Royal Enfield To Drive Eicher’s Trajectory

Eicher Motors on September 25, 2012 crossed its 52-week high of Rs 2,360.95 a piece intraday. The commercial vehicles (CV) market is currently subdued in India and whatever little growth it’s been seeing is due to the sales of light commercial vehicles (LCVs). Overall the medium and heavy commercial vehicle (M&HCV) sales have been negative for FY13 so far in the range of 8.97 per cent and 20 per cent for every month while the LCV sales have been in the range of 12.99 per cent and 20.18 per cent.

YoY Sales Volume Growth For Eicher Commercial Vehicles (%)

Eicher Motors, which has a market share of 33 per cent in the 7T - 11T segment, manufactures trucks in the range of 5T to 40T and 15 to 65-seater buses. In this downcast environment, the company doesn’t have a LCV portfolio to cushion the blow but has yet managed to show overall growth in sales. The company’s bus segment has been performing extremely well. In fact, 2011 saw an increase in its market share for buses from 7 per cent to 10 per cent. This was on the back of achieving significant state transport contracts that included 600 buses from APSRTC, RSTC, GRSTC and UKSRTC. The company has embarked on an investment of Rs 125 crore in setting up a bus manufacturing unit with a production capacity of 10,000 buses.

Sales Data For Royal Enfield

Eicher also manufactures the iconic Royal Enfield motorcycles. These motorcycles, which are priced between Rs 70,000 and Rs 1,50,000, are positioned in the above 250 cc category. This segment, according to SIAM, grew by 73.5 per cent. Royal Enfield, due to a loyal customer base, fan following, niche positioning and pricing (lower than Harley Davidson and Triumph), has managed to see massive growth in demand. Eicher has not been able to cope with this demand in terms of production, resulting in waiting periods of as long as 14 months. The company has invested in a new facility at Oragadam, 30 kms from its existing facility, that would enable the production capacity to reach 1,50,000 motorcycles per annum by March 2013.

Royal Enfield, which is a premium product, contributes roughly up to 15 per cent to the topline and approximately 40 per cent of the profit of the consolidated financials of the company. Any growth in this category would definitely boost Eicher’s overall performance. It would also improve the company’s margins significantly. Moreover, once the Oragadam plant is functional, it would add to better margins, considering the operational leverage and the fact that the plant has a higher degree of automation than the existing plant. Thus, even with the disappointing scenario surrounding CV sales, Eicher is set to see financial improvement caused by its promising two-wheeler business.