Higher staff, input costs to keep Eicher Motor margins under pressure

The pace of volume recovery could be key in the coming quarters

After reporting a decline in volume growth over the past two quarters, Eicher Motors reported an improvement in sales in the December quarter. Sales of two-wheelers were up 5 per cent to just under the 200,000- mark led by festival demand, as well as on new launches. Most of growth in the domestic segment came in December; exports, too, contributed the quarterly numbers and were up 44 per cent YoY.

 The company highlighted that booking trends continue to remain healthy across key markets, led by the recently launched Meteor. The company is also benefiting from the ongoing expansion after the addition of both large and studio format stores in the quarter, with total touchpoints around 1,900. In addition to the Indian market, the company has expanded its presence overseas in key markets with 100 exclusive stores.

While realisations and revenues have grown, led by volume growth, price hikes and a better product mix, operating profit margins were down 120 basis points, as compared to the year-ago period. While the company has taken price hikes over the past couple of months, the sharp rise in commodity costs, coupled with higher employee costs, offset the same leading to profitability pressures.

The company gave increments to employees and also hired temporary workers for its plants as production increases lead to higher staff expenses. In addition to commodity inflation, which continues to be a worry, supply-side constraints may impact its volumes in the near term. In the commercial vehicle business, the management highlighted market share gains for the bus and truck portfolio in the quarter, even as the comparable segments in the sector reported a fall in revenues in the quarter.

 While the stock has gained 30 per cent over the last three months and demand trends appear robust, the impact of high prices and raw material cost pressures can impact both volumes and margins in the near term. Investors should await a steady improvement in volumes and profitability metrics before considering the stock.