Comprehensive Pack

Auto

1
• Two-Wheelers

• Overview :3

• Motorcycles : 10

• Scooters and Mopeds : 16

• Exports : 21

• Realizations : 26

• Cars & Uvs : 36

• Auto-Dealerships : 51

• Used Vehicles : 67

•Company Analysis : 78
2
 2 Wheelers: Overview

3
 Two wheeler industry grew at a CAGR of 7% between 2014-2019 with
scooters segment registering the fastest growth.

TWO-WHEELER GROWTH TRENDS

Source: SIAM, Crisil Research

4
 FACTORS INFLUENCING GROWTH

Why Scooters are growing fast?

• Improved road network in Tier 2 and Tier 3 cities and lack of public
transport
•Reducing mileage gap between motorcycles and scooters
•Gender-neutral positioning
•Launch of new models
•Steady expansion in players' dealership network
•Capacity expansion by leading players
• HMSI’s focus on Scooters

5
MOPEDS
• Demand for mopeds mainly comes from small businessmen, shopkeepers and
farmers in rural and semi-urban areas.
• Geographically, AP and TN contribute the highest sales.
• Over the last few years, Kinetic Engineering, Majestic Auto etc have shut their
moped businesses and as a result, TVS Motors is the only player in the segment
• There was a decline in moped sales in the last 2-3 years as erratic rainfall led to
poor farm income.
• But in 2016-17, TVS launched its new four stroke XL 100.This model has been
very well received in the market. The newly launched model is also being well
received in the northern states
• Moped sales constitutes 4% of 2 wheeler sales.
 Electric two wheelers to contribute ~15% of domestic two wheeler
sales by fiscal 2024

ELECTRIC VEHICLES

• The share of electric two wheelers is estimated at 1.26 lakhs in fiscal 2019

(0.6% of two-wheeler sales).

• EV share to reach ~14-16% of the total domestic two-wheeler sales in fiscal

2024 aided by favourable cost of ownership, lower battery prices and initial

government subsidy.

• Further, it is expected that scooters will adopt to electrification earlier than

motorcycles.
 The share of motor- cycles sales has dropped from 79% in 2009 1to 64%
in 2019. In contrast, the share of scooters has increased from 15% to
32% in the same period

SEGMENTAL MIX CHANGE

Source: Crisil Research

8
OVERALL MARKET SHARE

Player Market Share

2010-11 2018-19
Hero 44.8% 35%

HMSI 13.2% 28%

Bajaj Auto 20.5% 12%

TVS 13% 14%

Royal Enfield 1% 3%
Others 7% 8%

9
 Motor-Cycle review

10
 HMSI has been gaining market share at the expense of Honda and
Bajaj.

MOTORCYCLES : DOMESTIC MARKET SHARE

Source: SIAM, Crisil Research

11
MOTORCYCLE SUBSEGMENTS
•Motorcycles are classified as

economy, executive and premium,

depending on their launch price

and engine capacity.

• Share of premium and economy

sub-segments are on the rise while

that of Executive sub-segment is on

the decline.
Source: SIAM, CMIE
12
 Hero lead this segment with 72.4% market share.

MOTORCYCLES SUB-SEGMENTS • Hero continues to dominate

ECONOMY the economy sub-segment
with its CD Dawn Deluxe
range of models.
• Bajaj Auto occupy the second
position post the upgrade of
CT-100 and Platina in FY19.
• In the absence of new models,
TVS Motors, lost its market
share in the segment from
20.2% in fiscal 2013 to 5.4% in
Source: SIAM, Crisil Research fiscal 2019.
13
 Hero is the undisputed market leader in the Executive sub-segment

MOTORCYCLES SUB-SEGMENTS
EXECUTIVE • Hero is the undisputed market

2017-18 leader with 2 top-selling models –

Splendour and Passion Plus

• HMSI increased the share through

primarily due to Honda Shine.

•Bajaj lost considerable market share

despite launching several models of

the Discover series

Source: SIAM, Crisil Research

14
 Royal Enfield, TVS and Bajaj dominate the premium segment.

MOTORCYCLES SUB-SEGMENTS
Royal Enfield retained the
PREMIUM
leadership position, with 46.2%
market share in fiscal 2019.

