Eicher Motors rolls back
from Apple to Coca Cola, iconic brands live in a world of their own. when it comes to them, the smallest incidents get magnified and talked about across the investing world. a football player setting aside a can of a soft drink or an electronics maker introducing a $19 cleaning cloth translates into market moves in the millions of dollars. something similar happened to Eicher Motors which saw its stock dip nearly 4% on December 20, following news that it was recalling some units of its Royal Enfield line of motorcycles to fix an issue.
is it a pitstop or a long halt?
Royal Enfield announced it was recalling 26,300 units of its Classic 350 motorcycles to rectify an issue with a brake part. overall, the Eicher subsidiary sells around 600,000 units a year, which means the recalled figure corresponds to less than 0.5% of its annual sales. but it proved enough to lead to a drop of over Rs 2,000 crore in the parent company’s market cap. one reason behind this might be that it wasn’t Royal Enfield’s first recall of the year.
in May, it had issued India’s largest ever vehicle recall when it pulled nearly 237,000 units of its Classic, Bullet, and Meteor bikes to fix a defective ignition coil. the bikes were all manufactured between December 2020 and April 2021.
it didn’t help that the recall came on a day when the benchmark indices were deep in the red, adding to the negative momentum. but in the larger scheme of things, Eicher Motors appears to be faring better than its peers of late. Royal Enfield, in particular, reported better-than-expected sales for November while most other automakers reported sales that were below market estimates. Another Eicher subsidiary, VE Commercial Vehicles, reported a 10% growth in year-on-year sales for the same month. domestic sales of Eicher trucks & buses increased by 3.5% to 3,184 units while total exports soared 65.5% to 783 units over November 2020.
despite this recent blip, Eicher Motors appears to have a solid grip on growth in the automotive sector. with pent-up demand for passenger vehicles working in its favour, it is well poised to capitalise on its brand appeal. being a proactive company that actively looks out for the safety of its customers may end up only enhancing that appeal.