Eicher Motors’ Royal Enfield (RE) has for long been the king of premium bikes in the country. Thanks to its positioning and affordability, Royal Enfield’s dominance has been so strong over the years that Harley-Davidson, which was at the higher end of the higher end, abruptly exited India in 2020. But the American bike maker has now come back and is looking to eat into RE’s market share.
On July 3, Hero Motocorp and Harley launched the Harley Davidson X440, which comes with a 440cc engine. Its peak torque and power are 35-40 percent higher than Royal Enfield’s Classic 350. The bike’s starting price, at Rs 2.29 lakh is at a 15 percent premium to the Classic 350cc and Meteor 350cc.
After all, the segment is a juicy one with high margins so everyone wants a piece of the pie. “The >250cc market may have space for 2-3 players. The high gross margins of RE at ~43 percent, Rs 75,000 per bike, make the segment attractive for new players,” wrote analysts at Nomura.
But, as consumers get spoiled for choice, it’s bad news for shareholders of Eicher Motors. RE, which commands 90 percent market share in the segment, with 735,000 units sold in India in FY23, now stands to lose some steam despite the market size growing.
“The premium bike segment is expected to grow at twice the rate of the underlying two-wheeler market growth. The two-wheeler market is expected to grow at 6-7 percent, but the premium bike market will grow 12-15 percent over the next five years,” says Jinesh Gandhi, senior vice president (equity research) at Motilal Oswal Financial Services.
For any player starting with zero market share, this is a lucrative opportunity. The same happened during the launch of the Jawa and Honda premium bikes. The dent wasn’t large but they did chip into RE’s market share, say analysts.
Moreover, Harley has always been an aspirational brand, with models starting above Rs 5 lakh. Now back with lower price points, it could force RE to suffer higher market share erosion.
According to Sreedhar Prasad, consumer sector expert and ex-partner, KPMG, the new Harley Davidson model targets three categories. First, the bike-lover looking for a ‘swanky’ purchase. Second, the ‘RE Bullet loyalists’ who can now upgrade to a Harley by paying a few thousand more. Third, upper middle class men and women in their forties, fascinated by the sleeker, retro look, who may not be owning a bike now
“Bullet has always had the image of being over-macho and extremely heavy,” he said.
For Royal Enfield, which contributes 90 percent to Eicher Motors’ bottom line, the threat is not only from Harley Davidson but also from Triumph’s Speed 400 and Scrambler 400X. The Speed 400, a street naked motorcycle that takes styling inspiration from the bigger Street Twin 900, has been priced at an aggressive Rs 2.33 lakh. The models are in partnership with Bajaj Auto.
Talking to CNBC-Awaaz, Rajiv Bajaj said, “Royal Enfield is the bank and we are all set to rob that bank.”
Also Read: Bajaj-Triumph collaboration makes Speed 400 an affordable aspiration for customers, says Rajiv Bajaj
Five years back, Bajaj had trolled Enfield with a series of ‘Haathi mat palo’ ads, in which Enfield was compared to an elephant. That was done to promote Bajaj’s Dominar 400 bikes, which, however, failed to make a mark as the ‘elephant’ stood strong. If the Triumph bikes are able to create a brand perception in the affordable aspiration segment, it will be a huge win for Bajaj, which has constantly tried to grow by breaking into higher-powered categories.
Royal Enfield is also staring at competition from the relaunch of Bajaj’s Pulsar and Hero’s Karizma brands, both are expected to sport around 200cc engines.
In this heated competitive environment, analysts believe the valuation premium commanded by Eicher Motors over Hero MotoCorp and Bajaj Auto is slightly unjustified. Saji John, equity research analyst at Geojit BNP Paribas, said, “Given Royal Enfield’s brand recall, it is too early to give a verdict. But a contraction in the valuation gap is plausible.”
This has also been visible in the stock movements over the past few days.
Hero Moto has gained over 10 percent in the past five trading sessions while Bajaj Auto spiked 6 percent soon after unveiling its new launches with Triumph. Eicher Motors on the other hand has corrected over 8 percent.
In May, Motilal Oswal Financial Services had valued Eicher Motors at 24.5x one-year forward earnings per share. This has now contracted to 23.8x. Meanwhile, Hero Moto, which was valued at 15x, now commands a 16x 1-year forward P/E.
Clearly, there are exciting times ahead for two-wheeler lovers. And nervous moments for Eicher Motors shareholders. Unless it triumphs over the wannabes and has them heading for the border yet again.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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