TVS' market share stood at

second position with market share

of 26.9%, mainly on account of
strong demand for Apache 160R
and the recently launched RR310.

 Bajaj holds third position with

17.8% market share mainly due to
Pulsar and Avenger series.
Source: SIAM, Crisil Research
15
 Scooters and Mopeds

16
 HMSI is way ahead of others in the scooters segment but it’s share
marginally dropped in FY 19.

Scooters Market Share • HMSI is the market leader

with Activa with a huge lead
over others.
• But Honda Grazia failed to
make a big impact and hence
the drop in share in FY 19
•TVS gained market share after
2013-14 with the success of
Jupiter and Ntorq 125.
•Hero is the third player with
models like Maestro, Pleasure
and Duet.
• Hero did not launch new
models post 2015.
Source: SIAM, CRISIL Research
17
 Expected Growth Trends

18
 Two wheelers sales to grow at a tepid pace in the long run.

FUTURE GROWTH

Source: SIAM, CRISIL Research

19
 Electric Two Wheelers is expected to grab 15% market share in 2024.

FUTURE SEGMENTAL CHANGES

Source: SIAM, CRISIL Research

20
 EXPORTS

21
 After a period of slow or negative growth for 2 years, exports picked
up after 2017.

EXPORTS - PAST GROWTH

Source: SIAM, CRISIL Research

22
 Asia and Africa form the bulk of India’s 2 wheeler export destinations.

EXPORTS DESTINATION
Share of key export destinations Share of key export destinations
(2015) (2019)

Source: DGFT, Crisil Research

23
 Exports have been shifting from Latin America to Asia and Africa.

EXPORTS SHIFT
 Asia, Africa and Latin America were major importers of Indian two-wheelers in
fiscal 2015 as per DGFT data .
 India's share of exports to Asia and Africa rose to ~70% in fiscal 2019 from ~60%
in fiscal 2015 due to demand from key nations such as Bangladesh, Nepal and Sri
Lanka.
 The share of Middle East and Latin America has declined over the same period
from 27% in fiscal 2015 to 18% in fiscal 2019.
 In Latin America, countries like Mexico, Peru and Argentina are opting for
localisation of motorcycles, thereby reducing motorcycle demand.
 Whereas demand from Nigeria (Africa) is increasing on account of increased
demand for taxi services.
 Similarly demand from Nepal (Asia) is also growing on account of improved
economic conditions and healthy demand during Dushehra (festival demand).

24
 Bajaj’s market share in exports has dropped due to over exposure to
African markets and dependence on motorcycles.

EXPORTS : PRODUCT MIX AND MARKET SHARE

Exports: Product Mix Exports: Player’s Market share

Source: SIAM, Crisil Research

25
 REALIZATIONS

26
 Realizations increased due to the combination of price hikes and
increased share of premium segment from 17% to 23% between 2014
and 2019.
MOTORCYCLES: NET REALIZATION TRENDS

SEGMENTAL SHIFT NET REALIZATIONS IN RS. 000s

27
 Bajaj has the highest realization in Motorcycles due to it’s dominant
position in the premium segment.

MOTORCYCLES: PLAYER-WISE REALIZATION TRENDS

• Bajaj Auto Ltd's realisation is

higher than other players, due

to a larger presence in the

premium segment as well as

higher exposure to exports.

• Growth in realisation was

supported by rupee

depreciation.
28
 Despite having lower market share, Bajaj is the highest profit
making 2-wheeler company due to it’s premium bikes and exports.

HERO HONDA VS BAJAJ AUTO : FINANCIAL COMPARISON

FY 2019 Bajaj Hero Eicher

Domestic Market 12% 35% 3%

Share
Net Sales (Rs. crs) 30,249 33,650 9,797

Profit after Tax 4,675 3,385 2,237

(Rs. mn)
Net Profit Margin 15.5% 10% 23%

Exports to Sales 45% 3% 6%

Volumes
M.Cap (Rs. cr) as 58,429 31,641 34,589
on 6th April, 2020
29
Source: Company Reports, Analyst Reports
 COSTS AND MARGINS

30
 Raw material costs constitute 70 to 75% of the total costs.

COST BREAK-UP

Type of Costs Percentage of Total

Revenues
Raw Material Costs 70 to 75%
Selling and Distribution 6 to 7%
Costs
Employee Costs 4.5 to 5%%
R & D Costs 2 to 3%

31
Source: Company Reports
 Steel , Aluminium and Rubber constitute the bulk of the Raw
material for motorcycle manufacturers.

