Eicher planning capacity expansion for RE division, to spend 600 cr.
Company has released the monthly sales no. for Mayâ15 (First time release of monthly sales nos. ?)
http://www.bseindia.com/xml-data/corpfiling/AttachLive/Eicher_Motors_Ltd1_020614.pdf
RE division Sales unit up by 86% for May & year to date. Export nos. are nothing great, but why care about it when itâs selling like hot cakes inside India itself.
First signs of growth in CV segment appearing, and itâs contributed not only by domestic sales but also strong export push (which was expected).
"Total sales stood at 4187 units as compared to 3302 units in June 2013, registering a growth of 26.8%.
Domestic sales stood at 3474 units while exports were 713 units, registering a growth of 12.4% and 236.3% respectively, for the month of June 2014 over June 2013."
This should work like icing on the cake.
Brokerage firms like Credit Suisse are already putting 350+ EPS target for FY15, which seems very optimistic to me. But with the CV segment starting to grow, we need to rework on the numbers.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/Eicher_Motors_Ltd_010714.pdf
Disc: Have been adding till 6000.
Eicher Motors, manufacturer of Royal Enfield motorcycle, reported a robust 83% year-on-year (y-o-y) growth in total motorcycles sales at 25,303 units in June 2014.
The company had sold 13,806 units in the same month last year, Eicher Motors said in a statement. Domestic sales stood at 24,519 units, while exports were 784 units, registering a growth of 84% and 60% respectively, for the month of June 2014 over June 2013.
Company has partnered with Corbetta group of Colombia to enter colombia market.
Companies website for Colombia is up and running
http://www.royalenfield.com.co/
I think this is the entry intofirstlatin american country. Recently Hero alsoenteredthis market. should be interesting to know why this market was chosen after Eicherâs foray entry into very high end markets like US,Europe,Japan,UK etcâŚ
Also this may be a signal, that now company has started working on the next leg of market expansion and growth, which is beyond domestic markets. Story is strong, as can be seen from monthly sales numbers. CV market has stopped falling and may look up any time now on the back of economic revival.
Also, I am hearing lot of first hand experience stories from friends who are all travelling in groups to treacherous terrains like Leh etc on RE bikes. They seem very happy and suddenly leisure biking seems to be the happening thing in many circles.
All in all, a good company to hold for now, and add on any dips. Price has more than doubled in less than a year on the back of a strong growth story, since the time we started the thread and when we thought itâs already costly. If CV segment surprises, even this price may look cheap in hindsight?
Good run continues.
Company sold 80% higher no. of 2 wheelers in Julyâ14 compared to July '13
http://www.bseindia.com/xml-data/corpfiling/AttachLive/Eicher_Motors_Ltd1_010814.pdf
VECV division overall showed a growth by 6%.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/Eicher_Motors_Ltd_010814.pdf
Q2âCY15 results out.
Standalone
Total income from Ops - 746.19 cr. Vs 381.82 - up 95.4%
Total expenses(including depreciation) - 571.60 cr. Vs 321.27 cr. - up 77%
PBT - 188.05 cr. Vs 68.23 cr. - 175%
Tax expense - 54.81 Vs 15.61 - (29% Vs 22.8% of PBT)
PAT - 133.24 Vs 52.62 cr. ( up 151%)
EPS - 49.21 Vs 19.48
**
**
Consolidated
Total income from Ops - 2245.37 cr. Vs 1669.88 - up 34.4%
Total expenses(including depreciation) -2016.58 Vs 1533.29- up 31.5%
PBT - 245.54 cr. Vs 156.47 cr. - 56.9%
Tax expense - 67 Vs 36.07 cr. - (27% Vs 23% of PBT)
PAT - 178.54 Vs 125.8 cr. ( up 42%)
Minority Interest (of VECV) - 21 cr. Vs 33.48 cr.
EPS - 58.14 Vs 34.19 ( up 70%)
6 month EPS for CY15 is 109.58. Company looks good to do ~250 EPS Âą5% for CY15 with chance to surprise on upside due to pick up in VECV division and continued good performance in RE division. Itâs nowtradingat 34 times CY15. Am staying invested.
Trying to do a little bit ofcrystalball gazing about the future source of growth, i think of these data points.
Total number of vehicle sold in India in 2011-12 FY was ~12 mn (Source - Juneâ12 TVS Motor Presentation). Assuming the industry sales growth was almost flat during last 2 year and RE will sell close to 0.25-.028 mn this year. Itâs roughly at 2% of industry sales. And premium segment sales was roughly 16% in FY12.
And there is prospective export market sales which doesnât figure in above calculation as they were not able to meet domestic market demand fully.
Raj Panda, I think you meant CY14 ie year ending 31.12.14 for estimated EPS of 250 plus minus. And I tend to agree with your estimate.
Now that half year is over, next years performance would soon start getting discounted.
