Eicher Motors skids 6% on disappointing March quarter results

The company reported weak operational performance in March quarter with EBITDA margin contracting to 27.4 per cent, down 164bps QoQ/415bps YoY.

Eicher Motors slipped 6 per cent to Rs 19,166 apiece on the BSE on Monday, after the company reported weak operational performance during the March quarter of 2018-19 (Q4FY19). The EBITDA (earnings before interest, tax, depreciation and amortization) margin contracted to 27.4 per cent, down 164 basis points on sequential basis and 415 bps on yearly basis.

Eicher Motors, the manufacturer of the iconic Royal Enfield motorcycles, reported the lowest EBITDA margins in last 14 quarters on the back of higher technological cost due to upgraded anti-lock braking system (ABS), higher promotional activities, store expansion and weaker operating leverage.

The company’s total revenue from operations was down 1 per cent at Rs 2,500 crore as compared to Rs 2,528 crore in the same period last year. The profit after tax (PAT) was up 18 per cent at Rs 545 crore on y-o-y basis.

"The latter half of 2018 was a challenging period for the two-wheeler industry in India with factors such as revision in insurance cost and increase in prices on account of new safety norms affected consumer sentiment. At Royal Enfield, the company recorded flat sales volumes after several years of augmented sales growth," the management said post result declaration.

The iconic brand sold 1,97,567 motorcycles in the quarter, registering a decline of 13 per cent from 2,26,907 motorcycles sold in the same period last year.

"Near term headwinds for volume growth are expected as customers are yet to absorb price hikes (around 15 per cent of the ASP) with even more hike required to meet bharat-stage (BS)-VI compliant (from carburetor to fuel injection). This would lead to continued slowdown in high volume markets such as Kerala, Maharashtra and Tamil Nadu," said analysts at Dolat Capital, who added that as penetration levels are high, competition would step in.

"Jawa is the first serious competitor to the Royal Enfield. With production cut owing to mounting inventories and slowdown in commercial vehicles, the industry continues to witness aggressive discounting," they said.

The brokerage firm expects earning weakness to persist in near term due to mounting inventory and emission norm change related cost pressure.

“The company’s constant focus on adding new stores, brand building and new product launches has started fetching dividend in terms of increasing export volumes. Factoring the demand concerns, cost increases on account of BS-VI and weaker operating leverage, we reduce our FY20 PAT estimates by 8 per cent,” analysts at Narnolia Financial Advisors said.

At 10:26 am, Eicher Motors was trading 5 per cent lower at Rs 19,310 on the BSE. It was quoting close to its 52-week low value of Rs 18,780 touched on January 30, 2019 on the BSE in intra-day deal.