Royal Enfield business is in a sweet spot: Eicher CEO reveals all

In an Exclusive Interview, Siddhartha Lal, MD and CEO at Eicher Motors,reveals that expanding and venturing into low excise locations is what helped the company achieve such high margins, such that Eicher is the onlyprofitable commercial vehicle company in India today.

Here is the excerpt of the interview:

Q: Eicher Motors has been doing really well on the stock market. It seems as if investors love the company. What sense do you make of it?

I don’t really. For us that’s only an outcome and honestly so. What we have tried to bring in is a long term, consistent and focused approach. So if you see in our commercial vehicles business, are we setting ourselves up to be the future of trucking? Are we putting all the pieces together be it make more investments even during the downturn? So we are willing to do that. We believe we are here to stay. Like in the motorcycle business, about a year ago we said that now we have been able to create something special in the Indian market. Now we are on a trajectory and we are going to work to take it up and up and up. But we also realized that now we need to look at the next frontier and that is international markets. The next frontier is to create a new segment internationally.

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[caption id=“attachment_75016” align=“alignleft” width=“380”]  Siddhartha Lal, MD & CEO at Eicher Motors. Photo by Amit Verma / Forbes India[/caption]

I think we have now created an extremely strong business models in both our businesses. So we are the only profitable commercial vehicle company in India today. And at our peak in 2010, we had 10 percent EBITDA margin which is very good for a commercial company Especially when we are entering a new segment. At the bottom level we have been 5+ percent so that really validates our strategy. This proves that we know how to behave in a cyclical industry. In the motorcycle business, the strength is in our brand. Our business model allows us to make 18 percent margins and going towards 20 which is top of the line for any automobile business anywhere in the world now.

Q: So how are you pulling off such high margins?

Well, this is about long term. So five seven years ago when there was a lot of opportunity to expand and grow and get into low excise locations, we pressure tested those opportunities really hard and found that for us it made sense to continue to pay full excise duty and concentrate our energy on one location which is Pithampur rather than expand tremendously. With expansion you have a full new capital outlay, management and set of problems. So the way we think is to always extract most of what we have. In our motorcycle plant at Thiruvattur, the consultants and everyone said that this plant can only give you 2000 units per month. At the peak we have been able to take out 13000 a month. That’s not 50 percent more, it is six and a half times more. Of course we invested more in the plant, optimized it and outsourced a few things but we squeezed as much as could from this one location and till one couldn’t set foot in the plant then we decided okay now we need to set up a new plant. That’s the way we think and construct our business model.

Q: It is interesting that you have a lot more competition coming in both your businesses. What do you make of that?

This is life. In life you meet competitors and that is never going to change. The strength has to be what the consumer thinks of you. So it is about differentiation. There is space for multiple players.

Q: What have you picked up from Volvo, your joint venture partner?

Oh yes, a lot. Now the joint venture is truly without colour. So what people see are the products and all the new products have a lot of Volvo in them but the real benefit is in the back-end which is not visible. It is in the process, in the way of thinking, in the product development process, in the aftermarket process, it is being able to tap the best resources in the world for any issue we have.

Q: How much of mind space do you spend between Enfield and trucks?

Till 2010 I was running the truck business so 90 percent of my time was in trucks. Since then I have been on the board of the truck business so I am not running it in an operational way. Now my daily thing is Royal Enfield. So mind space should be 80:20 now.

Q: What’s the next frontier for Royal Enfield?

It is taking our style of motorcycling international. Which is fun, exciting, non intimidating style of motorcycling. So we have a global ambition now in our motorcycling business.