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ICICI Securities Report
In the past week highlighted by launch of Harley Davidson X 440 and Triumph Speed 400, with an average on-road price of ~Rs 2.8 lakh, Eicher Motors Ltd. has corrected by 12% and is trading at ~20 times FY25E earnings.
We believe, the steep reaction was unwarranted as the premium two-wheeler market in India itself would expand with rising alternatives. In past four years, as per our calculation, total cost of ownership of Classic 350 saw ~7% compound annual growth rate, higher than the disposable income growth during this period, impacting affordability of customers.
Alongside, brand Royal Enfield domestic volumes declined at 1.5% CAGR in FY19-FY23 versus domestic two-wheelers witnessed a negative ~5% CAGR.
This took the 250cc+ motorcycle model mix to ~8% in FY23 versus 6% in FY19.
For FY24E-FY26E, we do not see any major total cost of ownership inflationary catalyst, thus pushing the premium motor cycle mix to ~9.5%, resulting in ~14% volume CAGR in FY23-FY26E.
We believe, even after Royal Enfield volume CAGR of ~9% in FY23-FY26E, the domestic 250cc+ motor cycle market excluding Royal Enfield would likely be ~20,000 units a month by FY26 – enough, we believe, to absorb the new global brands coming in.
For Royal Enfield portfolio, hardly ~10% of domestic retails comes from Rs 2.6 lakh plus on-road models. Thus, with promotional pricing of the launched models to go away after retailing a pre-specified number of units (~10,000 units for Speed 400), the price gap with Royal Enfield would only expand further.
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