1. Exports not likely to add much to overall Eicher volumes: Citi

Exports not likely to add much to overall Eicher volumes: Citi

After a very strong Q1FY17, management reiterated its positive outlook on the Royal Enfield business. Management expects growth momentum to sustain as the company...

By: | Updated: August 3, 2016 6:46 AM

After a very strong Q1FY17, management reiterated its positive outlook on the Royal Enfield business. Management expects growth momentum to sustain as the company expands its dealership network beyond just the larger urban centres. Margins are also expected to remain robust.

Waiting period for Royal Enfield bikes remains stable at 3 months, though on an expanded production base.

Management noted that net order backlog has increased on an absolute basis as orders exceed supply. The Himalayan has been launched pan India and customer response has been positive. We note that Himalayan’s volumes in Q1 were 2,883 units as per SIAM.

Royal Enfield’s dealership network now consist of 566 dealers (500 as on FY16-end). Management noted that rapid dealership expansion in smaller towns (on a weak base) should provide incremental volumes since these dealers do not cannibalise the existing ones in larger cities.

Q1’s margin expansion was driven by mix and better pricing with vendors. Aided by vendor consolidation and volume growth, RE’s margins are expected to rise further. The upcoming new plant in Vallam Vadagal (near Chennai) should result in an uptick in margins, as per management.

With domestic demand being extremely strong and supply still constrained, exports are not expected to contribute significantly to overall volumes over the near term, we believe.

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