Royal Enfield Goes on a Bumpy Ride on Stock Market

Commonly known as biker's delight on Indian roads,  Royal Enfield has bumpy ride to investors in its parent Eicher Motors. The company touched a new low of Rs 24,659.45 per piece, tumbling by overall 2% on BSE.

However, Eicher Motors pared some losses, and was trading at Rs 24,805 per piece down by Rs 389.70 or 1.55%. This decline was due to some workers striking at  Royal Enfield's manufacturing facilities around Chennai for couple of days.

In a statement to BSE, Eicher said, “It is submitted that Eicher Motors Limited has always been deeply committed to maintaining respectful relationship with all employees and workmen. We believe that an engaged work force and cordial industrial relations create a culture of excellence where all workmen are proud of their contributions to the organisation.”

The company further added, “At Royal Enfield's manufacturing facilities around Chennai, while a majority of workmen are fully engaged in performing their roles, some of them did not report for work in the last couple of days, though they were present in the facility.”

“We are hopeful of arriving at a mutually beneficial solution soon without any significant loss in production,” said Eicher.

While the decline in Eicher stocks were due to strike today, but it needs to be noted that, the company has corrected by 13% in last 30 days signalling other problems revolving around its star brand Royal Enfield.

Ambit in its research report highlighted four reasons to why Eicher Motors is tumbling.

They are - firstly lower than expected offtake in 5MFY19 worsened by the floods in Kerala (10% of volumes), secondly dip in waiting period across cities and slight rise in dealer inventory, thirdly change in insurance norms mandating Rs 9,000 hike in upfront payment and lastly start of production cuts at Oragadam due to labour issues.

SBICap Securities met Eicher Motors dealers on two different occasion, and arrived at demand low conclusion.

Earlier SBICap revealed that, our checks with Royal Enfield (RE) dealers in Maharashtra indicate a sharp 40- 50% slump in retail demand during Sep’18, despite the ongoing Ganpati festival.

Contrary to general perception, RE dealers in Maharashtra are carrying an inventory of 35-40 days.

Going ahead, SBI Cap further highlighted, our extensive channel checks suggest that cracks are emerging in Royal Enfield’s (RE) largest market - Uttar Pradesh (UP).

Bookings for RE in UP have collapsed by 20-25% YoY across dealerships over the last 3 months. Channel inventory is now 3-4 weeks.