IGI Logo

In the past week highlighted by launch of Harley Davidson X 440 and Triumph Speed 400, with an average on-road price of ~Rs280k, Eicher Motors (EIM) has corrected by 12% and is trading at ~20x FY25E earnings. We believe, the steep reaction was unwarranted as the premium 2W market in India itself would expand with rising alternatives. In past 4 years, as per our calculation, TCO of Classic 350 saw ~7% CAGR, higher than the disposable income growth during this period, impacting affordability of customers. Alongside, brand RE domestic volumes declined at 1.5% CAGR in FY19-FY23 vs domestic 2Ws witnessed a negative ~5% CAGR. This took the 250cc+ motorcycle (MC) model mix to ~8% in FY23 vs 6% in FY19. For FY24E-FY26E, we do not see any major TCO inflationary catalyst, thus pushing the premium MC mix to ~9.5%, resulting in ~14% volume CAGR in FY23-FY26E. We believe, even after RE volume CAGR of ~9% in FY23-FY26E, the domestic 250cc+ MC market ex-RE would likely be ~20k units a month by FY26 – enough, we believe, to absorb the new global brands coming in. For RE portfolio, hardly ~10% of domestic retails comes from Rs260k+ on-road models. Thus, with promotional pricing of the launched models to go away after retailing a pre-specified number of units (~10k units for Speed 400), the price gap with RE would only expand further. With no change in estimates, we upgrade EIM to BUY (from Add) and maintain ADD on HMCL and BJAUT.

* HDX 440 got launched in India last week under the collaboration of HMCL and Harley Davidson, with on-road price (Delhi) ranging between Rs270k to Rs310k per unit. The single-cylinder 440cc model would be made from HMCL’s Neemrana facility with HMCL paying a pre-determined royalty to HD for the brand and technology access. Compared to ~28NM torque provided by Classic / Hunter 350 models, X440 would provide 37NM torque. It would be initially sold through HD outlets in large cities and, in next 1 year, HMCL plans to add 100 premium model-retailing outlets pan-India, where it will also coretail its own premium portfolio. HMCL is intending to launch premium models on the X440 platform going forward. This model would compete against the RE and target customers who would aim at greater power/torque and pay ~20% premium for owning the global brand, though indigenised to a single-cylinder model.

* Speed 400 by Triumph under collaboration with BJAUT, got launched with on-road price/unit (Delhi) at Rs263k, under promotional pricing for an initial 10k units. With initial capacity of ~6k units/month, including exports, this model would compete with highperformance sport bikes. We do not foresee this model impacting the RE portfolio.

* Driven by limited drivers of TCO inflation for 2Ws in FY24E-FY26E, rising financing availability with longer tenures, rising options in the sub-Rs300,000 on-road segment, we expect the 250cc+ MC mix to expand to ~9.5% by FY26E from 8% in FY23. This would leave room for 20k units p.m. retails of brands ex-RE in the segment. Thus, we do not see any risk to our estimate of ~9% domestic volume CAGR for RE in FY23-FY25E, resulting in monthly volumes of ~85k units (including exports) in FY25E. With premiumisation being the sustainable theme across consumer discretionary segments, we believe, post a 4-year period of ~7% TCO inflation, TCOs should stabilise ahead (in turn pushing up demand for 250cc-plus models). Against developing markets like Thailand, China, Indonesia, Vietnam, etc., where volume mix of 350cc-plus models vary between 10-15%, we believe, India 2W market thus has scope to uplift from current ~5% mix of 250cc models.

* With launch of HD X440 and Speed 400 by HMCL and BJAUT respectively, we expect the domestic premium biking space to get further boosted. This would enhance portfolio of offerings from both HMCL and BJAUT and give visibility of a higher revenue CAGR in the longer run. Thus we enhance the implied earnings multiples for both HMCL and BJAUT by one notch each to 15x/17x, with revised target prices of Rs3,490 (earlier: Rs3,133) and Rs5,185 (earlier: Rs4,909). We upgrade EIM to BUY (from Add) post ~12% correction last week with an unchanged target price of Rs4,039 (FY25E implied core P/E of 25x). We are keeping our FY24E/FY25E earnings estimates for all the three 2W companies unchanged.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://secure.icicidirect.com/Content/StaticData/Disclaimer.html
SEBI Registration number INZ000183631

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