Eicher Motors: Royal Enfield continues its strong show

With the CV segment expected to recover, revenues and margins will get a boost

Eicher Motors reported another good quarter, with robust performance from both its two-wheeler and commercial vehicle (CV) segments. Revenues for the consolidated entity were up 31 per cent year-on-year to Rs 2,275 crore due to strong volume show at both its divisions. Higher operating leverage and improving product mix helped grow consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) margins by 408 basis points year-on-year to 13.4 per cent.

Royal Enfield, which runs the two-wheeler business, recorded its highest Ebitda margins of 25 per cent (up 571 basis points year-on-year) on the back of a 70 per cent jump in volumes to 82,000 units for the September 2014 quarter. Volvo Eicher commercial vehicles, the joint venture between Eicher and Volvo, managed to post higher than estimated operating profit margins of 6.9 per cent, given a favourable product mix and an increase in volumes by 3.7 per cent.

The sharp jump in volumes at the two-wheeler business helped the standalone revenues for Royal Enfield move up  79 per cent year-on-year to Rs 821 crore. Given the five-month waiting period, analysts expect volumes to post strong growth at least for the next year. The company, which saw its October volumes move up 47 per cent year-on-year, is looking to ramp up its production to meet the order backlog. Ambit Capital expects the company to record 48 per cent annual growth in two-wheeler volumes over the CY13-16 period given the strong order book, no specific competition in sight and expansion of distribution network. The company, which has about 400 distributors, is expected to add another 100 in calender year 2015. Eicher has indicated that the order book in the division continues to be strong.

Revenues in the trucking segment were up 18.7 per cent to Rs 1,450 crore, both on account of higher truck volumes and engine sales of 4,000 units. In the 5-15 tonne light and medium truck segment, the company increased its share from 29.1 per cent to 33.6 per cent. The company intends to launch Pro series in the heavy duty segment as well and gain market share going ahead.

Strong volumes and expectations of good results saw the stock gain 20 per cent over the past one month and at Rs 13,181, trades higher than the consensus target of Rs 12,876.