My estimates for year ending 31.12.15 with assumptions are as below:
)- CV sales increase by 5% in FY15
)- CV net margin at 3.5% (I expect net margin for FY14 at 1.5-2% and then some operating leverage to kick in next year, resulting in the assumption)
)- RE sales to increase by 50%
)- RE net margin to stabilise at 18-19%
This would result in consolidated sales of 10,000 cr with net profit of 1000 cr giving EPS of 350-370. CMP of 8700 discounts this by 23-25 times, which is reasonable considering the growth prospects and the overall pedigree of the company.
Discl - invested and may add a bit.
Right Vinay, i meant ~250 EPS for CY14.
MD &CEO Siddharth Lal and Lalit Malik, CFO.Key Points by Capital Mkt:
For the second quarter June 14, the company reported 71% rise in net profit (post adjusting minority interest) to Rs 157.44 crore on a 34% rise in net income from operations at Rs 2,245.37 crore. PAT rose 42% at Rs 178.54 crore.During the quarter, the company sold 11,495 CVs (including exports), vis a vis 11,027 units. It sold 74,132 Royal Enfield Motorcycles, a rise of 85%.
The performance from Royal Enfield (RE) has been strong with highest-ever margin performance and clocked ~25% which has benefitted from operating leverage as the new âOragadamâ facility ramps up.The growth momentum continues to remain strong for RE, with the demand situation robust and nearly five months of waiting periods.
The management remains confident that a strong inherent demand play remains from the Tier-2/3 cities and towns which is yet to play out.The management expects 50,000 run rate maximum from the Oragadam facility and expects it to be reached in CY15-16.
The management expects RE volume growth to clock in excess of 300,000 for CY14, and 420,000 for CY15.VECVâs performance has also been admirable in a tough CV cycle. VECVâs volumes have witnessed better than industry growth across segments. They have grown 3.7% for Q2CY14 as industry has declined ~2.5%.
The bus segment has witnessed a stellar quarter with market share gains of 2.2% to 19.4%, sold 3,300 units.The new Pro series (entire 5-49 tonne range) has been very well received and the company expects market share gains in the Pro1000 series with the 13 tonner CV launch.The management has guided for capex of Rs 600 crore over CY14E-15E in order to boost capacity at the Oragadam facility.
The management has highlighted that they are planning to invest in a new facility for RE that would be needed from CY16 onwards.The company continues to work towards dealer expansion of around 70-80 dealers annually.
Quite aggressive target by ICICI direct at 13000.
EPS update by Credit Suisse Latest News | Latest Business News | BSE | IPO News
Wonderful video on thoughts of Ramdeo Agarwal and Sanjoy Bhattacharya, especially on Eicher Motors (see from 12 minutes onwards)
Discl - invested from lower levels. I put a limit order at 3% up from last closing price before results at which point the stock was 4% up. Thereafter the stock rallied 20%. Missed a 16% upmove waiting for a 1% correction. Stupid thing to do, especially as the company is a part of my long term holding. How many times will I continue to commit the same mistake (harakiri) till I learn, I dont know.
Quite aggressive target by ICICI direct at 13000.
EPS update by Credit Suisse Latest News | Latest Business News | BSE | IPO News
Wonderful video on thoughts of Ramdeo Agarwal and Sanjoy Bhattacharya, especially on Eicher Motors (see from 12 minutes onwards)
Discl - invested from lower levels. I put a limit order at 3% up from last closing price before results at which point the stock was 4% up. Thereafter the stock rallied 20%. Missed a 16% upmove waiting for a 1% correction. Stupid thing to do, especially as the company is a part of my long term holding. How many times will I continue to commit the same mistake (harakiri) till I learn, I dont know.
Raj & Vinay: I just started looking into Eicher story and have few questions. I think you are best experts on Eicher here.
Eicher looks set to do 40-50% growth till CY2016 when they are hinting at Royal Enfield production of 6 lakh per year. If market is giving it such high PE, it certainly must have considered some sustainability of growth.
What do you think can be market size estimates? Current motorcycle market is 12-13 million a year in India. I think Royal Enfield can potentially sale 10 lakh units a year in 3-5 years. Export potential and success is not known yet but I might roughly give it 5 lakh. So all in all terminal sale of 15 lakh RE per year in few years after which growth has to moderate. Do you agree with any of these wild imaginations?
I think Eicher can have much higher market cap as size grows. Even though current mcap looks high. Any thoughts? Harley at 5 b$ sales has 13 billion $ mcap. RE has lot larger market to address and will depend on international success. What do you think?
Additionally as a new investor, I am considering VECV as just a bonus component. If and when it revives, itâll be great but I wonât rely much on it to access valuations of Eicher as of now. Please share your thoughts.
Nikhil
I myself have been grappling on what could be the market size for RE kind of bikes, which cater to a particular niche rather than as a means of mass communication. Itâs a direct play on the rising income and aspiration levels (sorry for sounding trite), and any consumer related studies done for India would be relevant for this business also. The past growth trends (upwards of 50% year on year for many successive years) and the waiting time on current order book (5-6 months) indicates enough demand atleast for the next 2 years or so. In the June 2014 conference call, the management was questioned whether they can see RE selling a million bikes a year and Mr Lal responded that this was very much possible in the near future, but they would take it step by step and not plan such a big expansion right away. This is in fact in line with what you have indicated.
