Given that Coming years will bring about a change in market where 2 wheeler market will move to electric … what do you guys think how prepared is eicher for this change?
No idea about the capacity but my comment was Jawa’s acceptability in the market. And. what stops them from raising it further even if it is 10k currently. It is important to understand how do they deal with a new and potent competition is a key monitorable.
Eicher could become a classic value trap. It is not growing fast enough to attract growth investors and cheap enough to attract value investors. Either growth has to pick up or price has to drop for the stock to stabilize. With growth faltering, the other alternative appears to be the only alternative.
If a bad month can cause a sizable damage to the stock price, what will be the situation when company reports a bad quarter or a bad year? I have nothing against the company or investors who are long, I am just trying to highlight that having a good set of fundamentals is not enough, valuation is also equally important.
You are bang on with your assessment @Yogesh_s. Two straight quarters of declining sales are an absolute worry. I see the stock absolutely getting de-rated if this continues (it has already started over the ~2 years I’ve been invested). Though, once it gets de-rated, investors that believe in what the company is doing will need to stick it out. Of course, if better opportunities emerge (read: other companies that are better investment opportunities), one can consider them. At the moment, I’m on the fence with Eicher.
In all honesty, I love the bikes they make, their vision and I absolutely love the work Siddharta Lal has done at RE so far. So the decision is going to be a tough one. Heart says hold (and add more as the stock price declines), head says sell and look for better investment opportunities. At the moment, I’m torn between the two - I personally will take stock of this over the next few quarters and see what I ought to do. Being a buy and hold investor, at the moment I’m leaning towards sticking it out.
Unfortunately, once the stock gets de-rated and fundamentals don’t look as good, all the perceptions about management quality, vision, moat and other such qualitative castle in the air theories begins to crumble and even the die hard optimists bail out. That’s when value investors step in. The way quality perception reaches a cyclical high, it also reaches a cyclical low. Reality is somewhere in between. I am not saying that will happen with Eicher, but there is always a possibility.
Yogesh, what do you think is a decent stock price for Eicher now?
With 350 cc engines being the bread and butter for RE, the number has been consistently dropping for the most sold 350 variant (ie classic 350)
I dont have the number for December basis engine capacity but perhaps this downfall in the blue line has continued.
Overall the numbers have anyways been dropping, Nov 18 was the first month in which RE has a drop in YoY sales since Nov 15 and then this Dec 18 number came in now.
I also think (my opinion only) that RE will drop more becasue even if there is uptake in 650cc engine bikes it will lose some market share from cannibalization as well as competitors. It is doing the right thing by going global though.
Completely inline with these thoughts.
Disc: No holdings in Eicher
As per my DDM valuation model, assuming a 15% growth rate for next 5 years and a gradual slowdown to 8% growth over next 10 years, fair value works out to be 16,500. That does not mean I expect stock will drop to that level, it only means I will be confident that risk is in line with rewards. One may ask for a margin on safety on top of this.
Please note valuation models can be very subjective and everyone can come up with their own fair value using variety of methods.
Now if competition is with Jawa and looks like it will grow, why not look at Mahindra. Available at undemanding valuation.
Eicher Motors Understand that they have achieved the “Penetration” of 350 cc in India, as they have as high as 33% RE in state of Kerla (This number came directly from the Sid lal during this year AGM, I was present there and asked this question about growth).
So, Now growth will come in terms of “value” than “numbers”, that means they are planning to move “up” in value chain with Twins (650 cc bike) both in India and outside India. They have built very good distribution networks in one of the bigger Bike market like Indonesia, Thailand , including UK and US, when they were growing comfortably in India with 350 cc. So next leg of growth will come with “replacement” of 350 cc bike with twins in India and sell of Twins outside of India. I feel we are making mistake comparing eicher like Hero with 350 cc numbers, lets compare with quarterly numbers (Revenue and EBDITA margin) I have not seen not much “drop” in quarterly numbers than monthly bike number, so 350 cc de-grew this month, but 350 cc plus and exports gone up and that “almost” compensate the drop in numbers of 350 cc.
