Eicher Motors Ltd. – Made Like A Gun

Eicher Motors Restricted (EML), integrated in 1982, is the listed flagship firm of the Eicher Group in India and a number one participant within the Indian vehicle business. On a standalone foundation, EML manufactures and markets bikes underneath the long-lasting Royal Enfield model, with its manufacturing services primarily based in Chennai, Tamil Nadu. It additionally has analysis and improvement (R&D) services at two areas—Leicestershire, UK, and Chennai. Moreover, the corporate operates as a holding firm for investments in Volvo-Eicher Business Automobiles (VECV) Restricted. A three way partnership of EML (54.4%) and AB Volvo (45.6%), VECV got here into existence with impact from July 1, 2008. The JV is engaged in EML’s truck and bus operations, auto elements enterprise and technical consulting providers enterprise and Volvo Group’s Indian truck gross sales and advertising and marketing features, in addition to service and spares community operations for each Volvo vehicles and buses. In 2020, VECV efficiently built-in Volvo Buses India into VECV, together with the manufacture, meeting, distribution, and sale of Volvo Buses in India.

Merchandise & Companies:

The corporate has varied merchandise underneath its two enterprise segments.

  • Royal Enfield – The Firm has fashions like Bullet 350, Basic 350, Meteor 350, Himalayan, Scram 411, Hunter 350, Tremendous Meteor 650 and 650 Twins.
  • VECV – It consists of Heavy, Mild & Medium Responsibility vehicles, Buses, particular functions like ambulances from Eicher and Volvo Manufacturers. It additionally has Engine Enterprise, Engineering element enterprise and Powertrain enterprise.

Subsidiaries: As on FY23, the corporate has 6 subsidiaries, 1 Joint Ventures and 4 step down subsidiaries. 

Key Rationale:

  • Market Chief – Eicher Motors (EML) is the World chief within the 250cc -750cc mid section bike.  It has a market share of ~90% within the Indian Mid dimension section via its aspirational fashions underneath the Royal Enfield (RE) model, reminiscent of Bullet, Basic, Interceptor amongst others. The corporate has been gaining market share within the above 125cc section with 32.9% share as on Q1FY24. Total share in Bikes stands at 7.6% as on Q1FY24. Within the Worldwide market, the corporate has a market share of about 8% in Americas, 9% in APAC and 9% in EMEA in the identical mid section with a quantity development of 4.5 instances from 20,825 in FY19 to 89,226 in FY23. The VECV division has a total CV market share of 17.1% in FY23. The market share throughout segments as of July finish 2023 are 36.9% in L&MCV, 8.5% in HCV, 24.7% in Buses and 94.7% in Volvo vehicles India (Excessive Finish premium Phase). The vendor community of the Royal Enfield (2W Division) have grown 2.5x in 6 years from simply 825 shops in FY18 to 2059 shops in FY23. In that 2059 shops, 1090 belongs to studio shops and 969 belongs to Massive Measurement shops. These shops are unfold throughout ~1750 cities in India.
  • Gross sales Development – The general Bikes quantity underneath the Royal Enfield section have crossed the pre-covid ranges at 8.35 lakh models in FY23 from 8.24 lakh models in FY19. The volumes in FY20, 21 and 22 had been impacted attributable to COVID 19 pandemic and provide chain constraints. Royal Enfield is likely one of the few firms within the 2W section which crossed the pre-covid gross sales mark and outperformed the business development. Gross sales Quantity in Q1FY24 stands at 2.27 lakh models, a development of twenty-two% YoY. VECV has achieved a highest ever first quarter (Q1) gross sales throughout many segments in Q1FY24. Total VECV gross sales additionally achieved the Highest ever first quarter gross sales of 19,571 models in Q1FY24 exceeding earlier report of 17,469 models in Q1FY23.
  • Q1FY24 – Eicher Motors reported a robust income development of 17% YoY Q1FY24 to Rs.3986 crore from Rs.3397 crore for a similar interval final 12 months. EBITDA had a development of 23% of Rs.1021 crore in Q1FY24 vs. Rs.831 crore for a similar interval final 12 months. EBITDA Margin has improved by ~120 bps from 24.4% in Q1FY23 to 25.6% in Q1FY24 on account of 1.5% value hike in sure fashions. PAT confirmed an enormous development of fifty% YoY to Rs.918 crore in Q1FY24 from Rs.611 crore in Q1FY23.
  • Monetary Efficiency – The three Yr income and revenue CAGR stands at 16% and 17% respectively between FY20-23. The share of non-Bike enterprise (Equipment, Apparels, and so on.) have grown almost 4x between FY17-FY23. The corporate has a robust steadiness sheet with a debt-to-equity ratio of simply 0.02x which equals to close zero debt. The money and investments within the steadiness sheet totals to ~Rs.13180 crores which is sort of 14% of the Market Capitalisation. This reveals the sturdy money steadiness of the corporate. The final 5-year accrued FCF (Free Money Move) have crossed over Rs.6000 crores, depicting the money producing potential of the corporate.

