Riding High

A few years ago, an article started circulating around – instead of purchasing Royal Enfield for Rs 55,000 in 2001, if you had invested the same amount in its parent company, Eicher Motors, that amount would have been ~Rs 5.5 crore today!!

Is this really true? What’s the story behind this incredible turnaround?

In 1999, Siddhartha Lal, returned to India to help his family’s ailing motorcycle business unit. He had recently completed his masters in automotive engineering from England and initially had no plans to join the family business. But his love for motorcycles made him change his mind.

So, at the age of 26, he became the CEO of Royal Enfield (owned by his family business – Eicher Motors), then a failing unit with declining profits. Siddhartha had no grand ambitions but it seemed like a fun project to him. In his own words, “Honestly, at age 26, it seemed a fun thing to do. I could eat, sleep, ride and talk motorcycles." And so began the journey of transforming the business.

He quickly made a few critical changes. He withdrew all discounts being offered, which impacted the sales but improved profitability at the same time. Next, he opened state of the art company-owned showrooms. This forced the local dealers to upgrade their own showrooms. He then improved the engine and technology while retaining the old look and feel of the classic bike.

But his boldest move was yet to come. In order to focus solely on the motorcycle and truck division, he sold off the other business units. It also provided him with the capital needed for R&D and expansion. In all, he divested around 13 business verticals. At the time, this move was seen as business suicide by the industry “experts”. In another bold move, he spun off the truck business into a joint venture with Volvo called VECV. The JV benefitted from Volvo’s manufacturing expertise and Eicher’s distribution expertise.

Slowly and steadily, things started to change. In 2010 the company had sold 50,000 motorcycle units, which increased to 3 lakhs by 2014. They were selling like hotcakes. Waiting periods crossed 6 months. By 2018, revenue had increased from ~$400m in 2008 to ~$1.4b in 2018. Profits increased almost 19 times over from ~$16m to~ $300m

And as for the stock prices, they increased from around ~Rs 3.20 in 2001 to over Rs 2,500 in 2018. That’s a return of over 76,000% !! 

And all this was a result of one man’s vision and ability to make bold decisions when people had written him off.

Despite all his success, all is not rosy. Today, Siddhartha is facing shareholder’s flak for a pay rise while the revenue has declined in the last two years. But criticism is not something new to him. Like a monk, Siddhartha is unfazed and focused on building Royal Enfield into a global brand. Whether he will come out victorious is for time to tell. But the legacy left by him is going to serve as an interesting case study for years to come.