May 20 (Bloomberg) -- The Indian maker of Royal Enfield, the World War II-era British motorcycle owned by stars including Brad Pitt, plans to export the vehicles to Southeast Asia and Latin America as it builds on record sales at home.
Eicher Motors Ltd. is predicting more demand in emerging markets for mid-sized bikes with an engine capacity of 250 to 650 cubic centimeters as people become more affluent, Managing Director Siddhartha Lal said in an interview. Eicher, which acquired control of Enfield India in 1993 and revived the almost-bankrupt unit, is seeking to increase the share of revenue from two-wheelers from 16 percent of the $1.2 billion it reported in the year to Dec. 31, 2012, he said.
“Mid-sized bikes are ideal for these markets as they are reasonably fuel-efficient, maneuverable and not too much more expensive,” Lal said in his office located in Eicher’s glass and steel headquarters in Gurgaon near New Delhi. “There are markets that aren’t conducive to big bikes and the mid-sized market is underserved.”
The company is planning to expand the motorcycle business after reporting the best quarter at its Enfield unit, where sales rose 45 percent in the three months ended March 31. Eicher, which earns the remaining 84 percent of its revenue from trucks it makes in partnership with Volvo AB, said a key gauge of its profitability beat all local rivals in 2012 amid the slowest pace of economic growth in a decade.
‘Tonight Show’ host Jay Leno and musician Billy Joel are also among the owners of Royal Enfield, according to their official websites. The British military used the bikes, including the ‘Flying Flea’ designed for parachute drops with airborne troops during the Second World War.
Royal Enfield, which makes the 150,000 rupee ($2,733) 500cc Classic and the 350cc Thunderbird, saw sales jump 52 percent last year fueled by demand from a rising middle class in India’s biggest cities.
Exports, catering to custom orders from buyers seeking to “own a piece of history” in countries such as the U.S., U.K. and Australia, accounted for 2.9 percent of the motorcycle maker’s 124,270 unit sales in the year ended March 31, according to data from the Society of Indian Automobile Manufacturers.
“There’s a gap in this segment as vehicles like BMW and Harley Davidson are all above 600cc,” said Mukesh Saraf, an analyst at Spark Capital Advisors in the southern city of Chennai. “If other Indian manufacturers like Bajaj are able to export, then Royal Enfield can do as well. There’s no way to gauge the potential of the mid-size segment both abroad and in India.”
‘Like a Gun’
Bajaj Auto Ltd., India’s second-biggest maker of motorcycles exported 1.29 million motorcycles, or more than 33 percent of the 4.78 million it produced in the year ended March 31. The Pune-based company sells motorcycles ranging from the 100 cc Discover to the 220 cc Pulsar.
With its heritage as a weapons maker and ‘Made like a gun’ as tag line, Royal Enfield started in the 1890s making bicycles, lawn mowers and motorcycles in England. Since the 1940s, the company hasn’t much altered the technology in the single-cylinder engined two-wheelers except for modern features such as direct fuel injection and switch ignition.
The bike maker will introduce a new model, a 535cc ’cafe racer’ called the Continental GT this year, while planning two more platforms for future variants, Lal said, without elaborating.
The company last month opened its first new motorcycle factory in almost six decades, that can build 150,000 units annually. That capacity will be expanded to 250,000 in 2014, as Eicher looks to pare waiting lists that average 8 months, Lal said. Lal expects deliveries to jump 39 percent to 175,000 units in 2013.
The Enfield motorcycles are more for enthusiasts than for people who need vehicles to do their daily chores, which means Harley-Davidson Inc.’s lower-end bikes could pose a challenge for the Indian maker in these markets, said Mahantesh Sabarad, an analyst at Fortune Financial Services India Ltd. in Mumbai.
“There’s a potential in these markets, but it will take a long time for them to build their brand,” he said.
Eicher depends on its commercial-vehicle business for its profitability. Earnings before interest, tax, depreciation and amortization was 8.7 percent in 2012, compared with 7.2 percent for Ashok Leyland Ltd. in the year ended March 31, and 7.7 percent for Tata Motors Ltd.’s local business in the 12 months through March 2012.
VE Commercial Vehicles Ltd., an equal venture with Volvo, sold 44,790 units in India in the year ended March 31, making it the nation’s fourth-largest commercial vehicle maker. Ashok Leyland delivered 105,711 vehicles, Mahindra & Mahindra Ltd. sold 142,796 trucks and buses. Tata, which controls 56 percent of the market, reported sales of 444,791 units, according to Society of Indian Automobile Manufacturers data.
Eicher’s shares have rallied 20 percent this year and traded at 3,495.70 rupees today in Mumbai. That compares with a 3.4 percent decline for Tata Motors, a 13 percent slump for Bajaj and a 4 percent gain in the benchmark S&P BSE Sensex index.
Royal Enfield, whose Classic fitted with a sidecar featured in the movie ‘Harry Potter and the Deathly Hallows: Part 1,’ says its masterplan involves eventually building 500,000 motorcycles annually.
The company has its products planned for the next 10 years, Lal said without elaborating, as Eicher targets more customers beyond Delhi, Mumbai and Bangalore.
“Now, we’re firing on all cylinders,” says Lal. “To me, what’s relevant is that in the top mid-size motorcycle markets in the world, we must be No. 1 or No. 2.”
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