Enfield orders running ahead of output to lift Eicher stock

ET Intelligence Group: The Royal Enfield, India’s performance bike for decades, should continue to get more orders than it can immediately manufacture, helping the Eicher Motor stock clamber out of a narrow trading range and burnishing its appeal before investors.

Even in the September quarter, RE has continued the trend of maintaining order intake ahead of the production run. Capacity has risen 20 per cent in the past one year to about 70,000 units per month, but order inflows continue to outpace the output.



Volume growth in the four trailing quarters stood at 26.3 per cent. The waiting period for the Classic-350, which accounts for around 65 per cent of the total motorcycle volumes, remains about a couple of months, The order inflow is likely to be higher than production due to continued same-store growth (SSG) volumes in the top 25 cities and penetration into smaller towns. In the postearnings conference call, Eicher said SSG growth in the top 25 cities, which are considered mature markets, is in early-teens in the September quarter.

Also, the company is expanding its retail presence, particularly to small towns. At the end of the September quarter, RE had 750 dealers in the country. The company is planning to add another 100-150 dealers over the next two years. Volume growth in smaller towns is superior to that in mature markets, albeit on a lower base. In Delhi and Kerala, the RE has a higher share than even Bajaj Auto. This suggests that with improving income levels, RE’s potential customer base in other states would expand even further.

The company has maintained its production volume guidance of 8.25 lakh and 9 lakh for the current and next fiscal years, respectively. With sustenance of double-digit growth in mature markets and incremental volume from smaller cities, the order inflows are likely to remain higher than installed capacity. The Street is pricing in volume growth of 24 per cent and 13 per cent for FY18 and FY19, respectively. In the first half of FY18, RE sold 3.86 lakh vehicles, a growth of 26 per cent YoY.

An increase in export volumes after the launch of new models would be the next trigger. Two bikes of 650 cc—Interceptor and Continental GT – will be commercially launched next April. These would allow Eicher to be present across segments with multiple engine capacities (350, 410, 500 and 650cc).