Rumours have been floating around for a while now about Ducati to be sold by Volkswagen's premium car brand Audi. The German brand has been contemplating the sale of the motorcycle brand owing to the heavy losses due to the dieselgate emission scandal which in turn led to poor sales of its cars and major recalls across the world. Now, these rumours about the sale of Ducati by VW group have further led to the news of an Indian motorcycle manufacturer buying the Italian brand. The Indian company in question here is Royal Enfield as per a report in Times of India. Although, according to the same report, Siddhartha Lal, Managing Director, Eicher Motors declined the news. But, what if these rumours turn out to be true? How will it help in strengthening Royal Enfield's portfolio and prove beneficial to both companies in the long run? Here is a break up of this news turning out to be true, if it happens.
Royal Enfield's brand image
The Indian company that has been present for decades has had its best year so far. A part of Eicher Motors, the brand sold 6.66 lakh units in FY 2016-17 compared to five lakh units in the fiscal year before it. The brand grew by 31 percent and has been listed as one of the most profitable automotive companies in the country now. The fiscal year that went by witnessed the Eicher Motors group growing to Rs 3,500 crore mainly due to Royal Enfield. It is a good time for the Indian motorcycle manufacturer to invest in a company like Ducati as it would enable in sharing technologies and getting access to the premium motorcycle portfolio across the world. The deal would be more critical for Royal Enfield as it has been using the 'dated' OHV (Over Head Valve) engines for a considerably long time where competitors in its segment have moved up to lighter, more fuel efficient as well as more reliable technologies. The only new engine from the company was the new 410 cc motor that was introduced in the recently launched Royal Enfield Himalayan but it too leaves a lot of room for improvement when compared to the competitors.
Also Read: Royal Enfield 750cc twin cylinder motorcycle spied again, to launch later this year
Ducati's entry in Royal Enfield's portfolio will enable the Indian company to get access to new and relevant technologies, especially in the electronics domain, where Royal Enfield has little presence right now. The deal will also improve the brand's global image to a considerable extent, similar to what happened to Tata Motors' image after buying Jaguar Land Rover. The company should also look at the purchase of Ducati as a means of expanding its portfolio of larger displacement motorcycles if it wants to go global. Royal Enfield is already working on a new 750 cc motorcycle for the Indian market which has been spied a few times in Chennai. The motorcycle will open up a new segment of customers for the brand as it is expected to be priced at around Rs 3 lakh.
How much will it cost Royal Enfield to buy Ducati if it happens?
Volkswagen asked an investment banking boutique, Evercore, to assess how much would Ducati cost. According to reports, the Italian motorcycle brand could fetch about 1.5 billion euros, which is approximately Rs 10,500 crore. This would be a good opportunity for Royal Enfield to cash in and take the leap of faith as it is the most prosperous brand in the Eicher Group's portfolio. The acquisition could also help in the development of newer technologies such as new engines for its existing line-up along with new introductions. The current generation of Royal Enfield motorcycles includes the Classic, Thunderbird, Himalayan and Continental GT which have been doing well but can do even better.
A good example that Royal Enfield can refer to is the acquisition of Jaguar Land Rover by Tata Motors. There is a slight witness of the JLR technology silently coming in the new Tata cars like the Hexa. The Indian car company in question here grew by 23 percent in the passenger vehicle sales sector. Such learnings and technology sharing would be beneficial to Royal Enfield if it buys Ducati.
The automotive sector is evolving, so should Royal Enfield.
Royal Enfield boomeranged to success when Siddhartha Lal took charge, but, it has a long way to go where its competitors already are. Safety features such as ABS (Anti-lock Braking System) are coming in more affordable motorcycles, which offer the added peace of mind to a potential buyer. One thing that is working for Royal Enfield is its cult following in India, however, getting Ducati on board would make this an even sweeter proposition as one may, later on, see the Italian motorcycles being locally assembled, possibly manufactured. This would bring down their costs by a considerable margin without the compromise on quality. Keeping the old age engines with better technologies is good, but, would not prove to be beneficial to a potential buyer in the long run as customers now want a motorcycle that is reliable and does not burn a hole in their pocket. Another side of the coin is the lack of the aforementioned safety feature and more on Royal Enfield motorcycles which would eventually come in the entry-level motorcycles from the Indian motorcycle manufacturer's stable. What can be gathered from this rumour is that Royal Enfield would lose a good opportunity here if it does not buy Ducati, which should be the other way round.