Eicher Motors to pump in Rs 900 cr on capex in 2-3 years

Eicher Motors  will invest over Rs 900 crore over the next two to three years towards various expansion plans, including a new medium duty engine plant in joint venture with Sweden’s Volvo Group and a manufacturing plant near Chennai for its Royal Enfield motorcycles.

Of the total capital expenditure, Rs 500 crore will be utilised by its joint venture company Volvo Eicher Commercial Vehicles (VECV) for regular expansion, Rs 300 crore for the engine plant and Rs 120-140 crore for the new Royal Enfield production plant near Chennai, Eicher’s chief financial officer Lalit Malik said Monday.

The engine plant is being set up in a joint venture, in which Eicher has a 54.4% stake and Volvo 44.6% stake. The plant will manufacture commercial vehicle engines compliant to even euro VI vehicle emission norms. These engines will be used for a new MCV platform being developed by Volvo and will be used in CVs in several countries including in Europe.

The plant will have a capacity to make 85,000 engines per year in the first phase and the production is expected to start in December 2012, Siddhartha Lal, managing director and CEO said. Presently the factory shed is getting made, he said.

Separately, the Tamil Nadu government in July allotted 50 acre land to Eicher for the Royal Enfield motorcycle factory in the Oragadam Industrial Plant near Chennai. This Royal Enfield factory will have a capacity to produce 1.50 lakh motorcycles per year and Lal expects the plant to be up and running in 18 months.

Eicher Motor produced 34,000 motorcycles in 2010 at its existing plant and is hopeful of around 70,000 units in the current year.

Royal Enfield sold 35,549 motorcycles in the first half this year (January-June), up 42.4% year-on-year. Lal said the company was able to achieve its target to produce and sell 6,000 vehicles per month in the second quarter (April-June). 

Meanwhile Eicher is "cautiously optimistic" over the medium-term commercial vehicle sales outlook for the industry. Expensive loans, higher fuel prices and the recent ban on mining activity in Karnataka has led to some slowdown in truck sales.

VECV’strucks and buses division sold 23,412 units, up 27.3% in the first six-months of 2011, while the overall CV industry (5 tonne and above capacity) grew by 10.3%, Lal said. Eicher’s bus sales rose 24.4% to 3,400 units, even as the overall market declined 11%, he said.

Eicher is tapping the tier II towns to sell its semi-low floor buses, which are currently in the marketing phase. Lal said the company is bidding for every single tender for low floor buses in these towns.

Lal said there had been some "flattening" in growth in the CV industry. He doesn’t see enormous growth rates but the industry sales could grow in single to low double digits this year.

Over the long-term Lal expects there will be strong growth across the small, medium and heavy commercial vehicle segments as long as there is good economic growth in India.

Earlier on Saturday, Eicher Motors said net profit for the second quarter rose 40% year-on-year to Rs 116 crore, while total income from operations was up 25% to Rs 1,298.4 crore. April-June EBITDA was up 47.6% to Rs 126.2 crore, while EBITDA margin rose to 9.7% from 8.2% year-on-year.

The strong growth in earnings was boasted by strong volume growth and price hikes taken by the company.

Eicher Motors had hiked vehicle prices in January and July this year. Most automobile companies have raised prices this year due to a surge in cost of raw materials like metals, plastics and rubber.

The strong earnings growth boosted Eicher Motors’ shares, which closed up 2.8% at Rs 1,357.15 on NSE on Monday.