Arjun Badola

Eicher motors ltd sailing through pandemic

Disclaimer: I am not a SEBI registered adviser. All the information provided by me are for educational/informational purposes only.

To find my analysis on Eicher Motors you can visit my previous article where I have explained the Moat of the company.

Here are things which I came across while further researching on the company…..

  1. Royal Enfield has been working on R&D for electric bikes.
  2. In the month of may their prototype was released and the bike was named as ‘Photon’ with the approval of Siddhartha Lal.
  3. They had also build a prototype of Thunderbird (which I personally did not like by looks) and Vinod Dasari has confirmed that Royal Enfield will release their first electric bike by 2023.
  4. Due to some fault in there brake system [Royal Enfield had to call back their 15,200 units from international market.]
  5. The demand is back to pre-covid level. The management says that there is a V shaped recovery in demand.
  6. There 1/4th of the demand was pent-up demand as the company had called its customers and collected this data but rest was organic.
  7. A lot of there supply chain is in Chennai so due to further lockdown there the supply chain was hit.
  8. Digital inquiry has increased from 15% to 56%.
  9. But Eicher Motors had also reported 45% drop in their profits.
  10. Royal Enfield started their slide school in USA in collaboration with Johnny Lewis who is the founder of Moto Anatomy (It is a bike training facility).
  11. Even though the world is going through a pandemic their international market keeps growing! They have now entered new countries like Korea, Italy, & Belgium.
  12. One advantage which they have for their Korea market is that they directly export there. This means that the normal delivery time of bikes which is around 2-3 months for international market can be significantly reduced.
  13. Currently 90% of their stores are open.
  14. Eicher Motors expects its capex to go down as all there major capital expenditure is over now. Unless there is super surge in the demand.
  15. Company continues to follow its earlier plan of building up their Studio Stores. No change in play shows that the company is able to cope with the pandemic situation around the world.
  16. Eicher Motors has develped Telematics which is a platform that provides data and helps in tracking their trucks. Truck which are BS IV and above have this feature and such technology will help them to improve their record of repairing trucks within 4 hours 85% of the time.
  17. Supreme Court had ruled that BS-IV vehicles sold after March 31 will be banned from registration. But they had already moved to BS-VI by the end of march this wont affect the company.
  18. Benali has realeased their first new bike after the new norms of BS VI which is price at 1.9 lakh compared to Classic 350 which is at 1.57 lakh & Jawa at 1.6 lakh.
  19. This seems temporary but still Royal Enfield is the most sold bike in the month of June in U.K. Leaving behind BMW.

Little Bit On Threat Of Electric Vehicles…

Threat of Electric Vehicles is very far fetched for truck business, as in that industry there is demand for huge horsepower and that would be difficult for electric vehicles to provide that.

But it can be threat for their Bike business. As there is very high probability that when they make a switch to electric bikes the ‘feel’ which their customers used to get from riding the bike would be gone.

For Example: Many people ride Bullet for the sound it makes while riding it. But it would very difficult to maintain the same style in a electric vehicle.

Some companies have tried and come up with electric noise for the cars. Here is one video of Audi. As silent cars can be dangerous for pedestrians.

If Royal Enfield can successful create electric sound as close to as their normal bikes then there might be the change of retaining the demand. But this has very less probability of happening.

I think we should also consider that by the time electric bikes will come to India people’s mindset could change about the sound. They might be interested in less noisy bike. But this is all speculation!

Source: Conference Call Q4 FY2019-20. & Management Interviews.