RAW MATERIAL COMPOSITION ( MOTOR CYCLES)

32
Source: Industry
 S&D and Employee costs have been showing an upward trend.

NON RAW MATERIAL COSTS

33
Source: Industry
MARGINS AND PROFITABILITY

34
 Capacity Utilization improved in FY 2018 and 2019.

CAPACITY UTILIZATION TRENDS

Capacities and utilisation rates of
players (fiscal 2019)
Overall Capacity Utilization

Source: Crisil Research, Company Reports

35
 Cars & UVs

36
 Industry Overview

37
 Small cars constitute about 60% of the Indian passenger car market
in FY 19.

SEGMENTAL MIX

Source: Crisil Research, SIAM

38
 Maruti holds the leadership position in small cars and vans.

MARKET SHARES

Source: Crisil Research, SIAM

39
 New launches contribution to the sales have come down after 2017.

SHARE OF NEWLY LAUNCHED MODELS IN INDUSTRY SALES

Source: Crisil Research, SIAM

40
 SEGMENTAL ANALYSIS
– SMALL CARS

41
SMALL CARS
• The small cars segment comprised

60% of the domestic PV industry in

fiscal 2019

• The top two players- Maruti

Suzuki and Hyundai Motors,

accounted for 80% of the segment's

sales during this period.

Source: SIAM
42
 SEGMENTAL ANALYSIS
– SEDANS

43
 Market share in the sedan segment is very volatile with players
gaining and losing the market share significantly over short period of
time.
SEDAN : MARKET SHARE

Source: SIAM
44
 Hyundai and Toyota have been the major gainers in FY 2019.

SEDANS: COMPETITION
• Maruti Suzuki's share in the large cars segment started declining post GST
implementation, which imposed a higher cess on hybrid vehicles than earlier tax
rates.
• It has only one model i.e. Ciaz in this segment which is available in the hybrid
variant.
• Also, it received stiff competition from Hyundai Motors' Verna, Toyota's Etios,
and a range of large cars from other manufacturers.
• Hyundai has been able to extend its share as Verna sales improved after it was
relaunched in August 2017.
• Verna has ~21% market share in the large cars segment as of fiscal 2019
• Toyota gained ~4% market share in fiscal 2019 from 13% in fiscal 2018 due to the
launch
45 of its feature-laden Yaris model in May 2018.
 Utility Vehicles

46
 Mahindra’s share has fallen drastically in the last 5 years while Maruti
and Hyundai has gained considerably.

UV : MARKET SHARE

Source: SIAM, Crisil Research

47
 Why M& M lost it’s share?

RISE OF COMPACT UVs  UV segment witnessed a major shift in

customer preference with the launch of
compact UVs such as Duster and Ford EcoSport.
 Popular models such as Maruti's Brezza,
Hyundai's Creta, Mahindra's XUV, Tata's
Nexon and Fiat’s Jeep Compass have upped
competition in the UVs segment further
 The launch of these models caught the fancy of
the urban buyers as they also come up with
Petrol version while M&M had predominantly
Diesel powered vehicles.
 M&M's TUV 300 was expected to arrest its
contraction in market share .
 However, it managed to garner only about 5%
share in the compact UV segment.
48
Source: SIAM, Crisil Research
 Electric Vehicles

49
 Electric passenger vehicles to contribute ~4% of domestic sales by
FY24 led by higher adoption within commercial use segment.

ELECTRIC VEHICLES

• Battery prices are falling at the rate of 20% annually over the last 10 years and

expected to fall at the rate of 10% over the next 5 years.

• This will increase the adoption of EVs.

• In India, the adoption of EVs in cabs is expected to be faster than the personal

vars.

• As of now, through FAME Indian government provides subsidies to cab

owners and not to car buyers for personal use.

