The Bullet 350 model saw 14 per cent volume drop in Q1FY25, reflecting limited acceptance of the new model. Similarly, the Hunter 350, launched in FY23, saw an 8 per cent volume decline. The company faces intensified competition from Bajaj-Triumph, Hero-Harley, TVS Motor (Ronin), Honda, and Classic Legends (Jawa). Eicher Motors’ domestic volume fell 1 per cent in Q1FY25, while the industry grew 20 per cent, according to Nuvama analysts.
Meanwhile, Emkay analysts noted that the Guerrilla model has received a tepid response, suggesting that Eicher Motors may face structural growth challenges, with recovery expected to be gradual.
CV demand to moderate
The demand for commercial vehicles (VECV), analysts believe, may moderate due to a high base, reduced infrastructure spending, and easing pent-up demand. Thus, Nuvama forecasts a moderate revenue/Ebitda compound annual growth rate (CAGR) of 4 per cent/8 per cent for FY24–27.
For the Q1FY25, VECV’s revenue from operations rose 1.8 per cent annually to Rs 5,070 crore, as against Rs 4,980 crore. Ebita, meanwhile, dropped to Rs 385 crore, from Rs 387 crore a year ago.
On the brighter side, the company’s topline or revenue from operations increased 10.2 per cent to Rs 4,393 crore, earnings before interest, tax, depreciation and amortisation (Ebitda) rose 14.1 per cent to Rs 1,165 crore, and Profit After Tax (PAT) surged 19.9 per cent to Rs 1,101 crores.
“EIM reported a approximately 3 per cent beat on consensus Ebitda, owing to higher average selling prices (up about 4 per cent Q-o-Q on better mix), with margin flat Q-o-Q at 26.5 per cent,” Emkay said.
Furthermore, Royal Enfield sold 227,736 motorcycles in Q1FY25, up from 225,368 units during the same period in FY24.
Looking ahead, the company anticipates that the middleweight segment, which represents its core market, will experience high single-digit growth in FY25, a slowdown from previous double-digit growth rates.
Also, Royal Enfield, in order to stimulate growth, has planned several product updates, including the recent Guerrilla 450, as well as increased marketing efforts, particularly for the Hunter model, Emkay said.
“To drive customer aspiration and create differentiation, the focus is on new products. Meteor 650, Himalayan 450 and Shotgun 650 have received positive response, and have marginally supported volumes. More products (Guerilla 450, Classic Bobber 350, and Interceptor Bear 650) are likely to be launched ahead,” Nuvama added.
Buy, hold or sell?
Nuvama analysts predict ongoing underperformance for Eicher Motors, expecting a 3 per cent volume compound annual growth rate (CAGR) in the domestic market from FY24 to FY27. The outlook, analysts said, is due to niche product launches with limited volume potential and heightened competition from Bajaj-Triumph, Hero-Harley, TVS Motor (Ronin), Honda, and Classic Legends (Jawa). They forecast a 7 per cent revenue CAGR and a 10% earnings CAGR over FY24–27, maintaining a ‘Hold’ rating with a target price of Rs 4,600, based on a P/E ratio of 26x for Royal Enfield and 20x for VECV.
Analysts at Emkay noted that the Guerrilla model saw a lukewarm response and see structural growth challenges for Royal Enfield. They project a muted 6 per cent volume CAGR and 9 per cent consolidated earnings per share (EPS) CAGR from FY24 to FY27. Thus, analysts at Emkay maintain a ‘Sell’ rating with an unchanged target price of Rs 3,750, based on a 22x P/E for core June 2026 earnings and VECV stake.
On the bourses, in the past month, Eicher Motors stock has fallen 3.3 per cent. It has remained flat in the past three months. On August 8, the stock settled 0.46 per cent lower at Rs 4,578.80 per share. In comparison, BSE Sensex settled 0.73 per cent lower at 78,886.22 levels.
First Published: Aug 09 2024 | 9:10 AM IST
