Sunday, 26 March 2017

Royal Enfield: Eicher's unconventional CEO Lal is driving firm in top gear

Not every promoter chief is a strong brand ambassador for the company. But 43-year-old Siddhartha Lal is an unconventional CEO and synonymous with the product that has made the company what it is. “Siddhartha is Eicher’s biggest asset,” says R L Ravichandran, former CEO of Royal Enfield.

Lal, the managing director and chief executive officer of Eicher Motors, was in his mid-twenties when he jumped into the family business to look after Royal Enfield, a loss-making unit. That was in 2000, when the Eicher board was about to decide on shutting down or selling the motorcycle business. He believed in the product and wanted to give it a shot.

He spent time between Chennai (where Royal Enfield’s Bullet plant is located) and the Eicher headquarters in New Delhi, taking stock of the problems. He visited several dealerships to gain customer feedback on the vehicle. The Bullet was revisited, a new engine was brought in and problems were addressed. Lal also revamped dealerships and gave the motorcycle a new look. A connect with the buyers was reinforced through company-organised rides for owners. He sold the tractor business and raised money to invest in Royal Enfield. Royal Enfield motorcycles now enjoy a waiting period of two-to-three months and wide popularity across the nation, and account for more than two-thirds of the company’s profit.

Within the span of a decade after Lal took charge, Royal Enfield’s gears had reversed: The low capacity utilisation of early 2000 was giving way to a capacity constraint. The pull of Royal Enfield motorcycles created the need for capacity expansion and the company opened a second manufacturing facility at the existing site in Tamil Nadu in 2013. Expanding its portfolio, Eicher introduced a new category of vehicle in June 2015, calling it the country’s first personal utility vehicle (PUV). Multix, the PUV, is being manufactured through a joint venture with US-based Polaris Industries and is targeted at independent businessmen.

While Eicher now has a wide portfolio that includes trucks, buses, PUVs and motorcycles, it is Royal Enfield products that stand tall in the country and within the company’s portfolio of products. The reason: In the consolidated group profit for 2015-16, 82 per cent is accounted for by Royal Enfield alone, while it accounts for just 40 per cent of the group’s revenue. In 2015-16, the company posted a 43.6 per cent growth in consolidated revenue to Rs 15,689 crore, while net profit surged 66 per cent to Rs 1,278 crore. Profits in the first three quarters (April-December) of 2016-17 also soared 57 per cent to Rs 1,117 crore.

The market has saluted this performance. Eicher’s stock price has multiplied several-fold, rewarding investors who have shown trust in the growth commitment demonstrated by the management. Eicher remains debt-free and is highly profitable. The listed company enjoys a market value of almost Rs 66,000 crore and is the second most-valued two-wheeler manufacturer in the country after Bajaj Auto.

Royal Enfield virtually rules over the whole of the country’s mid-size motorcycle market (bikes with an engine capacity ranging between 250cc and 750cc). In this segment, it has a 95 per cent market share. From a mere 52,000 motorcycles in 2012, production rocketed to over half a million units in the year ended March 2016. This is directly correlated to the widening product range under the Royal Enfield brand. The company is investing in a new greenfield manufacturing unit that will almost double annual motorcycle capacity to 900,000 units by 2018.

Royal Enfield has been investing in building strong foundations across all areas of its business. It is investing Rs 600 crore towards product development, setting up technical centres in Chennai and Leicestershire, UK, and enhancing manufacturing capacity and market development activities across geographies. Post-demonetisation, when all top selling two-wheeler brands are posting sales declines, Royal Enfield motorcycles are reporting high double-digit growth.

This success is not limited to Indian borders. These motorcycles are exported to over 50 countries across the world, including the United States, the UK, Japan and several countries in Europe, South America and Asia. Lal’s international ambitions are the reason why he relocated to London along with his family in August 2015. He is now working to make Royal Enfield a global brand and is opening sales outlets in places like London, Paris and Madrid. While India continues to be the mainstay for Eicher, Lal believes that the next level of growth will also come from developing the international business.

The success of Royal Enfield has attracted more companies into the segment. Bajaj Auto forayed into the space in December 2016 with the launch of Dominar, but Lal is not worried. “People who like us will come to us. We will continue to work on the brand, retail and marketing. People who are part of the Royal Enfield family continue to stick to the brand. They like what we do after we sell them the motorcycle,” he said, referring to the rides and activities around the brand.

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