Eicher Motors Fundamental Analysis and Future Outlook
Eicher Motors Limited is the listed parent company of Royal Enfield, the global leader in middleweight motorcycles. Additionally, Eicher has a joint venture with Sweden’s AB Volvo to form the company Volvo Eicher Commercial Vehicles Limited (VECV). The company has a complete range of trucks and buses from 5–55 tonnes in its integrated manufacturing plant in Pithampur, Madhya Pradesh.
- The business model of the company is focused on leading the under-served global mid-sized motorcycle segment (250–750cc).
- The company has a production capacity of 10+ lakh motorcycles in a year and a five-year new product pipeline. In the commercial vehicle segment with Volvo JV, the company has the capacity to produce up to 90,000+ trucks from a single facility and new plant is under development to take capacity to 130,000 per annum.
- The other business of the company is biker accessories which includes Royal Enfield range of premium helmets, jackets and other exclusive motorcycling gear.
- The holding structure of the company is such that 49.3% is controlled by the promoter group, 32.5% is controlled by FIIs, 4.5% is controlled by DIIs and the rest is controlled by the retail investors.
- Eicher motors completely own and operates the Royal Enfield company along with its subsidiaries in North America, Thailand and Brazil. The company also holds a controlling interest in VECV with a holding of 54.4%. Overall they have a focused business model in Mid-Size motorcycles and commercial vehicles segment.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Eicher Motors Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The company will see a revenue decline in double digits in FY 2021 due to production loss, overcapacity, labour crunch and decline in demand due to Covid-19 outbreak. The Royal Enfield orders are however mostly pre-booked so revenue can see some relief with selective price cuts or discounts which can stimulate demand.
- The 500 cc product portfolio of Royal Enfield has not been doing well since the last few years. Hence it will be discontinued in BS6, particularly since it has 650 cc Twins to dilute the revenue impact.
- The company has already moved to BS-6 for Classic, Himalayan and 650cc Twins of Royal Enfield. However due to the early move to BS-6 the company is losing some pre-buying opportunity as dealers are stock-out in some parts of the country due to disrupted supply chains.
- Both Himalayan and Twin have performed well in the export market. The company’s slower approach on dealer expansion to ensure profitability is expected to pick up the pace once the expansion happens.
Overall the company is a near-monopoly in the Mid-Size motorcycle segment in India and has solid fundamentals and debt-free capital structure. The market for the company is not near saturation and is expanding globally. Hence the stock can see increased multiples from current levels once the supply chains and demand is restored. Therefore the long term outlook is positive for the company and investment can be done at correct price levels
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