Royal Enfield – one of the country’s largest premium motorcycle brand – has been witnessing steady growth in a demand for its middle-weight motorcycles from metro and non-metro cities, in line with improvement in the overall economic activity. The company though is facing supply chain constraints while trying to ramp up production as some of its key vendors are unable to supply components due to various factors.
The Chennai based manufacturer may also decide to go for a second round of price increases in April to offset the steep increase in prices of commodities.
According to Vinod Dasari, chief executive, Royal Enfield, demand for the company’s motorcycles has been quite strong during the quarter and bookings for products has also been boosted due to the new product launches like the Meteor 350. Royal Enfield’s share in the premium motorcycles (above 125 cc) has also improved to 27% during the quarter compared to 25% last year.
“Previously demand was coming from the tier three cities but now demand is coming from across the country. States like Tamil Nadu and Maharashtra, which were the last to recover, are also coming back. We achieved a production rate of 75000 units in December and January, and we hope to continue that way,” added Dasari.
Royal Enfield is expected to launch a slew of products, based on its new platform, in the coming quarters to bolsters its product portfolio. Siddhartha Lal led company is expected to witness stiff competition from the likes of Bajaj Auto, Honda Motorcycle and Scooter Ltd and Hero MotoCorp Ltd in the middle-weight space.
The increase in commodity cost though is likely to impact the operational performance of automakers across segments and most of them might resort to price hikes in the beginning of FY 22 to protect margins.
“The cost of almost all commodities has gone up and we have tried to offset that in multiple ways. Still our operating margin hasn’t dropped drastically. Probably, we will increase prices again,” said Dasari.
Eicher Motors Ltd – the parent company of Royal Enfield – on Wednesday, announced a 6.8% year on year increase in a net profit to ₹588 crore on the back of a 19% increase in revenue to ₹2828 crore. Due to recovery in the topline and cost cutting measures, the operating profit or the earnings before interest, tax, depreciation and amortization (EBITDA) increased by 13.5% to ₹672 crore.
“Eicher Motors’ Q3FY21 performance was along expected lines on top line front, however operating margins surprised positively which for the quarter came in at 23.8%,” said analysts of ICICI Direct Research in a note.