50
 AUTO DEALERSHIPS

51
KEY FACTORS

• Number of Dealers

• Sales per dealer

• Workshop vs Showroom revenues

• Dealer profitability

• New initiatives

52
 Though TVS has the largest number of dealers, sales volume per
dealer is highest for Hero Motocorp.

2 WHEELERS
COMPANY-WISE NUMBER OF SALES VOLUME PER DEALER
DEALERS

53
 While Maruti has the largest number of dealers, Hyundai has the
highest sales volume per dealer.

CARS
COMPANY-WISE NUMBER OF SALES VOLUME PER DEALER
DEALERS

54
 While Tata Motors has the largest number of dealers Mahindra has
the highest sales volume per dealer.

COMMERCIAL VEHICLES
COMPANY-WISE NUMBER OF SALES VOLUME PER DEALER
DEALERS

55
 Workshop revenues constitute a critical portion of cars and 2-
wheeler dealerships.

AUTO-DEALERSHIPS : KEY NUMBERS

56
 ROCE is higher for the dealer of old OEMs like Maruti and
Hyundai.

ROCE: CAR DEALERSHIPS

57
 Profitability of dealers varies across companies.

DEALER PROFITABILITY: PASSENGER VEHICLES

58
 RECENT STRATEGIES BY DEALERS

• Quick-start modular sales points

• Widening the rural reach

•OEM-run driving schools an add-on service for customers

• CV dealers setting up service stations

• OEMs open to multi-brand service stations

•Used Vehicle business as an alternate revenue stream

59
 RECENT STRATEGIES

Quick-start modular sales points

•Such dealerships are mobile showrooms that can be deployed at any location
in about six weeks.
•This is a low-cost approach that enables dealers to reach remote locations and
also makes it flexible for them to relocate.
•One such OEM that set up mobile showrooms is BMW.
•The company opened its first mobile showroom in 2012 in Karnal that was
managed by one of its dealers in Chandigarh.

60
 RECENT STRATEGIES

Newer locations to increase brand recall and drive sales

•Dealers set up stalls in malls, supermarkets, outside bank premises, near

corporate offices of companies, airports, during festival events, carry out a road

show, customised events, etc.

•This helps car dealers to achieve a brand recognition by displaying their

products and also helps in gathering useful information on prospective

customers, feedback on new products etc.

61
 RECENT STRATEGIES

WIDENING THE RURAL REACH

•Auto dealers, especially two-wheeler and small car dealers are expanding in
tier-3 and smaller towns by opening only sales touch-points in these areas.
•This helps them expand in some of these low-turnover areas by keeping the
cost of opening a dealership low.
•Instead of increasing the number of dealerships, OEMs often prefer that their
existing dealers expand into these smaller markets through standalone sales
points.

62
 RECENT STRATEGIES

Used Vehicle (especially car) business an alternate revenue stream

•The used car business presents a huge opportunity for automotive dealers.
• Presence in the used car business helps shield risks to margins, especially
when new cars sales may be affected.
•In case of used cars, dealers also have a higher bargaining power - in
determining the price at which the used car is purchased.
• For OEMs, the used car business is mainly a sales pitch - it helps them offer
exchange schemes to consumers at the point of purchase (dealer), while at the
same time boosting sales of new models.
•Some OEMs present in the used car business are Maruti True Value, Honda
Auto Terrace, Hyundai Advantage, Tata Motors Assured and Mahindra First
Choice.
63
 RECENT STRATEGIES

OEM-run driving schools an add-on service for customers

•Maruti Suzuki India Ltd (MSIL) is among the first automakers to launch its
own driving school.
• While MSIL has granted franchise rights to select dealers across the country, to
run such driving schools, all systems, processes and course content are
monitored by MSIL.
•Through this additional service, dealers can help draw customers and OEMs
can create a brand recall. MSIL currently operates 332 driving schools across 172
cities.
• Other players including Tata Motors, Mahindra & Mahindra; along with
luxury carmaker Mercedes Benz have set up driving schools.

64
CV dealers setting up service stations
•Unlike car and two-wheeler dealers, commercial vehicle (CV) dealers typically
have sales touch-points only and the vehicles are usually serviced by local
garages.
•However, many large CV dealers are now looking to set up service stations as
well.
•As more international CV manufacturers enter the Indian market and more
complex models being manufactured, it makes business sense for CV dealers to
set up service stations.

