Eicher Motors slips to 52-week low of Rs 16,389 on speculative reports

The share price of Eicher Motors fell to a 52-week low of Rs 16,389 on Wednesday after speculation that HDFC Bank stopped dealer inventory financing to its two-wheeler business Royal Enfield.
Market speculation started after HDFC Bank sent messages to a few dealers regarding inventory funding, said sources. Sources said the bank sent messages to a handful of dealers of Royal Enfield following deliberations regarding funding to them, which got misconstrued. In a clarification issued on Wednesday, the bank said, “This communication is limited to inventory funding for the dealer only and not retail finance. Secondly, it has been sent to dealers who are well-capitalised and do not need funding. Moreover, they comprise a percentage of the total dealer base. This move has been taken in consultation with both the parties and some dealers.”     
Eicher Motors share price fell from the opening level of Rs 17,100 to Rs 16,176.20 during the day and ended at a slightly higher level of Rs 16,389. The decline by the closing hours was 4.14 per cent in share value, as recorded on the BSE. Royal Enfield officials were not available for comment.
Sources refuted the rumours and said there were a small number of dealers who were affected by this. They have over leveraged their limit or over drawn and that is for 10-15 people. This will not affect retail financing in any way for the consumer, since it is related to vendor financing. Such transactions are executed between the bank and the particular dealer and does not go beyond this level.
A broking firm informed its clients after speaking to dealers, regional managers of Royal Enfield and regional manager of HDFC Bank that dealer financing has been stopped in cases where there is default at the dealer level. Also, Royal Enfield is asking dealers to bring in their own funds by monetising non-core assets, to reduce the interest burden.
“The auto industry is witnessing challenges on dealer viability due to prolonged demand weakness and high inventory. Select original equipment manufacturers or OEMs have been taking action to reduce burden on dealers through inventory reduction as well as increasing credit period offered to dealers,” it said.
An official from Federation of Automobile Dealers Associations, while stating that he is not aware about the particular case, said OEMs have been helping them reduce inventory.  “Banks are reviewing the portfolio of a few dealers, which is an ongoing process. This happens even when growth is there. Based on the performance of the dealer, banks extend the credit facility. A good dealer is not facing a single issue in getting the credit he wants,” said Ashish Harsharaj Kale, president, FADA.
In line with that, if the credit facilities are reduced, that is not a concern, because the stock is also going down.
Automobile retail sales have encountered speed breakers for the 10th month in a row, as overall new vehicle registration dropped by 5.4 per cent year-on-year this June.
Total sales in June 2019 stood at 16,46,776 units as against 17,81,431 units, a year ago.