Disclaimer: I am not a SEBI registered adviser. All the information provided by me are for educational/informational purposes only.
Company first started in 1948 and used sell only tractors back then. Later in 1994 Eicher Group acquired Enfield India Ltd and renamed it to Royal Enfield Motors Ltd. In 2008, company formed a partnership with Volvo Group for manufacturing commercial vehicles like trucks & buses. These two deals played huge role in company’s performance.
MD of Eicher Motors is Sidhartha Lal and he is one of the reasons for the success of the company. When in 2004 he became CEO at the age of 30 he decided to cut down the segments in which the company was operating. From 15 segments he reduced it to only two segments i.e. Trucks/Buses and Bikes.
Current CEO of Eicher Motors is Vinod Dasari, who was MD & CEO of Ashok Leyland, having three decades of experience in manufacturing sector.
Market Share & Revenues
- Royal Enfield is market leader dealer in the 250cc – 750cc of motorbikes with 96% share and all most 90% of the revenue comes from motorcycle sector.
- In Light & Medium Duty Commercial Vehicles it holds 29% of the market.
- Bus Segment stands around 15% of the market.
- 96% of revenue comes from India and rest is from international market.
New Things which Royal Enfield Is Trying
- They have started doorstep service, ‘Service on 2 wheels’, where your bike could be fixed at your house. This is could but can be easily copied by its competitors.
- By building Vintage Store the company has entered into the second hand market. In the Vintage Store, people could bring in their old Royal Enfiied bikes. The technicians would under take a 92-point quality check and then you could sell your bike there.
- Company has opened ‘Garage Cafe’ in Goa which a 120 seater cafe. It is also integrated with a museum-cum-exhibition center, gear store, customization area and service. Here is a short video of it.
- Company also conducts different events for bike enthusiast to participate on yearly basis. This helps a lot in creating brand image. Some of them are, Rider Mania, One Ride and Himalayan Odyssey.
Why The Share Is Falling?
- Demonetization in 2016 led to drastic fall in demand of the auto sector.
- Later in 2017 came in GST, which created some problems with functioning of the businesses in India for short term.
- Kerala is a huge market for the company, but due to Kerala floods in 2018 the demand went down.
- Mandatory requirement for Anti-Lock Braking System (ABS) from April 2019, which lead to increase in price of the bike.
- Now in 2020, the deadline which was prepone by fours year before regarding the switch of motor vehicles from BS-IV emission standards to BS-VI.
- Royal Enfield bikes comes with a premium price and this price gets further inflated due to norms on emission by the government.
- Buying a Royal Enfield bike also depends on your personality as it is a heavy bike it can be difficult to handle for some and also it makes a lot of noise which some people might not prefer.
- Enter of Benelli and Jawa Bikes, but it would be very difficult for them to take away the brand image of Royal Enfield.
- I had one problem with the annual report which was the company did not talk about their VECV segment in their ‘Management Discussion and Analysis’.
- Delivery process for the international market is very long. It takes minimum of two months to delivery a bike internationally.
Why I Bought Eicher Motors?
- The real Moat for this company is its brand. Royal does not sell bikes, it is into a business of selling you a lifestyle. I talk more about the Moat at the end.
- Almost no competition in 250cc – 750cc. The only competitors I think are JAWA bikes and Benali Bikes but they stand no where near to the huge brand value of Royal Enfield. If we look at competition in motorbike segment Bajaj and HeroMoto Corp are their competition. But I do not think them as their direct competition. Royal Enfield is a different kind of a bike. It comes with its ‘feel’ to ride a Bullet which no Pulsar or Splendor could provide.
- Talking about growth, well sustainability of current high growth rate can be questioned but a there is huge opportunity left to be explored in the international market. As the company has started seeing growth in South East Asia.
- Company is market leader in premium truck business which can benefit from BSVI norms as due to their joint venture with Volvo they have access to best technology for trucks.
- Good Key Ratios like ROE of around 27% and ROCE of 40% with a quite good of cash position standing at around 2,965 cr.
- Company plans to launch new platform in upcoming years, which provides scope for growth.
More On Company’s Moat
Like I said above that Royal Enfiled is a lifestyle and not just a bike. Royal Enfield comes with a suite of dedicated accessories manufactured by themselves . For Example, their recent launch of Twin bikes came with its own 40 dedicated accessories which also means proper design compatibility. Further, company also started ‘Make Your Own’ service where you can configure things as per your need. Like, Shell base color, finish, visor, helmets, etc. I doubt you would be getting that for a Pulsor or Splendor.
To know more about their brand value ask their customers why they bought Royal Enfield. Like in their con-call Q2 2020 the management mentioned a quote which they heard it from their one of the customers, “Hum bike nahin chalate hain, hum Bullet chalate hain”, if translate that to English the customer is saying that he does not ride a bike, instead he rides Bullet. This statement itself shows the brand value of the company in their customers mind which is never difficult to be taken away by a competitor.
Well, there also are many songs made on ‘Bullet’ which shows people’s love towards this brand. Here is one such song. There are also movies on the name of the bike.
Having such a great brand provides company with the power to charge high price for their product.
Well Moat for their VECV segment is their technology which will give them huge advantage as the BSVI norms have commenced now.
Source: Annual Reports and Conference Calls of Eicher Motors Ltd.