Eicher Motors Q1FY18 Concall Summary


Financial Highlights

Eicher Motoros Q1FY18 Financial Highlights.png
  • The topline for 2018 Q1 is 2001 crores making this the best ever quarterly performance
  • This is about 29% higher than the Q1 FY17 where the topline was about 1556 crores
  • EBITDA is at 621 crores and is also the highest ever at consolidated level
  • The growth rate is at 32% compared to the EBITDA of Q1FY17 at 470 crores
  • In percentage terms, EBITDA increased from 30.2% of topline in Q1FY17 to 31% in Q1FY18
  • The total comprehensive income is at 458 crores in Q1FY18 which grew at a rate of 22% compared to 378 crores in Q1FY17

Volvo Eicher Commercial Vehicles Limited (VECV):

  • VECV is the joint venture of Eicher with Volvo group
  • VECV’s income from operations dropped by 15.7% i.e.2139 crores in Q1FY17 to 1803 crores in Q1FY18
  • VECV’s EBITDA also reported a de-growth of 23% i.e.194 crores in Q1FY17 to 149 crores in Q1FY18
  • VECV’s PAT is at 65 crores in Q1FY18 as opposed to 106 crores Q1FY17
  • The transition from BS-III to BS-IV was smooth compared to its competitors with least amount of BS-III stocks
  • The CV industry is heavily impacted with series of events- Demonetization, Transition from BS-III to BS-IV and GST and recorded a 26.5% fall
  • VECV also recorded a 27% fall in line with the industry
  • The industry sales volume fell from 106,000 units in Q1FY17 to 80,000 units in Q1FY18
  • VECV sales volume fell from 16,071 units in Q1FY17 to 81,583 units in Q1FY18 with a decline in market share from 15.1% to 14.4%
  • The new management is keen on working close with Eicher to take advantage of low costs and currently Eicher supplies only Engine and other small parts to Volvo
  • There was a loss from subsidiaries and the composite is from the profit of VECV or the net sum is a decline of 7cr

Royal Enfield:

  • The sales volumenis at 183,731 motor cycles in Q1FY18 growing at 25% compared to sales in Q1FY17
  • As of June end, the retail footprint expanded to 700 locations
  • The industry was affected by a series of disruptive events of Demonetization, transition from BS-III to BS-IV at March end and GST at June end
  • Royal Enfield, however,  has been largely unscarred by these events and moved from BS-III to BS-IV with zero stocks of BS-III in April
  • It continues to grow consistently, competitively, and profitability leading the midsized motorcycle globally

Royal Enfield Product mix:

  • The classic brand is now almost 70% of the mix and other brands are seeing a decline on Year on Year basis
  • The brand equity and visibility of classic is high and driving the sales
  • The residual value and the velocity of the residual market is extremely good in the case of classics
  • Though the price for classic is more than bullet, the value in residual market after 2-3 years gets back large part of initial investment
  • The classic is becoming more easily available as waiting periods are coming down
  • The bullet doesn’t sell much in cities anymore and has become a semi-urban and listed small town affair
  • The Thunderbird doesn’t sell much in smaller towns and is more of bigger city and southern city’s affair
  • The propensity to but Thunderbird is higher in Bangalore, Maharashtra or Uttar Pradesh
  • The classic is ubiquitous and caters to everyone making it a easier purchase
  • Every future model of Royal Enfield that is planned for next 5 years will have a relevance in India
  • The products made exclusively for markets outside India are difficult to scale and eventually doesn’t get cost and will become irrelevant
  • The 500 cc is not extremely differentiated from 350 cc in terms of looks. It is Rs 15,000 expensive than 350 and little bit upgrade in power
  • The idea is to create a ecosystem that makes the bikes accessible in all angles and riders are not intimidated by the power
  • In India, the market is bigger for Roadster or standard motorcycles as the main purpose of vehicles is commuting in India

Himalayan Odyssey:

  •  The 14th edition was flagged off from India gate in Delhi on July 8th, with a participation of 61 riders including 6 women
  • The participants go to Delhi to all the way to Khardung-La pass which is the highest motorable road
  • The period of ride was about 18 days and covers about 2300 KMs


  • Employees, the percentage of sales for Royal Enfield to the standalone piece is 5.5% and increasing with revenues
  • The scale increased from 8 regions to 12 regions and 400 points of sales to 700 resulting in an increase in frontline sales and sales support
  • There is also a backend cost because of construction of third plant

