Eicher Motors’ (EIM) standalone EBITDAM for Q1FY24 was 26%, representing a 130bps increase q-o-q. This growth was primarily driven by a combination of price hikes, limited marketing spending, and operating leverage. During the same period, Royal Enfield (RE) volume rose by 4% q-o-q, with approximately 228k units sold, and the average selling price (ASP) declined by around Rs 4k q-o-q, reaching approximately Rs 171k due to a higher Hunter350 mix by about 400bps.
Despite facing increased competitive intensity, RE remains optimistic about expanding its presence in the 350cc and above 2-wheeler market in India, offering opportunities for new players to enter the market while sustaining steady growth. EIM implemented a price hike of around 1.5% across a majority of its domestic portfolio, with relatively stable prices, which is expected to further improve margins in the future.
Key takeaways from Q1FY24 conference call and our views
According to the management, discretionary spending is on the rise in both urban and rural markets, leading to increased confidence in retail sales for the upcoming months after a seasonally weak July 2023. With more finance options and models available to customers, coupled with the approaching festive season, RE expects strong retail performance. The company sees a significant opportunity in the premium bike segment in India, especially with 250cc+ motorcycle mix reaching 10%. This growth in the premium segment will absorb additional brand supplies while expanding alongside the increasing market demand.
In the near term, RE plans to launch the Bullet J-platform refresh, building on the existing UCE platform. Additionally, they have plans to introduce new brands, refresh existing ones, and offer various variants throughout FY24. RE anticipates a recovery in export market demand over the next 5-6 months. With their market share expected to remain stable at around 20%, they aim to improve their distribution chain to meet the growing retail demands as soon as the market recovers.
Hunter experienced a significant increase in domestic sales volume mix, rising by 400 bps q-o-q. However, the average selling price per unit decreased by 4,000. Despite implementing price hikes in Q1 and achieving a better mix in export markets, the gross profit per unit only decreased by 1,000 q-o-q, leading to a 40 bps improvement in gross margin. Moreover, the company’s prudent approach towards expenses related to new launches and marketing resulted in other expenses contributing positively to the margin. This effectively offset the 80 bps negative impact on margin caused by higher staff costs due to pay hikes and bonuses during the quarter.
In the current quarter, RE implemented an additional 150 bps price increase in its domestic product portfolio, along with selective price hikes in export markets. This move was made possible by a mostly stable cost structure during the quarter, hinting at the potential for further margin improvement in the near future.