Eicher Motors charts strong sales growth despite aluminium and steel price volatility

In an industry where volumes matter the most, the rest tend to follow. Going by the March quarter numbers, Eicher Motors seems to be perfecting this art better than peers such as Bajaj Auto and TVS Motor Company. Led by strong sales growth in its Royal Enfield offering and commercial vehicles in the March quarter, consolidated revenues at INR 3,765 crore shot up 47 per cent year-on-year.

From a year-ago level of 14.2 per cent, consolidated operating margin has risen to 17 per cent in the March quarter even as cost of goods sold (raw materials such as aluminium and steel products, purchased goods, inventories consumed) climbed up by 46 per cent year-on-year in line with revenue growth. Strong volume growth of over 57 per cent (operating leverage) has helped Eicher boost its margins; expenses other than raw material grew at a much slower pace.

With margins becoming stronger every quarter, Jinesh Gandhi of Motital Oswal Securities says not only for Eicher but also for other players in the auto industry, it has definitely been a good quarter. Commercial vehicles gaining market share by 100 basis points (bps) to 4.4 per cent and buses by 230 bps to 16 per cent in the March quarter also arrests concerns of earnings disappointment.

As a result, consolidated net profit was up 71 per cent year-on-year to INR 335 crore in the quarter.

As input costs such as steel and aluminium stabilise, it needs to be seen if operating margins can be maintained at these levels. Gandhi points out that while raw material costs may go up, increasing operating leverage may put a check on costs, helping margins sustain at current levels. Also, as other expenses (mainly marketing costs) begin to moderate, maintaining margins should not be a trouble for Eicher.