Riding on robust sales, iconic Royal Enfield hits the global road

After facing shareholder heat last month, how has Lal's gamble to take the brand international fared?

On September 1, Eicher Motors Managing Director (MD) Sidd­hartha Lal conducted the virtual launch of the new Royal Enfield Classic 350, describing his motorcycles as “timeless, unhurried and uncomplicated”. None of those adjectives would have applied to his situation barely a week before when he faced a major crisis since he started running the show.
 
On August 17, shareholders voted down the reappointment and pay hike of 10 per cent for Lal. On August 23, Eicher Motors’ board of directors decided to unanimously reappoint him MD but with a revised remuneration package. The company will go back to shareholders for a vote via postal ballot.
 
Shareholders had sought more clarity on an enabling provision that all­o­w­ed payment of remuneration up to 3 per cent of profit. Eicher Motors Chair­man S Sandilya had clarified, however, that the actual remuneration for FY21 was at 1.04 per cent of profits, but the percentage had been lower in preceding years. Given this background, the board had approved a revised remuneration structure with a maximum cap of 1.5 per cent of profits.
 
Whatever the finer points of the issue, the episode has brought into sharp focus Lal’s performance at the helm of the company in the last few years, despite being widely accepted as Royal Enfield’s turnaround man sin­ce he took charge as MD in 2006-07.
 
Was the board’s subsequent vote of confidence justified? Certainly, Eicher has seen an over 18-fold acceleration in annual two-wheeler sales volumes on his watch, from 32,612 units in 2006-07 to 609,403 in 2020-21, and 822,724 in 2018-19, the last pre-pandemic year. However, when he, along with his family, relocated from Delhi to London in August 2015, it raised eyebrows since the firm had minimal presence ab­road. In Lal’s own words, the shift was done to “understand the cultural nuances of the markets so that Royal Enfield becomes a global brand in 10-15 years”.
 
Did Enfield’s overseas plans work? The storied brand wasn’t unknown, since Royal Enfield India — acquired by Eicher in 1994 — had been exporting the famous 350cc Bullet to the UK and Europe.

Two decades later, in its annual report, the company said, “We have co­m­menced our strategic foray into international markets where we have been selling motorcycles for decades, but with considerably low support from our side.” Perhaps it was this “low supp­ort” that Lal wanted to change by shifting base to markets dominated by Har­ley-Davidson and Triumph. The gam­ble appears to have paid off. Export volu­mes zoomed over three-fold from just 8,800 motorcycles in 2015-16 to 35,675 in 2020-21. The overseas mark­ets’ share in revenue also grew from nearly 3 per cent in 2016-17 to 9 per cent in 2020-21.
 
What is seen as a milestone for the UK team is the Royal Enfield Inter­ceptor 650 emerging as the highest-selling middleweight motorcycle in the UK since June 2019, a first by an Indian player. Based on the latest data available with the Coventry-based Motor­cycle Industry Association, the Royal Enfield Meteor 350 also topped the chart in the UK in its category. Com­pany insiders indicate that this was the result of a massive retail expansion, adding over 750 touchpoints across over 60 countries, with 140 exclusive stores in less than six years.
 
Royal Enfield also figured among the top three in the mid-size segment in Thailand (January-June 2021), in addition to becoming the top-selling motorcycle brand in New Zealand for June 2021 in the 250-1,000cc category. In the first quarter of the current financial year, it posted its best ever performance in international markets with total exports at 17,493 units against 3,444 in the same period last year.
 
Corporate governance experts indicate shareholders were not questioning Lal’s performance as MD. It was the company that had clubbed the two proposals — of reappointment and a rem­u­neration increase. “So shareholders who wanted to vote against the re­mun­eration increase ended up voting aga­inst the entire proposal,” said Shri­ram Subramanian, founder and MD of InGovern Research Services, a Bengaluru-based proxy advisory firm.
 
Lal’s remuneration increased from Rs 1.06 crore in 2010 to Rs 21.12 crore in 2020-21. “Eicher’s overseas ambitions may help. As the Indian market growth stagnates, the overseas markets would be lucrative,” he added. But he suggested that as promoter-director he would have served shareholder value better by taking a larger part of his remuneration as dividends that are dependent on the performance of the company, which would mean sharing wealth with other shareholders.
 
There may be two opinions on whe­ther Lal should have opted for a salary hike in a Covid year or not. But he got a resounding vote of confidence from the Working People Trade Union Con­gress, an employees’ union that was at loggerheads with the management, which publicly batted for his reappointment. “He was good in terms of emplo­yee welfare and also played a major role in developing Royal Enfield as an ic­o­nic brand,” said R Sampath, vice-pre­s­i­dent, Royal Enfield Employees Union.
 
In India, Royal Enfield has a mono­poly in the 251-500cc motorcycle segment, despite the presence of the likes of Honda, Mahindra, TVS, Yamaha and Bajaj. In a recent statement, the company said Royal Enfield grew the 250cc-plus market in India exponentially, and has maintained an over 90 per cent market share in it for the past decade.
 
This growth is expected to continue. “We expect a robust earnings CAGR of 42 per cent over FY22-24E, supported by a sales upcycle, increasing share of premium motorcycles and margin exp­ansion,” said a report by Emkay Global.
 
Added Amrit Raj, author of Indian Icon: A Cult Called Royal Enfield, “Royal Enfield’s turnaround is folklore now. The manner in which the company has demonstrated its global ambition in the past seven or eight years is what makes this brand’s prospects exciting.”
 
The coming postal ballot will reveal shareholders’ views on this outlook.