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Published on 16/04/2018 1:21:14 PM | Source: Equirus Securities Pvt Ltd

Update On Eicher Motors Ltd - Equirus Sec

Our recent meeting with the Eicher Motors (EIM) management suggests that Royal Enfield (RE) is seeing good traction in its newly-launched Thunderbird X – a fact also corroborated by our channel checks. With gun metal grey variant of Classic 350, stealth black of Classic 500 and now the Thunderbird X series, RE aspires for higher value growth as these variants are priced 5-6% higher than older variants. Spare parts and gears would be the company’s other growth drivers, given the high vehicle sales over last three years. We expect a 15% volume CAGR over FY18-FY20E and retain our ADD rating on the stock. We also roll over to a Jun’19 TP of Rs 32,153 (from a Mar’19 TP of Rs 30,803), ascribing 31x Jun’19 EPS to the standalone operations and 12x EBITDA to the VECV business.

Eyeing higher value growth via premium variants, spares and gears:

Gun metal grey, stealth black and Thunderbird X variants are priced Rs 7k-10k higher than older variants. Management stated that sales of gun metal grey now form almost 1/3rd of total Classic 350 sales. While waiting periods on older models have come down, Thunderbird X commands a waiting period of over two months. Higher sales of new variants would lead to better value growth for RE. Spare sales would benefit from higher volumes in the last 2-3 years. Moreover we believe that, given the premium nature of RE bikes, customers would prefer to visit authorized service centers for servicing even after 2-3 years of purchase – which is not the case for other commuter bikes. This should boost spare part sales further.

North India led by UP to be a strong growth driver:

In 9MFY18, while RE saw total volume growth of 22%, it recorded much higher growth of 32%/46% in North/East zones. Uttar Pradesh (UP) was one of the best-performing states for RE with 58% yoy volume growth in 9MFY18, and was its second-largest market with a 10% share in sales during 3QFY17 (only behind Kerala at 11.7%). With low market share and rising traction in the North, the region’s share in RE sales would increase going ahead; moreover, UP may become the company’s top-selling state over the next few years. Management pointed that RE bikes are also seeing traction in the state during weddings.

Focus on SE Asia, Latin America in exports:

Management shared that Latin America is similar to the Indian market, where premiumization for 250-750cc bikes is gaining ground. In SE Asia as well, incremental industry growth is driven by premium motorcycles while commuter market largely comprises scooters. In terms of dealer selection, the company goes for those having passion for biking.

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