Eicher Motors Reports Strong Profit Growth Despite Volume Weakness

Key Highlights:

• Eicher Motors reported a 20% growth in net profit despite flat volumes, reaching Rs 1,101.5 crore in Q1.
• Higher average selling prices, a richer product mix, and lower input costs boosted profits.
• The company's revenue hit Rs 4,393.1 crore, a 10% increase, driven by better product mix and price hikes.
• VECV's profit after tax jumped to Rs 319 crore, despite a slight decline in EBITDA to Rs 385 crore.
• Royal Enfield's total motorcycle sales were nearly flat, but international market performance stood out.

Despite lower volumes, Eicher Motors Ltd recorded a 20% year-on-year increase in net profit for the first quarter of the current fiscal year. Revenue, operational profit, and net profit have reached all-time highs.

Factors Driving Profit Growth

The improvement in Eicher Motors' net profit can be attributed to several factors:

• Higher Average Selling Price: The company benefited from a product mix and price hikes.
• Increased Profit from Joint Venture: The share of profit from the Volvo Eicher Commercial Vehicles (VECV) joint venture increased significantly.
• Reduced Input Cost Inflation: Moderation in input cost inflation also played a role in boosting profits.

Eicher Motors' consolidated net profit rose to Rs 1,101.5 crore from Rs 918.3 crore the previous year. The VECV generated a profit of Rs 174.6 crore, up from Rs 100 crore.

The New Delhi-based company sell motorcycles under the Royal Enfield name. It also offers trucks and buses under the Eicher and Volvo brands via VECV, a joint venture between Eicher Motors and Volvo Group.

"After a strong performance in FY24, we have started this year on a confident note, registering our best ever quarterly financial performance with both Royal Enfield and VECV reporting steady growth," the company's managing director Siddhartha Lal said.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), or operating profit, increased 14% to Rs 1,165 crore, while the operating profit margin increased to 26.5% from 25.6% in the previous year, according to our calculations.

Key Financial Figures

The company's operating revenue was Rs 4,393.1 crore, a 10% increase over the previous period. The revenue increase reflects a stronger product mix and higher prices, as volumes remained nearly flat during the quarter.

Royal Enfield's total wholesales were 2,27,736 motorcycles, up from 2,25,368 motorcycles last year. "This quarter has been particularly notable for our performance in the international markets," Royal Enfield CEO B Govindarajan stated.

Eicher Motors' overall expenses jumped 9.3% to Rs 3,408.5 crore, with the cost of raw materials and components rising 4% to Rs 2,343.9 crore.

VECV's Mixed Results

Meanwhile, VECV's income from operations increased by only 1.8% year on year to a record Rs 5,070 crore, while EBITDA fell slightly to Rs 385 crore from Rs 387 crore. However, the joint venture's after-tax earnings increased to Rs 319 crore from Rs 181 crore in the same period last year.

Profit after tax increased despite a decrease in operating income due to a one-time gain from the write-back of a deferred tax.

VECV sold 19,702 trucks and buses, up from 19,571 in the previous year. Eicher truck and bus sales increased by 1.5% to 19,287 units, while Volvo truck and bus sales decreased 27% to 415.

Also Read: FADA Sales Report July 2024: CV Segment Experienced growth of 5.93% YOY.

CMV360 Says

Eicher Motors' impressive profit growth, despite flat volumes, demonstrates the company's ability to leverage strategic pricing, product mix, and joint ventures to drive profitability. 

However, the decline in Volvo truck and bus sales is a concern that the company may need to address to maintain its momentum in the commercial vehicle segment.