Eicher Motors Ltd reported a healthy 30% growth in net revenue to Rs880 crore for the fourth quarter ended 31 December, on the back of higher demand for commercial vehicles. Sequentially, the firm’s revenue grew by 2%.
But the firm’s operating margin fell from 7% in the September quarter to 5% in the December quarter, leading to disappointment among investors. The company’s shares fell by 3% on Monday, even though the Auto index of the Bombay Stock Exchange was flat. The firm’s performance looks decent year-on-year (y-o-y), with it having reported a loss of Rs15 crore in the December quarter of 2008. But that was when auto companies were hit badly by the downturn, and hence a y-o-y comparison with the quarter’s results doesn’t make much sense.
Eicher, which now follows the calendar year closing, reported healthy sales numbers for the year ended December 2009. The commercial vehicles division, which makes and sells heavy, medium and light commercial vehicles under a 50:50 joint venture with European auto firm AB Volvo, sold 24,264 units, compared with 23,775 in the previous calendar year. The company sells products under both brands, Eicher and Volvo.
Graphic: Yogesh Kumar / Mint
The company also sells heavy-duty Volvo trucks that are imported in complete knock down kits and assembled in India. In this segment, sales dipped marginally, from 945 units in 2008 to 901 units in 2009. The company earns only a trading margin here, and this represents a small segment of its overall business. The motorcycles business under the Royal Enfield brand did much better, registering a 20% jump in volumes during 2009. It sold 51,955 motorcycles, compared with 43,298 in 2008.
But as pointed out earlier, margins are the worry. For the full year, the company reported an operating margin of 5.4%. Its peers in the commercial vehicles segment have a margin of around 11-12%. Eicher’s net profit on a consolidated basis for the full year is around Rs83 crore with revenue of Rs2,954 crore, translating into net profit margins of around 3%.
While the management’s indication of a 15-20% revenue growth this year is a positive factor, improvement in operating profit margins is the key for earnings growth and investor returns. At current levels, the company is valued at 17 times trailing earnings.
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