Eicher Motors – Competitive pressure to be visible in coming quarters
Eicher Motors Ltd.’s Q2 PAT was ahead of estimates due to a better-than-expected margin at Royal Enfield and steady performance at VECV. The margin beat at RE was driven by sharp gross margin expansion in Q2, which came as a surprise.
Competition has significantly heightened in the 250-500cc segment post the recent launches by both Harley Davidson (in partnership with Hero MotoCorp) and Triumph (in partnership with Bajaj Auto Ltd.) at extremely competitive and similar price points to RE.
While their ambitions are likely to be much higher, even if both these peers together can ramp up to 10% of RE volumes over six-nine months, it would cap RE’s future growth potential.
Given the competitive aggression, we believe that RE would be forced to reconsider its pricing/brand strategy very quickly, which will in turn drive margin pressure.
Even export momentum is now derailed given the geopolitical challenges at least in the near term. While RE’s performance has held up so far, we expect the same to be impacted as competitors ramp up their production in the coming quarters.
Given a better than-expected performance in H1, we have raised our earnings estimate by 10%/4% for FY24-25E. Reiterate ‘Reduce’ with a revised price target of Rs 3,407 (from Rs 3,207) as we roll forward to Sep 25 earnings.