‘Next frontier is to take the motorcycle business to international markets’Siddhartha Lal, MD & CEO at Eicher Motors, believes the company’s strong business model will see it through the sluggish economy

‘Next frontier is to take the motorcycle business to international markets’

by Ashish K Mishra | Feb 6, 2014

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Siddhartha Lal, MD & CEO at Eicher Motors, believes the company’s strong business model will see it through the sluggish economy

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?
Lal:
 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 focussed approach. 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 making more investments even during the downturn? We are willing to do that. We believe we are here to stay. In the motorcycle business, we had said about a year ago that 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 realised that now we need to look at the next frontier and that is international markets.
I think we have created extremely strong business models in both our businesses. 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, which really validates our strategy. This proves 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: How are you pulling off such high margins?
Lal: 
Well, this is about the long term. 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, Pithampur, rather than expand tremendously. With expansion, you have a full new capitaloutlay, management and a set of problems. We always think how we can extract the most of what we have. At our motorcycle plant in Thiruvattur, the consultants and everyone said this plant can only give you 2,000 units per month. At the peak, we have been able to take out 13,000 a month. That’s not 50 percent more, it is six and a half times more. Of course, we invested more in the plant, optimised it and outsourced a few things, but we squeezed as much as could from this one location. Only when one couldn’t set foot in the plant, we decided that we now 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?
Lal: 
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?
Lal: 
A lot. Now the joint venture is truly without colour. 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 do you split your mindspace between Enfield and trucks?
Lal: 
Till 2010, I was running the truck business and 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 my mindspace should be 80:20 now.
Q: What’s the next frontier for the Royal Enfield?
Siddhartha:
 It is taking our style of motorcycling international. Which is fun, exciting, non-intimidating style of motorcycling. We have a global ambition now in our motorcycling business.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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