When most of the auto firms were still surfacing from the aftermath of the note ban and aligning production with the new emission (BS-IV) norms, Eicher Motors Ltd rode with ease through the March quarter. Perhaps because the customers of its premium motorcycle brand Royal Enfield were less affected by the currency constraint. Importantly, the long waiting period helped to sustain sales growth for the March quarter at 20.8% year-on-year (y-o-y).

That apart, Eicher also steered a 11.5% sales growth even in commercial vehicles—a segment that was hit severely by the apex court’s ban on sale of vehicles with BS-III emission standards from April. A low inventory of these vehicles helped beat the industry trend of sales decline during the quarter.

Undoubtedly, however, robust motorcycle sales propelled operating performance of the standalone entity, whose revenue grew by 22% to Rs1,883.5 crore. Profitability rode the benefits of higher production volumes. Hence, although raw material cost rose substantially in absolute terms, it was lower as a percentage to sales from the year-ago period. Other expenses fell too, although there was a slight increase in employee costs. The result: a 29% surge in operating profit.

Consolidated numbers got a further fillip from the CV business, which posted a robust growth in revenue and profitability. Better still is the steady rise in market share across its CV range.

That said, concerns have cropped up on prospects for its motorcycle segment.

In the recent past, growth rates have been softening, although they’re still robust when compared to peers. Domestic motorcycle makers are also moving to the premium segment, that may stymie market share growth over a longer horizon and hurt margins.

For now, according to dealers, there is a waiting period of two months for Royal Enfield’s motorcycles. Little wonder that the firm is investing to enhance capacity and cash in on the rising demand for premium motorcycles.

A report by Emkay Global Financial Services Ltd has, on the back of higher anticipated sales volume, increased the earnings estimate by 4% and 3% respectively for FY2018 and FY2019. Yet, at the current market price of Rs25,837, Eicher’s stock commands a rich valuation of about 32 times the earnings estimate for FY2018. And this is unlikely to fade unless motorcycle growth rates come off.

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