Rating: buy; Eicher Motors – Hunter to go beyond tier-1, 2 cities

Expects growth driven by portfolio expansion and global markets.

markets, eicher motors

We met with the management of Eicher Motors (EIM) to get an update on the Royal Enfield (RE) business. It sees stable demand in the domestic market and expects the next phase of growth to come from the ramp-up of Hunter in tier-3 and smaller cities. While EIM is witnessing a seasonal decline in export markets, it expects growth to be driven by the ramp-up in the portfolio and its reach in global markets. EIM will continue to launch new products to address demand in global markets and to give upgrade options to RE owners in India. Although the focus remains on profit growth over profitability, we believe there are levers for margin improvement in the near term.

Demand remains healthy for RE in the domestic market, with no impact of macro headwinds or IT sector weakness. RE continues to gain market share in the 150cc and above motorcycle segment.

The demand for Hunter has stabilized at 15k-17k per month. However, demand is skewed toward tier-1 & 2 cities. EIM has just started with market activation in tier-3 and smaller cities, as there is still an order backlog from tier-1 & 2 cities. Hence, it expects the next phase of growth for Hunter to come from tier-3 and smaller markets. Demand remains skewed toward premium variants.

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As per the management, most of the markets are doing fine and the moderation witnessed in export volume is due to seasonality as 2/3rd of volumes come from the markets with heavy winters. Although RE is currently present in 64 countries, a large part of volumes come from only 15 countries, where it is in an early phase of ramp-up. Beyond these 15 countries, RE is working to activate the markets and get structures right. Hunter is launched in APAC but awaits a roll-out in other markets. Similarly, Super Meteor will be launched in international markets in 4QFY23.

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EIM will continue to launch new products, with two new models estimated to be launched every year. EIM plans to leverage its 3-4 platforms to extend into adjacencies with different genres of motorcycles. Most of the upcoming product launches will target international markets and address potential upgrades by RE owners in India. The share of existing RE owners in RE volumes is 7-8%. We believe improving supplies, new product launches and the ramp-up in exports will drive the next phase of growth for RE.

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First published on: 27-03-2023 at 01:30 IST
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