A business starts a company and expands itself in three or four other businesses
After that, the company becomes very big
You must've heard a story like this a lot of times
But have you ever heard
That one company operates in 15 other businesses
And closes 13 businesses out of that
And focuses its entire attention on two businesses
And after that the company grows exponentially
Today let us talk about such a company
Which, out of its 15 businesses, closed 13 of them at one time
And focused its entire attention only on 2 businesses
And the name of that company is Eicher motors
Hello, friends! I, Jagdeep Singh, welcome you to the Groww channel
Today we're going to talk about, not bullet
But its maker, and parent company, Eicher motors
About how it started its business
How it expanded itself
After that we will talk about Eicher motors' financials
And about the reasons behind the problems in the auto sector that have come up in the recent times
The story of Eicher motors starts from 1948
This company used to import tractors from abroad and sold them in India
And at that time this company was run by Vikram Lal
And he started expanding this company and the company expanded itself
In 15 different divisions
Such as, in footwear, garment and many other sectors
After this, in 1993 the company did something that changed the company's entire destiny
This company bought more than a 60% stake in Royal Enfield India
Royal enfield which was already very successful in India
Eicher motor entered this company and started buying manufacturing some new models
And reinvented its old bike into a premium bike
After that Eicher motor shifted its attention entirely to two domains
First, in bike manufacturing and second in truck manufacturing
After Siddharth Lal became the CEO, out of the 15 divisions
The 13 division who were in loss, he either sold them
Or he completely shut them down
So, after this Eicher motors shifted its entire attention to two businesses
Which was bike manufacturing, that used to manufacture Bullet
And the second was heavy commercial vehicle manufacturing
After taking this strategic decision, starts the growth story of Eicher motors
Its share price which was Rs. 216 at one time, increased to become Rs. 32,000
In 2017
And this gives their investors a multibagger return
After business, now let us talk about its financials
That how strong the company is financially and how it has performed in the past few years
As I already told you that the company mainly operates on two verticals
First, motorcycles and second, commercial vehicles
So, the motorcycles is their core business from where they get more than 80% of their profits
And second, commercial vehicles
In this they have a joint venture with Volvo
Whose name is VECV
First let us talk about the motorcycle business
And you know, as I told you that their main revenue
Comes from their motorcycle business
Then how did they expand themselves there so easily
So, in India the motorcycle business mainly operates in three segments
First, low segment, where 0-250 cc bikes are sold
Second, from 250 to 800 cc
And third, bikes above 800 cc
So, until now in India mainly two segments operated
First, which sold very cheap bikes
Second, very expensive bikes
So, at that time Siddharth Lal saw that the middle segment
Is very empty
And there the penetration is very low of any major brand
So, here Royal Enfield started targeting some customers
And if I talk about the market share today
Then this company's market share is more than 95%
And you must be shocked to hear that this is a lot
But in the recent times
In this segment, some competitors have started entering this segment
Because of which their market share has reduced a little
In some of the recent quarters
If the topic of financials has come up then first we will talk about, in volumes,
How Eicher motors has performed, in the past few years
And if there is a problem here, then what is it?
As you can see on the screen that it talks about sales volume
And I have broken this into two parts, first, commercial vehicles,
Which tells you that in the case of commercial vehicles
How many volumes it sold
And second motorcycles
So if I talk about motorcycles
So, in the financial year 2015-16
Eicher motors sold more than 5 lakhs volume of Royal Enfield
After this the number increased
In the financial year 2018-19 reached more than 8 lakhs
In the same way, if I talk about commercial vehicles
Then that number was 51,000 in the financial year 2015-16
Which has now increased
To reach around 72,000
But here there is a very interesting that you should pay attention to
That in comparison to the financial year 2017-18
In the financial year 2018-19
There wasn't a lot of improvement in the bike's volume
What is the reason behind Eicher motor's
Growth in the motorcycle segment in the past few years
So the biggest reason behind this is that it is the leader in its market segment
Their market share is around 95-96%
The market leader has a lot of problems with expanding themselves
To make volume growth, they have to go the extra mile
They have to increase their demand because of which they can increase their volume
For Eicher motors to increase their motorcycle volume, they mainly have to take the help of three things
First, they have to enter in new segments
Because right now, their entire focus is between, 250-800 cc
So they have to start their penetration in new sectors
So that they can increase their market share
Secondly,
They have to come up with new models so that they can enter in tier 2 and tier 3 cities
Third and a very important way they can increase their volume
Is through exports
They can manufacture bikes in India and export them in other countries
As I told you that export can be a really good way to increase the volume
Towards which, Eicher motors has started working
So, if I talk about the recent quarter and the financial performance of this company
Then in the recent quarters, this company's revenue also has become less
Apart from this, the operating profit margin
If a company sold something for Rs. 100 and their expense was Rs. 80
So its operating profit margin comes to be Rs. 20
So, this company's operating profit margin also has become lesser
But its net profit has increased
Now you must be thinking that this company's revenue also came down
The margin also came down, so how did its profit increase
Because recently there was a tax rate cut in India by which this company enjoyed a benefit
And its net profit as compared to last quarter, last year, has increased
So the problem that Eicher motors is facing in commercial vehicles has two reasons
First, Bharat stage 6 emission norms
As you know that Bharat stage 6 emission norms
Will become effective after April 2020
Because of which all the companies have to change their models
So that they can comply with Bharat stage 6 norms
Because of which there was a huge pressure on the auto sector
Whose effect was seen on Eicher motors as well
The second reason because of which there was a big effect on Eicher motors' margins
Was that in the recent time, it was very important to put ABS on trucks in India
ABS is Anti-lock Breaking System
Because of which, every company that makes trucks has to put ABS in
Because of which, the direct cost of manufacturing will increase
And because of which there was a negative effect on their margin
And it will be affected in the coming time as well
So, this was a fact
But if you want to make an investment then you have to do your research
You should see your risk
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