Siddharth Lal indicated FY17 target of around 6.5 lakhs vis 6.6 lakh actually achieved by the company. While growth rate appear lower, first time company sales increased 60,000. Also, exports sales during FY17 is also high, which given some comfort about good traction to company efforts in international market. I would expect Eicher now growing at 20%+ plus for next 3-5 years. Higher growth in export market would be key positive surprise.
April 2017 Motorcycle sales:
March Quarterly results were declared, post Market hours. I got the PDF at around 5.30 PM in my email.
Eicher Motors’ March quarter net profit jumps 33% to Rs 459 cr, announces dividend of Rs 100
What was heartening to note was that EBITDA came in a tad higher, when I was fearing that it will be flat. Enfield keeps chugging and as long as the growth in volume keeps pace, my guess, this will command the mind share of investors.
Eicher appears to hit a road block from demonetization in this quarter. Revenue growth and profit growth is less than what was reported in recent quarters.
Market is pricing in a possibility that the stellar growth in last few years is unlikely to be sustainable over a long period and P/E ratio is steadily falling.
Royal Enfield may be vying for Ducati acquistion in race for global leadership
Royal Enfield collaborates with custom motorcycle builders in India
Eicher has discontinued it’s latest bike Himalayan owing to BSIV norms and issues that multiple users complained about
Chennai based Royal Enfield too has reduced the price of its most popular motorcycle, the Classic 350. It has a displacement of 346cc and hence the price has been reduced from Rs 1,37,478 to Rs 1,35,557, a reduction of Rs 1,921…Does such small decrease in prices really matter much. does this increase the demand. 1921 over 137478 is just 1.4% approx.
New news guys:
Honda readies to take the fight to Royal Enfield, undecided on challenger yet
Setting its sights firmly on India, the world’s biggest two-wheeler brand Honda will take the challenge to the doorstep of Royal Enfield as it looks to launch a rival in three years.
Read more here: http://www.moneycontrol.com/news/business/honda-readies-to-take-the-fight-to-royal-enfield-undecided-on-challenger-yet-2317343.html
As anticipated, RE seems to have settled down into a 20-25% volume growth rate. This may come down a little as their base increases. I was surprised by their decision to reduce costs post GST, as I had presumed that the pricing power they had would have enabled them to retain prices and hence improve margins. Probably the 5% realisation increase that I was expecting may not come as easily. Hence going forward, RE may show sustainable sales growth of around 25% per year (volume plus price increase). The caveats are competitive intensity (a few companies have started eyeing the sub-350cc category where RE is especially strong) and new models to refresh the line up periodically.
CV business can be the kicker the stock needs to probably sustain its valuations. While sales growth can be somewhat muted, it has high operating leverage built into it and hence profits can grow at higher rate than sales.
Discl - have exited the stock recently for better opportunities.
I think this may be due to anti profiteering clause in GST.
Find enclosed a slide on Hero honda from Ramdeo Agarwal Presentation at Flame School
I consider Eicher to be next Hero Honda. However, PE Mutiple of Eicher has gone up singificantly vis Hero Honda during growth period. Eicher is my Top holding and hence my view may be biased.
Dhiraj, Eicher is one of my top 5 holdings for the past few years.
As disposable incomes rise, Premiumisation should be witnessed in the motorcycle market, and premium bikes will take market share from the 100 110 cc bikes.
I believe that future rate of growth of Eicher will depend on how well they focus on penetration of Tier 2, 3 Towns and in Rural India.
Major transformation is happening in Rural India with better water management.
Farmers are transiting from one crop to three crops in one season as water becomes available for 12 months.
Pace of change is rapid, hundreds of thousands of farming family :
While this transformation of rural family incomes will open several investment opportunities, relevant to Eicher - An Aspirational Premiumisation play - in Rural India - does exist.
Current P/E is a concern, but I am keen to understand how Eicher views the Tier 2 / 3 / Rural India Opportunity over the medium term.
PS: As a side note one has to acknowledge the role of the CSR law - under which 2% profits are spent on philanthropy. Non governmental initiatives aided by benign government support is creating a rural agri-transformation.
I first understood about dam repair / check dams about 3 years ago as a known NGO (Raah Foundation) invested in repair of a few dams in Rural Maharashtra near Mumbai. In one season, farmers transformed their income by going from 1 to 3 crops.
NGO’s target water conservation: Art of Living have pumped in over a billion rupees to rejuvenate 13 rivers, Isha Foundation’s save your rivers campaign is currently running and well documented.
Ms. Ruia - the mentioned lady hereabove is Atul Ruia’s (Phoenix Mills) mother, and her NGO is supported by Ruia.
Huge amount of funds are also being deployed by NGO’s very effectively, and the well documented success stories are attracting significant new funding for the same theme in varied geographies.
Paani foundations efforts in particular where 1500 villages will address water shortage in 2017 alone are super commendable. Dr. Bhatkal + Aamir Khan: Interviews are illuminating and reveal the logistical challenges and support required to set up such initiative. However, the Returns on such initiatives are immediate and disproportionate, tens of thousands of lives will be transformed and financially empowered.
(Of course as the movement scales over the decade and agri output jumps, the challenge will move towards cold storage / export / ensuring demand supply mismatch does not create “glut based” low prices)
As investors - this is a very significant mega trend development in rural India now and bears close watching.
July 2017 RE Sales data:
Eicher excellent performance continues. Recorded highest ever monthly sales of 64,459 during July 2017 recording YOY growth of 20.8%. While growth rate has slow down, in my opinion it would continue to remain in range of 20%. I came across Nirmal Bang equity report which provided very useful comparison between Activa sales over years and capacity. Honda also faced constraint of capacity due to major spurt and demand for Activa. However, even after capacity added, Activa contnue to show normal sales growth. Enclosing two key graph from the report.
Kotak, on the another hand, find that Eicher would reach satuaration point in India and does not justify growth rate at current market capitalisation. The main reason for conservatism by Kotak is that is expect at in order to justify current valuation, Eicher need to grow at very high rate for long period. Find enlcosed Kotak working on Eicher
While Kotak is true that it is very difficult to continuous grow at substatial growth rate over long period, at least, last decade performance of Royal Enfield and 5-6 performance of Activa in Honda Scooter does provide justification for exception to rule. Whether Eicher would follow mean reversion or case of grativational force or beomc exmaple of escape volacity only time would tell.
Personally I am optimistic and Eicher is my top holding since last 3 years. Views of other members are welcome.
Discl: My view may be biased due to my holding in the company.
While Eicher RE sales are kind of reversing to mean of 20/25% and as rightly said wont sustain super normal growth. I am hearing from the market ( not very strong source of info) that Multix and much hyped himalayan is struggling. Also concerning is slowing of their Export numbers !!