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Royal Enfield to make further cut in production

By Pritish Raj

With tepid sales in the last two months leading to inventory pile-up, Royal Enfield the two-wheeler arm of Eicher Motors is likely to go slow on production, people aware of the development said.

While the management in November had cut the full-year (FY19) production guidance by 25,000 units from 9.5 lakh to 9.25 lakh because of a nearly two-month labour strike at its Oragadam facility in Tamil Nadu, sources said the company is now looking to cut the output further by about 50,000 units this fiscal. Going by the estimated production cut, the company is likely to produce around 8.75 lakh vehicles in FY19.

Currently the waiting period of the company s highest selling motorcycle Classic 350 which accounts for the lion s share of around 70% of Enfield s India sales, has come down from around seven weeks in 2016 to almost off the shelf.

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According to analysts at Axis Capital, inventory across dealer and company levels has risen to two-three weeks, vis-a-vis 10-11 days during the April-June quarter owing to lower same store sales growth which declined by 5-6% during the July-September quarter year-on-year.

There is no need for an advanced booking now. Customers can come and make their purchase as the bikes are readily available, a Royal Enfield dealer told FE.

Analysts attribute the slowdown witnessed in recent months to increasing brand fatigue, no successes beyond the Classic range, steep price hike of around 15% due to insurance cost and mandatory ABS, and emerging competition from Jawa Motorcycles. Royal Enfield s sales plunged 6% y-o-y and 13% y-o-y in November and December, respectively.

A spokesperson for Eicher Motors did not comment on queries sent to them.

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To put the competition aspect in perspective, the three products of Jawa Motorcycles, the closest new-entrant competitor, have been sold out till September 2019, even before the first bike could roll out of production. Deliveries will commence in March this year. Besides, Harley Davidson, Triumph and BMW India are also in line with products where Royal Enfield was the only ruling player.

In addition to weak demand, we suspect seasonality and reduction in waiting period were also factors and could remain an issue for near-term y-o-y growth print for the company even in 4Q, analysts at Jefferies India said.