You have had an extraordinary growth run of high double digit last few years. But over last few months, the growth in volumes have been sharply lower. Are the market concerns on growth justified? The stock has seen erosion last few months on the back of that. What would you like to tell your shareholders?
The soft markets have been extremely kind to us or supported us a lot over the last decade and this is what happens. When there is one negative, then you extrapolate 10 years to the negative. When there were a few positive signals, then you extrapolated 10 years to the positive. That is generally the trend. But I take all of this with a pinch of salt. We keep things very real. It would have been very easy. Everyone is reacting terribly to our December numbers where we are down 13%. Fair enough! I can understand why but it would have gone totally unnoticed if we just pushed 5,000-6,000 more motorcycles into the market.
I think that is what all other companies do but we do not do that. That is not what we want to do. We want to keep it real. We want to make sure that inventories are right. They are not there to satisfy a couple of investors or media. But that is not how we operate because we are looking at this from extremely long-term perspective and a few blips here and there will only weed out people who are not perhaps very long-term investors. That is okay with me.
I am a long-term investor and I hope all the others there are similar and they believe our story and our story is still intact. We are on the premiumisation trend. We are doing gorgeous things in India and in the world market. We have 850 plus stores. There is nothing like this in India.
Let us analyse the factors which have come together and been responsible for this — the tech upgrades, the ABS related issues, the Chennai plant strike, the insurance cost which has ownership pattern and of course maturing of some of the markets along with the Kerala floods. How have all these factors impacted? Clubbed together, they appear big.
It is not in our nature to justify and make excuses because that is not the point of all of this. Sure there have been lot of individual things but they have always been there. Earlier, what happened was that we had a huge order book which could buffer any individual problem.
Five years ago, there was a problem like Kerala floods. But, then we had an order book in other markets which could take care of that. Sure there have been individual areas like certain markets have matured. But honestly, for me the real thing which has happened has taken some time and it will some more time for the market to react to the new normal which includes increased price of motorcycles, increased costs because of insurance and other factors like the anti-lock breaking system (ABS) etc.
What has happened is that normally 3% to 5% cost increase every year can be easily passed on. Customers really do not mind. It is part of inflation which happens with everything. But it is tough to pass on 15% increase. We have also learnt from that process that maybe we should have broken it up in more steps, but now we are here. So really it was a bit of that which is a bit more abnormal because otherwise individual market issues will always happen.
In UP something happens, here something happens, election plus/minus who knows! But those are things that normally we just weather. But it is only the price issue that has affected us a bit. But now we are getting back on track. In December, we had flushed as many 2018 bikes as possible. Of course, there are a few left in the market but the idea was to lower inventory so that we could flush out bikes and people wanted 2019 motorcycles.
There was talk of inventory build up at select dealerships which has never been the case before. Folklore has it that Enfield always have had 8-9 months of waiting period. But that seem to have come down.
Of course 8-9 months is gone long ago and it has come down to 3-4 months now. In some models, the waiting period is 15-20 days. Some models are available off the shelf. Inventory is at extremely normal levels and in fact much less than any other two-wheelers. But we do have inventory now. So there is no pile-up of inventory. But we have some inventory which is also good. Earlier, everyone used to shout and scream shadi season is coming! People want bikes immediately. We used to miss out on those opportunities. Now we should be able to catch some of those but there are other issues which come under focus.
Kerala is a highly penetrated market. How are trends over there? Even Maharashtra and Karnataka were highly penetrated. But you are still scratching the surface in large markets like UP. How are you analysing your big, maturing markets? Which are the ones showing opportunity in terms of breakthrough?
Mature markets are exemplified by Kerala where we are the biggest motorcycle brand — ahead of all the Indo-Japanese style motorcycles — with around 30 plus percent share. There, every third motorcycle which is sold is a Royal Enfield. It is like your Apple phone. People aspire to it. People are able to access it. The income levels are higher there. The distribution is cracking there. The residual value, the resale price of a Royal Enfield is extremely good. So, it is a very liquid asset when you are buying Royal Enfield in Kerala. It is a positive sign.
In a market like Kerala, it is not about brand recognition. When I say Kerala, I mean I am now extrapolating about south or maybe the more of developed markets including even Punjab and a few other southern markets and a few cities like Delhi, Bombay etc, all of which are very mature markets for us.
In these markets what is very important now is the work that we are doing on the development front of rides and community. That that is what people are really interested in and engaging in and the other is new products. A classic 350 has now nearly become the new normal.
Your Classic 350 still gets more than 50% of your overall volumes. You seem to have rejigged that?
In markets like Kerala, the Interceptor, the GT and the Himalayan play a much larger role than they maybe in UP. For example, we have a huge population of people over the last eight, 10 years. We have got 3.5 million people riding Royal Enfield motorcycles in India and if you take Kerala, that has got a disproportionate share.
These guys who have been riding Royal Enfield for so long, have been asking us for more. They want to upgrade. So the same way that we were able to tap the 100-150-200cc market over the last decade, we are now going to tap our guys who want an upgrade and there is a lot of them out there in Kerala, Maharashtra, Karnataka, Punjab, Delhi, Mumbai and Chennai. There are a lot these guys who have been riding Royal Enfield.
Talk to us about how GT and Interceptor potentially could be international offerings for you. Outside India, people are used to bigger bikes. Biking means big bikes and do you think some of the international markets which you have already stepped into you, can do a India over the next five, eight years and give you the next leg of growth?
That is absolutely the plan. We have been scouring the markets. We have been participating in international markets for a long time now, a bit more under the radar. I would break the global markets into two parts, just for our convenience; one is developed countries US, UK, Europe, Japan, Australia where there is culture of big motorcycles. But the market is small. The overall motorcycle market is not in millions per year, it is in the tens and hundreds or thousands per year
And that is where we already have a decent distribution, a brand recall and all that. What is happening is that these motorcycles fit in perfectly. The reviews in markets around the world in developed countries have been absolutely fantastic because we have just hit the spot in the right manner at the right time with these modern Classic motorcycles.
We expect really good growth there but developed countries are not going to be the next India. I do not mind if they are but I do not think they will be the next India. The next India is going to come from markets like Southeast Asia, Latin America, and we have put up a store in some of these markets with the product available at the right price, the price which would be there if it were selling it at CKD. In southeast Asia, we have now zeroed in on Thailand as our nodal market because that is where we expect that the upgraders will come from because there also the middle, big bike market is vastly underserved.
One of the cousins of Royal Enfield of last few decades has come back in the form of Jawa Motorcycles but I have seen some of the international companies put their products near Himalayan also. How are you analysing the competitive landscape in particular with these two?
We take competition very seriously. We study, understand, ride, I have ridden pretty much every motorcycle out there, not in the very big motorcycle category but basically everything which is either a source of growth for us, which are smaller motorcycles or direct competitors.
We understand the motorcycle, we understand the product, we understand the idea, their distribution, the business model, all of that. So we put a lot of attention there but our strategy is not determined by other people. Over the last 10 years, we have had an outstanding growth. We are the most profitable from a percentage perspective motorcycle, perhaps even automobile brand in the world. There will be competition and there will be guys saying I want a piece of that pie.