Eicher Motors Q3 Review: The Ride Ahead Is Bumpier For Royal Enfield

Eicher Motors Ltd. clocked its highest ever quarterly revenue in the fiscal third quarter even as volumes at its motorcycling unit remained largely muted, indicating that competition is finally catching up.

The net profit of the Chennai-based automaker rose 34% over the year-ago period to Rs 996 crore in the three months ended Dec. 31, even as revenue grew 12% year-on-year to Rs 4,180 crore, according to an exchange filing on Tuesday.

Analysts polled by Bloomberg had pegged the top line and bottom line at Rs 4,069 crore and Rs 969 crore, respectively.

Eicher Motors Q3 Results: Key Highlights (Consolidated, YoY)

• Revenue up 12% at Rs 4,180 crore (Bloomberg estimate: Rs 4,069 crore)

• Ebitda up 27% at Rs 1,090 crore (Bloomberg estimate: Rs 1,049.5 crore)

• Ebitda margin up 305 bps at 26.08% (Bloomberg estimate: 25.8%)

• Net profit up 34% at Rs 996 crore (Bloomberg estimate: 969 crore)

One basis point is one-hundredth of a percentage point.

While third-quarter earnings were largely in line, the numbers indicate slowing retail and rising competition, according to analysts.

"Competitive intensity will rise further over FY25 as Bajaj-Triumph and Hero-Harley ramp up their network," Nomura analysts Kapil Singh and Siddhartha Bera said in a Feb. 14 note. "We believe that the >250cc market has potential for 2-3 well-established players. Royal Enfield's ~90% market share is at risk, as the high gross margin of 46% (Rs 84,000 per bike) makes the segment attractive for new players."

"Despite many good new launches, recent months' retail sales have been soft. If competition becomes more successful, Royal Enfield may face a risk of sales decline."

Still, Royal Enfield has an ace up its sleeve.

While the competition continues to nibble at Royal Enfield's market share in the bread-and-butter 350 cc class, the motorcycle maker is looking to up the game to the 450-650 cc segment. That will support operational profitability even as volumes decline.

"Stronger sales of higher cc bikes can help drive higher ASP (average selling price) growth," Nomura said.

Shares of Eicher Motors were trading 0.93% higher at Rs 3,890 apiece, compared with a 0.86% decline in the benchmark Nifty as of 9:40 a.m.

Citi

• Retains 'buy' rating. Target price revised lower to Rs 4,700 apiece

• Response to two new 350 cc+ models seeing traction

• Preowned and buyback business aimed at brand value

• Estimates trimmed to account for modest volume growth

Emkay

• Downgrades to ‘sell’. Target price revised lower to Rs 3,250 apiece

• While earnings were largely in-line, margins dipped 33 bps QoQ

• Competition, lacklustre new launches impacting market share

• FY25/26E volumes cut by 5.6%/10.6% on muted volumes outlook

• EPS downgrade softer due to higher other income

Nuvama

• Retains ‘buy’ rating. Target price cut to Rs 4,400 apiece

• Competition, exports has affected recent performance

• FY25E/FY26E EPS cut by 4%/5% on likely low volumes

• Expect CAGR of 9% over FY23-26E due to replacement

• 450 cc, 650 cc range can potentially support growth

Nomura

• Retains ’neutral’ rating, target price raised to Rs 3,760 apiece

• Competition is set to intensify in FY25, hurting volumes

• Success of new models can drive up average selling price

• Overall retail sales were good at 70,000 units

• Marketing spends were higher by Rs 2,000 crore