Eicher Motors is chasing growth. That will crimp margin in the short term

Mint

6 days ago

Eicher Motors Ltd's June quarter (Q1FY26) performance was supported by rising premium motorcycles volumes, higher rural penetration and continued export momentum. Royal Enfield (RE) volumes surged 17% year-on-year to 265,528 units. The company indicated that demand remains steady, particularly among younger buyers and in rural India. Realizations dropped 1% year-on-year to ₹184,855 per vehicle, but were up 2.4% sequentially. Put together, consolidated net sales grew 15% year-on-year to ₹5,042 crore.
Eicher's product strategy is simple: keep it fresh and premium. Recent launches, including the Classic 650 and the refreshed Hunter, have seen good traction. The company is now doubling down on key models like the Classic and Bullet, with refreshed variants, personalized accessories and festive-timed add-ons. Marketing spends are also rising to support these efforts.Its upcoming electric motorcycle brand has already generated strong interest.
Yes Securities' analysts expect RE's overall volumes to grow at about 7% CAGR over FY25-27. 'Recent launches could be an inflection point for RE as a completely new and improved platform should drive efficiencies. However, we remain watchful of the domestic average monthly run-rate going ahead," they said in a 1 August report.
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A positive factor is the rising share of rural regions in the sales mix, now close to 50%. Urban markets remain uneven, but there were some green shoots in Q1 despite no deep discounting. Instead, Eicher is leaning on brand equity, retail expansion and new offerings to draw in aspirational buyers.
Exports are another bright spot, continuing to post strong growth. Nepal and Bangladesh continue to perform well for the company, and the Himalayan has found success globally. Eicher is expanding CKD (completely knocked down) operations in Brazil, widening its reach in Latin America and moving to a company-owned distribution model in Europe.
The commercial vehicle business Volvo Eicher Commercial Vehicles (VECV) continues to pull its weight, reporting almost 10% volume growth in Q1 thanks to solid market share in light and medium-duty trucks and buses and 2% realization growth. Ebitda margin rose 140 basis points (bps) to 9%.
What could go wrong?
First, VECV could now be in the mature phase of the CV cycle. Second, commodity inflation is a big risk. Q1 saw a 19% uptick in raw material costs. Eicher absorbed some of it through cost optimization efforts and limited price hikes. It also deferred certain new launch-related expenses, aiding margin. Still, consolidated Ebitda margin at 23.9%, declined 270 bps from a year ago.
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The management will prioritize volume growth over short-term margin gains. 'Hence, we expect margins to remain under pressure from here on, as any benefit from an improving mix (higher spares and apparel sales) is likely to be invested by RE in demand-generation activities," said Motilal Oswal Financial Services. 'This is clearly visible in the past few quarters, where volume has seen a healthy pick-up, albeit at the expense of margins."
Eicher plans to keep investing in market activation, especially for refreshed models like the Hunter. Meanwhile, the shortage of rare earth materials hurt production in Q1. Eicher has since transitioned to alternative materials and vendors, normalising output.
With capacity utilisation at 85–90% across Eicher's 1.2 million units base, the company is prioritising modular expansion and de-bottlenecking. Any capex for FY26 will largely go toward new product development. To be sure, at about 28x FY27 estimated earnings, the stock trades below its 10-year average. Still, expected margin pressure may potentially hamper earnings growth in the coming quarters, keeping sharp upsides in the stock at bay.