 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
With revenues of Rs 2,533.19 crore, Eicher Motors (NSE:EICHERMOT) is the third largest player by volume in the medium and heavy commercial vehicle market (M&HCV) and light commercial vehicle market (LCV) in India. In the LCV and M&HCV categories of goods carrier subsegment, it has a market share of 1.75% and 8.89%.[1] Whereas in the passenger vehicles sub segment, in the LCV market it has a market share of 6.69% and 4.67% in the MHCV market.[1] Over the past five years the revenues and net profit have grown at average annual growth rate of 15.26% and 21.88% respectively.[2] [3] In FY2008, due to general economic slowdown, the sales of Eicher Motors in the quarter ending December fell by 87.37% as compared to the same quarter in FY2007.[4] The Indian economic condition coupled with the raw material cost has a direct effect on the sales and the operating profit of the company.
Business Overview
Eicher Motors Limited manufactures and markets trucks, buses, motorcycles, automotive gears, and components in India.[5] It operates in three segments: Commercial Vehicles, Two Wheelers, and Components.[5] The Commercial Vehicles segment offers trucks, buses, chassis, and spares.[5] The Two Wheelers segment provides motorcycles and bikes.[5] The Components segment offers ferrous castings, forgings, engine parts, crown wheel pinion, straight bevel, transmission shaft, and speed gears.[5] The company is also involved in management consultancy services and customized engineering products, as well as in the publication of city map and travel guides.[5] Its commercial vehicle plant is located at Dhar, MP.[6] The company manufactures motorcycles at a plant at Thiruvottiyur, TN, promoted under the brand Royal Enfield.[6] The company’s engineering component plants - located at Gurgaon, Haryana and Dewas, MP - manufacture gears, gear boxes, and other components.[6] It has a joint venture agreement with Volvo AB.[6] The company has a strong network of 142 dealers distributed across the length and breadth of India.[7] It is present in over 40 countries across the world.[7] Most of the exports are to South Asia, West Asia, and African countries.[7]
Business and Financial Metrics
From FY2004 to FY 2008, sales revenues have grown from Rs 1,572.99 crore to Rs 2,533.19 crore, at average annual rate of over 15.26%.[2][3] In the same period, net profit grew from Rs 33.62 crore to Rs 63.05 crore by over 21.88% average annual growth rate.[2][3] In FY2008, due to general economic slowdown, the sales of Eicher Motors in the quarter ending December fell by 87.37% as compared to the same quarter in FY2007.[4] With the fall in sales, the operating margin fell from 4.79% to -9.54% in September 2008 and the gross profit margin fell from 5.13% to -3.84% in the same period.[4] The net profit margin on the other hand rose from 2.48% to 28.44% in the same period.[4] This is not a permanent change, rather it is the result of aggressive cost cutting in terms of employee expenses, other expenses and marked down levels of depreciation and negative taxation.[4] The management has taken steps to improve the efficiency of the company over the years. The inventory turnover ratio has increased from 10.34 to 12.63 from FY2006 to FY2008.[8] The asset turnover ratio has also improved from 3.76% to 4.34% in the same period.[8]
Share holding pattern: The promoters namely, the Lal family owns 50.10% of Eicher Motors. Others and general public own 28.59% and 17.04%. Deutsche securities fund house owned 4.17% till 31st march 2009. On 27th April 2009, it made a move to hike its stake to 5.17% in the company.[9] Reliance tax saver fund, DSP Blackrock equity fund, DSP Blackrock equity fund, DSP Blackrock small and mid cap fund are some of the mutual funds invested in the firm.[10]
| Entity | Percentage |
|---|---|
| Lal family | 50.10% |
| Others | 28.59% |
| General public | 17.04% |
| Mitsubishi Corporation | 3.56% |
| Private corporate bodies | 0.62% |
| FII's | 0.06% |
Business segments
Commercial Vehicles (84.52% of the revenues): This segment contributes around 84.52% of the total revenues.[11] In FY2008, this segment contributed Rs 2141 crore to the revenues.[11] The sales volume from this segment grew by 6.3% to 29828 from 28072 vehicles in the previous year. The revenues on the other hand increased by 13.6%.[11] In the light commercial vehicle(LCV) and medium and heavy commercial vehicles(MHCV) categories of goods carrier subsegment, it has a market share of 1.75% and 8.89%.[12] Whereas in the passenger vehicles sub segment, in the LCV market it has a market share of 6.69% and 4.67% in the MHCV market. In Aug 2008, Eicher motors finalized a joint venture with volvo to form a subsidiary for the commercial vehicle division of the company.[13]
