IGI Logo

Good things getting priced in fast

We hosted Eicher Motors’ (EIM) management for our Annual Investor Conference in Singapore (May 22-23, 2023) and following are the key takeaways: 1) EIM is confident on the sustenance of India 2W premiumisation, pushing up 125cc+ category to ~25%+ of domestic motorcycles in years to come; 2) with Hunter coming in, average age of customers came down to ~30years from ~32-33 years as a big chunk of Hunter buyers are in sub-25 years of age category; 3) limited triggers for TCO inflation ahead would be a catalyst for demand reviving in coming quarters; 4) with market share at ~8-10% in majority of target export markets in the global mid-weight biking market (global market size 1mn units), RE is looking forward to push this to ~15% share across markets (~20% market share in UK); 5) have been taking care of product pricing wisely in order to protect profitability and improve gross profit/unit of the portfolio as a whole and not look at specific model in isolation; 6) capex in next couple of years at Rs10bn p.a. would be largely taking care of R&D, EV product development and maintenance capex. RE is looking forward to its first EV model getting ready in next 18-24 months. Post 13% increase in past 1 month, along with keeping our price target of Rs3,953 unchanged (implying 25x FY25E earnings), we downgrade EIM to ADD from Buy as we see limited upside from current levels. We are building in ~10% volume CAGR for FY23- 25E, mean ASP of Rs182k/unit and mean EBITDAM of ~25.5% for FY24-25E in our estimates.

Key takeaways from the meetings and our views:

* As per the management, key drivers for continuation of premiumisation of domestic 2Ws would be improving affordability, improving financing penetration, rising aspiration, expanding target audience to sub-30yr old customers other than enhancing options for the customers across various genres of bikes. Hunter has been well accepted by the customers across urban and rural markets and is stabilising around 15k units/month of retails. Going ahead, Bullet refresh would be the next key launch other than the launch of a fresh platform in next 18-24 months. Rise in volume of Meteor 650 and exports volume recovery would be the drivers for blended realisation to inch up other than timely price hikes to meet cost inflation. RE is confident of maintaining its growth trajectory ahead amidst rising competitive intensity in coming quarters and a couple of new players in the premium biking space likely to get added. RE is looking forward to premium bike market size of opportunity to expand, which in itself would absorb incremental supply, keeping growth trajectory of existing incumbents like RE unperturbed.

* From exports perspective, RE is currently operating at ~8-10% in majority of target markets in the mid-weight biking segment, with 20% market share in the UK being higher than in rest of the markets. RE is looking forward to take its share to ~15% in the 1mn unit size global mid-weight bike market and clock ~12k units+ volume per month from current ~6-8k units. Diversification of portfolio, enhanced distribution and making the brand presence across markets extensively would be the key drivers for exports to ramp up going ahead.

* In terms of profitability, RE is already operating at a record gross profit/unit and with disciplined pricing, it is set to inch up further going ahead. RE looks upon its portfolio profitability, rather than any model in isolation and thus would look at a combination of demand elasticity through right pricing strategy and simultaneously meet the desirable profitability targets.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

SEBI Registration Number INZ000183631

Above views are of the author and not of the website kindly read disclaimer