Eicher Motor’s quarter 4 consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) and net profit fell 37 percent – 44 percent y-o-y and were a 10-20 percent miss, led by a lower margin and higher taxes. Demand was strong though, and Eicher said its bookings have recovered to almost pre-COVID levels. Product catalysts are nearing too, with the first launch in September quarter. Eicher is well-placed to benefit from the potential demand recovery with its strong franchise, aggressive product pipeline, and the big network expansion.
Royal Enfield’s (RE’s) quarter 4 volumes fell 17 percent y-o-y while EBITDA declined 35 percent y-o-y with a 7percent miss. RE’s EBITDA margin at 20.8 percent was down 440bp quarter-on-quarter. Gross-profit-per-vehicle was flattish q-o-q despite the higher-cost BS6 vehicles constituting more than two-thirds of quarter 4 volumes. EBITDA per vehicle still fell 15 percent q-o-q due to a sharp jump in staff cost and high other expenses despite lower volumes. Quarter 4 results included a one-time vehicle recall cost and impact of high FX volatility; adjusted for these, EBITDA would be broadly in line with estimates.
Eicher is witnessing a fast recovery of market demand, and the Royal Enfield’s new bookings have reached close to pre-COVID levels. About 90% of its dealer network is back to full functionality. Their increase in demand could be because people had completely stop the bookings due to COVID-19. As of now, new bookings are allowed and people are returning to consumerism. This is also known as pent-up demand from an economic point of view. Eicher acknowledged that sustainability in demand needs to be seen, but the initial trend seems to be encouraging. RE has also taken about a 1-2 percent price hike in April to pass on the balance BS6 cost increase, which should aid in increasing revenue. RE demonstrated a smooth BS6 transition and cleared up all the channel inventories despite the lockdown.
Royal Enfield is trying to be more aggressive on launching products and plans to introduce 2-3 new platforms in the coming years, along with product upgrades, new variants, facelifts, and limited edition vehicles. The first launch scheduled in September quarter and RE is planning to conduct a product introduction ceremony almost every quarter subsequently. A vast dealer network expansion is also underway, which is expected to fuel the next leg of growth. RE added new 600 studio stores in FY20 and plans to add a similar number in FY21, which is more than double its dealer network over FY19-21.
