Volume growth likely to remain bumpy for Eicher

ET Intelligence Group: The stock of Eicher MotorsNSE -0.64 % hit a 52-week low of Rs 18,600 on Monday after the maker of iconic motor bike Royal Enfield reported a nineyear low volume growth for FY19. The stock closed the session at Rs 18,766.4 on the BSE, 7.7 per cent lower than the previous day’s close.

The company has enjoyed premium price-earnings multiple over the past few years due to its pricing power, premium models and sustainable operating margin above 30 per cent, which were  ..

The Royal Enfield volume fell by 14 per cent year-on-year to 1.9 lakh units in the March 2019 quarter, the second quarterly decline in a row. For the full year, it was measly 0.7 per cent higher at 8.26 lakh units, the lowest in at least nine years. The volume of the top-selling bike Classic 350, which accounts for nearly two-thirds of sales dropped by 5 per cent in FY19; a few years ago, the waiting time for its delivery was 8-10 weeks.

The company expects to grow production by 13 per cent to 9.5 lakh units for FY20. The street seems to have little belief in the guidance since most analysts expect flat to low-single-digit volume growth for the year. Kotak Institutional Equities and Nomura see projected volume of 8.1and 8.2 lakh units, respectively, for the current fiscal year, which implies a decline in volumes.

In response to rising costs due to regulatory measures, the company has increased prices of Classic 350 by 1 ..

Given these factors, the stock has undergone major resetting of volume and margin expectations. The projected earnings per share for the current fiscal is revised downwards by 23 per cent in the past nine months. In June 2018, 71 per cent of the analysts tracking the stock had a ‘buy’ rating. The proportion has dropped to 41 per cent since then.

The stock has underperformed the benchmark indices by over 37 per cent in the past year, and the trend is unlikely to reverse in the nearterm.  ..

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