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T h e t ime h a s c ome t o s c a l e u p…
We met the management of Eicher Motors (EML) to get an insight into the
specific growth plans of EML and understand their business model. EML’s
standalone operations consist of niche cruiser motorcycles (Royal
Enfield), which encompasses strong growth possibilities with the
emerging trend of lifestyle biking in India. The consolidated operations
include commercial vehicle business through its JV with AB Volvo
(VECV). VECV has a strong presence in the intermediate commercial
vehicle (ICV) segment with numerous product offerings in the 7.5-12
tonne category. Moreover, joint development of engines with Volvo
provides a technological edge, which would serve as a revenue driver,
going ahead. We believe, with increasing focus on the HCV segment,
EML is poised to grasp growth opportunities by leveraging its partnership
with international CV giant Volvo.
ƒ Strong brand loyalty coupled with expansion to drive revenues
EML enjoys strong brand equity in the niche above 250 cc segment with
popular product offerings like Royal Enfield Classic and Bullet. Rising
income levels have backed the demand for cruiser bikes (low speed, high
torque) augur well for Royal Enfield. In view of the rising demand (~12
months waiting period), the company has plans to expand its capacity to
12,500/month by FY13E from 6000/month currently and has already
acquired land in Chennai.
ƒ Strong footing in intermediate CV space, HCV next target
EML has a strong presence in the domestic LCV (<12 tonne) segment
with market share of ~35%. However, its market share in the HCV space
is languishing at ~3%. We believe with the technological edge provided
by Volvo, EML is geared up to grasp opportunities in the HCV space. This
gradual shift in focus will lead to a richer product mix yielding higher
realisation on a blended basis.
ƒ Joint engine development to provide technological edge
AB Volvo has made VECV its global manufacturing hub for supply of
medium duty engines to satisfy is global needs. Volvo plans to establish a
manufacturing hub at VECV’s Pithampur facility for supplying Euro 3 and
4 compliant engines and Euro 5 and 6 base engines. This would provide
the technological edge and an additional revenue lever for EML assisting
in realising its target of ~15% market share in the HCV market by 2015.
View
EML has a strong presence in the niche cruiser motorcycle segment and the
intermediate CV segment. Strong brand equity and expansion plans will fuel
revenue growth while JV with AB Volvo will grant technological benefits.
Strong return ratios, multiple growth levers and cash generating nature of
business make EML an attractive investment play. At the CMP of | 1610,
EML is trading at 22.8x CY10 EPS and 1.3x P/BV of its CY10 book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
T h e t ime h a s c ome t o s c a l e u p…
We met the management of Eicher Motors (EML) to get an insight into the
specific growth plans of EML and understand their business model. EML’s
standalone operations consist of niche cruiser motorcycles (Royal
Enfield), which encompasses strong growth possibilities with the
emerging trend of lifestyle biking in India. The consolidated operations
include commercial vehicle business through its JV with AB Volvo
(VECV). VECV has a strong presence in the intermediate commercial
vehicle (ICV) segment with numerous product offerings in the 7.5-12
tonne category. Moreover, joint development of engines with Volvo
provides a technological edge, which would serve as a revenue driver,
going ahead. We believe, with increasing focus on the HCV segment,
EML is poised to grasp growth opportunities by leveraging its partnership
with international CV giant Volvo.
ƒ Strong brand loyalty coupled with expansion to drive revenues
EML enjoys strong brand equity in the niche above 250 cc segment with
popular product offerings like Royal Enfield Classic and Bullet. Rising
income levels have backed the demand for cruiser bikes (low speed, high
torque) augur well for Royal Enfield. In view of the rising demand (~12
months waiting period), the company has plans to expand its capacity to
12,500/month by FY13E from 6000/month currently and has already
acquired land in Chennai.
ƒ Strong footing in intermediate CV space, HCV next target
EML has a strong presence in the domestic LCV (<12 tonne) segment
with market share of ~35%. However, its market share in the HCV space
is languishing at ~3%. We believe with the technological edge provided
by Volvo, EML is geared up to grasp opportunities in the HCV space. This
gradual shift in focus will lead to a richer product mix yielding higher
realisation on a blended basis.
ƒ Joint engine development to provide technological edge
AB Volvo has made VECV its global manufacturing hub for supply of
medium duty engines to satisfy is global needs. Volvo plans to establish a
manufacturing hub at VECV’s Pithampur facility for supplying Euro 3 and
4 compliant engines and Euro 5 and 6 base engines. This would provide
the technological edge and an additional revenue lever for EML assisting
in realising its target of ~15% market share in the HCV market by 2015.
View
EML has a strong presence in the niche cruiser motorcycle segment and the
intermediate CV segment. Strong brand equity and expansion plans will fuel
revenue growth while JV with AB Volvo will grant technological benefits.
Strong return ratios, multiple growth levers and cash generating nature of
business make EML an attractive investment play. At the CMP of | 1610,
EML is trading at 22.8x CY10 EPS and 1.3x P/BV of its CY10 book value.
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