Royal Enfield’s production loss at more than 3,000 units so far

New Delhi | Published: February 19, 2019 3:46:53 AM

The strike at Royal Enfield’s Oragadam facility in Tamil Nadu, which started on February 13 by a section of the workforce, has led to production loss of over 3,000 units so far, people aware of the development said.

oyal Enfield , autonobile sector, automobvile industryVolumes of Royal Enfield bikes have been under pressure since August, growing in low single digits.

Pritish Raj

The strike at Royal Enfield’s Oragadam facility in Tamil Nadu, which started on February 13 by a section of the workforce, has led to production loss of over 3,000 units so far, people aware of the development said.

Workers of the Royal Enfield Employees Union had called a strike following disagreements with the management over wage revision, sudden transfer of six employees and confirmation of 520 temporary workers.

R Sampath, vice-president of the union, said production loss could go up as there has been no solution to the pending issues and there is uncertainty as to when will the strike end. “Workers who have worked for 480 days are supposed to be confirmed as per the Tamil Nadu government laws, but the company had refused to do so even after promising,” he told FE, adding that around 670 permanent employees have not reported to work since February 13.

When contacted, a Royal Enfield spokesperson said the company is working on resolving issues with workers in the best interests of the organisation and the workforce. “It is unfortunate that a certain section of our workforce has resorted to an illegal strike at our Oragadam plant in Chennai, despite the company’s best efforts and positive intentions,” the spokesperson said.

The labour unrest comes at a time when Royal Enfield — the two-wheeler division of Eicher Motors — is facing several headwinds in terms of volume and same-store sales growth, leading to cut in production guidance by the management twice in this fiscal. The company in November had cut the full-year (FY19) production guidance by 25,000 units — from 9.5 lakh to 9.25 lakh.

After Q3FY19 results, the management further trimmed the guidance to 8.7 lakh units. FE had in January reported that the company would cut output by about 50,000 units. According to Sampath, the Oragadam facility produces around 1,500-2,000 vehicles per day, and after the strike only half of that is being produced by contract and trainee workers.

This is the second time in less than three months that the company witnessed a labour unrest at its facility. Earlier, workers had gone on a strike from September 24 to November 13, which led to a production loss of 28,000 units. The other manufacturing facilities of the company in Tiruvottiyur and Vallam Vadagal continue to operate.

Volumes of Royal Enfield bikes have been under pressure since August, growing in low single digits. During November and December, volumes declined around 10% year-on-year (y-o-y) as vehicles became costlier due to rise in insurance cost and mandatory anti-lock braking system (ABS).

In January, sales fell around 7% y-o-y.

Siddhartha Lal, managing director and CEO of Eicher Motors, said during an investor call post the December quarter earnings that the latter half of 2018 was a challenging period for the two-wheeler industry in India. “Factors like increased insurance requirements, rising raw material costs and the subsequent price increase due to regulatory safety requirements impacted the momentum of the industry,” he had said.

Analysts at Jefferies had earlier said seasonal weakness in November and December post the festive season peak is likely to affect near-term volume growth given the absence of seasonality in the base for Royal Enfield.

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