The Royal Enfied Interceptor 650. (Source: BloombergQuint)

Royal Enfield Bets On Bigger Engines To Grow At Twice The Industry’s Pace

Eicher Motors Ltd. is betting on bigger engines, a category that has not worked for India’s largest leisure motorcycle maker yet, as it faces first competition in its bestselling 350cc market.

“The premiumisation trend in India continues,” Managing Director and Chief Executive Officer Siddhartha Lal told BloombergQuint in an interview. “People still want to go from commuter bikes to leisure motorcycles which also offer them good commuting opportunities. So, our general aim is that we want to continue to grow at double the industry’s pace.”

Its 350-cc models, especially Classic 350, has been the bestseller for more than a decade after Lal revived the World War-era iconic British brand. Traditionally a truckmaker, Royal Enfield powered Eicher Motors into the league of India’s largest automakers. But it finally has competition in India. Mahindra & Mahindra Ltd. revived the Jawa brand after 22 years by launching two bikes targeted at the 350cc segment.

Lal said the company is aware of potential competition and has been aggressively investing in brand, research and development and distribution even as the costs rise. That’s why it wants to move up the value chain, he said, as it offers a room to pass on higher costs.

Still, Royal Enfield has had a chequered track record in the 400 to 700cc segment that contributes nearly 7 percent to its volumes. The Himalyan failed to make a mark. The company hopes to change that with the Interceptor and the Continental 650 starting at Rs 2.65 lakh . While these bikes are costlier than the Classic 350 (starting at Rs 1.39 lakh) but are still cheaper than Harley Davidson, BMW and Triumph motorcycles that cost more than Rs 5 lakh. That market is on Lal’s radar.

“The three-and-a-half million customers who are riding a Classic 350 have been asking us for something more,” he said. “A reason we chose not to do smaller bikes.” Also, the company figured that around the world people don’t want race bikes anymore, he said. “That was the 90s.”

Lal On International Markets

  • Expects Interceptor to do well globally similar to what the Classic 350 did in India.
  • Looking to ramp up in select countries.
  • Have seen strong response and traction in countries like Thailand, Columbia.

On Domestic Market

  • Classic 350 has done exceedingly well in India.
  • Have not been sitting still, have been aggressively responding to competition.
  • Brand, research and development, distribution will provide an edge over competition.
  • Costs are going to go up for the entire industry due to reasons like BS VI.

Also read: Q2 Results: Eicher Motors’ Profit Misses Estimates

Watch the interview here

Here are the edited transcript:

You have kept Interceptor 650 popular not only in the domestic market but also in the international markets. What is your product placement strategy for Royal Enfield in the domestic market as well as for the international operations?

It’s a huge achievement to win the Indian motorcycle of the year award. It means a lot, especially with the competition around. It’s a big testament to Royal Enfield and our new way of doing things. Our new idea of doing less and putting a huge amount of time and infrastructure investment behind our new products is a totally different process. We’ve done exceptionally well in India over the last decade and it’s been on the back of one product - the Classic 350. Of course, everything else has also risen but it’s sort of the wave that rose from the Classic 350. So, we’ve been looking for the next big one and really what we believe is that what the Classic 350 did for us in India, the Interceptor 650is going to do for us in global markets including our second wave in India. The three and a half million customers who are riding a classic 350, they have been asking us for something more. They have been saying that look we’ve loved your motorcycles, but I don’t want to upgrade to a 500cc. 350cc to 500cc is still the single, it’s still the same idea. We want something quite different andquite a big jump up. And that’s the reason we chose not to do a 250cc or smaller bikes. We said let’s make something which our guys are asking us for.We have customers, they are asking us for something, so let’s do that rather than trying to do something totally different. Also, what we figure is that markets around the world, people don’t want race bikes anymore, that was the 90s. People now something that is really fun, engaging, simple, old school but entirely modern in its underpinnings. and that’s what the Interceptor is. So,this does the job for both, Indian upgraders and international markets around the world.

You’ve been focusing a lot on the International markets. How are you placing your products in international markets? Especially South America and Southeast Asia. and what kind of traction are you getting there? Also, about vintage stores. How are you playing the distribution game in the international markets?

