Eicher Motors dips 3% after posting a loss of Rs 55 crore in June quarter

Shares of Eicher Motors slipped as much as 3.9 per cent to Rs 21,100 on the BSE on Friday after the company reported a loss of Rs 55 crore in the June quarter of FY21 (Q1FY21). It had posted a profit of Rs 452 crore in the corresponding quarter last year.

The company's revenue from operations in the quarter under review declined to Rs 818 crore from Rs 2,382 crore in Q1FY20.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were at Rs 4 crore in the quarter as compared to Rs 614 crore in the same quarter of previous financial year.

"The previous quarter put forth unprecedented challenges for the industry and for Eicher Motors, However, the long-term potential for both Royal Enfield and VE Commercial Vehicles (VECV), the truck and bus making company of Eicher Motors, is promising," said Eicher Motors' Managing Director Siddhartha Lal.

Royal Enfield sold 58,383 motorcycles during the June quarter, down 68 per cent from 181,966 motorcycles sold over the same period in FY20.
In a post earnings call, top officials of Royal Enfield (RE) said that despite the rapid recovery in demand seen across all the key markets of the company, the Covid-19 pandemic-induced lockdowns have been impacting production.

“Towards the end of the quarter we’ve witnessed encouraging consumer sentiment which was evident in our sales for the month of June. We believe that this trend will continue into this quarter as well," Lal said, adding that the motorcycle business was doing very well in international markets.

Royal Enfield's manufacturing units resumed operations on May 6 after being suspended on March 23. Retail operations resumed through the unlock phases in a staggered manner. The company is presently operating at 50 per cent of its installed capacity and has a backlog of 40,000 orders.

“We are quite excited on the demand side, but frustrated on the production side,” said Vinod Dasari, CEO, Royal Enfield. 

Meanwhile, the company yesterday announced that VECV will acquire Volvo Group's bus business in India for Rs 100.5 crore.

Definitive agreements have been signed for the integration of Volvo Bus India (VBI) business into VECV, Eicher Motors said in a statement. The transaction would be completed over the next two months.

As part of the deal, VECV will carve out a separate bus division housing both Eicher and Volvo branded products. The bus division would be responsible for manufacturing, assembly, distribution and sale of both Volvo and Eicher buses in India. Consequently, the bus manufacturing facility at Hosakote, Bengaluru, and all employees of VBI will be transferred to VECV.

Motilal Oswal, which has a 'BUY' rating on the stock, hiked its target price to Rs 24,750, saying that Eicher Motors' inquiry and booking trends were up while supply-side issues were being addressed.

"Eicher Motors achieved Ebitda breakeven at <20% utilization despite offering one-time incentives. With positive trend on inquiries and bookings, the supply side needs to normalize considering the upcoming major product launches in Sep’20. We upgrade our FY21/FY22 EPS estimate by ~6% (for both years) as we upgrade volumes for both RE and VECV," the brokerage said.

"We believe new products would help expand the addressable markets and drive the next phase of growth for RE. Volume recovery, led by new product launches, would drive margin recovery in FY22," it said.

Spark Capital, on the other hand, has a 'SELL' call on the stock with target price of Rs 17,650

" We expect standalone revenue and PAT CAGR of 11 per cent and 8 per cent respectively for RE through FY20-FY24E. We factor in increasing competition which would weigh on margin, impacting revenue growth. We expect muted volume growth, coupled with increasing A&P to weigh on margins and to impact accruals, The uptick in capex spends and increase in cash and bank balances to keep RoCE ratios muted. We also do not expect any significant rerating potential given the muted earnings growth rates and return ratios," it said.

Analysts at Kotak Securities said, "The near term will remain challenging for Eicher Motors due to supply-chain issues and extension of lockdowns in urban centers (higher urban mix). We believe newer model launches (2QFY21 onwards) may see limited traction as Covid- 19 cases continues to rise in urban areas Valuation remains expensive despite building in swift recovery in volumes from FY2022E onwards."


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