65
OEMs open to multi-brand service stations

•Over the past few years, OEMs as well as standalone companies have been
setting up multi-brand service station chains in India.
•Prominent names in this space are Carz, Carnation Auto, Mahindra First Choice
Services and TVS Automobile Solutions.
•Eyeing the huge market that India is, foreign multi-brand dealerships are also
looking to set up shop in the country.
•Meineke Car Care Center, Midas Auto Service and AutoZone of the United
States, and Autodistribution International of France are some global service and
auto parts chains that are looking to enter India through an alliance with an
Indian player.

66
 USED VEHICLES : CARS

67
 Used car market in India is twice the size of the new car market by
sales volumes

RATIO OF USED CAR SALES TO NEW CAR SALES

68
 Used car market is expected to reach 6 million units by 2018-19

USED CAR MARKET GROWTH

69
 USED CARS : DEMAND DRIVERS

SHRINKING HOLDING PERIOD

OVERALL AVERAGE HOLDING AVERAGE HOLDING PERIOD BY
PERIOD (IN YEARS) SEGMENT(IN YEARS)

Year Average Holding

Period

2003-4 7

20010-11 6

2016-17 4.5

70
USED CARS BUSINESS MODELS
•Park-and-sell (pure-intermediaries):
Dealers allow sellers to park their used cars at their premises for potential
buyers to inspect and to make enquiries.
Dealers receive commissions from one or both parties.
•Buy-and-sell:
Dealers buy used cars, display them in their showroom/parking area and
eventually sell them at a margin, besides facilitating title transfers from
buyer to seller.
•Buy, refurbish and sell:
•Dealers buy used cars, refurbish and sell them at a premium (often with
certification and warranties).
71 •Dealers also facilitate title transfers from buyer to seller.
DEALERS FOLLOW MIXED MODELS IN THE USED CAR MARKET
•Transactions in the used car market differ widely from make to make, and model
to model, based on a number of factors such as car condition, vintage, accident
history, mileage, insurance records, etc.
•Dealers (both OEM-backed and independent) do not always stick to one model.
• To a certain extent, the choice of the business model is decided by the quality of
the used car.
•For example, an OEM-backed dealer would refurbish and certify used cars in
good condition, but offload the vehicles of inferior quality to dealers in the
unorganised market.
•Generally , Buy-and-sell model is more profitable than Park-and-sell. Model due
to the pricing power and potential value addition of certification and warranty.
72
 USED CARS : DEMAND DRIVERS

INCREASED SHARE OF ORGANIZED MARKET

73
 USED CARS : DEMAND DRIVERS

ORGANIZED PLAYERS’ PROFILE

• The organised market primarily comprises large OEM-backed players such as
Maruti True Value, Honda Auto Terrace and Hyundai H-Promise and
independent players such as Carnation, T S Mahalingam and Jain Cars.
• Mahindra First Choice, however, has a different business model. Despite being
a part of the Mahindra group (an OEM), First Choice is positioned as an
independent, multi-brand used car player that provides end-to-end service for
used cars, including auction, purchase and sale, valuation, certification and
warranty services.
•Unlike the smaller unorganised dealers, dealers backed by the OEMs have the
advantage of scale and a wide network.
•Continuous interactions with their customers (when offering after-sales service)
enable them to convince their customers to trade in their used cars for new or
refurbished cars.
74
 USED CARS : DEMAND DRIVERS

ORGANIZED PLAYERS’ HAVE HIGHER GROWTH POTENTIAL

• Certification of cars adds approximately 4 per cent to the selling price of most
small and mid-segment cars.
•Certification thus augments dealer revenues.
•Established brands, including both the OEM-backed brands and the
independent brands, have robust certification processes involving 120-200 point
inspection checklists.
•Certification of cars based on stringent criteria helps in enhancing the credibility
of the product, particularly for the price-sensitive target market.
•Some organised players who already have certification systems in place have
identified the accompanying warranty services as a potential revenue stream.
•A case in point is First Choice, which offers certification as a service to small-
volume dealers, as well as for cars listed on online portals like Gaadi.com.

