Team-BHP - Royal Enfield: Their tremendous growth...and the challenges ahead

Awesome article on www.indiaautoreport.com. For someone who doesn't follow the motorcycle market, I found it to be an eye-opener in many ways. Good insights & analysis.

Link to Full Article

Excerpts:

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Over the last three years, Royal Enfield has nearly quadrupled its sales. To make it sound even more impressive, REML’s sales in 2015 were nine times its sales in FY 2008. This is a CAGR of 36.87% over the last seven years and a CAGR of 60.39% over the last three years.

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It completely dominates all the SIAM defined segments that it participates in. It also outsells all the import large capacity bike brands, all taken together.

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REML’s explosive growth was kick started with the launch of the Classic range in 2011. While Royal Enfield always had character, the Classic brought in style and a build quality a few notches above the traditional Royal Enfields. The company was left fighting waiting lists for the next few quarters as the production capacity was woefully inadequate.

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However, and there is always a however, the company has been over dependent on the Classic. As of recent data, the Classic range (350 & 500) account for more than 55% of the company’s overall domestic sales.

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However, the domestic response has been cold. Introduced in November 2013, the Continental GT’s domestic dispatches peaked in April 2014 at 388 units. Over the past twenty months, sales have been patchy with an average of little more than 200 units a month. REML dispatched 26562 units (twelve month rolling average dispatch volume) of its 350cc range in June 2015. The same month, the Continental GT dispatches stood at 198 units.

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As of June 2015, 346cc machines accounted for 89.5% of dispatches

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Parts & Accessories and Merchandise (PAM) sales are the cream for most heritage brands. For some like Ferrari, they are the core business. For others like Harley-Davidson, a much better comparison, they account for nearly 17% of revenues. For Royal Enfield, they are in the nascent stages of development.

I remember RE struggling to make sales due to lack of demand during the early and mid 1990's. They bounced back with the launch of AVL 350cc Thunderbird in 2003 which to many was an eyesore and looked down upon in comparison to the 350 CI's. I am deliberately not bringing in the 500cc CI and AVL LB as they hardly made any impressive sales. It was Siddharth Lal's brainchild to introduce a proper cruiser in the form of Thunderbird AVL 350 to break away from the classic mould and that proved to be a good decision. I remember during early 2000's people used to buy RE Thunderbird over other models from RE because of different looks, 5 speed gearbox and the conventional left side shifter(although CI Electra and AVL LB Machismo too had a 5 speed gearbox with left side shifter but Thunderbird surged ahead in sales). The same trend was repeated after 7-8 years when RE decided to experiment yet again with the Thunderbird by plonking in the UCE motor in 2008-2009. Yes Thunderbird was the first model to sport the UCE engine. People noticed this and the sales started rising slowly.

Then came in the game changer model for RE. The RE Classic 350 and 500. This created a sales revolution for RE from 2010 in such a way that RE till date struggles to meet their sales orders and subsequent deliveries. Their share prices have shot up and their sales are still going strong. They are also going to launch a radically different model apart from their regular offerings. Yes the RE Himalayan. The original Thunderbird has shown them that market needs a change and buyers need a change and they are catering to it. Although the technological and engine changes have not been much to boast about. But yes the company has had a successful turnaround during the last 5-6 years.

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Originally Posted by tsk1979 (Post 3769051)

I guess equally impressive is the steep rise in share price of Eicher motors.
While other companies have gone up and down, Eicher is going up up and away.
I read somewhere that a few lakhs invested just 10 years back would now be worth many crores!

Yes, the example goes somewhat like this:
I bought T-bird for about 85K in 2003-04.
Eicher's stock was about 200.
The same stock is today about 20000.
100 times appreciation in a decade.

If I had bought Eicher stocks instead of T-bird, I would be owning cool 85 Lakhs today. So if someone would've bought Eicher shares instead of buying the bike, he would be sitting on a crore!

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Originally Posted by navin_v8 (Post 3769074)

:)
It was eyesore only to a limited coterie of hard core Bulleteers.
T-Bird was THE thing, when it came out, to the rest of India.

Eicher Motors (Royal Enfield) and Page industries (Jockey india) share the same story and they have become huge wealth creating shares in equity market.

The future of Royal Enfield is set to boom because of the growing demand and they are making sure the supply output is at par too. They expanded initially in 2013 producing 150000 bikes a year which was also not enough, in 2015 the output reached 300000 units a year and at the end of 2015 this is also being expanded to 450000 units a year. Which is phenomenal !!

The newer models are already creating a huge buzz with the announcement of 3 new models starting from 2016 every year. This is mainly because of the number of classic models selling is crazy, which helps the other models sell as a variant too and they are making sure that the newer models benefit from this too.

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Originally Posted by navin_v8 (Post 3769074)

I remember RE struggling to make sales due to lack of demand during the early and mid 1990's. They bounced back with the launch of AVL 350cc Thunderbird in 2003

It was 2002 that the TB was launched. The same year RE had made significant changes to quality and noise emission control.
It was a small bounce, not one that made any significant changes to RE.

