Eicher conference Call Q3FY18 on Feb 8 2018
New Product and “Cultivating” brand in Global market and “Nourishing” brand in Indian market*
The company launched two bikes with 650 CC named Continental GT and Interceptor in November 2018. It got very encouraging response to the new bikes in all the major Automobile show where same were presented. The company also organized First ride in Thailand for Royal Enfield fans which was well participated by more than 30 members.
In India, same bike was presented in Rider Mania, an annual event, which was well successful participation with more than 6500 riders joining for the event. It also launched New Garage Cafe in Goa. It has also used affiliation with NSG Black cat Commando who ride on 15 limited edition RE bikes riding on 8000 kms through 13 states. These bike were subsequently auctioned online which were sold out only in 15 second of auction opening and the proceeds were given to NGO “Prerna” associated with NSG units. Total dealer in India as on December are around 761 which would be reaching to 825 by end of March 2018 and further expected to increase by 100+ next year.
Premiuminsation of Motor cycle has already started and has long run way. In some market like Kerala, Maharashtra, Karnataka and Delhi, the company has already reached near Double digit market share. In the pockets of North India, where the per capita income is lower than Urban/Developed state, would be key driver to growth for the company in medium term. Demand for UP/Bihar is shaping up well and driving sales. Since the company has become moderate market shareholder in key market Karnataka and Maharashtra, Demand slow down (due to higher tax on Two wheeler capacity of more than 1 Lakhs in Karnataka) has affected the company performance. However, despite headwind, the company managed to maintain its market share in these markets while expanding its sales in Interior market.
The company would continue to spend market development in a way which provide experiences to riders and add to Royal Enfield community ethos. The increasing rider events, aspirational marketing in form of Garage café, increased dealership focus on International market would continue to result in higher overhead. The company does not expect all this expenditure to contribute positively in short term, however, over a period of time that would assist Royal Enfield to engage with its community which shall drive its long term growth aspiration. Hence, despite higher sales, the EBITDA margin are likely to remain in current range as incremental spending on “Nourishing Brand” would continue to result in higher overhead.
The company does not evaluate its dealer on per dealership sales. It work on improving overall efficiency in various processes of sales. The first step being enquiry, which is followed with second step of test drive, progressing to third stage of booking order, followed up with Delivery and after sales. There are key parameters which is constantly evaluated by the company. The company believe in increasing volume by “Demand Pull” rather than only “Dealer Push”
The company has under price hike of 1% from Feb 1 2018 in India.
Production plan and technical centers
The company would be presenting is plan for capacity and production for FY19 in May 2018. Vallam Vadagal plant to reach full production capacity by March 2018. The new twin engine 650cc platform in development stage, likely to roll out by mid of 2018.
The UK technical center with 100 engineers is already in place. Second phase of UK technical center would be fully commenced by next financial year. Indian center as Chennai is expected start from Next financial year.
The company launched Fully electric bus with zero emission and 9 MT Air condition. The company is also working on E-bike in context of new development in market. However, it is still at very primitive stage and there is long path to be covered before any meaningful development.
Eicher is my largest holding for last three years. Hence, my views may be biased. I have sold small portion of my holding in past 15 days while fine tuning my portfolio allocation among various asset class. Also, there is scope of transmission loss/miscommunication. Investor shall do his/her own due diligence before investing.