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Tuesday,August18,2015
MeetSiddharthaLal,themanwhoturnedaroundRoyalEnfieldintoEicherMotors
profitengine

GUJJUMANAGEMENTLESSONS
FromSavjibhaiDholakiya
HatsofftoSavjibhaiDholakiya

MeetSiddharthaLal,themanwhoturnedaroundRoyalEnfieldintoEicherMotorsprofit
engine

"Inmymindthebasicquestionwasthis:dowewanttobeamediocreplayerin15smallbusinessesorjustbegoodinoneortwo
businesses,"recallsLal.

SiddharthaLalwasallof26whenhetookoverasCEOofRoyalEnfieldin2000.IfyouhadspentRs55,000tobuyaRoyal
Enfieldmotorcyclein2001,youwouldnowhaveanold,ruggedbike.ButifyouhadinvestedthesameRs55,000inshares(at
Rs17.50pershare)ofEicherMotors,thecompanythatmakesEnfieldbikes,yourinvestmentwillbeworthRs4.75crorenow.

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ThetwincreditforbuildingaruggedbikeaswellasenormousvalueforshareholdersgoestoSiddharthaLal,MDandCEO,
EicherMotors.Insomeways,itallcametoonebigdecisionLaltookbasedonhisloveforEnfield.Itwas2004.Lalwas30and
hadjusttakenoverasCOOofEichergroup.Thegrouphadadiversespreadofabout15businessesincludingtractors,trucks,
motorcycles,components,footwearandgarments,butnonewasamarketleader.
Lalundertookanintenseportfolioanalysisandtookahardcall.Hedecidedtodivest13businessesandputallmoneyandfocus
behindRoyalEnfieldandtrucks,twobusinesseswherehebelievedthegrouphadagenuineshotatleadership."Inmymindthe
basicquestionwasthis:dowewanttobeamediocreplayerin15smallbusinessesorjustbegoodinoneortwobusinesses,"
recallsLal.

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"That'swhywesold13outofthe15businesses,thebigonebeingtractorstoTAFE.Weremovedtheclutterandfocussedon
twopromisingbusinesses."Backthen,conglomeratesviewedbusinessesasfamilyjewels.Itwasacardinalsintosellanything.
ButLalsoldalmosteverything."ManydidthinkEicherwasgoingoutofbusiness,"recallsLal."Motorcycleswasthejokerinthe
pack,"saysLal,referringtotheportfolioofbusinessesheinherited.Itwasalsohispetbusiness."Ididthemathematics,
projectionsandallweneededwastogetthemotorcyclebusinesstothenextlevel(intermsofsales)."
Decisionmade,LalputhisfullweightbehindRoyalEnfieldandthetrucksbusiness.Adecadelater,EicherMotorsearnsover
Rs8,738croreinrevenuesandmakesanetprofitofRs702crore(FY14).RoyalEnfieldbringsinabout80%oftheseprofits.
Thisisacaseofpassionleadingtoprofits."SiddharthaLalisRoyalEnfield'sbiggestasset,"saysRLRavichandran,whowas
CEOofRoyalEnfieldforfiveyearsfrom2005andcontinuedontheboardofEicherMotorstillDecember2014."Heisan
authorityonBritishbikesofthepostWorldWareraasahistorian,afollowerandahandsonrider,"headds.
EicherMotors'stockpriceshaveshotupfromRs224in2006toRs15,612now.
"Thestockpriceriseisfullyjustifiedbyfundamentals.Thecompanyhasnodebtanditredeploysmoneyintofurtherexpansion
andproductinnovation,"saysRaamdeoAgrawal,jointmanagingdirectorofMotilalOswalSecurities.AddsAmbrishMishra,

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director(research),JMFinancialInstitutionalSecurities:"Performancehasconsistentlysurpassedanalystexpectationsoverthe
pastfiveyears.

NSE2zoomExplorer

RoyalEnfieldhassuccessfullycapitalisedongrowingcustomerpreferenceforleisurebikingthroughproductdifferentiation,
strongbrandpositioning,capacitybuildupandrapidnetworkexpansion."
Thelongclimbup
In2005,thecompanywassellingonlyabout25,000bikeseveryyear."Iwasclearthatitwouldbeanamazinglyprofitable
business,"recallsLal.Butthecompanyneededmanufacturingscale.Fixedcosthadtobespreadaround100,000bikes."This
setthebuildingblocksforthenextdecade,"saysLal.