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Originally Posted by navin_v8 (Post 3769074)

It was Siddharth Lal's brainchild to introduce a proper cruiser in the form of Thunderbird AVL 350 to break away from the classic mould and that proved to be a good decision.

The AVL engined Thunderbird was the replacement for the epic Lightening 535 which was plagued with engine issues from the factory. The engine was already available since 3 years which was on the 4sp Machismo 350 and left side shifter was already experimented earlier on the City bike , but was a crude excuse for a left side shifter with underbody linkages. The break through on the TB was the 5sp box with the left side shifter which was I feel the big change and of course a whole new model to fit it on.

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Originally Posted by navin_v8 (Post 3769074)

The same trend was repeated after 7-8 years when RE decided to experiment yet again with the Thunderbird by plonking in the UCE motor in 2008-2009. Yes Thunderbird was the first model to sport the UCE engine. People noticed this and the sales started rising slowly.

I felt that the surge occurred much after the TBTS was launched.
Yes, the UCE is what did it , but with the combination of that in the Classic made it a runaway hit.
-Left side shifter
-Lower height due to the smaller rims
-Still looks like the Bullet but much more classier
-An engine that provided power as well as fuel mileage to compete with 150cc bikes.

All good though I have one point against RE which is they are slow in evolving and of course the niggles.

RE has been one BIG turnaround story.

My mechanic summed it up well "Saar, a decade a ago we had a stool in front of the garage where we would sit and wait for customers. Now, I have hired 7-8 people and still am able to deliver bikes only after 2-3 days just for sevicing."

How i wish i had bought Eicher stocks in 2005 instead of my Electra 4S. I could have bought a Harley now. :) I have no regrets though, i still enjoy the bike and get offers for the bike that are higher than what i paid back in 2005. clap:

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Originally Posted by deep_bang (Post 3769395)

I am sure there is a pretty big crowd whose thinking is similar to mine.

Count me in it...Was one of the biggest critic of RE and their products (Machismo & all their Bullets). But the TB is a very practical solution for travelling. Me coming from a background of RD riding it was a welcome change as I could get people to attend and more importantly spares without much of a hassle.

The TB did convert me though.

Royal Enfield ought to offer a Continental GT based motorcycle with a 2 passenger, flat bench seat, handlebars from the Classic or T-Bird and foot pegs and controls relocated to the more customary, "normal" position.

This would offer the power increase of the 535, the improved brakes and suspension and frame in a package that would better suit the average rider and family.

The tooling/production costs to build this hybrid would be next to nothing and the conventional riding position would be very attractive to the middle and older aged people who are in a financial position to be afford to buy it.

As a sidenote, I rode my Honda 400F, 4 into 1 exhaust, cafe racer for many miles back in the mid 1970's.
It was a great bike for riding in a "racy" position but it was quite frankly, a pain to ride for long distances.

By changing the handlebars and foot pegs to allow a more normal seating position and adding a small windshield (not a flyscreen), it became a joy to ride.

I didn't think twice about taking it on 200 mile ( 300+ Km) trips and often did just for the enjoyment of riding it.

With a few minor, low cost changes, the Continental GT could become a very attractive, long distance, motorcycle for all riders. :)

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Originally Posted by ArizonaJim (Post 3769629)

On more than one occasion I have seen factory Continental GT bikes with exactly same modifications in the service station. The handlebars were from the classic and not from Thunderbird. And when I spoke to the factory rider he confirmed that the ride is much more comfortable, especially within the city limits. So they know the advantages but not sure if they will come out with the changes. I had seen a bike with similar modifications on the OLX portal. The owner had got in done my one of the local mechanics. The foot pegs position wasn't changed. The budget for the changes came to about Rs.10,000/- which I didn't want to spend...

After riding happily for 10 years on my Avenger 180, I am planning to change (read upgrade) my 2-wheel ride.
I have been Seriously considering RE bikes (500cc engine range only)
Here is my take on RE Bikes:

Good bits:
Less waiting period now.. Thank God.
Heavy and planted feel.
Good torque.
Overall retro looks.

To improve:
Accessory range.
After sales service.

Pathetic bits:
Rusting at certain joints.
Vibration.
Lack of refinement/finesse compared to those in the bikes it is trying to compete (read Street Range).

10 years of ownership of Avenger has costed me only Rs. 500 (right side mirror replaced twice, horn replaced once) over and above usual service cost and usual wear and tear. No tantrums ever!

Ofcourse I am looking for an upgrade which takes refinement and reliability to a next level. And at right this point RE puts me in doubt. There are several good bits in addition to the Retro feel in Royal Enfield bikes, but vibration and lack of refinement is something I want the last thing in my rides. And I am sure there are other potential buyers too who have marked these demerits in RE and are considering other options.