D-Street is pleasantly surprised by Eicher | Economic Times

ET Intelligence Group: A strong product line-up and expanding order book are expected to reverse Royal Enfield’s moderating volume trajectory over the last 30 months. In fact, the stock of its parent company Eicher is again on the investors’ radar on improved volume visibility.Eicher shares have outperformed the BSE Auto Index by 17 per cent in the past three months, and the trend is likely to sustain if the maker of the iconic Bullet-brand motorcycles is able to demonstrate incremental volumes from new products as well as from it expanding retail footprint.In the near to medium term, volumes are likely to rise with an order book of around 125,000 units — equivalent to nearly two months of its current monthly volume run-rate.The problem of lower production due to supply-chain bottlenecks has also been largely resolved and it has been able to produce 70,000 units per month in October compared with just 30,000 in June. 79240031Production has supported enquiries at the showroom, and they have reached pre-Covid-19 levels.Targeting customers online due to the social distancing norms has helped the company, with online conversion of customers increasing to 13-14 per cent from 2-3 per cent a few years ago.Royal Enfield, in addition to tapping markets beyond the large cities, has also been consistently expanding through the small-format stores, where space requirements and capital expenditure are substantially lower than full-format stores.Small-format stores break even with sales of six to seven bikes a month. The last-mile connectivity of a small-format store could help it tap latent demand from small towns.At the end of the first half of the current fiscal year, RE had a dealer network of 1,717, of which 771 were small-format stores. It plans to add 600 such stores in the ongoing financial year.According to the company, around 60 per cent of its customers are from outside the big cities.To reduce its high reliance on a single model, RE will launch new products every quarter for the next few years. The company continues to focus on the core mid-sized motorcycle market, between 250 cc and 750 cc.The company has received 8,000 bookings for its recently launched cruiser bike Meteor — the first bike among the 25-27 bikes which it will unveil over the next few years.It has also introduced an innovative tool through which a buyer can customise bikes with several combinations on the Royal Enfield App. This will help the company improve its average selling price (ASP) as well margins.Typically, if a buyer undergoes customisation from a third party, he/she would spend Rs 10,000-Rs 12,000 per vehicle over and above the ex-showroom price. So, its own customisation tool will help boost its ASP.Net realisation per bike stood at Rs 1.39 lakh in the first half of the current fiscal year.Notably, the improving ASP has been quite instrumental in the restricted revenue decline in the September quarter, when volumes had dropped 10 per cent .