Two wheelers(10.89% of the revenues): The company operates in the two wheeler market through the subsidiary Royal Enfield motors.[14] It contributes to 10.89% of the company revenues.[14] It is the only player in the Indian market in the 350cc and more segment.[14] In FY2008, in spite of the drop of 7.7 % in the motorcycle market, Eicher Motors recorded a growth of 18.1%.[14] Around 38528 motorcycles were produced. The revenues increased 21% to reach Rs 276 crore in FY2007-08.[14] The company faced capacity constraints in 2008 and has taken steps to maximize the capacity at existing plant by making productivity improvements, modernizing the equipment and adding balancing equipment.[14] To cater to increase in demand, the company has planned to increase the capacity from the level of 3500 bikes per month to 4000 bikes per month by June 2009.[14]
Components Manufacturing (4.59% of the revenues): This segment contributes to 4.59% of the total revenues.[15] In FY2008, it contributed Rs 113 Crores to the revenues.[15] The revenue drop of 12.4% as compared to FY2007 was due to the labor unrest in the Thane factory in Maharashtra.[15] Exports account for 31% of the sales of this segment.[15]
Key Trends and Forces
Economic slowdown resulting in adverse impact on the sales
Automobile industry is a cyclical industry. It is substantially affected by general economic conditions. The demand is influenced by factors including the growth rate of the economy, easy availability of credit, increase in disposable income, interest rates, freight rates and oil prices.[16] Lack of vehicle finance availability, lower growth on GDP and/or increases in fuel prices lead to a decline in the demand for automobiles. The Indian economy has shown a sharp decline in GDP from 7.1% in the 2nd quarter of FY2008-09 to 5.3% in 3rd quarter of FY2008-09.[17] The decrease in freight rates due to slowdown of economy also leads to decrease in demand for commercial vehicles as expansion of fleet size is stopped. The freight rates dropped by 9.4% in 2008.[18] Despite the 62% decline in the international gasoline prices, the gasoline prices have dropped by only 10% in India.[19] All this factors have affected the sales of Eicher Motors. In Dec 2008, the sales dropped 87.37% as compared to that of Dec 2007.[20]
Raw material price fluctuations directly affect the operating margin and net profit margin
Raw material costs comprises of about 75.35% of the price of the finished products.[23] Any price increase of the raw materials have a direct bearing on the overall operating margin. As can be seen from the Amex steel index and the world steel price index, there is high degree of volatility in the steel prices. This volatility not only affects the operating margin but also the inventory management of the steel required for production.[24] In August 2008 steel prices peaked to over 1100$/tonne 40% higher then the steel price in January 2008.[25] Whereas on the other hand in March 2009, the steel prices have fallen to 4 year low of $473/tonne.[26] Tyres are also an important part of the raw material required for manufacturing. Tyre prices are correlated to the rubber prices. The chart above shows the volatility present in the rubber market. The rubber volatility also affects the operating margin and consequently the net profit margin.
Development of the rail network resulting in adverse impact on the sales
Development of Indian rail network and the freight rates has a direct impact on the sales of Medium and heavy commercial vehicles used for long haul. On October 5, 2006 Indian railways began the work of the Railway Freight Corridor.[27] The project plan is to connect all the major cities in India with special track capable of carrying double decker wagon freight trains with greater axle load of 30 tonnes per wagon, each train having around 200 wagons and a speed of 150 km/hr.[28] Successful completion of the project would increase the freight carrying capacity of Indian railways by 78%[29] This would adversely affect the sales of medium and heavy commercial vehicles. On 10th February, 2009 the work on the first phase of eastern freight corridor commenced. The work on the western freight corridor is planned to start in March 2009.[30] The entire project is planned to be completed by Dec 2014.[31]
Competition
- Tata Motors -Based in Mumbai, India, Tata Motors Limited is a part of Tata Group. It manufactures commercial and passenger vehicles primarily in India. It offers passenger cars, multi-utility vehicles, and pick-ups; medium and heavy commercial vehicles, such as rigid trucks, tractor trailers, and tippers; intermediate, light, and small commercial trucks; buses; and defense related vehicles. The company, through its subsidiaries, also provide engineering and automotive products; manufacture of construction equipment; automotive vehicle components manufacturing and supply chain activities; and provision of machine tools and factory automation products, as well as offers high-precision tooling, and plastic and electronic components for automotive and computer applications. In addition, it provides automotive retailing and services, as well as financing for the vehicles sold by the company. The company markets its products in Europe, Africa, the Middle East, south Asia, south east Asia, and Australia.[32]
