The auto industry received a word of caution from car market leader Maruti over FY20 being rough for the industry. On the other, 100-year-old two-wheeler brand Royal Enfield, which was going great guns until FY18 but slumped in FY19, said it is investing in setting up a new factory to achieve an ambitious growth target in FY20.
Although both companies represent distinct segments, they belong to the same industry. So what could be the reason for the stark distinction? We crunch a few numbers to see what lies ahead for Royal Enfield. Here is a comprehensive look at what made headlines in the automotive space in the second week of May.
TVS Motor lines up Rs 650 crore capex
Chennai-based TVS Motor Company, India’s fourth largest two-wheeler maker, will inject Rs 650 crore as capital expenditure this financial year.
Investments will be made towards the creation of additional capacity, new products and technology. The maker of Apache and Jupiter said the product launch pipeline includes an electric two-wheeler and also a second product under the BMW alliance.
Maruti chairman cautions dealers on FY20 outlook
Dealers of Maruti Suzuki, India's largest carmaker, have been warned of a tough year ahead with multiple challenges, including a sales growth that will taper down to single digits.
The Delhi-based maker of best-sellers such as Dzire, Alto and Baleno took over 1,200 dealers to Macau last week to apprise them about the current market environment and the steps that are being taken to counter the demand slowdown. The event was led by Maruti Suzuki chairman, R C Bhargava.
Demand uncertainty in India will limit profit growth
Suzuki Motor Corp on Friday forecast a 1.7 percent rise in profit this year, anticipating limited growth due to an expected sales tax rise in Japan as well as uncertainty in business conditions in its biggest market, India.
Japan's fourth-largest automaker expects operating profit of 330 billion yen ($3.01 billion) in the year through March 2020, lower than the 362.2 billion yen average of 22 analyst estimates compiled by Refinitiv.
Maruti launches Alto for Ola, Uber
Weak sales have forced Maruti Suzuki to sell cars designed specifically for commercial users and create an alternate demand source.
The country’s largest carmaker had in March launched a stripped-down version of one of its highest-selling models -- Alto -- to cater to the taxi segment. Christened Alto H1, this variant is designed specifically for buyers that run their vehicles under Ola, Uber and other such taxi aggregators.
Eicher Motors Q4 net up 18%
Eicher Motors May 10 registered 18.05 per cent rise in consolidated net profit after tax to Rs 544.84 crore for March 2019 quarter. The company had reported a net profit after tax of Rs 461.53 crore in the year-ago period.
Total revenue from operations for the quarter stood at Rs 2,500.08 crore as against Rs 2,528.01 crore in the same period of 2017-18, Eicher Motors said in a regulatory filing.
Royal Enfield goes ahead with planned capacity addition amid demand uncertainty
Royal Enfield, India’s largest premium motorcycle manufacturer, has lined up Rs 700 crore as capital expenditure for the current financial year. The capex will be used for the construction work of the technology centre, Phase-2 of the Vallam Vadagal plant in Tamil Nadu and towards the development of new platforms and products.
Last financial year Royal Enfield, which is controlled by Eicher Motors, clocked sales of 8.22 lakh units. Its production capacity guidance stood 9.25 lakh down from its original target of 9.5 lakh units.
Also, for 2019-20, Royal Enfield plans a production of 950,000 motorcycles, Eicher Motors had said in a statement in April. This was reconfirmed on May 10 by managing director Siddhartha Lal to Moneycontrol over a post Q4 results media conference call. Its present production capacity is 90,000 units a month or 1.08 million a year.
The new plant will bring an additional 25,000 units a month in the later part of the current year taking its total capacity to 1.38 million. However, Royal Enfield’s sales draws a grim picture. The Chennai-headquartered brand saw a growth of 0.3 percent in total volumes (domestic + export) to 822,724 units as against 820,121 units.
On a 1,080,000 installed capacity last year’s volumes represented a utilization rate of 76 percent for all its plants. With an additional 3 lakh units year with the commissioning of the second phase of Vallam Vadagal the utilization rate falls to 60 percent if Royal Enfield records no growth in sales.
Even if the brand achieves 7-9 percent growth this year to be in line with the two wheeler segment growth guidance given by the Society of India Automobile Manufacturers, Royal Enfield capacity utilization rate will rise to rise to 65 percent and to 69 percent if it manages to meet its production target of 950,000. But Lal is not worried about over capacity.
“The BS-VI pricing will be there as it is for the entire industry. It may hurt sentiments but because the industry has been low right now demand may see a spurt later because people need to travel around. Capacity planning is done with a slightly longer teem perspective in mind and we have done our mathematics. We are seeing the fundamentals being strong. The Vallam plant will assure us capacity for at least couple of years”, Lal said.
Tighter liquidity and high insurance costs hurt two-wheeler volumes severely last two quarters. Royal Enfield’s sales dipped 13 percent in the January-December quarter. But it is hoping for a robust reversal this year in volumes predicting a growth of 16 percent.
This ambitious growth projection comes on the back of a likely price impact of up to 20 percent increase due to migration BS-VI from BS-IV.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