We really believe and have a long horizon on international markets. It’s not really important for us to sell a lot of motorcycles today in international markets. What’s really important for us is to set the stage for us to become really big in a few markets so that we can call 2 or 3 other markets as home markets in the next 10-15 years. That’s the game. On the back of that, we can get into even more markets and the way we are going about is that we’ve seeded a few markets around South East Asia and Latin America, in addition to being present in North American, Japan, and Europe which are heritage markets. They like Royal Enfield but they are not the biggest markets in the world anymore. India-like markets which are commuter upgrade markets are southeast Asia and Latin America. We have really nice RE stores in Bangkok, in Jakarta, in Sau Paulo. What we did was, we gauged the reaction of customers. Initially, we thought that Indonesia would be the perfect market for us because after India is the biggest market for motorcycles. But then what we’ve discovered is that the traction in Thailand, because of the stores is much more and the market is a bit easier to enter from a different perspective. So, we are putting more energy behind Thailand. Only when you are into a market you understand how tricky it is. In Brazil we’ve understood. It’s one of the most difficult markets in the world. Its dominated by the Japanese., They control everything there. The banks, the transportation channels, the supplies, they control everything. So how do you make a breakthrough in a market like that? This is the learning curve. So we are investing in people, in time to learn. Once we learn we can make bigger and bolder bets. It sounds a bit slow but for us, we think that the right way to go in the long term.

On the competitiveness of the marketplace. Jawa is coming back and Bajaj is launching new products. So there are a host of new products which are hitting the markets. Your volumes are quite stable despite the competition but then how are you gearing up to face competition that is targeting Royal Enfield?

There are a lot of new motorcycles now in the mid-size space that have come up in the last many years. And actually that is a testament to our success if we’ve seen ourselves do exceptionally well. We have Grown from 50,000 bikes sales ten years ago to 900,000 or something like that annually. There are a lot of Me Too brands, there are a lot of brands trying to do different things as well. And a lot of brands try to target us. In one sense that’s good because it increases the excitement in our segment. We are the market leaders... If we grow the segment that comes in our favour. On the other hand, we’re not sitting still. As you can see, we’re making some awesome motorcycles. The Interceptor is the first of a completely different way of making motorcycles for RE. It’s sublime, Its smooth, it’s gorgeous, it does the job like very few other motorcycles in the world can. So we’re not sitting down and waiting for others. We are working extremely hard., We got a lot more interesting motorcycles and our existing motorcycles are rising up and doing interesting things. There’s are a lot of evolution there’s a lot of revolutionary motorcycles which are going to come out of Royal Enfield. and it’s our distribution it’s our ecosystem it’s our brand. It’s all the stuff we’re doing so... sure there’ll be other people. But I don’t think we can hold on to a 90 percent plus kind of market share in 250cc plus segment. That’s not our objective. But our objective is to grow the market and be the largest and most dominant player and that’s still our objective in India.

The festive season has been muted for most of the auto companies. You have delivered single-digit growth. There were bottlenecks ate your Chennai plant which is getting resolved. So in this scenario, where the demand is muted, waiting periods have come down, how do you see demand shaping up for the next quarters?

For us, we’re now being subjected to the vagaries of regular business. It’s new for Royal Enfield. For the last 8-10 years, whatever happened in the market never affected us. We grew at a pace much faster. Really, the main thing is that the premiumisation trend in India continues. People still want to go from commuter bikes to leisure motorcycles, which also offer them good commuting opportunities. So our general aim is that we want to continue to grow at double the pace. That sort of the direction we set for ourselves for the industry. We are not going to grow at the heady 50 percent growth rates unless you get something like this (Interceptor) which is off the charts. In the first couple of months or so since we started bookings, it has been way better than we expected. In a general way we should grow at double the pace of the industry and if some breakthrough happens, it could be even quicker than that.

Investors adore your passion for motorcycles but they also talk about profitability in a challenging environment where commodity costs are moving, currency is volatile, input costs are moving up. How are you looking at pricing in the marketplace? Are you looking at passing on most of those prices hikes to customers? How is the marketplace behaving in terms of pricing?

We’re by far the most profitable in terms of percentage to net sales two-wheeler company in the county, in the world. It’s really up there. This has come as a result of being extremely single-minded and focused and doing a few things, doing them exceptionally well. and focusing on the brand and creating desire. That’s what RE is all about. Creating desire. So there will be ups and downs and things are going to change. Commodity prices, BS VI, those things are going to happen, they are going to affect our costs. We will be ready in time for BS VI. There are costs pressures, but we’ve have been able to pass on the costs increases to customers. Sometimes it goes through a bit of ups and downs especially when there’s a big increase—2-3 percent because of material costs its fine, 20 percent increase or 15 percent increase because of rear disc brake, insurance gets a bit tough for consumers to swallow, and BS VI is going to be another jump. So there are things we have to sort of work up, maybe catch it up rather than give it one big notch up. So we are learning also how to pass on these type of costs and how to pull the market up really. But the costs are going to go up for everybody.