RE caters to a niche and caters strictly to the 250cc to 750 cc range, and not above or below. Regarding competition, Harley Davidson and Triumph are often spoken of in the same breath as RE, but they are mainly high end bikes (although they have one or two 250-500 cc models) and going by the below articles, they sure look like they have a long way to go visâvis RE in India (Harley reportedly has sold about 4000 vehicles in India since Jul-2010 and Triumph even less)
Exports, as indicated by this article, will be an icing on the cake, although the demand in India itself is likely to keep them very busy.
All the above gives comfort and visibility (albeit, qualitative and not quantitative) for RE for atleast the next 2-3 years.
Contrarily, I got interested in Eicher due to their CV business through their 50:50 JV with Volvo, which I feel has immense potential to take the company to a new orbit. In CY13, the CV business contributed 75% of sales but less than 30% of profits, both further declining in H1-CY14. There is very high operating leverage built in, as any improvement in sales would have a multiplier effect on profits. And with the current timing, any slowdown or moderation in their bikes business would be amply compensated by the CV revival. Their Eicher Pro range of CVs are high class and aimed not at the mass market but priced at a premium and pitched in such a way to make the consumer aware of the immediate benefits and pay-offs for the higher price. In addition to this, Volvo brings to the table:
)- Their vehicles which are in a different league compared to the Tatas and Ashok Leylands of the world, and even to Eicher. And they would sell this in India through the JV
)- Their international distribution network through which they intend to sell Eicher brand of buses and trucks in markets like Middle East and Africa which are price conscious
)- Eicher would be the global supplier of engines to Volvo, which is a HUGE (in caps and bold) source of opportunity, moreso if the international economy revives. Once successful, Volvo would also likely source other critical components manufactured by Eicher, but that is some time away.
One has to keep in mind that this is after all, a cyclical industry and it is necessary to exit at the right time and hence has to be viewed differently from really long term 10-year-plus kind of structural buy-and-hold stories. But all in all, the next 2-3 years look promising indeed.
Thanks for the inputs Vinay. Yes I agree that Eicher should be considered for 2-3 years and longer term is really difficult to visualize. Letâs see how the RE and CV story pans out.
Disc - I invested small % of folio in Eicher this week. Was really afraid of the high trailing PE initially but when I realized CY14 PE of 40, went ahead.
Hi Nikhil,
I think Vinay has already covered most of the relevant points on this story.
You are right about it trading CY14 40 times. Most probably it might surprise on upside going by the last 2 monthly numbers on the RE and CV.
Itâs really hard to put a number as to what could be the %tage of RE bikes sold in relation to overall bikes sales per annum in a country like India. at 10 lac out of 12-13 mn, it will be 8-10% of all 2-wheeler sold ? Looks a bit high to me. But then the 12-13 mn overall number may go up as our countries age profile is more favorable towards youth and all that.
Overall a good company to buy and sit tight and see how things pan out. They have a lot of things going right for them at this point in time.
Great inputs and nice discussion.
As per this article the overall 2W market may reach 20mn by 2020.
Based on this article, RE has a 98% share in the premium segment (250-800cc) which is ~5% of overall market in India.
http://entrepreneurindia.in/wp-content/uploads/2014/01/95.jpg
http://entrepreneurindia.in/people/coverstory/catching-the-ride-captain/23564/
Combining the two, RE reaching sales of 1 mn (@5% of overall market) looks a distinct possibility in the near future.
@Raj: Rudra pointed out the future market size. I was thinking of 10 lakh figure in 4-5 years in 20 million market. Though we donât know whether this will be reality or not. Weâll also need to monitor the export success as the opportunity there is huge.
I think it is not entirely correct to look at Eicher as a cyclical company, just coz it has a CV business. 70%+ of PAT comes from Royal Enfield (and likely to go up further) which seems to have a structural story (at least for the next 5-7 years) as many in this forum have already pointed out. Though it is only my assessment as yet, based on readings and interactions, but the global opportunity for RE could be quite significant and it will have much greater acceptance even in developed world, because of its British lineage and buyers looking for more value for money products even in those markets (RE will have a significant advantage vs. Harleys and Triumphs of the world in that sense, though i agree that they are not strictly comparable). Web reviews also point out to a favourable following for RE globally.
Also, VECV has large part of its volumes coming from buses and LCV/ICV, which are less cyclical (MHCVs are ~10% only) and hence should be looked at in that context. My view would be that though a large part of multiple expansion may be over (though it continues to amaze me on that front ;)), Eicher provides very strong visibility and 30-35% CAGR for next few years should not be too optimistic an assumption. So it may not become 20x+ in next 5 years as it has in the last 5 years, it is a must have stock in your portfolio, in my view.
1 Like
The biggest problem RE is facing is bringing down waiting period of its Bullet brand. Waiting period is upwards of 6 months depending upon which part of the country one lives in. If they can bring improvement in this, sales figure would be many times better. However, I must add that this waiting period does add to the âRoyalâ and âaspirationalâ status of the product 
1 Like