 "Siddhartha Lal MD and CEO, Eicher")
In a year when the domestic two-wheeler industry has struggled to report growth in sales volume, Eicher Motors, manufacturer of the Royal Enfield Bullet, with a sales growth of over 50 per cent month-on-month, emerged as the Business Standard Company of the Year. While most two-wheelers are available off the shelf, the Royal Enfield Bullet continues to enjoy a waiting period of three-to-four months.
Eicher's growth story has been scripted by Managing Director and CEO Siddhartha Lal, who took charge of Royal Enfield in 2000 when he was all of 26. Four years later, as chief operating officer of Eicher Motors, Lal took a momentous decision - he decided to divest 13 of the 15 businesses that Eicher was in, and put all money and focus on Royal Enfield and trucks, two businesses where he believed the group had a genuine shot at leadership. In 2008, he transferred the truck business to a joint venture with Sweden's Volvo.
Eicher Motors, a debt-free company, reported a 54 per cent jump in consolidated net profit in the September quarter. Net profit rose to a record Rs 286 crore, driven by sustained margins from Royal Enfield Bullet, and net sales by over 36 per cent to an all-time quarterly high of Rs 3,074 crore. Foreign institutional investors are seeing value in the company - their stake stood at 27.05 per cent for the quarter ended September 30, up from 20.06 per cent a year ago. Analysts and investors are comparing the company's journey to that of Harley Davidson's.
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The contribution of motorcycles is going to rise in the coming years. Eicher, which follows a January-December financial year, plans to double its manufacturing capacity from 450,000 motorcycles now to 900,000 units in 2018. It will also bring down the waiting period for buyers.
After having built the brand in India, the company has plans to go global. Explains Lal, "With our strength in India we want to become a global brand." He relocated to London in August last year to drive the global presence. Eicher has also made efforts in improving the retail experience for customers. Lal said, "Now we are looking at a completely different store experience."
Lal has been busy hiring professionals from global peers to drive the next phase of growth. Rodney Copes, who led Harley Davidson's geographic expansion across emerging markets, has joined to drive Royal Enfield's growth in North America. Eicher has also taken on board Pierre Terblanche, who was earlier head of design at Italian superbike maker Ducati. Eicher has also been focusing on expanding international marketing by identifying new markets. Export growth is in high double digits, though it accounts for just two per cent of sales.
During the year, Eicher also launched a personal utility vehicle, Multix, through an equal joint venture with Polaris Industries. Introduced in select states, the JV plans to scale up its presence to a national level.
In the last 15 years, Siddhartha Lal's bets have played out quite well and growth has taken off in a big way, with Eicher becoming one of the most profitable automakers in the world. The Eicher stock also enjoyed a high-speed run on the exchanges, rising 35 per cent (since the start of the financial year) to touch an all-time high of Rs 21,618 on July 21, 2015. During the year, for the first time Eicher's market cap overtook that of Hero MotoCorp, the largest two-wheeler maker. Over the last five years, the stock has gained nearly 70 per cent each year, and is among the best-performing stocks on the bourses.
| 'Royal Enfield could become the only global consumer brand coming out of India' |
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Eicher has reached where it is today through single-minded focus, having chosen to concentrate on a select few platforms. Managing Director and CEO Siddhartha Lal talks to Malini Bhupta on his journey so far and what he wants to do next Eicher has come a long way from the time you took over the motorcycle division in 2000. Did you know where you wanted to be when you started? The fundamentals were clear from the beginning. In 2000, it was clear that scale was important for any business. Some businesses can survive without scale, but motorcycles cannot. Because 99 per cent of the market was in the 100cc category, the general idea then was that we must play where the market was. But we figured that there was little chance of surviving against Indo-Japanese capability and balance sheets. |
We understood our brand and that customers liked the leisure side of it. The idea was to be in the leisure motorcycle category and grow it, because we could not copy the Indo-Japanese and be successful.
How did you go about building the Royal Enfield brand?
We did not have the money to create the brand in the conventional manner by throwing money behind advertising. We could not outshout the existing brands. We worked with customers who were walking into the showroom and used them to talk about the brand. We spent a lot of time in improving the showroom and the experience. We spent efforts on activity around the bikes. The riders talked about their experience. We built the brand organically through in-store and customer experience. It has taken us 15 years to get where we wanted to be.
What differentiates you from the others?
We wanted to put all our eggs in one basket. We have been successful in India with only one engine platform, which is unique. We keep it tight and want to retain it that way. We decided to do only one thing and move the market to where we were. Had we not created the market for higher cc motorcycles, today that market would have been close to nil.
How easy was it to convince the board and the company?
The one thing in our favour was that Royal Enfield was a very small business. The motorcycle business was not making too much money. If you look at the larger picture, my father is not like the conventional promoter who wants to hang on forever.
I was given charge of Royal Enfield in 2000 and in 2006 I took over as CEO and MD. The management gave me a free run. I had all the support, but it was not very hands-on. I told my father that if I was entering business, I would do it my way. The most heart-wrenching part for me was when I was selling the tractor business, which is where we started. I went to my father and he helped me think through it.
What is your vision for the company?
The core of "what next" can be divided into two parts. One, we recognise that our entire success has come out of India, a brand-led consumer play. Right now, we are looking at a lot of things in consumer-facing areas. Our retail experience is where we made the big efforts. Now we are looking at a completely different store experience, which is blossoming. That push is already happening and we are on a virtuous cycle.
Second, with our strength in India we want to become a global brand. Royal Enfield could probably become the only global consumer brand coming out of India. Over the next 15 years, we will build a global brand and that is the work we have embarked on. We will have to go through the same grind globally that we did in India. We have the strongest balance-sheet in the auto space.
We believe both developing and developed markets are converging. Developed markets are more into highway motorcycles (sports and cruisers) and developing markets are more about commuters. We believe that over the next five to 10 years there would be convergence. We can add an entire layer, which is accessible. Our brand will be more about being an experiential brand. It will be leisure but not luxury.
What has been your experience in other markets?
We have been present in developed markets as a quirky and off-beat motorcycle. In these markets, we have strong ambitions as well. But right now, we have not been meeting some of the basic requirements. In developed markets, our motorcycles are not highway-worthy.
In developing markets, which is a larger opportunity, we are trying to work out India-like business models. We can move the market up to a leisure motorcycle from a commuter market. These markets would be like Thailand and Indonesia, where the middle-weight market is underdeveloped. If we were to create an offering, then we can create the market there and grow it.
There are issues on service quality and spares in India…
Our service capacity was lagging. I track this very closely and we are sorted and it is as good as anyone else now. There is a lack of service centres in south Mumbai and we are looking at some other areas too.
Are you looking at partnerships to get the right technology?
We are not a leading-edge technology firm. We are followers. We are setting the standards when it comes to design. We have used a lot of external parties to acquire these capabilities. Harris Performance has done a lot of work for our chassis design. The team at Zenophya Design has joined us. What we have done is put together a team that is dedicatedly working on Royal Enfield. We are not looking at larger tie-ups.
What about acquisitions?
I like to do less and do not like taking on a lot. We have done one or two small acquisitions. I don't like to lose focus. I don't like distractions. It was a big decision to increase the number of platforms from one to two. We do get opportunities, but I am worried about losing focus.
