Steady performance; Hunter 350 to propel high double digit volume growth - Eicher Motors Q2 Review

What's Buzzing 

Eicher Motors (EML) reported a steady performance in Q2FY23. EBITDA margins for the quarter came in at 23.3%, down 112 bps QoQ. The company reported ~154 bps gross margin decline (amid adverse product mix) that was partially offset by operating leverage gains (primarily savings realised in employee costs as a percentage of sales, down 40 bps). 

Context 

In Q2FY23, for EML, total operating income was at Rs 3,519 crore, up 3.6% QoQ with average selling price (ASP) coming in at Rs 1.61 lakh/unit, down 5.7% QoQ. Sales volumes in Q2FY23 were at ~2.08 lakh units, up 11% QoQ. EBITDA in Q2FY23 was at Rs 822 crore with consequent PAT at Rs 657 crore, up 7.6% QoQ. 

Our Perspective 

Eicher Motors is the leader in the premium motorcycle segment with market share in >250 cc segment pegged at >85%+ domestically. With the launch of 650 cc twins it is also expanding geographically with market share in international markets pegged at ~10% in the mid-weight segment. With the launch of Hunter 350, we believe the company is in a sweet spot with magnified opportunity size and is best placed to play upon the premiumisation theme in the 2-W space domestically. Hunter 350 is performing well with the company already manufacturing >50,000 units till date with no cannibalisation witnessed as of now. The recent wholesale volume prints on the RE front were also encouraging with the company able to retain 80,000 monthly run rate now for two consecutive months. With Super Meteor 650 launch it further plans to strengthen its 650 cc portfolio with the new launch well appreciated by the rider community and is consequently receiving healthy booking inquiries. In the commercial vehicle segment, it has one of the most profitable franchise under the VECV brand, which is a JV with Volvo with Eicher Motors holding 54% stake. Going forward, management commentary was upbeat on demand prospects both domestically as well as globally, with gross margin expansion on the anvil starting Q3FY23, normalised supply chain scenario and a strong new product launch pipeline.