The year FY19 has been bittersweet for Eicher Motors and its motorcycle arm Royal Enfield. The sales were subdued as the motorcycle continued to face stiff competition from none other than the newbie Jawa motorcycle. The charm of Royal Enfield continues to enrapture Indian hearts, and in fact, this has had a knock-on effect on its parent Eicher Motors shares outlook - experts confidence has been restored in it again.  So much so, that a buy rating has been put on it. After meeting Eicher Motors management team in Gurgaon, Nishant Vass research analyst at ICICI Securities said, “We came back with confidence in our belief that Eicher Motors is working aggressively towards improving its core strengths to remain a disproportionate beneficiary of the premium category expansion in two-wheelers segment."

Where Royal Enfield may head in FY20?

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According to Vass, the Royal Enfield still remains the most searched motorcycle in India (28.5mn in FY19; 9% YoY growth), grabs highest mind space with customers. However, with ~4.0mn bikes on the road, the profile of customers today is very different from five years ago. At present, ~2/3rd of its customers are upgraders from existing 150cc and below motorcycle segment, while ~12% are first time buyers and ~8% are existing RE owner cum loyalists. Also, not to forget the balance, ~10% are existing scooter customers. 

Thus, Vass said, “we believe, the focus must be on a) increasing first-time buyer mix, b) increasing “loyalists” mix with products like “650cc twins” (50% of twins demand is from existing customers), c) refresh the base product portfolio in a faster manner to keep creating brand pull for upgraders and d) improve hyper local customer engagement via focused brand development exercises.”

Eicher’s management the potential to contribute ~5% of revenues. The company is witnessing ~90-95% penetration on accessories for the new “650cc twins” across markets. The twins are the first model on the online accessories configurator and all the models launched hence, would be a part of the same. Accessories are coming with a 2-year warranty and the product is designed and tested through the whole product development cycle of the base model, cited the ICICI Securities analyst. 

In regards to rural space, the RE has been working on expansion for nearly a year now which remains positive. Vass added, “Ranging from the deep economic viability analysis (breakeven at ~10vehicles/month) of these unique smaller studio stores (1/6th scale vis-à-vis normal stores) to brand/sales penetration to customers on a vernacular basis (currently, most digital content and outreach happens in English), FY20 store addition target is 430 (350 studio, 80 regular stores).”

That said, Royal Enfield’s stable business operations makes Eicher Motors a multibagger on Dalal Street. 

On Friday, Eicher Motors stock finished at Rs 19,713.75 per piece down by Rs 80.25 or 0.41% on Sensex. But guess what, when markets open next week, you might want to add this stock in your kitty. 

Vass says, “We believe RE’s management focus and bandwidth is placed to strengthen the gaps that went ignored in the last few years and it can gain from the resumption of premiumisation in two-wheelers space in India while targeting the exports markets with credible global quality products. We maintain our BUY rating on the stock with an unchanged target price of Rs24,947.” From the current market price level, Eicher is set to impress its investors by rising over Rs 5,180-levels on stock exchanges.