75
 USED CARS : DEMAND DRIVERS

Quality certifications and warranties

•Used cars bridge the gap between aspiration and affordability, and provide

reasonably-priced options to every aspiring buyer.

•With the increasing availability of good quality refurbished cars, priced

significantly lower than new cars, and with added quality certification and

warranty, consumers are gradually overcoming their previously unfavorable

sentiment against the purchase of 'second-hand' cars.

76
 USED CARS : DEMAND DRIVERS

ONLINE CLASSIFIEDS

•Online portals such as Gaadi.com, CarWale etc. are exhaustive repositories of

used car listings posted by individual sellers as well as dealers.

•These portals have brought in greater transparency in the market by

providing prospective buyers with information on prices for comparison.

• Additionally, these online portals provide smaller dealers with a web

presence without the dealers having to invest in their own websites.

77
 Company Analysis

78
 Eicher Motor’s market capitalization grew 700 times between
2008 to 2020.

COMPANY’S MARKET CAPITALIZATION • Eicher Motors

• This has been

achieved with around

4% market share in 2-

wheelers and 7%

market share in

commercial vehicles.
1
Sep 17, 2001 March 30,
79 2020
ROYAL ENFIELD VS BAJAJ AUTO VS HERO MOTO CORP

• In May 2008, Royal Enfield’s market

capitalization was just 12% of Bajaj
Auto and 6% of Hero Motocorp.
• On July 31, 2017, Eicher Motors
overtook both Bajaj Auto and Hero
Motocorp in market capitalisation
stood at Rs 81,776.67 crore against Rs
81,243.52 crore of Bajaj Auto and Rs
72,971.22 crore of Hero MotoCorp.
• Share price Eicher Motors have
surged 7,716 per cent on July 31, 2017
from May 26, 2008, whereas Bajaj
Auto and Hero MotoCorp climbed1
828 per cent and 363 per cent,
respectively, during the same period.
80
SIDDHARTHA LAL : CEO •Siddhartha Lal was 26 when he took over as
CEO of Royal Enfield in 2000.
• If you had spent Rs 55,000 to buy a Royal
Enfield motorcycle in 2001, you would now
have an old, rugged bike.
•But if you had invested the same Rs 55,000 in
shares (at Rs 17.50 per share) of Eicher Motors,
the company that makes Enfield bikes, your
investment will be worth Rs 3.9 crore now.

1
• If you had bought one share of Eicher at Rs.
224 in 2006, it would have been worth Rs. 15,200
on April 6, 2020.
81
MAJOR STRATEGIC DECISIONS
•Till 2004, Eicher group had a diverse spread of about 15 businesses including
tractors, trucks, motorcycles, components, footwear and garments, but none was
a market leader.
• Lal undertook an intense portfolio analysis and took a hard call.
•He decided to divest 13 businesses and put all money and focus behind Royal
Enfield and trucks, two businesses where he believed the group had a genuine
shot at leadership.
• Back then, conglomerates viewed businesses as family jewels. It was a cardinal
sin to sell anything. But Lal sold almost everything.

82
How Mr. Lal justified his strategy?

"In my mind the basic question was this: do we want to be a mediocre player in

15 small businesses or just be good in one or two businesses,”

"That's why we sold 13 out of the 15 businesses, the big one being tractors to

TAFE. We removed the clutter and focussed on two promising businesses."

"Many did think Eicher was going out of business,“

"Motorcycles was the joker in the pack,"

"I did the mathematics, projections

1 and all we needed was to get the motorcycle

business to the next level (in terms of sales).“

83
 ROYAL ENFIELD TURNAROUND

•In 2000,Royal Enfield was in a very bad shape. Their monthly production was
2000 units against a capacity of 6000 units. (Capacity Utilization of just 33%)
• Directors of Eicher Motors decided to either sell-off or shut down the motor-
cycle division.
• Siddarth Lal convinced the board that the Bullet need to be given another chance.
• Lal, then 26, was an unabashed Bullet fan:
• he even rode a red-coloured Bullet while leading the baraat (procession) to
his wedding venue, instead of the traditional horse.
• Though the Bullet had its reputation, following, an instantly recognisable build,
and aspirational value, it faced 1many challenges.

