BULLET RIDE: Royal Enfield’s Ebitda falls 4% in Q3; bookings for Jawa have been halted due to heavy demand
Siddhartha Lal-promoted Royal Enfield, which has been a leader in the leisure biking segment, saw its sales volumes declining 6% to 1,93,871 motorcycles during the third quarter ending December 2018. Though Lal attributes it to the overall contraction in demand across the industry, analysts claim that the impact of recently-resurrected Jawa Motorcycles has been significant.
The weakening in volumes for Royal Enfield for the past few months has impacted its Ebitda (earnings before interest, tax, depreciation and amortisation), which has come down by 4% to Rs 680 crore in comparison to Rs 707 crore during the same period last year.
Total revenue from operations, however, rose 3% to Rs 2,341 crore, compared to Rs 2,269 crore in the same period last year. Profit after tax (PAT) grew 2% to Rs 533 crore from Rs 521 crore a year ago.
Commenting on Royal Enfield's performance, Siddhartha Lal, MD and CEO Eicher Motors Ltd, said the latter half of 2018 was a challenging period for the two-wheeler industry in India. "Factors like increased insurance requirements, rising raw material costs and the subsequent price increase due to regulatory safety requirements impacted the momentum of the industry."
Though industry observers and experts agree that demand has been impacted due to changes in regulatory compliance leading to higher cost of ownership and liquidity crunch arising out of IL&FS crisis, they believe intense competition from Jawa Motorcycles, being produced by Mahindra & Mahindra's (M&M) subsidiary Classic Legends Private Ltd (CLPL), has also begun denting the growth of Royal Enfield, which till now has been the undisputed market leader in the segment.
Consulting firm Centrum Broking in its recent report claimed that Royal Enfield's registered a decline of 13% in sales in December as the company is facing direct competition from Jawa Motorcycles. In a separate report last month, JM Financial Institutional Securities Ltd said that lower demand, financing constraints, and the "entry of JAWA resulted in decline in sales."
A Mumbai-based analyst working with a leading global consulting firm said, "It's the first time Royal Enfield is facing the heat in a long time."
In contrast, bookings for Jawa are on hold since December 25 and will be so until September. There was an unprecedented demand for the two models that were introduced in mid-November. Industry insiders said this is the first time in around a decade that the booking of a model had to be halted due to unexpected demand.
The ongoing fiscal has not been a very good year for Royal Enfield. The brand lost about 28,000 units of production due to a strike which happened in September-October at its factory in near Chennai. Lal, in an earlier interaction with DNA Money, blamed it on external influence. "They wanted us to recognise a third party person who has no bearing. Our point was that you have absolute liberty to form a union but it is also our prerogative to talk with you guys (union) and not an external person who actually has no interest in the well-being of the Royal Enfield or, in fact, employees. They have their own profit objectives or other things. That was it," Lal said earlier.
In the commercial vehicles (CV) segment, VE Commercial Vehicles (VECV) - Eicher's joint-venture with AB Volvo - was affected by the industry slowdown, especially in the heavy duty (HD) segment. VECV's revenue from operations rose by 9% to Rs 2,818 crore from Rs 2,590 crore in the same period last year. Ebitda declined by 18% to Rs 186 crore from Rs 226 crore and PAT plunged 43% to Rs 76 crore.
According to the company records, VECV sold 16,936 trucks and buses in the quarter, growing 4% over the same period last year. In the HD segment, the VECV recorded a growth of 4% while industry saw a decline of 13% year on year. The company blamed the scaling back of landing activities by certain non-banking financial companies and heavy discounting as the prime reason for the decline.
Speaking on VECV's performance, Siddhartha said, "While the demand momentum continues in the CV industry, sales were affected, especially in HD segment due to change in axle-load norms and liquidity crunch. However, in Q3, VECV increased its market share in HD trucks through focused market penetration and strengthening the product portfolio with new launches of our modernised 'value trucks' over the past year."
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Commenting on Royal Enfield's performance, Siddhartha Lal, MD and CEO Eicher Motors Ltd, said the latter half of 2018 was a challenging period for the two-wheeler industry in India. "Factors like increased insurance requirements, rising raw material costs and the subsequent price increase due to regulatory safety requirements impacted the momentum of the industry."
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