Report Published as on 2nd August 2024
| Ticker | EIM IN |
| Company Name | Eicher Motors Limited |
| Shariah Compliance | PASS |
| DP-Ratio | 1.95% |
We have conducted a comprehensive review on Eicher Motors Limited from a Shariah point of view and analyzed its sources of income to know whether they are complying with Shariah principles.
Eicher Motors Limited is a prominent Indian automotive manufacturer known for its diverse range of products, primarily in the commercial vehicle and motorcycle segments. Established in 1982 and headquartered in Gurugram, India, the company is renowned for its flagship brands, including Royal Enfield and Eicher Trucks & Buses. Royal Enfield, a globally recognized motorcycle brand, is celebrated for its classic and retro-styled bikes that cater to a niche market of motorcycle enthusiasts. Eicher Trucks & Buses, on the other hand, focuses on producing a wide array of commercial vehicles designed for both urban and long-haul transportation, with an emphasis on durability, efficiency, and technological advancement.
Eicher Motors operates through a vertically integrated model, encompassing various aspects of design, manufacturing, and distribution. The company’s operations span multiple facilities, including state-of-the-art manufacturing plants and research and development centers, which contribute to its innovation and product development efforts. Eicher’s commitment to sustainability and efficiency is reflected in its ongoing initiatives to enhance vehicle performance and reduce environmental impact. By continuously investing in technological advancements and expanding its global presence, Eicher Motors aims to maintain its leadership position in the automotive industry while addressing evolving consumer needs and regulatory requirements.
Let’s have a look at the operating segments from which the company derives its revenue and apply the Shariah screens to them:
Segment Breakup (In millions of USD)
For the year ended 31st December 2023.
| Segments | Revenue | Non-Permissible Revenue | % of non-permissible revenue | Non-permissible segment classification | Comments |
|---|---|---|---|---|---|
| Commercial Vehicles & Motorcycles | 14442.18 | – | – | – | – |
| Profit on sale of property, plant and equipment | 1.83 | – | – | – | – |
| Other income | 49.77 | – | – | – | – |
| Grant income on soft loan from SIPCOT | 45.75 | – | – | – | – |
| Change in inventories of finished goods, work-in-progress and traded goods | 63.25 | – | – | – | – |
| Total | 77,794 | 2,493 | – | – | – |
Tricky Areas in Shariah Compliance For Eicher Motors
Commercial Vehicles & Motorcycles: While the sale of commercial vehicles and motorcycles itself is generally permissible, potential Shariah concerns arise based on their usage. If these vehicles are employed for activities contrary to Islamic principles — such as transporting prohibited items like alcohol or engaging in gambling operations — the revenue from their sale could be problematic. Ensuring that end-use does not violate Shariah principles is crucial. Profit on Sale of Property, Plant, and Equipment: This revenue segment is typically permissible, but scrutiny is needed regarding the nature of the assets sold. If the property or equipment was previously involved in non-Shariah-compliant activities or if the sale proceeds are used for impermissible purposes, it may raise compliance issues. Other Income: This category requires careful examination as it may include various sources of revenue. Key concerns include whether any of this income derives from interest-bearing activities or investments in non-Shariah-compliant sectors. Grant Income on Soft Loan from SIPCOT: Grants and soft loans are generally acceptable; however, the conditions and usage of these funds need to be reviewed. The compliance issue arises if the grant or soft loan is used to finance activities that are not Shariah-compliant, or if the loan involves any form of interest. Change in Inventories of Finished Goods, Work-in-Progress, and Traded Goods: Adjustments in inventory valuation are usually acceptable, but the nature of the inventory must be considered. If the inventory includes items related to prohibited activities, this could raise compliance issues.
Let’s have a look at the non-operating revenue of the company.
Non-operating Revenue (In Lakhs of INR)
All figures in Lakhs of INR for the year ended 31st March 2023.
| Segments | Revenue | Non-Permissible Revenue | % of non-permissible Revenue | Non-permissible segment classification | Comments |
|---|---|---|---|---|---|
| Gain on financial instruments at fair value through profit or loss (mutual funds) | 301.12 | 301.12 | 100 | – | Investment Income |
| Finance income on lease | 0.7 | 0.7 | 100 | – | Investment Income |
| Fx | 19.46 | – | – | – | – |
| Share of profit of joint venture (VE Commercial Vehicles Limited) | 315.17 | – | – | – | – |
| Total Non-Operating income | 636.45 | 301.82 | 47.42 | – | – |
It is clear from the table above that the non-operating income of the company includes gains on financial instruments and finance income on lease which is Shariah not compliant. This amount is included for the calculation of the Sector Compliance and Dividend Purification.
Sector Compliance Calculation
| Particulars | Amount |
|---|---|
| Total revenue | 15415.71 |
| Non-permissible operating revenue | 0 |
| Interest income | 0 |
| % of non-permissible revenue | 0 |
| Sector compliance | Compliant |
Dividend Purification Calculation
| Revenue Description | Non-Permissible Revenue |
|---|---|
| Non-permissible operating revenue | 0 |
| Non-permissible non-operating revenue | 301.82 |
| Total non-permissible revenue | 301.82 |
| Total revenue of the company | 15415.71 |
| Dividend Purification Ratio | 1.95% |
Financial Ratio Screen
All figures in Lakhs of INR for the year ended 31st March 2023.
| Particulars | Amount | Remarks |
|---|---|---|
| Market Cap | 897726.9 | – |
| Total Debt | 4194.4 | – |
| Debt Ratio | 0.46% | – |
Source: All the above information is based on the website of the company and the latest Annual Report for the period ended 31st March 2023.
Conclusion
Given the above information, we at Islamicly believe that Eicher Motors Limited is a Shariah Compliant company as per the Shariah screening criteria.
Been holding Eicher for a while. Good to see it passes the financial ratios clearly.
What percentage of income needs purification for this one?
The purification ratio is shown live in the Islamicly app for the latest reported quarter — it changes each filing, so we don't hardcode it here.