Trade:

The Indian automotive business has seen a wholesome revival in FY22-23, aided by a restoration within the financial actions and restoration in mobility publish COVID impacted interval (FY 2021-22). Nevertheless, the two-wheeler section is but to succeed in the pre-pandemic ranges because the business navigates via excessive inflation, provide chain hurdles, sharp improve in enter prices, and the rising value of possession attributable to regulatory adjustments. In keeping with the Society of Indian Car Producers (SIAM), the two-wheelers section grew by a comparatively reasonable 17% YoY development, after witnessing de-growth for the earlier three consecutive years. The home gross sales of two wheelers in FY 2022-23 had been 15.9 million models as in opposition to 13.5 million models in FY 2021-22. Bike gross sales elevated by 14% YoY to 10.2 million models, whereas scooter gross sales grew over 25% YoY to five.2 million models. The gross sales of Electrical two-wheelers in India grew over two-and-half-fold to 7,28,090 models in FY 2022–23 over the earlier fiscal, aided by subsidies provided by the federal government(s) and rising penetration of electrical automobiles throughout segments.

Development Drivers:

  • The Overseas Direct Funding (FDI) influx into the Indian automotive business between April 2000-March 2023 stood at US$ 34.7 billion as per the information launched by the Division for Promotion of Trade and Inside Commerce (DPIIT).
  • In keeping with the Financial Survey, by 2031, the working age inhabitants i.e., 20-59 years is poised to extend by 300 bps from 55.8% in 2021 to 58.8% in 2023.
  • India to turn into the youngest nation by 2025 with a mean age of 25 years. With Royal Enfield having a big younger buyer base (31% within the age of 18-25 and 41% within the age of 26-35), they’ve the excessive probabilities of getting benefitted.

Rivals: Hero MotoCorp, TVS Motors, and so on.

Peer Evaluation:

Among the many above opponents, Eicher motors has higher return ratios and secure income development than the opposite two. The steadiness sheet energy of Eicher is manner higher than Hero and TVS as compared. The excessive ROE and Low ROCE of TVS is because of the impression of excessive Debt and low fairness.

Outlook:

Within the Bike section, the corporate has launched “The Hunter 350” mannequin within the August final 12 months and it has been profitable, with over 200,000 models offered in simply 11 months. The just lately launched above 500cc section “Tremendous Meteor” had a very good response globally. The corporate is planning to launch round 11-12 merchandise within the medium time period which incorporates the very newest Bullet launch and a Himalayan 450 launch within the close to time period. Within the Worldwide entrance, Eicher is planning to open New Retail codecs – Studio shops, Store-in-shop for attire, and bike shows to extend buyer attain. It has 92, 68 and 50 unique shops in Americas, EU&MEA and APAC areas. It’s also evaluating alternatives to arrange CKD (Fully Knocked Down) facility in precedence markets in APAC and LATAM areas and just lately opened a CKD facility at Nepal. The corporate additionally making a big progress within the EV house with a devoted 100+ folks. They’re at present within the execution section of the venture.

Valuation:

We consider Eicher Motos will proceed to realize the market share via aggressive community growth in each the home and Worldwide, A number of launches, Coming into new territories and Infrastructure enhance by Authorities Initiatives. We advocate a BUY score within the inventory with the goal value (TP) of Rs.4050, 28x FY25E EPS.

Dangers:

  • Dependency Danger – The corporate’s development has been pushed by the over 250-cc bike sub section in the previous couple of years. It has no presence within the excessive quantity (75-110 cc) sub-segments. Even within the over 250-cc sub-segment, its Basic & Hunter 350 mannequin accounts for many of the gross sales. Sturdy competitors to its main mannequin might considerably damage its volumes.
  • Cyclical Danger – The VECV section of the corporate is extremely inclined to the cyclicality of the Business Car Trade which might impression the gross sales development of the identical section.
  • Slowdown Danger – EML has negligible presence within the mid-market 2-wheeler section. A sustained slowdown within the financial system might hamper the discretionary spending and may also end in downtrading throughout shopper classes which might impression development of premium bikes briefly to medium time period.

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