Eicher Motors: Premium segment could face near-term headwinds, say analysts

The Eicher Motors stock gained 4 per cent in trade on hopes that the exit of Harley Davidson from the Indian market, gradual recovery and launches will help the company gain market share in the premium motorcycle market. The firm is also expanding its global manufacturing presence and has recently announced an assembly plant in Argentina. 

While the exit of Harley Davidson is positive, the near-term trigger would be a recovery in volumes. While volumes for August were 5 per cent lower as compared to last year, they were higher by 24 per cent, on a sequential basis. Analysts highlight that the shift to personal transport, improving rural sentiment, as well as pent-up demand in urban markets could support volume growth.

In addition to the demand pick-up, what may drive sales is the launch of Royal Enfield Meteor 350, ahead of the festival season. Analysts led by Ronak Sarda of Systematix Research say that while the competitive intensity has boosted the premium segment over the past two years with the launch of Jawa, Royal Enfield’s competitive position is better, given a strong dealer network, availability of variants, customisation options, and reducing cost of ownership.

Eicher will also benefit from a growing market for the premium segment within the motorcycle industry. The share of premium bikes has risen from 15 per cent in FY14 to 23.7 in FY19. However, the slowdown in the economy and consumer preference for entry-level bikes saw the premium bike share come down a bit to 22.7 per cent in FY20.  While the premium segment could face near-term headwinds, analysts say they could gain share over the long term. Darshan Gangar of Axis Securities expects weakness across two-wheeler segments in FY21. However, he believes that in a maturing industry (two-wheeler penetration of 53 per cent), demand may shift to premium products. 

In addition to the domestic market, exports could be another opportunity. After an assembly plant in Argentina, the company is looking at other geographies to expand its geographic presence. While exports account for a 6-per cent share in Eicher’s volume, the company has plans to take this to 20 per cent over the long term.  While these factors are positive, the stock, which is trading flat over the past two months, may not see sharp upside in the near term. Investors should accumulate it on dips, with a long-term holding period.