Eicher Motors revs up as Q4 results beat expectations

Eicher Motors Ltd was the top performer in the Nifty 50 index on Friday, as its shares sped up by over 5% following better-than-expected earnings in the March quarter (Q4FY23). A clutch of factors contributed to the company’s success, including the full benefit of a November price hike on Royal Enfield (RE) models and an increase in the share of exports.

The company’s Q4 earnings were boosted by an 8% sequential rise in the average selling price on a standalone basis, thanks to a favourable product mix. Furthermore, a commodity cost benefit of 90 basis points helped the company’s Q4 Ebitda (earnings before interest, tax, depreciation and amortization) reach a multi-quarter high of 945 crore. This figure exceeded Kotak Institutional Equities’ estimate by 7%. One basis point is 0.01%.

During the earnings call, Eicher reported strong demand for RE models in domestic markets, but overall two-wheeler demand has yet to pick up pace. Nevertheless, RE recorded its highest ever sales volume in FY23, with 834,895 units sold, marking a 32% year-on-year increase. The share of exports stood at 12% in FY23, and Eicher aims to further expand in this area, which would benefit margins. Additionally, the company has increased prices on some RE models in May.

But while Eicher’s performance is promising, the company faces growing competition in the domestic market. The impact of new launches from Bajaj-Triumph and Hero-Harley collaborations on RE’s market share remains uncertain.

“We believe this wave of competition could be more intense than earlier launches by Jawa in 2018 and Honda in 2020 as Harley and Triumph have better brand recognition in India, in our view,” said analysts at Jefferies India in a report on 11 May. RE’s market share stood at 32% in FY23 in the 125cc+ bikes segment, according to the broking firm.

Taking into account the potential risk from new competitors, analysts at Motilal Oswal Financial Services have downgraded Eicher Motors’ stock rating from ‘buy’ to ‘neutral’.

Meanwhile, Eicher Motors’ commercial vehicle segment, operated through VE Commercial Vehicles Ltd, a joint venture with the Volvo group, is on a strong footing. The company anticipates double-digit growth in medium & heavy commercial vehicle industry volume for FY24.

Despite today’s surge in Eicher Motors’ share price, the stock remains nearly 7% below its 52-week high of 3,889.65 per share, seen in November.

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