Sector Outlook: Positive
Eicher Motors reported a strong performance in the fourth quarter of FY24 with a revenue of Rs. 4,256 crores, an increase of 11.9% compared to last year, thanks to selling more motorcycles and at higher prices, especially due to exports and sales of bigger bikes like the 650cc models. Their profit before tax and other deductions (EBITDA) rose by 20.9% to Rs. 1,128 crores, helped by cost-effective raw material management and operational efficiency, leading to a profit margin of 26.5%. Their net profit also grew by 18.2% to Rs. 1,070 crores. Looking ahead, Eicher plans to introduce new motorcycle models, including a 450cc bike next year, and expects strong sales of its new Himalayan 450 and Shotgun 650 models both in India and internationally. The company is also expanding its global presence despite challenging global economic conditions. However, its commercial vehicle segment, VECV, saw a slight increase in revenue but a drop in profitability, indicating some challenges ahead.
Key Concall Highlights
- The company expects strong growth in the mid-weight motorcycle category in FY25 due to new model launches and an expanded product range. International sales are looking good, especially for models on the new J platform and Sherpa 450cc platform. New assembly plants overseas should help boost sales once global markets stabilise.
- Profits are anticipated to remain strong without any recent price changes. This is mainly due to a better mix of products sold, which should keep costs under control despite fluctuating raw material prices. Increased sales overseas, a diverse range of products, and additional non-motorcycle revenue streams are expected to help maintain profit margins.
- The company is focusing on expanding into both developed and developing markets. This includes opening new stores, appointing company dealers, and entering new markets like Turkey. The production plants outside India are set to increase operations, with a new plant also planned in Nepal.
- New motorcycle launches are planned for FY25 on both the 450cc and 650cc platforms. The Shotgun 650 has received positive feedback internationally. Production of the Himalayan 450 is ramping up to meet both domestic and international demand.
- Despite a slow quarter for commercial vehicles due to high sales in the previous year and election-related slowdowns, demand in the freight sector remains strong, expected to pick up after the new government forms.
- The commercial vehicle segment, VECV, reported quarterly sales of 25.7k vehicles, with annual sales reaching about 85k. FY24 revenue was Rs. 21,670 crores with EBITDA at Rs. 1,700 crores. Spare parts sales hit a record high, and the market share for heavy-duty trucks was 9.2% for FY24.
- The company is making progress in the electric commercial vehicle segment, entering the small commercial vehicle market with a 2-3 ton electric vehicle. While growth is expected in electric buses, the company is cautious with tenders but is well-prepared with multiple products ready.
Valuation and Outlook
Eicher Motors reported strong financial results despite selling fewer vehicles compared to usual, thanks to several strategies that could boost profit margins in the future. These strategies include selling more high-end motorcycles, increasing exports, expanding their operations, and making more money from selling parts and non-auto products. Recently, the company didn’t sell as many vehicles as its competitors, but this was due to difficulties in getting parts, not because people didn’t want to buy their vehicles. Eicher Motors expects to sell more as they introduce new models and fix these supply issues. They plan to spend more on marketing for these new launches. Sales from extra items like accessories and parts, along with better efficiency in their operations, are expected to further improve their profits.
In the Royal Enfield part of the business, the company doesn’t see new competitors as a big threat and expects strong demand both in India and internationally to boost sales. In the VECV segment, which includes trucks and buses, they expect to continue gaining market share, although demand might be low in the short term due to the general elections. Nonetheless, they believe government projects and the need for newer vehicles will drive industry growth soon. The company also sees big opportunities in India’s mid-weight motorcycle market as more consumers prefer premium models. With a strong lineup of upcoming product releases and a large number of existing customers who might upgrade, Royal Enfield is well-positioned to take advantage of this growing trend.
