Eicher Motors Ltd. Q4FY23 Result Update

Eicher Motors Limited (EML) is the listed parent of Royal Enfield, the global leader in middleweight motorcycles. The world’s oldest motorcycle brand in continuous production, Royal Enfield has made its distinctive motorcycles since 1901.
Focussed on bringing back simple, yet engaging and accessible motorcycling, Royal Enfield operates in India, and over 60 countries around the world with modern development facilities in Leicestershire, UK and Chennai, India. Royal Enfield makes its motorcycles in Chennai, Tamil Nadu for the world. Royal Enfield has evolved into an experiential brand. Royal Enfield with its motorcycle that combines modern-day elements with the brand’s heritage, garners immense enthusiasm amongst global motorcyclists.

Results Highlights

Eicher Motors Ltd. (EML) had a strong Q4FY23 with 20% YoY and 7% QoQ revenue growth to Rs. 3,831 crores. This growth was driven by 18% higher volumes YoY and increased average selling prices (ASPs).
ASPs rose by 6% QoQ and 2% YoY due to price hikes on the Hunter and Bullet models. In addition, there was an improved product mix with the launch of Meteor-650, and higher exports.

In the VECV joint venture, volume growth of 31% YoY resulted in revenue growth of 42% YoY. 6,200 crores. The EBITDA margin expanded by 310 basis points YoY to 9.6% due to higher realizations and a favorable product mix.
Overall, EBITDA grew by 25% YoY and 10% QoQ to Rs. 945 crores, driven by a 20 basis points YoY and 120 basis points QoQ gross margin expansion. This expansion was due to savings on raw materials, lower employee expenses, partially offset by higher depreciation and amortization costs.

Consolidated profit after tax (PAT) increased by 48% YoY and 22.2% QoQ to Rs. 906 crores, led by higher EBITDA and other income. The joint venture’s PAT share was at Rs. 173 crores.

Valuation and Outlook

EML’s future growth will be driven by supply-side improvements, new product introductions, and increased exports. Stable commodity prices will also support margins and earnings. While immediate exports may face challenges due to global macro issues, the long-term potential is significant, considering the large addressable market size of 1 million units, of which only 10% is currently served by the company. Despite a high base, Royal Enfield volumes are expected to grow in the mid-single digits due to growing customer demand for premium motorcycles and the company’s strong position in the domestic >250 cc market. This growth will be supported by reasonably priced launches like the Hunter 350 and upcoming launches in the pipeline.

Key Concall Ltd.

1. The commercial vehicle (CV) sector is expected to continue its growth due to replacement demand, infrastructure projects driving heavy truck demand, and the CV market has not reached its FY19 peak yet. Replacement demand from state transport departments and schools will drive bus volumes.
2. Higher realizations in Q4FY23 were driven by increased exports and full absorption of price hikes from November 2022. A 1.5% price hike is planned for key models from May 1, 2023, to anticipate commodity cost inflation.
3. Margins benefited from commodity costs declining in the quarter. However, minimal gains are expected in the future due to a slight increase in steel costs.
4. Market share in the >125cc motorcycle segment increased from ~29% in FY22 to ~33.5% in FY23. Overall two-wheeler market share was 7.2%.
5. Market shares in the America, APAC, and EMEA regions reached approximately 8%, 9%, and 9% respectively.
6. A capital expenditure of Rs. 1000 crores is planned for FY24, focusing on the development of electric vehicle (EV) models and further research and development in internal combustion engine (ICE) models.
7. Market share improved in heavy trucks, light trucks, and buses, reaching 7.7%, 31.5%, and 23.8% respectively. Overall, the company’s CV space share was 17.1% for FY23.
8. Eicher Motors invested EUR 50 million in an 11.4% stake in Stark Future SL. They will collaborate on future product development and utilize Stark’s technology in upcoming RE electric platforms.

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