The street sentiment on Eicher Motors, which has been subdued due to falling volume growth over the last few quarters, could improve given recovery in key domestic markets, launch of new models, capacity expansion and improving share of higher-margin variants. Further, with the entry-level motorcycle
segment facing severe competition, especially with players cutting prices to gain market share, Eicher Motors, the maker of Royal Enfield
bikes, has become the top pick of analysts within the two-wheeler pack.
Amyn Pirani of Deutsche Bank
says that Eicher is the only preferred stock within two-wheelers, as it faces minimal threats to growth or margins in the ultra-premium motorcycle
After volume growth slipped below the 20 per cent-mark in the December 2017 quarter, there has been a rebound in Eicher’s mature markets of Maharashtra, Karnataka
and Tamil Nadu.
Maharashtra, for example, which accounts for just under 10 per cent of Eicher’s motorcycle
volumes, recorded a 6 per cent growth in the March quarter after four consecutive quarters of decline. Similarly, after a sharp fall in the December quarter due to regulatory issues, Tamil Nadu
also saw an improvement, while the pace of decline for Karnataka
According to Pramod Kumar and Anubhav Bajpai of Goldman Sachs, even as the key mature states saw a turnaround, the rural states continue to clock robust growth upwards of 45 per cent year-on-year supported by premiumisation of rural consumption (upgrading to premium bikes) and expansion of dealer network. Under-penetrated rural markets, thus offer the largest opportunity for the company. While the rural states account for 70 per cent of the industry’s volume, the metric for Royal Enfield
is 47 per cent. Uttar Pradesh recently crossed Kerala, the largest Royal Enfield
market, and is expected to sustain the current run rate of 25,000 units a quarter.
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On the stock valuations front, while Eicher’s price to earnings multiple has come down from 45 times one-year forward three years ago to around 31 times and trades at a premium to two-wheeler peers, analysts believe that its positioning within the fast-growing premium segment justifies the higher multiple it is asking for. Long-term investors can consider the stock with a three- to five-year investing horizon.