Eicher Motors Q1FY18 Concall Summary
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Financial Highlights

- 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:
- 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
EPPL:
- 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
Capacity:
- 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