Is the recent decline in Royal Enfield’s sales, a reflection of product stagnation or mere economic slowdown?

  • What interrupted Royal Enfield’s extended growth journey?
  • Are new entrants in the market weighing down Royal Enfield’s popularity?


Royal Enfield (RE) is a well-known brand in the motorcycle industry and a name very close to the hearts of bike enthusiasts. For RE loyalists, these bikes are not just a medium to commute but a style statement and a source to satiate their quest for adventure.

RE is also known for its turnaround story which began in the year 2000 when the now MD (of Eicher Motors), Siddhartha Lal decided to take a chance to revive the loss-making unit of the family run business. While the board was considering selling off this business, Siddhartha, stepped in and expressed his interest to give it a try. In a recent interview, Siddhartha recalled “The board agreed to give me a chance. It was not because of its confidence in me, but because the business was doing so badly it could hardly get any worse”. Within few years, this loss-making unit became the most popular brand in India and motorcycle (RE) segment of Eicher motors grew leaps and bounds since then and its margins expanded with each passing year.

From sales volume of 25,000 bikes in 2005 to 8.6 lakhs bikes in 2019 (~30%, CAGR), RE has come a long way and has witnessed continuous success for close to 2 decades. The last 5 years (FY2014 - FY2019) also saw similar growth of nearly 32% in RE’s sales volume. However, this elongated upward trajectory had hit the speed breaker in the second half of FY 2018-19. RE saw decline in sales volume in November 2018 (y-o-y) for the first time in the last decade, resulting in largely flat growth in FY 2018-19. The decline continued in FY 2019-20 as well and Eicher Motors witnessed negative growth of 16% (y-o-y) in FY 2019-20 (YTD) in RE motorcycle sales across all ranges. The festive discount offers in October 2019 provided some respite as the sales volume grew by 2% y-o-y (the only month in the year which saw positive growth). This significant decline in recent months was primarily driven by 19% dip in domestic sales. Exports, on the other hand, increased by whooping 150% during the same period on a low base.

The decline in sales volume had also translated in fall in revenue and margins. However, this reduction was curtailed to some extent by increase in Average Selling Price (ASP). Revenue declined by 8% in H1 2019-20 (y-o-y) while volume fell by nearly 20% during the same period. This top line de-growth trickled down to margins as well. EBITDA margin reduced from 31.5% in H1 2018-19 to 25.5% in H1 2019-20.

The market share has also taken a hit as it fell from 27% in FY 2017-18 to 24.9% in FY 2018-19. In H1 2019-20, it is further down to 23.5%. Nonetheless, in the mid-size (250cc – 750cc) motorcycle segment, it remains the market leader with close to 90% market share, though this has also declined marginally from 95% in FY 2016-17.

Weak demand driven by slow economy and tight liquidity in the market along with price increase due to several regulatory requirements are factors responsible for the current downward trajectory of this behemoth. This, however, seems to be an industry phenomenon as other players in the country are also witnessing this decline. In August 2019, total motorcycle sales declined by 22.24% compared to August 2018. The world’s largest two-wheeler manufacturer, Hero MotoCorp, also saw a 12% (y-o-y) decline in its motorcycle sales volume in November 2019.

Apart from economic sluggishness, RE also witnessed product fatigue particularly in small segment, however, in response to this, RE recently launched, “Bullet X”, a new version of its popular brand, which apart from offering a lot of colour options is also priced relatively low in order to attract more customers.

Further, to deal with de-growth in sales volume and consistently increasing pressure on profitability, RE is expanding its reach particularly in tier 2 and tier 3 cities as they are relatively less penetrated as of now. Deviating from its traditional large format stores, the company has recently rolled out 500 studio stores which also entail lower set up and operating costs.

Apart from this, the silver lining emerging out of RE’s current scenario is its overseas business, which is growing multi-fold, however, its share in total sales volume is extremely small (6% in H1 2019-20) currently. To narrow down the impact of slowdown in domestic market, RE could focus aggressively on the international market as well.

In a nutshell, a nearly 2 decades long growth trajectory of Royal Enfield recently got interrupted by sluggish economy, regulation driven price increase, weak consumer sentiments, increasing competition and product stagnation. RE’s sales volume have been continuously declining for past 10-12 months (October 2019 being an exception) resulting in decline in revenue and suppressed margins. To deal with the situation, it has been taking steps such as introduction of new variants to attract customers and introduction of new store formats to reduce cost and expand accessibility. Nonetheless, YTD numbers for FY 2019-20 reveal that the full year numbers are expected to remain suppressed. However, this seems to be a temporary blip as RE is expected to be back on track with economic rebound. Though, going forward, it might not witness the humungous growth numbers it did during its continuous growth period. This is because it now faces strong competition from numerous domestic and international players which are competing with RE in terms of price as well as new products. Recent entry of Jawa and Benelli in the Indian market is expected to intensify the competition. However, it is expected to remain popular with its flagship products particularly in the mid-size segment.

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