Eicher Motors share price falls as analysts do not expect Guerrilla 450 launch to drive royal volume growth for Enfield

Eicher Motors share price falls as analysts do not expect Guerrilla 450 launch to drive royal volume growth for Enfield

Royal Enfield on Wednesday launched another new product, Guerrilla 450, a premium roadster 450cc motorcycle based on the ‘Sherpa 450’ platform, in an attempt at the sports segment. The bookings have been opened in Indian and European markets with retail expected to commence from August 1 in India and mid-August in European markets.

The company indicated that the Guerrilla 450 will be made available in the remaining markets in phases by early CY2025. Guerrilla 450 will be released in three variants — Flash, Dash and Analog — with an introductory pricing (ex-showroom) of 2.39 lakh, which is expected to rise to 2.54 lakh.

This segment has been dominated by the likes of Bajaj Auto and TVS Motor Company with only around 10,000 units per month, despite new launches of Triumph by Bajaj Auto and Harley Davidson by Hero MotoCorp.

Also Read | Royal Enfield Guerilla launched in India: Check price, design, and other details

Analysts believe that the Guerrilla 450 launch is unlikely to garner major volumes for Royal Enfield amid limited benefits for consumers to shift to the higher cc segment, in terms of drive and features as against the premium pricing.

Chirag Jain, Senior Research Analyst at Emkay Global Financial Services believes the new Guerrilla 450 may attract sales volumes of not more than 2,000 – 3,000 units per month, akin to ‘Himalayan 450’.

Competition

Nearly a year after launch, Royal Enfield’s competitors (Hero MotoCorp – Harley and Bajaj Auto – Triumph) are yet to make a meaningful mark in the 450cc space, with the recent combined monthly volume average at around 4,000 units despite ramp-up in footprint.

Emkay Global notes that more than 50% of Triumph sales till date are attributed to exports. The 450cc space overall remains miniscule and forms less than 1% of the domestic motorcycle industry.

Also Read | Royal Enfield Guerrilla 450 vs Triumph Speed 400 comparison: Which one to buy?

“While the Triumph and Harley launches in Q2FY24 led to a spike, segmental volumes have thereafter stabilized at around 8,000 – 10,000 units per month. Per industry checks, Royal Enfield’s deep customer and community connect (events, rides, etc) remains a key differentiator – which the competition, despite enjoying a strong brand recall, has been unable to replicate,” Emkay Global said.

Kotak Institutional Equities firm believes growth in the >250cc motorcycle segment will be significantly lower over the next 10 years as compared with FY2010-19, given higher penetration levels in richer states, which will continue to underperform, affordability issues and increased competitive intensity.

Volumes

Domestic volumes have remained flat for Royal Enfield over the past couple of quarters, driven by lackluster demand trends in the >250 cc motorcycle segment and market share loss due to newer launches by competitors.

Analysts at Kotak Institutional Equities also believe that the Guerrilla 450 launch will have limited impact on reviving the demand for the >250 cc segment category and drive a shift toward the higher cc segment.

Also Read | Bajaj Auto shares fall over 3% after Q1 results. Should you buy the auto stock?

“We see limited benefits for consumers to shift from 250-350 cc motorcycles to >450 cc, given the lack of incremental driving experience for commuting purposes on Indian roads replete with traffic, potholes and narrow roads making the overall value proposition unattractive; marginal additional opulent features for the premium paid and limited market for leisure biking,” Kotak Equities said.

Royal Enfield’s recent launches are targeted toward the >350 cc segment (Himalayan 450 and Shotgun 650), which the brokerage firm believes will have limited impact on the company’s volume growth due to its niche positioning and lower propensity of consumers shifting to the >350 cc segment.

Also Read | Bajaj Auto: CNG bike and exports to drive growth

Royal Enfield has underperformed the two-wheeler industry over the past several quarters. Emkay Global believes upgrade and replacement demand for Royal Enfield remains largely elusive; thus, its several product actions lined up in coming times are unlikely to automatically translate into additional growth.

Eicher Motors shares

Kotak Equities maintained a ‘Sell’ rating on Eicher Motors shares with an unchanged target price of 3,400 per share.

Emkay Global retained its ‘Sell’ call on the Eicher Motors stock, but raised the target price to 3,750 per share from 3,400 earlier.

On Thursday, Eicher Motors share price declined as much as 2.4% to 4,799.90 apiece on the BSE. Eicher Motor shares have remained flat in one month, but rallied over 12% in three months. The stock is up more than 17% year-to-date (YTD).

At 11:10 am, Eicher Motors shares were trading 1.07% lower at 4,865.45 apiece on the BSE.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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