Competition heating up in the mid-weight category. Though Mr Lal always seems to welcome competition, with the rationale that it would help open and deepen the market further. Wish I could be as sanguine.
Discl - continue to be invested. Added in the last 3 months.
http://articles.economictimes.indiatimes.com/2016-01-08/news/69615498_1_chinese-market-china-pmi/2
You are still convinced about the story in Eicher Motors at a time when there is a bit of a slowdown coming in the entire two-wheeler space per se? I know one should not go just by the December sales numbers; that anyway were very strong for Eicher Motors. But does it not worry you that at some point in time, the slowdown will trickle in into this sort of fad, that Royal Enfield (RE) has?
Sumeet Nagar: First of all, I do not think RE is a fad; for many of us growing up in India, RE sort of associated that brand with something that was unique; you knew the Bullet, you knew the Royal Enfield; this is not a fad. Before I invested in Eicher, this was one of the first things that I bought, before buying a car.
ET Now: At what price did you buy it?
Sumeet Nagar: It was Rs 95,000. It is probably the same at present. I am talking about the Bullet.
ET Now: At what price you buy Eicher stock?
Sumeet Nagar: We bought it a little bit later but it has been, it is up several times since then.
ET Now: No intention of selling Eicher for five years?
Sumeet Nagar:*** I do not think so, why would I do that.***
All set for the Himalayan launch
PS - yes. That video was a scare. I have seen most of colleagues who own RE still give it about 6-7 out of 10 due to such things , as talked about in this article but they still love their RE so much !!
Press doesnโt get tired writing of the Royal Enfield story. This is a good one though, brings out some of the soft aspects that make Royal Enfield such a endearing name.
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/5642DF7B_F51E_43AC_B8B3_DFD7A2D27528_125134.pdf
Decent 14% growth in total VE Commercial numbers (dom+exp) on an y on y basis for Janโ16.
Himalayan Bike launch press release by Eicher
http://www.bseindia.com/corporates/ann.aspx?scrip=505200&dur=A&expandable=0
Excellent presentation which I missed
Press release:
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/C21DFCBC_D80C_478B_BC56_B432CAACFDB2_123753.pdf
Something which Professor Baxi Said about giving fair treatment to minority shareholder. I was trying to get more information about same and got following video clip which I thought worth sharing
To Eicher followers - Hope itโs RE ( got thru whatsapp)
By the way, United Motors has launched the Renegade range of bikes in India and they are priced in the range of 1.5 - 1.8 lakhs. Has anyone evaluated the possible impact this will have on RE? Should a EM investor be worried about Renegade?
CONFERENCE CALL - from Capital Markets
Eicher Motors
To broaden the product portfolio, EML would introduce another new bike in CY2017
Eicher Motors (EML)held a conference call on 05 February 2016to discuss the Q4 2015 performance. The call was addressed by Siddharth Lal, Managing Director and CEOand Lalit Malik, CFO.
Key Points from the discussion:
The demand for Royal Enfield bikes continues to remain strong with thecompany taking more orders every month as compared to sales volumes.
VECV volumes continued to improve given the uptick in the MHCV industry on
account of better freight availability and improved fleet operator sentimentsdue to subdued diesel prices. VECV posted second consecutive month ofdouble-digit growth in 4QFY2016.
Eicher is expanding the distribution of its recently introduced โMultixโ vehicle.
Royal Enfield (RE) undertook a price increase of about 1% in January 2016 while
VECV increased prices by 1.2% in November 2015.
EML has received a board approval for commencing its third manufacturing
plant for RE. RE is targeting to have a total capacity of 9 lakh units by CY2018, given the ramp up at thesecond plant and commencement of the third unit.
EML has given productionguidance of 620,000 units for CY2016 and 780,000 units for CY2017.
Given the huge capacity increase of RE, the waiting period for bikes hasreduced from 4-6 months earlier to 3-4 months currently.
EML recently introduced an all new 411cc adventure bike โHimalyanโ. It would be positionedas amid adventure tourer bike. This is an altogether newsegment as the current rugged off-roader bikes are in the higher cc segment.