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HefocussedonEnfieldfirst,leavingtrucksforlater.LalengineeredandimprovedEnfieldbikesbyridinghundredsofkilometres
himself.Healsoinitiatedamotorcyclingcultureintheteam.RavichandransaysLalalwaysleadsfromthefront."Heisboth
passionateandpracticalandhasadeepsenseofunderstandingofwhatseparatesRoyalEnfieldfromtheotherbrands,"he
adds.
UnderLal,asqualityimproved,salesgrewtoo.By2010,thecompanywasselling50,000bikes,butonthreeplatforms.That
waswhenLaldecidedtobuildallEnfieldbikesonasingleplatformtomaximiseeconomiesofscale.TheEnfieldClassic,
launchedfromthissingleplatform,caughtthefancyofcustomers.Salesshotupsixtimesinhalfadecadefrom50,000unitsin
CY10to300,000inCY14.Now,thetargetis4,50,000unitsinCY15.
"Bybecomingsmaller(sellingbusinessesandoneengineplatform)wehavebecomebigger,"saysLal.Now,Lalisreadytoshift
gearsanddriveintointernationalmarkets.Thecompanyexportsamere6,000bikesannually,butLalbelievesRoyalEnfieldcan
beasizeableplayerininternationalmarketsadecadefromnow.Heisalreadydoingsomestrategichiringwiththisgoalinmind.
RodCopes,aformerHarleyDavidsonmanagerhasbeenhiredaspresidentofNorthAmerica(basedinUS)PierreTerblanche,
headoftheindustrialdesignteamwassnaggedfromDucatiJamesYoung,headengineshasworkedinTriumph,andwas
hiredinUK.SimonWarburton,headproductplanningandstrategy(newprojects)alsocomesfromTriumph.MarkWells,head
programme(newprojects)andIanWride,workedonEnfield'sClassicandContinentalGTmodelswhiletheywerewiththe
designfirm'Xenophya.'BothhavenowjoinedRoyalEnfieldatitsUKtechcentre.Lalalsorealisesthatgoodmarketingisas
importantasfineengineering.WhichiswhyherecentlyhiredRudratejSinghfromconsumerbusinessgiantUnilever.Singh
joinedaspresidentinJanuary2015.
Laldrawsinspirationfromglobalbrands.TwoofthemoststudiedexamplesaretheMiniCooperandPorsche,bothofwhichare
veryfocussedandconsciousaboutnotdilutingcoreDNA.
WhenLalwasastudentinthe1990sintheUK,smallcarswerepoorlydesignedwhencomparedtothemidsizeandlargercars.
ThencametheMini,whichchangedtheparadigmandmadesmallcarsreallyfuntodrive."That'swhatIwantfromRoyalEnfield
tomakemidweightmotorcyclesfuntodrive,yetretainitsDNA,"hesays."RoyalEnfieldisnotboughtforpureacceleration
norforfuelefficiency,butithasastatureandlegacy,"saysformerCEORavichandran."Therearenobellsandwhistles
associatedwithit,butthereispurityandpurposebuiltintoit."

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Frombikestotrucks
Lalturnedhisattentiontotrucksin2006afterturningaroundRoyalEnfield.Thegrouppushedhardforabreakthroughinthe
truckbusiness.Theambitionwasn'ttobeagoodNo.3,butchallengeNo.1."Wefiguredthatwehadthebrand,butdidn'thave
financialmuscle,technologyandthedistribution.Itwasanuphilltask."HestruckanalliancewithVolvo,whichalsobroughtin
equity.
"AsEicherplusVolvo,wecandomuchmorethanwhatEichercoulddoalone,"hesays."Iwouldratherhavehalfofamuch
largerpie."EicherandVolvohold54.4%and45.6%respectivelyinthejointventureVECommercialVehicles(VECV).This
alliancetoohasledtoshareholdervaluecreation.
"VECVtoomanagedtocreateaworldclassportfolioinmediumandheavytrucksthroughtheproseriesrange.Thiswill
contributetotheoverallgrowthinthenextfewyears,"saysMishraofJMFinancialInstitutionalSecurities.Marketexpertsalso
believethatVolvowillhavetopayasubstantialpremiumifitwantscontrolofthebusiness,resultinginwindfallgainsfor
shareholdersofEicherMotors."ThisisreflectedinthestockpriceofEicherMotors,"oneanalystsays.

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Lalsayssharepriceisananimalhedoesnotunderstand."Whatcouldbeaflavouroftheday,maynotbetomorrow.Weneed
todowellandmaintainfundamentals,"hesays.Shareholderswon'tcomplain.AslongasLaltakescareofthebikes,share
priceswilltakecareofthemselves.

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Source:www.economictimes.indiatimes.com

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