Analyst Corner: Maintain ‘reduce’ on Eicher Motors with costlier new model

By: |
September 08, 2021 8:19 AM

The new model starts at a price of Rs 184k, which is Rs 5k higher compared with the previous generation model.

EicherThe new model’s specifications are largely similar to those of Meteor 350 (they share the same engine, power performance specifications, as well as multiple components).

New model prices Rs 7k above the old Classic 350: Eicher motors (EIM IN, Reduce) launched its new 2021 Royal Enfield (RE) Classic 350 on Sept 1, 2021. The new model starts at a price of Rs 184k, which is Rs 5k higher compared with the previous generation model. The new model’s specifications are largely similar to those of Meteor 350 (they share the same engine, power performance specifications, as well as multiple components). However, the new Classic 350 comes equipped with a different fuelling map, ignition timing, and exhaust layout (compared with Meteor 350). It also has a new instrument panel, with LCD and fuel gauge.

YTD in FY22F, RE has sold ~213k motorcycles, recording a monthly volume run rate of ~43k units. This is below our estimate of ~60k units for FY22F. Higher pricing may impact the company’s sales, in our view, especially as: 1) the price (and specification) differentiation between Meteor 350 and Classic 350 has reduced even further, which may lead to market cannibalisation; and 2) the price of Classic 350 has been increased Rs 9k since Dec 2020 (excluding the latest increase), much higher than the increase by its competition (up Rs 5k since Dec 2020).

Even with the launch of new Classic 350, our implied volume run-rate of ~73k units for the remaining months of FY22F (Sep-21-Mar-22) has downside risks, in our view. For RE, we have currently built in unit volume forecasts of 723k (+18% y-y), 819k (+13% y-y) and 888k (+8% y-y) over FY22, FY23F and FY24F, respectively, with EBITDA margin forecasts at 24.6%/25%/25.1% (unchanged).

We continue to value RE at 22x average FY23-24F core EPS, at the mid point of our expected trading band of 20-25x P/E. The stock currently trades at ~27x FY23F core EPS; we maintain our Reduce rating on the stock.

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