motors’ stock hit a new 52-week high on Tuesday. It has gained 14% so far in 2024, which could cap the upside in the near term.
