During the last couple of days, leading brands, Hero MotoCorp and Bajaj Auto sealed partnership with Harley Davidson and Triumph, respectively. They have announced launching of products in the cruiser segment, which was long dominated by Eicher Motors’ Royal Enfield.
The average industry size of the domestic >350CC category was 65,500 units per month as of FY23. This implied around 5% share of the overall domestic two-wheeler industry. Within this, Royal Enfield commanded around 93% share.
Bajaj Auto, on July 5, unveiled Speed 400 and Scrambler 400X, co-developed with Triumph Motorcycles. Both the bikes are equipped with the all new TR-Series engine, which encompasses a 398 cc liquid-cooled, single cylinder, four-valve, DOHC cylinder head and six-speed gearbox.
Triumph twins would rival the likes of RE Classic 350 which has sales of 26,200 units per month and Hunter 350 with sales of around 15,900 units per month.
Also Read: After Harley, Bajaj-Triumph trains guns on Royal Enfield
Earlier this week, Hero MotoCorp also made in-roads into the ballooning premium motorcycles market with the launch of Harley Davidson X440, a fully indigenized 440cc motorcycle it has co-created with the Milwaukee-based cult motorbike maker, at an aggressive starting price of ₹2.29 lakh ex-showroom.
Read here: Hero rolls out 440cc Harley at ₹2.29 lakh
The race among bike makers for market share in this segment is called for due to high margins. Analysts at Nomura said that the >250cc market may have space for 2-3 players.
“The high gross margins of Royal Enfield at around 43 percent, ₹75,000 per bike, make the segment attractive for new players,” they said.
The new entrants have threatened the dominance of Royal Enfield in the segment with analysts expecting its market share decline to 75% in >250 cc domestic motorcycle segment in the coming years from over 92% currently.
Analysts at Kotak Institutional Equities are of the view that defending both market share and profitability will be challenging for Royal Enfield due to increased competitive intensity.
The overhang is already seen in Eicher Motors’ stock. Its price has plunged over 9% in one week, while Hero MotoCorp has rallied more than 10%. Bajaj Auto also jumped more than 6% after the new launches.
Also Read: Bajaj-Triumph Speed 400 and Scrambler 400 X make roads into India, price starts at ₹2.33 lakh
Analysts believe margins for Royal Enfield are likely to remain under pressure in the interim.
HDFC Securities believes Royal Enfield would need to revisit its product or pricing strategy as its prospective customers are likely to consider brands like Harley or Triumph as very formidable alternatives.
“Royal Enfield would be forced to reconsider its pricing/brand strategy very quickly, which will in turn drive margin pressure. Accordingly, we have now lowered our earnings estimates by 16-18% over FY24-25E as we revisit our growth and margin estimates,” said Aniket Mhatre, Institutional Research Analyst, HDFC Securities.
Also Read: Harley-Davidson X440 vs Royal Enfield Classic 350: A detailed comparison. Which bike to choose?
The brokerage firm downgraded the stock to ‘Reduce’ from ‘Add’ earlier and reduced the target price for Eicher Motors to ₹3,086 per share from ₹3,715 per share earlier.
It expects Royal Enfield to be in a much better position to fight back once this competitive pricing stabilizes. However, if these competitive price points sustain for a higher-than-expected time, it would lead to further downside risks to its estimates, it said.
Meanwhile, CLSA maintained Outperform rating on Bajaj Auto as it believes Triumph launch looks positive for the stock and estimates the company to deliver 60,000 – 1.20 lakh units in FY24-25.
Jefferies maintained Outperform rating on Bajaj Auto and raised target price to ₹5,500 from ₹5,100 per share. It expects Bajaj Auto’s volumes and EPS to grow at 15% and 23% CAGR, respectively over FY23-25.
Meanwhile, given high profitability of >250 cc motorcycle segment, analysts expect competitive intensity to remain elevated in the segment in the coming years.
Catch Live Market Updates here
Know your inner investor
Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Download The Mint News App to get Daily Market Updates.
Updated: 06 Jul 2023, 12:07 PM IST