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A consistent rise in profits and sales has made Eicher Motors, a niche player in the two-wheeler market, a more valuable company than Hero MotoCorp, the market leader which sells 15 times more units.
Eicher is also into commercial vehicles.
The market cap of Eicher Motors touched an all-time high of Rs 50,709 crore on Friday, while Hero’s trailed at Rs 50,355 crore. On the first day of 2015, Hero commanded a market cap of Rs 62,053 crore, 33 per cent higher than Eicher. Bajaj Auto remains the most-valued two-wheeler company at Rs 63,021 crore. TVS Motor retains the fourth spot at Rs 10,518 crore.
A result of the sharp run in Eicher’s stock is that the worth of the Lals (promoters), with a share of 54.98 per cent, stands at Rs 27,880 crore, while the Munjals’ worth, with a 34.64 per cent stake, is Rs 17,443 crore.
Eicher, which manufactures Royal Enfield bikes, reported its best-ever quarterly results last week, with a 33 per cent jump in profit. The profit of Rs 213.4 crore in the quarter ended March 31, was supported by a strong growth of 44.5 per cent in motorcycle sales. The company’s realisation on motorcycles has been up five per cent in the quarter ended December 2014, according to Motilal Oswal. The impact of this rise is visible in the March quarter.
“Eicher has been surprising the market with its performance for many quarters now, while Hero MotoCorp has disappointed. In the Indian two-wheeler market, Eicher will remain an investor’s fantasy, due to its brand premium, revenue and margin growth,” said Saurabh Jain, assistant vice-president (fundamental research) at SMC Global Securities.
It might look surprising that a company with an annual revenue of Rs 3,031 crore and profit of Rs 559 crore is commanding a higher valuation than a giant that clocks sales of Rs 27,585 crore and earns a profit of Rs 2,385 crore. However, it does not mean Eicher Motors is overvalued or Hero MotoCorp is undervalued.
According to Jain, investors value a company that shows potential. “As long as Eicher continues to outperform market expectation, it will enjoy a bull run,” he says. Hero, one of 30 BSE Sensex companies, has under-performed the market.
Royal Enfield enjoys a 95 per cent market share in the lifestyle segment (250-cc and above) where it operates. In 2014, Royal Enfield achieved its best-ever sales of 300,000 motorcycles and it aims to make 450,000 motorcycles in 2015.
Hero MotoCorp grew its sales by six per cent to 6.63 million units in the year ended March. In April, it saw motorcycle volumes dip five per cent.
“The sector has remained sluggish due to the slowing rural economy. We remain cautiously optimistic in our near- to medium-term outlook,” said Pawan Munjal, vice-chairman, chief executive and managing director of Hero MotoCorp, last week.
