Eicher Motors CV sales on a roll

Eicher Motors Ltd, maker of commercial vehicles and two-wheelers, reported a much better operating performance in the December quarter.

The company’s sales rose by 41% to Rs 1,235 crore, over the same period last year, on the back of higher vehicle sales and price hikes. The company had hiked prices of commercial vehicles in the September quarter by about 2-4% to compensate for higher raw material prices. On a sequential basis, sales rose by 13%.

Its sales push has also ensured good volume growth. Eicher bus and truck sales rose by 39% to 10012 vehicles, while Volvo truck sales rose by 22%. Its Royal Enfield motorcycles business recovered, with sales rising by 9%, compared to a 1.8% drop in calendar 2010, due to supply-related constraints in earlier periods.

The hike in prices allowed Eicher to cover the increase in its raw material costs, while a better product mix and higher product mix has also lowered material cost as a percentage of sales. Since material costs account for over 80% of total costs, its operating profit margin rose by a smart 5 percentage points to 9.7%. On a sequential basis, it was up by about 2 percentage points.

Higher operating profits translated to higher net profit (before minority interest), with profit rising by 64% to Rs 55 crore. But net profit (after minority interest) rose by a lower 39% to Rs 16 crore and on a sequential basis, was down by 59%.
The company owns about a 54% share in VE Commercial Vehicles Ltd and in Eicher Engineering Solutions, which sell commercial vehicles and automobile engineering design. Its standalone business reflects sales of motorcycles and automobile components.

The difference in profits, before and after minority, appear to indicate that the businesses where it does not own 100%, are having a greater share in its profits. It will account for profits pertaining to the portion of the joint venture’s profits, equivalent to its stake in the business, with the rest attributable to the minority shareholders. That is why its profits after minority interests, have risen at a slower rate.

The company said that it increasing its motorcycle plant has moved to a new engine platform and meets the Bharat Stage III emission norms. Capacity is being increased in 2011, after which sales should increase. VE Commercial Vehicles has started selling semi low-floor buses and a 25 tonne tipper truck. Siddhartha Lal, managing director, Eicher Motors, expects demand for its products to be higher in 2011 as well, but lower credit availability and rising interest rates are to be watched out for.

The Eicher Motors share was down by 1.3% on Friday, a day before its results were declared. Its share price, at Rs 1068, is down from its 52-week high of Rs 1450 seen in November 2010.

Read Eicher’s statement on its results here and download its consolidated financials for the December quarter here.

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