After sliding from Rs 21,000 levels in August to around Rs 17,500 recently, the Eicher Motors’ stock has again seen some pressure in the past two trading sessions, as brokerages have downgraded it on valuations and moderation of their growth expectations. Eicher’s September quarter performance was a bit below expectations. While the motorcycle (Royal Enfield) business continues an outlier among two-wheeler companies, with strong volume growth and margins, profitability of its commercial vehicle (CV) venture is under pressure.
Volumes of Royal Enfield were up 56 per cent year-on-year, while operating profit was up 76 per cent on higher prices (1.2 per cent rise in August) and lower commodity costs. This, with lower employee costs, helped margins jump 270 basis points to 27.8 per cent. The number was higher than estimates. Analysts expect margins to stay around 28 per cent, as the company is unlikely to get major benefits from raw material costs.
While Royal Enfield volumes continue to move up, with sales volumes up 71 per cent year-on-year in October (51 per cent higher in January-October period), analysts expect this to moderate. Analysts at Kotak Institutional Equities feel with waiting period of Royal Enfield business coming down to one to four months from five months, it indicates some moderation in growth. They believe growth will slow after Eicher achieves a scale of 500,000 units (450,000) annually.