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In 1QFY24, EIM reported standalone EBITDA margin of 26% (+170bps YoY, +130bps QoQ), 120bps above JMFe. Domestic volume increased 22% YoY (+4%QoQ) led by healthy demand for recently launched Hunter 350. Exports remain under pressure (volumes: -23% QoQ) owing to macro challenges. Demand in the international markets is expected to gradually recover led by brand building activities, expanding product portfolio and distribution network. In the domestic market, with the recent launch of Harley and Triumph (at aggressive price points), we believe RE will once again be compelled to re-calibrate its pricing vs. growth strategy which may put pressure on it margin during FY25, when the competition ramps up volume. RE has planned a capex of INR10bn during FY24, largely towards new product development (incl. EVs). Recent price hike (during 2Q), softening RM prices and cost control initiatives are expected to support the margins in near-term. We remain watchful on how competition pans out over the few quarters. We maintain BUY with TP of INR 3,750 (SOTP - RE: 25x 1-yr fwd PE and VECV: 12x 1-yr fwd EV/EBITDA).

* 1QFY24 – margin beats estimates: EIM reported standalone revenues of INR 39bn (+20%YoY, +2% QoQ), 4% below JMFe. Realisation declined 2% QoQ (-1% YoY) due to unfavourable mix. Motorcycle volumes stood at c.227.7k units (+22% YoY, +4% QoQ). EBITDA for the quarter stood at INR 10.12bn (+28% YoY, +7%QOQ). EBITDA margin stood at 26% (+170bps YoY, +130bps QoQ), 120bps above JMFe, led by lower RM and other expenses. PAT stood at INR 9.14bn (+57% YoY, +22%QoQ).

* Demand environment: Management indicated that overall retail demand momentum remains healthy and order book remains strong led by encouraging customer response to Hunter 350. RE’s market share in >125cc motorcycles stood at (32.9% in 1QFY24 vs. 33.5% in FY23). The company reiterated that its product launch pipeline remains strong. In respect of increase in competitive intensity, the management indicated that RE has strong brand recall (it is synonymous with premium bikes in India). As per the management, RE has had significant competition in the past (from Indian and global peers). However, it was able to withstand them by focusing on building rider community, strengthening distribution network and serving products to meet customer needs.

* International demand: Export volumes declined c.23% QoQ to 20.5k units during 1Q. While demand in EU remains muted due to macro challenges, APAC and US remains steady. The company indicated that RE’s retail market share in most geographies has either inched up marginally or remained steady QoQ. Long-term strategy for exports will be to launch new products suitable for global markets, build rider community, expand dealer network (incl. studio stores) and enter newer geographies. The company operates 5 CKD assembly plants globally (Nepal, Argentina, Brazil Columbia and Thailand) and plans to set-up CKD assembly in key geographies like APAC and LATAM. RE’s market share in middle-weight motorcycle market in EMEA / America / APAC is 9% / 8% / 9%.

* Margin outlook: Despite unfavourable product and geography mix, EBITDA margin improved 100bps QoQ owing to price hike (1.5% impact) and cost control initiatives (0.8%). In addition, higher sales of accessories / spares, moderation in RM costs and better operational efficiencies are also expected to support margins going ahead.

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