Rallis

Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 13,114 (-0.04%). Top gainers in NIFTY50 were GAIL (+4.9%), ONGC (+3.8%), and ASIAN PAINTS (+3.7%). The top losers were KOTAK BANK (-3.3%), HDFC Bank (-1.9%), and HDFC (-1.4%). The top sectoral gainers were REALTY (+2.9%), METAL (+2.6%), and AUTO (+1.2%) and the sectoral losers were BANK (-1.2%), PVT BANK (-1.2%), and FIN SERVICES (-1.1%).

Excerpts of an interview with Mr. Siddharth Lal, MD – Eicher Motors with ET Now dated 1st December 2020:
• With a 90-95% market share in the 250cc-plus motorcycle segment, Eicher Motors-owned Royal Enfield is readying itself with a mid-term plan called RE 2.0, which is focused on expanding product portfolio, geographical reach, and non-motorcycle revenue.
• Despite its vast cash reserves, the company is not eagerly looking at acquisitions, including the likes of the Italian brand Ducati.
• It has taken them time to get production up. There is a demand for more bikes from the dealers, and international customers.
• Currently, they have a bare minimum inventory everywhere. So, retail has been very strong, the inventories are depleted entirely, and production has caught up. The supply and timing was an issue for them. But even the supply is back in order.
• In the long term, they always have had a bullish view on the mid-size segment just because people want to upgrade and there’s a premiumization trend.
• They have all the technology and have built the capability. Their commercial abilities in terms of sales, marketing, distribution, and service are very strong.
• People should not discover Royal Enfield because they put an ad listing the price of their motorcycles. They should discover them because they’ve got rides and events, they’ve seen a friend or a colleague ride a Royal Enfield, or someone’s talked about it.
• They want to be able to reach each customer differently and everything has to be premium. It’s much curated, it’s very thought through, it’s very nicely done. So, once customers get that premium experience, they don’t want to go back into a shabby experience.
• They will do an acquisition where they think they can only incrementally improve it.
• They have so much opportunity in Royal Enfield itself, so they’d just conserve energy for that. If an opportunity to do something like they have been doing with Royal Enfield over the last 10 years, then it’s something worth putting in their time and effort.
• They have a very strong filter about how they would like to monetize their brand. It has to serve its huge audience of customers and give them a better motorcycling experience.
• They’re not positioned as a cheap brand anywhere in the world. They don’t sell on price. They are an alternative brand. They offer an alternative world view to their customers. Certainly, it’s good value, it’s at a good price.
• The way they’re working on EVs is that they are not going to be the first to the market. But rather they’d study the market, understand the technology – there’s a full team at Royal Enfield who does EVs now.
• They’re constantly studying the market, riding bikes, making their mule bikes, prototype bikes, and riding them themselves, seeing what happens, seeing what they like, don’t like.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of EICHERMOTORS was ₹ 2,531/- as of 2nd December 2020. It traded at 48x/ 31x/ 25x the consensus earnings estimate of ₹ 52.3/ 80.4/ 101 for FY21E/FY22E/23E respectively.
• The consensus price target of EICHERMOTORS Ltd is ₹ 2,301/- which trades at 23x the earnings estimate for FY23E of ₹ 101/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”