This stock is immune to slowdown, cash crunch & still a buy -
This stock is immune to slowdown, cash crunch & still a buy
Posted 12 Jan 2017 12:55 PM

Eicher MotorsBSE is one of the companies that have witnessed tremendous growth in market capitalisation since FY11. On April 1, 2010, the company commanded a market capitalisation of Rs 1,759.81 crore, which was 4.52 per cent of Hero MotoCorp’s total market-cap of Rs 38,897.57 crore.
With changing lifestyle and rising replacement demand, the market capitalisation of Eicher Motors has ballooned to Rs 63,041 crore on last count compared with Rs 61,644 crore of Hero MotoCorp.
At present, Eicher Motors’ market capitalisation is around 102 per cent of that of Hero MotoCorp. The share price of Eicher Motor has surged 3,414.67 per cent since the beginning of FY10, rising from Rs 659 to Rs 23,174 at the end of Wednesday’s trade, whereas the Hero MotoCorp stock has rallied 58 per cent to Rs 3,087 as January 11 from Rs 1,947 on April 1, 2010.

Here are a few factors and charts showing how the market-cap of Eicher Motors has zoomed over time.
Domestic motorcycle volumes grew at 12 per cent CAGR between FY02 and FY12 (FY02-07: 14.5 per cent CAGR), creating the motorcycle population ready for replacement from FY08 onwards.
While Royal Enfield (RE) has been in the market since 1955, it initially failed to win customers due to high cost, unreliable product quality and lower mileage despite being a charismatic brand. As a result, its volumes grew at around 10 per cent CAGR during FY02-10 (in line with industry growth). However, the launch of UCE engine (2008) and RE Classic (in FY10) addressed product quality issues and improved mileage. This, coupled with increasing affordability for high-end bikes, fuelled replacement demand for motorcycles during FY02-07. As a result, Royal Enfield volumes grew around 55 per cent CAGR between FY11 and FY16 (vs 5 per cent growth CAGR for the 125cc segment).

Royal Enfield benefitted from differentiated positioning of its motorcycles and enjoyed cult following of the brand due to its heritage and retro look. With improved quality and mileage, RE’s acceptance as a replacement for basic commuter motorcycle has increased significantly.

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