- Mahindra & Mahindra Ltd - The company manufactures a range of automotive vehicles, agricultural tractors, implements, and industrial engines. It is also involved in property development and construction activities. The company offers various multi utility vehicles, light commercial vehicles, three-wheelers, and tractors as well as spare parts and related services. It also provides various services related to financing, leasing, and hire purchase of automobiles and tractors. In addition it also offers design and engineering services to the automotive, aerospace, and general engineering industries; and produces automotive components, as well as forgings, gears, steel, stampings, and special polymers. It is headquartered in Mumbai, India.[33]
- Swaraj Mazda (SWARAJMAZD-BY) -Headquartered in Chandigarh, India, Swaraj Mazda Limited manufactures and sells light commercial vehicles for goods and passenger applications in India. The company also offers specialty vehicles, such as ambulances, dumper placers, water tankers, and troop carriers. In addition, it sells spare parts and scrap. It operates as a subsidiary of Sumitomo Corporation.[34]
- Force Motors (FORCEMOT-BY) -The Group's principal activity is to manufacture and market utility and light commercial vehicles, agricultural tractors and diesel engines. Its plant are located at Bombay Pune road, Akurdi, Pune and Pithampur, District Dhar, Madhya Pradesh.[35] With technical collaboration of MAN AG, Germany, Force Motors has a range of heavy commercial vehicles with a payload capacity ranging from 16 to 50 tonnes.[36]
Financial Comparison of the competitors:
| Financial metrics FY2008 | |||
|---|---|---|---|
| Name | Revenue in Rs Crore | Net Profit Margin | Operating Margin |
| Tata Motors[37] | 28,738 | 6.96% | 10.44% |
| Ashok Leyland[38] | 7,729 | 5.83% | 10.09% |
| Swaraj Mazda[39] | 671 | 3.75% | 7.80% |
| Mahindra & Mahindra Ltd[40] | 30,150 | 10.34% | 11.45% |
| Force Motors[41] | 930 | -8.02% | -5.04% |
Market share
References
- ↑ 2.0 2.1 2.2 2.3 moneycontrol,Eicher Motors, annual result, P&L
- ↑ 3.0 3.1 3.2 [Average Annual Growth is calculated by dividing the past four years revenue increase by the number of years]
- ↑ 4.0 4.1 4.2 4.3 4.4 4.5 rediff money,Eicher Motors, quaterly result, P&L
- ↑ 5.0 5.1 5.2 5.3 5.4 5.5 Investing,business week,
- ↑ 6.0 6.1 6.2 6.3 info shine, Company Overview: Eicher Motors Limited
- ↑ 7.0 7.1 7.2 eicher world, about us, official eicher motors website
- ↑ 8.0 8.1 8.2 8.3 moneycontrol,Eicher Motors, Ratios, management efficiency ratios
- ↑ indopia, Deutsche Securities hikes stake in Eicher to 5.17 pc
- ↑ money control, eicher motors, overview,Mutual Funds Holding - Eicher Motors
- ↑ 11.0 11.1 11.2 Eicher Motors, Annual report 2007-08,OUR BUSINESSES,Commercial Vehicles, page 10
- ↑ Indian Auto sector, DSB cholomandalam,M&HCV – Goods Carrier
- ↑ financial express, Eicher, Volvo finalise JV deal
- ↑ 14.0 14.1 14.2 14.3 14.4 14.5 14.6 Eicher Motors, Annual report 2007-08,OUR BUSINESSES,Two Wheelers, page 11
- ↑ 15.0 15.1 15.2 15.3 Eicher Motors, Annual report 2007-08,OUR BUSINESSES,Components, page 12
- ↑ Tata Motors, SEC filing, Risk associated with Our Business and the Automotive Industry, Page 10
- ↑ Times of India, GDP growth at 6-year low
- ↑ Freight rates begin to fall for World Merchant fleet
- ↑ Indian express, Petrol to go cheaper by Rs 5 from Wednesday
- ↑ rediff money, Eicher Motors Ltd, Quaterly result
- ↑ steel on the net, MEPS Steel Product Price Levels across 2007 - 2008, Current prices & historic pricing levels.
- ↑ Malaysian rubber board, monthly average prices
- ↑ rediff money, ratios,Component ratios, Material cost component (% earnings)
- ↑ One steel, steel and tube holdings limited,chairman's address
- ↑ High Beam, Builders Feel Squeeze as Steel Prices Jump
- ↑ Purchasing, Steel-market prices reflect lack of demand at OEM, service center levels
- ↑ PM lays the foundation stone for the Western Rail Freight Corridor
- ↑ Vedic Instincts, Aspirations : The Indian Railway Freight Corridor
- ↑ Business line, Low-profile Lalu, Speech on Railway Budget
- ↑ Trade chakra, Railway Budget
- ↑ Freight corridor, choice of traction, Motive Power Directorate
- ↑ Linkedin company profile, tata motors
- ↑ Linkedin, Manendar and manendra
- ↑ Business week, company snapshot, Swaraj Mazda
- ↑ Wright reports, company profile, Force motors
- ↑ Linkedin company profile, force motors
- ↑ rediff money, maruti suzuki profile
- ↑ Ashok Leyland rediff moneyt
- ↑ rediff money, Swaraj Mazda
- ↑ Mahendra & Mahendra, Presentation
- ↑ rediff money, force motors
- ↑ Indian auto sector, Light commercial vehicles market
- ↑ Indian auto sector, Medium and Heavy Commercial Vehicles market
| ||||||
|
|
