Royal Enfield is all set to invest Rs 600 crore spread over two years to drive new product development and expansion of production capacity at its new Oragadam plant in Chennai by 2017.
13 Feb 2014 | 4983 Views | By Shobha Mathur
Royal Enfield is all set to invest Rs 600 crore spread over two years to drive new product development and expansion of production capacity at its new Oragadam plant in Chennai by 2017.
The new plant went on stream in April 2013 and produces the new Continental GT. It ...
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Royal Enfield is all set to invest Rs 600 crore spread over two years to drive new product development and expansion of production capacity at its new Oragadam plant in Chennai by 2017.
The new plant went on stream in April 2013 and produces the new Continental GT. It is now being readied to have a built-up capacity of 500,000 units annually by the end of 2015-2016, according to Siddhartha Lal, MD and CEO of Eicher Motors.
Announcing the company’s 2013 results today in New Delhi, he said that the Chennai plant was slated to touch production of 250,000 units by 2014 but due to huge demand, especially for the Continental GT both in the domestic market and globally, capacity is now to be augmented to 280,000 units this year.
Last year, Royal Enfield has expanded capacity from 150,000 to 175,000 units. But long waiting periods of about 5-6 months for the Classic 350 had necessitated a tranche of investments in expanding manufacturing capacity.
A cash surplus of Rs 850 crore will be leveraged to fund the new investment. Other areas for investment will be R&D, expansion of distributor network (from the existing 300 to 500 in a couple of years). The company is also working on a new pricing strategy for its products; it recently reduced the prices of its motorcycles sold in the US (Bullet, Classic and the Continental GT) by $1,000-1,400 per bike.
“Over a 4-5 year period, the price reduction will enable us to become the number one player in the midsize segment as the price differential with the higher segment bikes increases raising the sales volumes,” said Lal. But he added that the company has no plans to reduce prices in India, at present.
In India, the midsize segment (250cc-750cc) is pegged at about 200,000 units. Part of the investment in Royal Enfield will go towards strengthening the local R&D as well covering new validation and testing facilities. Multiple product platforms will be developed in-house that will also work on different engines to power the new products with collaborations of overseas technology consultants.
While no new model is slated for a rollout during 2014, new platform rollouts will commence starting 2015.
Meanwhile, Eicher Motors’ 50:50 JV with off-road vehicle producer Polaris of USA is on track for manufacturing an on-road personal vehicle under the JV. Lal said: “It will create a new segment,” refusing to disclose further details. The new personal vehicle project involves an investment of Rs 250 crore with manufacturing to happen in Eicher’s existing facility at Jaipur. The plant will go on stream in 2015.
Interestingly, Eicher Motors has posted its best-ever results for CY 2013 notwithstanding the slowdown recording its highest ever total income from operations at Rs 6,809.8 crore (Rs 6,389.9 crore) a growth of 6.6 percent and its highest ever operating profit (EBIT) of Rs 583.2 crore (Rs 466.9) a jump of 24.9 percent. The EBIT percentage rose to 8.6 percent in CY 2013 from the earlier 7.3 percent in CY 2012 and PAT stood at Rs 525.4 crore (Rs 474.9 croer) a growth of 10.6 percent.
“For CY 2013, while the industry declined by 32.5 percent we improved our heavy duty market share to 4.4 percent from 3.9 percent in CY 2012. In addition we have also continued with our strong performance in the bus segment where we have improved our market share to 13.5 percent in CY 2013 from 12.0 percent in CY 2012.
In December 2013, VE Commercial Vehicles’ (VECV) Eicher Trucks and Buses division launched its Pro series of trucks and buses ranging from 5-49 tonnes. Earlier in the year, VECV’s medium duty engine plant at Pithampur in Madhya Pradesh began commercial production. The plant will produce 5- and 8-litre Euro 6-compliant base engines for Volvo’s global requirements. The same engine will be used to produce BS-III and BS-IV engines for Eicher’s heavy duty trucks and buses for Indian and export markets.