84
 CHALLENGES

• Competition:
 Liberalization of 1990s had led to the introduction of deluge of light, easy to commute, cost
Competitive bikes in the Indian market.

• Old Vs New Customers:

 Existing customers wanted their Bullets just the way they had always been. By modernising,
Royal Enfield risked losing traditional fans without possibly gaining any new customers.

• Quality
 There was a joke that the Royal Enfield Bullet travelled directly from Showroom to
Mechanic.
 Though the bikes had diehard followers, there were also frequent complaints about them
- of engine seizures, snapping of the accelerator or clutch cables, electrical failures and oil
leakages.

85
 CHALLENGES

• Design:
 The company had to deal with many basic design questions –
 Should the gears be shifted close to the rider's left foot - as in most bikes - or
retained on the right side? Long-term users were dead opposed to this
change.
 Many prospective buyers found the Bullet too heavy, difficult to maintain,
with the gear lever inconveniently positioned and a daunting kick-start.
 Engine was made of Cast iron that made it prone to oil leaks and frequent
seizures. Its ability to meet increasingly strict emission norms was also
suspect.
 A modern aluminium engine would eliminate these problems, but it would
lack the old engine's pronounced vibrations and beat - which Royal Enfield
86 customers loved.
 ROYAL ENFIELD: KEY DECISIONS

• The company decided to retain the bikes' rugged looks, including the build, the
design of the head lamp and the petrol tank, many of the old engine's
characteristics - the long stroke, the single cylinder, the high capacity with push rod
mechanism.
• But the company decided to make some bold changes:
• The gear lever was shifted to the left despite the opposition from long-term users
• The new aluminium engine, unlike the old, had hydraulic tappets, a new engine
arrangement, and fewer moving parts. But it did not produce the vibrations and the
beat of the old, but international experts were consulted and sound mapping carried
out for over 1,000 hours to ensure it produced the maximum rhythmic vibrations
possible and a beat, which was 70 per cent of the amplitude of the original.
• The new engine had 30 per cent fewer parts and produced 30 per cent more power
than the old, with better fuel efficiency. By 2010, all Royal Enfield models had begun
to use the new engine.
 ROYAL ENFIELD: KEY DECISIONS

QUALITY AND SALES EXPERIENCE

•Two other problems needed to be addressed: the quality of some of the
components Royal Enfield bikes were using, and the sales experience.
• To tackle the first, shop floor processes were fine tuned, while suppliers were
exhorted to improve quality levels. Royal Enfield also embarked on a large scale
internal exercise to tone up performance.
• Slowly, the tide turned. Engine related problems and oil leakages in Royal Enfield
products almost disappeared. By 2008 dealers were reporting lower workloads.
• Malfunctioning of the sprag clutch, on which the electric starter depends, declined,
for instance, from 5 per cent in 2005-06 to 0.2 per cent in 2010/11.
• Royal Enfield also began conducting marquee rides to promote leisure biking.
•To improve sales experience new company-owned showrooms were launched and
 350 CC bikes contribute to more than 80% of the company’s sales

ROYAL ENGIELD PRODUCT MIX

Share of Classic 350 cc in Total Sales Share of Bullet 350 cc in Total Sales

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WHY 350 CC?

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 Bajaj Domineer or KTM could not dent the dominance of Classic 350
cc

Royal Enfield Classic 350 Vs Domineer 400

• KTM (390 Duke +
Month / Year Classic 350 Dominar 400
RC390) sold 5,891 units
Jan-18 53221 2072
Feb-18 48557 1982 in FY 2018-19.
Mar-18 50,111 1561
• Apart from Classic 350,
Apr-18 52075 1373
May-18 51147 1191 other models in 350 CC
Jun-18 50,426 1277
RE Bullet 350 and RE
Jul-18 44054 1381
Aug-18 44610 1122 Thunderbird 350, sell
Sep-18 44021 1095
Oct-18 46148 659
20,000 to 22,000 units
Nov-18 39025 170 per month.
Dec-18 34325 24
Total 557720 13907
Source: https://news.maxabout.com/2-wheeler-sales-reports/classic-350-vs-
bajaj-dominar-400/
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 Himalayan, 650 twins (Interceptor and Continental) are the new
models launched in the last few years.

