Eicher Motors' Earning Meets Estimate. Stock Under Pressure Amid CEO Exit and Chip Shortage

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  • Aug 13, 2021 - Eicher Motors' Earning Meets Estimate. Stock Under Pressure Amid CEO Exit and Chip Shortage

Eicher Motors' Earning Meets Estimate. Stock Under Pressure Amid CEO Exit and Chip Shortage

Aug 13, 2021

On Thursday, Eicher Motors reported a consolidated net profit of Rs 2,371 m for the quarter ended June 2021.

This compared with a net loss of Rs 552 m in the year-ago quarter. The reported bottomline was in line with estimates.

Revenue from operations came higher than estimates at Rs 19,743 m, surging 141% year on year (YoY).

The spike in revenues is largely on account of a low base in the year-ago quarter, as is the case for most of the companies.

Compared on a sequential basis, the company's performance was affected by the second wave.

Revenue declined 33% on a sequential basis as demand was hit because of localised lockdowns.

EBITDA came in at Rs 3,630 m against Rs 40 m in the same quarter a year ago.

Here's a table comparing Eicher Motors' results on key parameters.

Financial Snapshot

(Rs m) Jun-21 Mar-21 Jun-20
Revenue from operations 19,743 29,403 8,182
Cost of raw materials 11,393 17,896 3,291
Total Expenses 17,294 24,347 9,177
Profit before tax 3,275 6,886 -507
Tax 904 1,625 45
Profit after tax 2,371 5,261 -552
Data Source: Investor Presentation

Royal Enfield and Volvo's performance

Royal Enfield ended the June quarter with robust performance in international markets with total exports at 17,493 units. This was a 4x rise over the last year, which boosted revenues.

Royal Enfield continues to enjoy the premium motorcycle brand name with a 25.9% market share as of fiscal 2021.

Have a look at the graph below which shows Royal Enfield's market share in above 125cc segment.

Volvo also had a strong quarter as its revenues jumped 156% YoY to Rs 16,390 m.

Despite strong topline, Volvo reported a net loss of Rs 720 m. In the year-ago quarter, it had reported a net loss of Rs 1,200 m.

During the quarter, VE Commercial Vehicles (VECV), a joint venture between Volvo Group and Eicher Motors, sold 5,806 trucks and buses. This was an increase of 173%, from 2,129 trucks and buses sold over last year.

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Commenting on the performance, MD Siddhartha Lal said,

We continue to believe in our strong business fundamentals and are positive about the long-term prospects and performance of both Royal Enfield and Volvo Eicher.

Adding to some worries, Lal warned that the shortage of semiconductors will weigh on production in the upcoming quarter and for the rest of 2021-22.

Change in senior leadership

The CEO of Royal Enfield, Vinod K Dasari, has stepped down. He also resigned from his role as a director in the parent company Eicher Motors.

This comes at a time when there's a global chip shortage, lack of new models, and rising competition for the company. There are also concerns about the company's delayed product launches.

Vinod Dasari has been the face of Royal Enfield business over the last two years, coming up with various initiatives.

Capex plan and the year ahead

As demand is rising, the company expects to see an uptick in supply and production in the upcoming quarters.

Eicher Motors has lined up a capital expenditure (capex) plan of around Rs 5,000 m. This is similar to the previous financial year.

During the quarter, Royal Enfield expanded its presence in international markets and commenced operations in Singapore and the Netherlands with the launch of standalone flagship stores.

The company also announced the commencement of local assembly of motorcycles in Colombia, the third-biggest motorcycle market in Latin America, in partnership with its local distributor.

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Journey of Eicher Motors

When Siddhartha Lal entered the family business in the year 2000, Eicher's management was examining a sale or shutdown of the Royal Enfield business.

This was because at that time, Royal Enfield's motorcycle sales totaled 2,000 units per month.

Siddhartha asked for time to give this business a shot as he felt it had immense potential.

When he joined, Eicher Motors was dabbling in 15 different businesses, ranging from motorbikes, trucks, tractors, to garments, footwear to name a few.

But the crucial part? It was the market leader in none of them.

Being an avid and passionate biker himself, Siddhartha Lal took the tough call of retaining only two of the family businesses - motorcycles and trucks. He decided to sell the rest.

From 2,000 units in the year 2000, Royal Enfield sells 70,000 units a month on an average at present.

The sales for few months in the past year were impacted due to the impact of nationwide lockdown.

How the stock markets reacted to Eicher Motors' earnings

Ahead of its earnings yesterday, Eicher Motors share price ended 4% lower at Rs 2,615.45 on the BSE.

Today, the stock declined as much as 3.5% in early trade to Rs 2,524.

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The change in senior management has led to many brokerages turning cautious on the stock, hence the decline of 8% in the past two days.

Eicher Motors share has a 52-week high of Rs 3,035.50 touched on 22 January 2021. It has a 52-week low quote of Rs 2,007 touched on 14 August 2020.

Over the past one year, shares of the company have gained 18%.

At the current price of Rs 2,545, Eicher Motors commands a marketcap of Rs 695.7 bn.

About Eicher Motors

Established in 1959, Eicher Motors Limited (EML) is the owner of the 'Royal Enfield' (RE) brand, the global leader in the mid-size (250-750 cc) motorcycles.

RE has been the growth driver of EML over the years and has managed to create strong brand equity in the mid-sized motorcycle segment.

It has a leading position with more than 90% market share in premium motorcycle segment (engine capacity between 250cc-750cc).

In addition to motorcycles, EML has a joint venture with Sweden's AB Volvo (45.6% stake) - Volvo Eicher Commercial vehicles (VECV). VECV manufactures trucks and buses in the range of 5 to 49 tonnes.

VECV is focused on few key segments like mining, construction, ecommerce, etc. It's the market leader in the 400+ horsepower truck segment with an 88% market share.

For more details about the company, check out Eicher Motors company fact sheet and Eicher Motors quarterly results on our website.

For a sector overview, you can read our automobiles sector report.

You can also compare Eicher Motors with its peers.

Eicher Motors vs SML Isuzu

Eicher Motors vs M&M

Eicher Motors vs Force Motors

Eicher Motors vs Hero MotoCorp

Eicher Motors vs Ashok Leyland

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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Oct 19, 2021 12:28 PM


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