Eicher Motors reports solid March quarter results; stock at 52-week high

Moneylife Digital Team 14 May 2013

The company has pieced in decent quarterly numbers despite a slowdown in the commercial vehicles segment. The stock is currently trading at its 52-week high

Eicher Motors, manufacturer of the flagship Royal Enfield brand of motorcycles, has posted a net profit of Rs97.20 crore for the quarter ended 31 March 2013 compared to Rs45.33 crore for the corresponding period last year. The increase in net profit was driven by dividend income of Rs40.80 crore received from VECVL, a subsidiary company of Eicher Motors. Net Income has increased from Rs221.36 crore for the quarter ended 31 March 2012 to Rs333.80 crore for the quarter ended 31 March 2013, a 51% year-on-year increase, driven by good volumes. Operating profit was even more impressive, rising 93% y-o-y, from Rs30.66 crore to Rs59.08 crore.

We had written about the company in our Moneylife issue dated 5 April 2012 and was recommended at Rs1,300. The stock at that time was Rs2,110 and now the share price is currently at its 52-week high of Rs3,200.85 on the Bombay Stock Exchange (BSE).

Further analysis by Moneylife reveals that the company has been doing well, both in the sales and operating departments, reeling good growth figures one quarter after another. The average three-quarter y-o-y operating profit growth rate stood at 97% while the growth for the March 2013 quarter was 93%, which is quite impressive. Given the company’s brand equity in the market, it commands premium valuation, with market capitalisation over 35 times operating profit. This is quite pricey, considering a slowdown in the commercial vehicles segment. The return on networth stood at 31% while return on capital employed stood at 33%, both well respected numbers.

The March 2013 quarter has been the best ever quarter at Royal Enfield with record sales of 34,736 units, a growth of 45.3% over Q1 2012 (Eicher Motors follows the January-December reporting period). “Royal Enfield continues to power ahead even in Q1 2013. With its second plant at Oragadam commencing commercial production, Royal Enfield is now prepared for its next level of global growth.

“The new facility has been conceived on a much larger tract of land and created with a master-plan that can take the eventual production to over 500,000 units per year. With the speedy execution of the first phase of the plan, the company will now have a capacity of 175,000 motorcycles in 2013, from both plants. We have already begun working on the second phase of expansion at Oragadam, which will further increase the production capacity to 250,000 motorcycles in 2014. With this new facility, we now have the ability to scale our production quantity quickly in response to market demand,” said the managing director.

However, vehicles other than motorcycles did not fare well during the quarter, when compared to the previous quarter. There was a slowdown in the commercial vehicles segment which affected Eicher Motors’ sales. Heavy duty trucks, light & medium duty trucks and exports all declined on a year-on-year basis by 7.9%, 16.9% and 32.7% respectively.

Commenting on VECVL’s performance Siddhartha Lal, managing director & CEO, Eicher Motors said, “The commercial vehicle industry has been in the midst of a cyclical down-cycle and that has impacted all the players, including VECVL. This has been a challenging quarter for the CV industry but even in these trying times VECVL has continued to outpace the industry and improved its overall CV market share across all industry segments. VECVL posted a strong financial performance in tough market conditions by its sharp focus on managing costs and working capital.”

The much awaited Royal Enfield Continental GT model is due to be launched later this year and is expected to garner a loyal fan following.

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