Eicher Motors shares were trading in the red in the initial trading hours on Thursday after the company reported a 9 percent decline in motorcycle sales for August 2021 at 45,860 units. The company had sold 50,144 units in the same month a year ago.

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The maker of Royal Enfield (RE) motorcycles said that while sales of models with engine capacity up to 350cc declined 17 percent to 38,572 units during August, sales of models above 350cc capacity soared 92 percent to 7,288 units.

Axis Capital maintained a ‘sell’ call on Eicher Motors terming the new Royal Enfield Classic 350 'much ado about very little'. The target price for Eicher’s stock remained unchanged at Rs 2,050.

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According to the brokerage, despite not making any significant changes in design – given the cult following of the Classic 350 model, and the engine, suspension, brake, and chassis similar to the Meteor 350cc model – some of the standard features in Meteor and Honda H’ness 350 are missing.

The brokerage is of the view that the launch accentuates the difficulty that Royal Enfield will face in differentiating new launches given largely similar specs and a narrow price band.

Axis Cap also believes that the sustained success of Classic 350 is critical for Royal Enfield's ambitions. The brokerage noted that from a peak monthly run rate of 45000 units in FY18, the volume of Classic 350 has come down to ~30000 units in FY21. It also noted that the fall is impacted by a general slowdown in the 2W industry and muted demand from the replacement segment. This is closely followed by customers postponing purchases ahead of the new launch and supply chain issues at RE.

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The brokerage sees downside risks if the new model fails to create enough excitement or if there is higher cannibalisation of other models.

Eicher's performance has been disappointing on both volumes and profitability over the past 3-4 years and the significant premium valuations are unjustified. The brokerage thus reiterates 'sell' for the stock.

First Published:Sept 2, 2021 12:13 PM IST