Shares of Eicher Motors Ltd lost over 7% on Friday, even after the maker of Royal Enfield motorcycles said bookings have almost reached pre-covid levels.
The company has an order backlog of around 40,000 motorcycles. Inventories of less than one week of sales, against the desired level of about three weeks, shows that demand far outstrips supply.
Further, the company is stepping up new product launches to keep up consumer interest. “New products remain a focus area, with expectation of one new model or major refresh every quarter for the next three years," analysts at Emkay Global Financial Services Ltd said in a note.
Still, as the fall in the share price indicates, investors were not enthused. What’s weighing on investor sentiment is the continuation of restrictions in urban areas—a key market for Royal Enfield. Local lockdowns and supply-chain disruption are also hampering sales and production.
Launches of new models can see limited traction in the near term, if covid-19 infections continue to rise and restrictions are extended in urban centres, warn Kotak Institutional Equities analysts.
The other problem is its supply chain. “The supply chain has been the biggest bottleneck due to the (imposition of) lockdown in its key supplier cities. Operations could have been at 20–25% higher levels in July 2020, but for supply-side issues," Motilal Oswal Financial Services Ltd said. Also, around 90% of the dealers had reopened after the easing of the initial curbs, but its operational retail outlets are down to 75-80% after re-imposition of local curbs.
The company’s June quarter results were nothing to write home about, as expected. Revenues fell 67%, and with the company offering incentives to retailers, operating profit dropped to a meagre ₹1 crore. Gross and operating profit margins dropped sharply. The commercial vehicle business also fared poorly.
“Ebitda margin fell to near zero (0.2% at standalone level), pulled down by adverse operating leverage and impact of lower volumes. The commercial vehicle volumes were down 84% y-o-y in Q1," Jefferies India Pvt. Ltd analysts said.
To conclude, while the management sounded optimistic about demand, concerns over demand fulfilment and the pace of recovery are making investors wary.
