Royal Enfield stages phenomenal turnaround contributing substantially to Eicher Motors' consolidated turnover
Last Monday, a Facebook page called ‘Royal Enfield’ – a virtual fan club comprising admirers of Royal Enfield’s Bullet range of motorbikes – carried photos of 65 Bullets that were charred when a truck carrying them caught fire in Gujarat.
The reactions that poured in from some of the 12,722 members of the page are a testimony to the cult status that these cruiser bikes have attained in India. “RIP Martyrs” was what one Facebook user said in an epitaph to the scorched Bullets; another member urged his peers to figure out how to get hold of the burnt chassis of these bikes and restore them.
It is exactly this kind of fan following that has helped Royal Enfield stage a phenomenal turnaround and contribute handsomely to Eicher Motors’ financial performance.
Gurgaon-based Eicher Motors acquired Royal Enfield, the oldest motorcycle brand in the world still in production, in 1993, but it is only since 2012 that the brand has seen a significant spurt in demand for its bikes, characterised by the thumping sound of the engine and iron horse build. Eicher Motors has been able to capitalise on the demand for the Bullet by helping young bikers become proud owners of a cruiser bike on the lines of the famed Harley Davidson and Triumph, but at less than half the price. Royal Enfield has launched as many as three new models of the Bullet (Classic, Thunderbird, and Continental GT) in the last four years to cater to the rapidly growing demand for premium bikes in India.
At a time when Eicher Motors’ truck and bus business has been underperforming, Royal Enfield has emerged as a mitigating force. Eicher Motors reported a 5.5% year-on-year growth in topline to R7528.60 crore in FY13 (the company follows a financial year from January to December). The company’s net profit grew 10.6% in the same period to R525.38 crore.
In fiscal 2015, from April till date, Royal Enfield has delivered around 1.8 lakh motorcycles and hopes to end the year with aggregate sales of around 3.3 lakh, which would make FY15 the best ever for the company in terms of sales. Between fiscals 2010 and 2014, Royal Enfield’s sales have quadrupled to 2,02,759 units. The sales volume data for Royal Enfield is gathered from Society of Indian Automobile Manufacturers (SIAM), which reports volumes on an April-March financial year basis.
The contribution of Royal Enfield’s business to Eicher Motors’ consolidated turnover has scaled up from 12% in 2010 to around 38% at present.
“Motorcycle business has been on the upside for Eicher Motors. Till about two years ago, Royal Enfield did not have enough capacity, which it is ramping up now,” Yashesh Mukhi, an auto sector analyst at Morgan Stanley said.
The bike maker has also announced that it will be acquiring 50 acres of land near its Oragadam unit in Chennai for a third facility, which will have a capacity to produce 5,00,000 units per year.
“We see this acquisition (of additional land) before Oragadam hits its full planned capacity as an indicator of the management’s confidence in future demand for its products. We forecast sales volume compounded annual growth rate (CAGR) of 27% for 2014-19,” said Sumeet Jain, an auto analyst at Goldman Sachs.
At present Royal Enfield has 350 sales outlets only in 250 cities, which is paltry compared to the network of bigger rivals such as Hero MotoCorp and Bajaj Auto that have 800 primary dealers covering more than 600 cities on an average. Royal Enfield expects to expand its dealer network to 600 cities over the next five years.
In an analyst call held in November, Siddhartha Lal, managing director and chief executive of Eicher Motors, said that Royal Enfield was sharpening its focus on smaller Indian towns and cities as demand for its products was on the rise.