Eicher Motors hits 44 month-low on growth concerns, slips 13% in two weeks

Shares of Eicher Motors, the manufacturer of the iconic Royal Enfield brand of motorcycles, on Monday hit a 44 month-low of Rs 15,197, down 1 per cent in the intra-day trade on the BSE, on concerns of weak demand outlook.

The stock was trading at its lowest level since January 19, 2016. In two weeks, it has underperformed the market by falling 13 per cent, as compared to a two per cent decline in the benchmark S&P BSE Sensex and S&P BSE Auto index.

In the past three trading days, the share price of Eicher Motors has lost 5 per cent after the company said regulator rectifier, a component mandatory for all BS-VI compliant products, will not cause any discernible change in the overall price of the relevant motorcycles.

The company made clarification on news report published in the Mint on August 20, 2019 that Royal Enfield’s BS-VI roll-out plans ride on outcome of IP case and the company might face hurdles if it fails to resolve a patent infringement dispute with Flash Electronics in a US court.

“We assert that the Company is fully prepared to meet the BS VI implementation timelines and to implement its growth strategy in all markets it operates in, notwithstanding the progress and outcome of the litigation with Flash Electronics in the US court, or continued supplies from any particular vendor,” Eicher Motors said in a regulatory filing.

Depending on the business requirements, the Company works with several vendors for the development and supply of parts and components and the Regulator Rectifier Units are no exception, it added.

The company said the cost of this component constitutes a negligible proportion of the overall cost of a motorcycle and any change in source of this component will not cause any discernible change in the overall price of the relevant motorcycles.

Meanwhile, post April-June quarter (Q1FY20) result, most of the brokerage houses downgraded the stock on weak earnings and tepid demand outlook.

“Q1FY20 gross margin contraction despite softening commodities shows the company’s inability to get required mark-up on regulatory cost to retain margin, given volume pressures. With the upcoming BSVI cost increases in FY21, we believe margin will come under further pressure”, analysts at Elara Capital said in quarterly update. The brokerage firm reiterates ‘sell’ rating on the stock with a target price of Rs 13,928 per share.

“We expect a delayed recovery in demand as the environment remains challenged. Also, the impact of new product launches is time consuming, with returns expected with a lag, the premium to mass OEMs is expected to narrow as profitability is under pressure and VE Commercial Vehicles is impacted by aggressive discounting by the incumbents,” analysts at HDFC Securities said in Q1FY20 results review. The brokerage firm has ‘sell’ rating on the stock with a target price of Rs 14,760 per share.