Eicher replaces Hero as second most valued two-wheeler company

A consistent rise in profitability and sales has made Eicher Motors, a niche player in the two-wheeler market, a more valuable company than Hero MotoCorp, the market leader which sells 15 times more units.

The market cap of Eicher Motors today touched at an all time high of Rs 50,709 crore while Hero trailed at Rs 50,355 crore. On the first day of the calendar year 2015, Hero commanded a market cap of Rs 62,053 crore, 33 per cent higher than Eicher. Bajaj Auto remains most valued two-wheeler company at Rs 63,021 crore. TVS Motor retains the fourth spot at Rs 10,518 crore.

Eicher, which manufactures Royal Enfield bullet vehicles, reported its best ever quarterly results last week with a 33 per cent jump in profit. The profit of Rs 213.45 crore, in the quarter ended March 31, was supported by a strong growth of 44.5 per cent in motorcycle sales. The company’s realisation on motorcycles has been up 5 per cent in the quarter ended December 31, 2014, according to Motilal Oswal. The impact of this increase is visible in the Jan-March quarter as well.

“Eicher Motors has been surprising the market with its performance for many quarters now while Hero MotoCorp has disappointed. In the Indian two-wheeler market, Eicher will remain an investor’s fancy due to its brand premium, revenue and margin growth”, said Saurabh Jain, Assistant Vice President (Fundamental Research) at SMC Global Securities.

One may find it surprising that a company with an annual revenue of Rs 3,031 crore and profit of Rs 559 crore is commanding a higher valuation than a giant industry player that clocks sales of Rs 27,585 crore and earns profit of Rs 2,385 crore. You may think that either Eicher Motors is overvalued or Hero MotoCorp is undervalued.

It is not so. Jain tells that investors value a company that shows future growth potential. “As long as Eicher continues to outperform the market expectation, it will enjoy a bull run”. Hero MotoCorp, one of the 30 BSE Sensex companies, has under-performed the market.

A fallout of the sharp run in Eicher’s stock is that the worth of the Lals (promoters) with a share of 54.98 per cent now stands at a handsome Rs 27,880 crore while Munjal’s worth with a 34.64 per cent stake is Rs 17,443 crore.

Royal Enfield enjoys a 95 per cent market share in the lifestyle segment (250cc and above) where it operates. In 2014 calendar year, Royal Enfield achieved its best ever sales of over 300,000 motorcycles and it aims to manufacture 450,000 motorcycles in 2015. Eicher follows a January-December accounting year.

Hero MotoCorp grew its sales by 6 per cent to 6.63 million units in the year ended March 31, 2015. In April, it saw motorcycle volumes dip by 5 per cent. “The industry has remained sluggish due to the slowing rural economy…We remain cautiously optimistic in our near to medium term outlook”, Pawan Munjal, vice chairman and chief executive officer and managing director said last week.