The bookings forHimalyan would commence in mid-March 2016.
To broaden the product portfolio, EML would introduce another new bike in CY2017.
EML increased the dealership strength from 400 dealers in CY2014 to 500
dealers in CY2015 for RE. RE plans to have more than 550 dealers byCY2016.
EML is targeting export markets as a new growth driver for Royal Enfield. It is
eyeing potential in South East Asia and Latin American markets which have a
huge commuter bike base to boost exports.
VECV lost some market share in the MHCV space due to high discounting in
the industry. VECV market share slipped marginally from 11.7% in CY2014 to
10.6% in CY2015.
In 4QFY2016, VECV shippedabout 4,728 units as against 2,600 units in the corresponding quarter lastyear.
What we are seeing is the lollapalooza effect of the commercial vehicle segment also picking up tied with the amazing RE growth.
Eicher had been posting healthy growth numbers inspite of slowdown in CV segment.
Add to that the fact that as share of RE in Eicher Revenue keeps on increasing margins also keep on getting better so Profit growth is even higher.
What is a watchout is that the Royal Enfield higher end brands are not picking up significantly. We need premiumization to happen to further improve relization. Lot of international competition is arriving and we need strong product pipeline.
Continental GT is still a very small share of sales. Let us see what kind of numbers Himalayan brings in.
Valuation still look high to me so maybe would buy on any dips.
Disc: interested but not invested yet.
Can you please elaborate slow down CV? CV has already seen revival with around 10-12% industry level growth. Find enclosed April-December 2015 CV growth news.
On second point that there is competition increasing is valid but that has been case almost for last 3 years. All the major players from Harley, Duccati to Triumph are already present in Indian market including competition from Avenger of local Bajaj. So, the number we have for RE in recent past are already after whatever competition from that market.
On valuation, your point is valid but personally, I do not see 50% bottom line growth with 35 X Forward PE being expensive. Having said that, there is very low margin of safety at 18,000 but just 15 days back it would trading at 15,000 which was good levels.
Discl: I have invested in the company for last 15 months and my views may be biased.
I am sorry I was probably not clear. I meant that even when in previous periods where CV growth was slow Eicher did well on back of bike growth.
I am definitely convince by the Moat here. This is definitely going to be a period with big growth for Eicher for next few years as the company seems to have everything working for it perfectly right now.
The current valuation implies a 30% CAGR for next 10 years. We have to evaluate this scenario. This implies earnings to be 12-13 times the present levels. Two big things that could drive this is
Currently RE is selling 500-600K RE in a year - a 12-13 X growth in sales means that it sells close to what biggies like Hero Honda are selling in a year. That seems a tough mountain to climb right now.
Premiuimization - rapidly grow premium segment so the realization/profit per bike goes up significantly. This needs much higher revenues from premium segments so it is important to watch that. New launches are going to be important. This will take sales growth expectations to more reasonable levels.
Thanks for quick message. You may go through thread in past which have similar discussion about relative expensive valuation. You would also find some interesting projection in past thread as well which were done almost 15 months back (some by me, some by other members). The company has not disappointed at least twelve months following that period.
Having said that, it does not guarantee that in future also same set of growth would be achieved. As it grow bigger, tougher are challenges to maintain growth rate.
If really interested in understadning, please visit website of the company where it shared investor day presentation by Siddharth Lal and Rudy on website and also supply chain presentation about company plan to scale up operation. Personally, I found that very helpful to understand ethos of Eicher, if I may use that word.
Valuepickr thread itself give lot of insight about growth driver, valuation and management. I would suggest you to read whole thread at your convenience if your schedule permit.
Dhiraj
Find enclosed article informing Bajaj Avenger Sales of around 25,000 per month.
Avenger current price is around 75-90,000 per unit as per article.
While RE has different product altogether still, from 4,000 per month (with average realisation of 1,10,000/-) to 20,000 per month with expected increase in per capita income in next 3-4 years. This probably answer the question to demand side. The real issue would continue to be supply side in my opinion.
thanks for the suggestion. I will go through your suggested readings!
