Home / Markets / Stock Markets /  Eicher Motors sails through Q4, but beware of some near-term speed bumps

MUMBAI: The March quarter earnings performance of Eicher Motors Ltd was largely in-line with expectations, thanks to recovery in Royal Enfield (RE) and VE Commercial Vehicles (VECV) volumes.

On a standalone basis, its Q4FY21 revenue at Rs2920 crore, up 34% year-on-year (y-o-y), was at a record high. Standalone Ebitda grew 47.5% y-o-y to Rs670 crore and operating margins expanded 210 basis points (bps) y-o-y to 22.9%. Ebitda is short for earnings before interest tax depreciation and amortization. One basis point is one hundredeth of a percentage point. Gross margins, however contracted by 322bps y-o-y to 40.3% impacted by elevated input costs.

Reacting to the results, the stock rose nearly 3% on the National Stock Exchange in opening deals on Friday.

While the company has sailed through the March quarter, the management expects near-term demand and supply to be volatile. That said, it is hopeful of an improvement in Q2FY22.

In a post earnings conference call, the management said it expects to ramp up monthly production run-rate to 80,000 units gradually as supply chain constraints, chip shortage and lockdown restrictions ease. It added that the company has a very exciting pipeline of new products, with FY22 having the highest ever number of model launches. Eicher Motors aims to launch one new model per quarter, subject to supply chain and production viability.

Meanwhile, to tackle commodity inflation, the company raised prices by Rs12,000 per unit in FY21 and another price hike in April.

RE 350cc bikes use 35% more precious metals than a normal 125cc segment bike. RE has reduced rhodium consumption by 66% through value engineering. The management expects the benefit of this move to reflect in the coming quarters. Analysts expect the company to keep passing on the burden of elevated input costs to customers, aiding it's margins.

Despite the near-term speed bumps, analysts are positive on the company's medium-term growth.

"RE demand is expected to recover post the lockdown – on the back of new launches and ongoing expansion in the international markets. After witnessing severe headwinds over the last 18 months, we expect volumes to grow hereafter, " analysts at Motilal Oswal Financial Services Ltd said in a report on 27 May. The report further added that VECV would see cyclical recovery in volumes and profits, in turn driving a consolidated profit after CAGR to 54%. CAGR is short for compounded annual growth rate.

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