Now come to quality aspect, since growth of Eicher Motors Sid lal was and is one of the most ethical promoter, not talk non-sense in media, “very passionate” about his business and off course Bike. He spent last 2 years in building twins, as he knew that 350 cc has limit which he can sell in India, as India is predominantly 100cc “commuter” bike market and few states like Kerala, TN, Maharashtra and some parts of Punjab and haryana was responsible for RE growth and he wants to tap same customer with Twins and also has big plan of exports of twins. So I feel its another leg of growth and maybe you will see pain in short term but long term it will be “the stock” in automobile pack.
Disclaimer: Invested & tracking since last 5 years and not planning to sell a single stock.
There is a reason I never invested in Eicher. i own a Classic 500 preceded by a Yezdi classic 250cc.The Enfield is a crude technology. Lots of vibrations but no signature exhaust note. The paint quality and rust are more famous on a bullet than their paint scheme’s. The brand and value (cheapest 350cc plus bikes) made them sell.
Jawa is backed by Mahindra. They have overdone the retro styles and the engine is already winning accolades. Hence, Jawa brings more to the table than Royal Enfield. It is but a matter of time until Jawa brings in bigger capacity bikes. While the go anywhere 2stroke ability is lost, not many Yezdi bikers will be their customers.
But, I love rebound stories and Sidharth Lal has written one of the best ones. Since Jawa has stopped bookings, Royal Enfield has a breather and a first mover advantage which is easy to exploit. If they do not up the game in 350cc, investors have much more to lose.
In this war, customers and not investor will be the Victor. If I were to vote for one, I would vote for Classic Legends (Jawa is the beginning, BSA is next) unless Royal Enfield does something spectacular.
- Long term investors need to realise that quarterly numbers of 2018 calendar year are not going to be great. Improvements, on a comparable basis will show only in 2019, if so.
- Imho, given the issues related to parking, road width and increase in rural prosperity, bikes will always be popular. India is still far behind, say Vietnam, in terms of number of bikes per person. So bikes will keep on selling at least for 10 years. There may be occasional dips, but a number of people will migrate to higher capacity and even with high competition, Royal Enfield will see growth.
- Not many companies plan, well in advance, for future challenges. Very very few in India do so and Eicher is one of them. So I will take a bet and if it goes bad, so let it be.
- It has been my 15+ bagger. Have sold some at 30000+ but looking to add at ~20K. Will need to sell some other stock as have no cash.
- But many of my calls have gone wrong on market pricing, especially in 2018, so I am not sure whether I can be right here.
Most of the youth wanted to own RE. and pressurizing the parents to buy one for them.
Good read on Eicher…
Eicher’s move to retain the look and changing what is hidden (engine etc) reminded me of what Nassim nicholas taleb describes as formula for writing a book that will sell a long time in the future here… https://www.youtube.com/watch?v=uv6KLbkvua8.
A book that will sell for a long time in the future …write one that will sell 20 years back. Basically the content connects with the audience 20 years back and even now, then it will connect well in the future too.
Was thinking on the lines of how quickly Mahindra would be able to up its production when the first JAWAs are out and they become more popular. If they too turn out to be 3-6 months waiting then I am sure RE’s market share would be affected only for a little while.
Also was checking out their websites and both the JAWA models are awesomely priced but they both have an oil cooled engines which in turn is a little more expenses in the operating costs which will be a concern especially for first time bikers.
Also, have not ridden an old JAWA but have heard that it was definitely of better built quality than RE (old ones). The new ones we will know but not before September this year.
Disclosure : Not invested in eicher motors, but do own a 350cc Thunderbird. Thinking of buying Eicher.
Mahindra has a large 2 wheeler capacity which they inherited from Kinetic. So it will not be an issue once that is tweaked for Jawa. It is more a matter of suppliers ramping up.
One point you are missing out is riders are getting more powerful engines which are also Bharat 6 compliant for this price so a bit of maintenance should not be an issue.
Most of the times disruption is one way and new equilibrium point is set. Things are never same again.