Calendar year 2014 has been a dream year for the company, says Siddhartha Lal, MD and CEO, Eicher Motors . The company has grown six-fold in last five years. Brokerages are upgrading the stock after stellar a performance last quarter. The stock has doubled this year and hit record high of Rs 12,372 on September 16, 2014.
Macquarie sees a 4x rise in earnings on the back of Royal Enfield business growth this quarter. The Royal Enfield sales were up 85 percent year-on-year to 74000 units. The company reported EBIT growth of 67 percent aided by motorcycle business.
Reports suggest Eicher aims to dominate the mid-sized motorcycle market in the US, which is currently dominated by Harley Davidson. The US is USD 7 billion motorcycle market, if Eicher cracks it, margins could be much higher.
Speaking to CNBC-TV18, Lal says the order book of the company has been growing for its motorcycle segment. Eicher Motors has over 95 percent market share for above 250cc motorcycle space.
According to management, the company has a lot of room to grow and is creating ground for mid-size motorcycle segment globally. The company is looking for a 70-75 percent capacity expansion going ahead.
Below is verbatim transcript of the interview:
Q: It's been a spectacular year for you so far but what will the next year look like in terms of next 6-12 months and how much can you seek out in terms of gains in the Royal Enfield business?
A: It has been a great year for us but it's been a long while in coming. It has not happened just this year. It's been a lot of work that we have put in on the motorcycle business that we are talking about, which is to evolve the market into a leisure motorcycle market – that has been a over decade long process.
The results that we are seeing in the last two-three years, where the sales have shot up and in the last five years we have grown six fold now.
It has been a spectacular growth story for us but it has been a hell lot of work as well to put up capacities to make sure that on the ground we are able to have that many dealer points, service points. So, there are a lot of growing pains. It's good pains but there is a lot of that going on right now.
As we see things moving forward, we have a good order book as well and so, we are in a very fortunate situation today where we have an order book for motorcycles. We take advance from customers.
We deliver then in three-five months. So, we have a healthy order book which is continuing to grow very well over the last many months and we expect that to continue to grow. So yes, things are looking good on the Royal Enfield motorcycle side.
Q: Give us more colour about your plans for the bike side. Are you getting into new export markets and even your point about service points, sales points? Give us an idea of the growth you are preparing for. Should we take 30 percent compound annual growth rate (CAGR) as a given for the next three years?
A: It is impossible to predict for us and we do not even talk about the future in numbers terms. It is more about what we are putting into the ground today.
The basic thing that you have to see is that the Indian consumer is willing to take a step up in its product if he is able to get right value offering and right brand and consideration. It is a brand lead story that we are playing, it's the leisure motorcycle story that we are playing. Yet it is accessible for people for their daily commute.
It is something that people use on daily basis. If it wasn't for that we wouldn't be selling so much. Therefore, we are putting a lot of effort and energy into improving our offering.
We do not have the widest offering in the motorcycle business and that is not our objective. Our objective is that the people who come to us should get a beautiful experience.
We are improving the retail experience, the entire living with your motorcycle experience and as we do that for our consumers, the people who already own our motorcycles that draw in more and more people.
We have grown the midsized motorcycle space in India, so above 250 cc, we own over 95 percent of it and over the last three years we had over 50-60 percent CAGR. This year itself it's 80 percent growth over last year. It is in fact if anything it is accelerating right now, of course that won't happen forever.
At some point we are going to taper off a bit but right now we are not waiting for things to taper off. We are putting as much energy as we can to continue this growth momentum.
We are still a tiny fraction of the overall motorcycle industry, so in that score there is a lot of room to grow for us in Royal Enfield and the base that we have developed which is a very high scale base and in fact what we figured out is that midsized motorcycle market, I call that 250 to 750, globally we are the highest, the single largest platform.
Our current engine platform or vehicle platform is a single largest platform and that gives us scale and that scale is now allowing us to enter into newer markets; we are going to Latin America, we are planning south east Asia and the vintage markets where people like the old Royal Enfield like USA, Europe, UK, Japan and Australia – those are also flourishing right now. So there is revival in pure motorcycling going around the world and we are leading that revival.
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