IGI Logo

Rollout of Hunter/Super Meteor underway in export markets

We met with the management of Eicher Motors (EIM) to get an update on the Royal Enfield (RE) business. Management sees stable demand in the domestic market and expects the next phase of growth to come from the ramp-up of Hunter in tier-3 and smaller cities. While EIM is witnessing a seasonal decline in export markets, it expects growth to be driven by the ramp-up in the portfolio and its reach in international markets. EIM will continue to launch new products to address demand in international markets and to give upgrade options to RE owners in India. Although the focus remains on profit growth over profitability, we believe there are levers for margin improvement in the near term.

* Domestic demand stable for RE: Demand remains healthy for RE in the domestic market, with no impact of macro headwinds or IT sector weakness (given relatively high salience). RE continues to gain market share in the 150cc and above motorcycle segment (FY23YTD at 31.8% v/s FY22 at 28.7% vs FY19 at 25%). If the interest rate stabilizes, it could support demand for RE.

* Hunter to expand in tier-3 and smaller cities: Demand for Hunter has stabilized at 15k-17k per month. However, demand is skewed toward tier-1 & 2 cities. EIM has just started with market activation in tier-3 and smaller cities, as there is still an order backlog from tier-1 & 2 cities. Hence, it expects the next phase of growth for Hunter to come from tier-3 and smaller markets. Demand remains skewed toward premium variants.

* RE sees stable demand for retail exports: As per the management, most of the markets are doing fine and the moderation witnessed in export volume is due to seasonality as 2/3rd of volumes come from the markets with heavy winters. Although RE is currently present in 64 countries, a large part of volumes come from only 15 countries, where it is in an early phase of ramp-up. Beyond these 15 countries, RE is working to activate the markets and get structures right. Hunter is launched in APAC but awaits a roll-out in other markets. Similarly, Super Meteor will be launched in international markets in 4QFY23.

* New product pipeline remains strong: EIM will continue to launch new products, with two new models estimated to be launched every year. EIM plans to leverage its 3-4 platforms to extend into adjacencies with different genres of motorcycles. Most of the upcoming product launches will target international markets and address potential upgrades by RE owners in India. The share of existing RE owners in RE volumes is 7-8%

* Consistent focus on profit growth over profitability: RE continues to focus on growing profits rather than focusing on volume-driven margin expansion. However, we see many leavers for EBITDA margin from the 3QFY23 base: 1) full benefits of low RM costs (just 50bp in 3Q), 2) full benefits of price hikes in Hunter & Bullet (1.5% in Nov’22), 3) stable mix (higher Hunter, lower exports), and 4) operating leverage.

 Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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