Lower BSVI impact, market share gains to help Eicher Motors

Brokerages expect a gradual recovery in volumes in the coming months

The Eicher Motors stock is up 39 per cent since its September lows on a better than expected festival season, smoother transition to BSVI and market share gains for its commercial vehicle joint venture, Volvo Eicher Commercial Vehicles (VECV). Strategic initiatives undertaken by the company to tap under penetrated markets, and improve distribution and product quality will also help enhance volumes. After multiple quarters of volume disappointment including the July-September period where the company sold 21 per cent fewer motorcycles as compared to year ago, retail sales especially in the festive season beat expectations recording a double digit growth. 

Given the early success of its studio format strategy, the company is planning to expand its distribution network. It has rolled out 500 smaller format stores in the rural and semi-urban markets and is planning to add up to 300 more by the end of the current financial year. In addition to strengthening the distribution network, offering multiple trim levels (lower priced variants of Bullet/Classic) and mass customisation option is expected to add to volumes. Analysts expect these steps to reflect on volumes over the next couple of quarters. The company is also better placed than other players on the inventory metric with 2.5-3 weeks of stock. Strong export growth on the back of lower base and traction for the twins 650cc products should improve volumes. “Medium term potential for Royal Enfield is positive given the scope for penetration improvement, upgrade in mature states and exports,” say analysts at JP Morgan. 

The impact of transition to BSVI is also expected to be lower on Eicher as compared to other two wheeler makers. Mass market two wheelers are the worst impacted on account of the transition with price increase to the tune of 15 per cent. Motilal Oswal Financial Services' analysts say the company will be least impacted as cost inflation for BSVI would be relatively less at 6-7 per cent. With the BSVI transition, its core portfolio will get a much-needed overhaul after a gap of 11-12 years with product quality potentially coming closer to the 650cc twins.

On the commercial vehicle front, VECV has gained market share in the smaller tonnage truck segment on the back of implementation of vehicle load norms. Eicher has gained 170 basis market share year-to-date to 13 per cent driven by a favourable demand shift towards the sub-16-tonne segment.