Operating leverage:

  • In domestic, Eicher is growing deeper and deeper and in International, the spending is more on people, little bit but on events, on advertising and marketing and research
  • This is as an investment and the growing phase results in more operating leverage
  • The revenue growth is not as high as 50% like 2-3 years ago, but the cost growth at current is matched with the revenue growth
  • Royal Enfield is in no need of partnership in 3 major aspects of the business – distribution system, manufacturing and technology

Technical Centre in UK:

  •  The new technical centre is located near Leicester in Bruntingthrope airfield with an own proving ground
  • Taking the motorcycle route through the week to the proving ground and testing them helps in development
  • The area of office and testing is spread over 36,000 square feet and over 100 employees with a lot of productivity
  • The second phase of Technical centre which includes the testing validation equipment, the dynamometers, will be operation by December of 2018

International Markets:

  • The store count is increased to 26 exclusive stores and 600 multibrand stores
  • The focus is more on Brazil, Columbia, Indonesia, Thailand, North America and Europe

Segment wise performance:

  •  In 3.5-5 tonnes the industry grew at 16% to 2400 units and Eicher grew at rate of 24% to 578 units
  • Eicher is in growth in this segment and had a product in very recently
  • In the 5 to 15 tonne segment, industry showed a drop of 21% and sales volume was 13,500 units
  • Eicher’s sales volumes were 4490 units with a drop of 23.5% and the market share was down from 6% to 3.9%
  • In Bus segment, the industry sales were at 16,400 units which is 22% lower and Eicher was at 3400 units with 18% growth to the last quarter
  • The market share has increased from 20% to 21% in the bus segment
  • Volvo trucks sold 82 units which is approximately half of that in Q1FY17
  • Eicher’s medium duty engines was the only area of growth in the last quarter of 7264 units with a growth of 57% over the same quarter last year


  •  Eicher Polaris Private limited is a joint venture of Eicher with Polaris
  • EPPL is continuing to expand distribution footprint and trying to replicate the success in Kerala market across the country

BS-III to BS-IV Transition:

  • There has been a general decrease across all the segments because of BS-IV supply issues and overbilling in the previous quarter
  • The industry was down by 8% at 12,000 units and Eicher was down by 30% just under 1600 units

Impact of GST:

  • There was no compensation to dealers for any inventory loss this quarter because of GST
  • No financial impact of GST in numbers
  • There won’t be any drastic effect on ICV because of lot of distribution happening in regional as opposed to national
  • 300-400 KMs in B roads is perfectly suited for ICV as it will get from one medium town to another medium town in a day
  • ICVs are more used than heavy duty trucks for perishables and quicker turnarounds
  • The discounting is still on and had not abated in any meaningful manner in the last few months
  • The post GST rates are implemented on 19th June about 10 days ahead of time to reduce dealers and customers anxiety
  • The difference in price after conversation is only 1.2% of classic 350, Chennai on-road price


  •  The capacity is being ramped up from 60,000 a month to 80,000 units a month in a matter of 6-9 months
  • After assuming price adjustments the capacity from delivery standpoint will be at 900,000 units a year in FY19
  • There has been a dip in order book and hence there has been no dramatic impact on waiting time even in case of stagnant capacity for a long time
  • The classic 350 has a waiting time of 2 months and less for some models and 1 month for some models

Distribution System:

  • Currently Eicher has 600 touch points globally and mostly are multi-brand
  • In multi-brand stores it is 2-3 motorcycles in a store with 30-40 motorcycles
  • Eicher is trying to get better space and bigger corner for the brand
  • There is a Royal Enfield present multi-brand outlet in each of the top 50 cities of USA
  • In both western and emerging markets Eicher is trying to make products available closer with more reliable traders and partners

Vendor sourcing:

  • All the 3 plants of Eicher are in close vicinity within 30-40kms of each other and will take time to benefit from vendor consolidation
  • The vendors of the bigger fabricated parts where the freight costs tend to be little higher are in the vicinity of 5-10 KMs

Pricing Strategy

  • The products are fairly priced in line with market price increases and the high margins are a result of low cost base
  • The small price increases are preferred to one time huge price increase in India. People expect that prices increase twice by 1-2% rather than one time increase of 4-5%

Gross Margin:

  • Though the price increased, the costs also have increased due to the transition from BS-III to BS-IV
  • This regulatory one-off event coupled with inflationary pressures resulted in less improvement in gross margin