Eicher hunts for magic bullet as m-cap skids ₹18,000 crore
MUMBAI: Once the most preferred stock in the automobile sector, owing to its storied motorcycle brand Royal Enfield, Eicher Motors Ltd has lost about ₹17,900 crore in market capitalization so far this calendar year, according to data provided by Bloomberg.
To explain the fall, analysts cite factors such as slowing sales growth off a high base for Royal Enfield, increasing brand fatigue for the classic British brand’s limited portfolio, reduced waiting periods owing to higher production capacity and increasing competition in the premium motorcycle category.
Royal Enfield accounts for nearly 90% of Eicher Motors’ earnings and dominates over 95% of the premium motorcycle category in India (250cc and above).
To be sure, extraneous factors such as the devastating floods in Kerala (Royal Enfield’s largest market with a 30% volume contribution), rising input costs, a nearmonth-long strike at one of its Chennai plants, and a broader stock market correction also impacted the company’s shares.
Higher insurance costs and unfavourable macroeconomic factors such as tightening liquidity conditions, higher inflation and a falling rupee also impacted consumer sentiment and hit demand for Royal Enfield and the broader industry.
However, Royal Enfield’s volumes in the mature states of New Delhi, Maharashtra and Karnataka have been under pressure for more than a year, said Ashutosh Tiwari, head of Equirus Securities in a November 13 note, adding that booking levels softened in Uttar Pradesh (India’s largest two-wheeler market) in August and September, but picked up during the festive season.
Due to a negligible waiting period for most models except recent launches, advance bookings have reduced, Tiwari said, adding “the aura around the bike created by longer waiting periods is also fading, and this has a perception impact”.
In the domestic market, Royal Enfield’s most popular model, the Classic 350, now has a direct competitor with the reintroduction of the Jawa brand of motorcycles in India earlier this month by Classic Legends Pvt. Ltd, a Mahindra and Mahindra Ltd subsidiary.
The firm is banking on new launches and under-penetrated markets in India for its next wave of growth, as the broader trend of up-trading to pricier and more powerful motorcycles continues.
“We believe we have strong potential to grow and expand markets wherein the size of midsize motorcycling segment is very less in comparison, such as Uttar Pradesh, Madhya Pradesh, Bihar and Rajasthan”, said Eicher Motors in an emailed reply to Mint queries.
It unveiled the Interceptor 650 and Continental 650 models (650 twins) last week as an entry point into the more mature global market, in addition to a more powerful option for Indian customers to upgrade to.