PRODUCT STRATEGY: LESS PRODUCTS AND MORE VARIANTS

92
 Both Himalayan and Twins have shown good performance with
almost 45% of Twins sales come from Exports.

NEWMODELS SALES PERFORMANCE

650 Twins Sales: Domestic Marke
HIMALAYAN

650 Twin Sales: Exports Market

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 The company significantly expanded the dealer network in the last 5-6
years.

STRENGTHENED THE DEALER NETWORK

•Royal Enfield has focused on

cities as the price points for its

models are nearly 2x that of

traditional motorcycles, but

the company is now focusing

on increasing its dealer

network in small towns and

cities.
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 Royal Enfield’s advertising spend is only 0.6% of sales whereas the
industry average is around 2.2 to 2.5%.

ADVERTISING SPEND AS % OF SALES • Lowest advertisement spending in

the domestic industry as it witnessed
strong demand and long waiting
period without any significant
advertisement spending.
•It rather focused on organising
various events like Rider Mania etc to
get Royal Enfield customers together.
•Apart from this, the company also
conducts various rides throughout
India for Royal Enfield customers.

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 LONG CLIMB UP

 In October 2008, Royal Enfield launched in Germany its newly designed 500cc
Classic model - inspired by J2, a 1950 model Bullet - with the new engine. It was a
success, admired for its performance and fuel economy.

 Emboldened, Lal launched it in India in November 2009 initially as a 350 cc bike,

priced at Rs 1.20 lakh.
•In 2005, the company was selling only about 25,000 bikes every year.
• By 2010, the company was selling 50,000 bikes, but on three platforms. That was
when Lal decided to build all Enfield bikes on a single platform to maximise
economies of scale.
•The Enfield Classic, launched from
1 this single platform, caught the fancy of
customers. Sales shot up from 24,000 units in 2000 to 50,000 units in FY10 to 300,000
in FY14. and 8,20,000 units in FY18
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 •Royal Enfield annual sales volume grew from 50,000 in FY 2010 to
805000 in FY 2019

ROYAL ENGIELD’S MONTHLY VOLUMES

97
 FOCUS ON EXPORTS

•In 2012, Lal shifted focus to international markets.

•The company exported a mere 3,000 bikes annually in 2015, but Lal believed Royal
Enfield can be a sizeable player in international markets a decade from now.
•He made some strategic hiring with this goal in mind.
• Rod Copes, a former Harley Davidson manager has been hired as president
of North America (based in US);
•Pierre Terblanche, head of the industrial design team was snagged from
Ducati;
•James Young, head — engines has worked in Triumph, and was hired in UK.
•Simon Warburton, head — product planning and strategy (new projects) also
comes from Triumph.
•Mark Wells, head — programme (new projects) and Ian Wride, worked on
Enfield's Classic and Continental GT models while they were with the design
firm 'Xenophya.‘
•Rudratej Singh from Unilever1
for marketing .
• In 2019, exports increased to around 20,825 units (700% over 2012 volumes) and
export to more than 50 countries including developed markets like US, Germany,
UK etc.
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 In 2019, exports increased to around 20,825 units (700% over 2012
volumes)

EXPORTS

99
ROYAL ENGIELD’S PROFITABILITY

•Most profitable companies with its Net Profit margin at 23%. (Bajaj – 15.5%,
Hero Motocorp – 10%)
•The company has been consistently improving margins YoY.
•In the last ten years, the company posted 1600 bps margin expansion from
10.0% to 27%.

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 FROM BIKES TO TRUCKS

•Lal turned his attention to trucks in 2006 after turning around Royal Enfield.

•The group pushed hard for a breakthrough in the truck business.

•He struck an alliance with Volvo, which also brought in equity.

•Eicher and Volvo hold 54.4% and 45.6% respectively in the joint venture VE

Commercial Vehicles (VECV). This alliance too has led to shareholder value

creation.

•Though VECV is the number 4 player in terms of market share, it has managed to

1 and Heavy Vehicles segment which give higher

be a strong player in the Medium

margins.
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