Rajiv Bajaj, the MD of Bajaj Auto, knows how to be in the news and how to get catchy headlines. If you have followed him just like me you will remember many of his previous stunts in the media. That’s fine. A business owner needs to promote, protect, & project the growth of his business. He is just doing that again when he calls Royal Enfield a bank that he believes he can rob.
If you are not aware of the story here is a glimpse.
Yes. Hero’s association with Harley Davidson and Bajaj’s association with Triumph is catching a lot of eyeballs. But how big or small is this a threat to RE at the moment and how each of the three players are placed today is a good topic of discussion.
Five of us, I and my four investor friends, had a lively debate on this situation. I am highlighting some of the group discussion points and sharing my own views as well.
Before that, let me share with you one of my favourite Aesop Fables. The Hound and the Hare
It’s a tiny story of only 5 sentences. But very profound and deep.
Here you go!
A Hound chased a Hare from his lair, but after a long run, the Hound stopped chasing. A goat-herd who was watching laughed at the Hound and said:
“The little Hare is the better runner of you two!”
The Hound replied:
“But you do not see the difference between us: I was only running for dinner; he was running for his life.”
Moral of the story: Incentive spurs action.
If you are a student of business and investing, I do not need to be more explicit. You know very well who I think is the Hare here and who are the Hounds.
But please don’t take my words at face value. Let’s debate more on facts.
So the situation is like this. Most two-wheeler players are fighting like cats and dogs to survive in the highly competitive and commodity-like space of the under 250CC segment of the market. You have players like Hero, Bajaj, Honda, TVS & a few others trying to snatch the market share from each other all the time. And then there is a 250cc to 500 cc segment that Royal Enfield (RE) has made its home.
RE alone commands a 90%+ market share in this segment for a long time now. Hero in association with Harley Davidson and Bajaj Auto in association with Triumph are trying to enter this space.
But the question you should ask is whether Royal Enfield is going to let them eat away its market share just like that.
If you want to deep dive into the business of Royal Enfield and Eicher Motors, here is our November 2021 webinar link.
Legendary investor, Philip Fisher has said this:
“High-profit margins may be compared to an open jar of honey owned by a prospering company. The honey will inevitably attract a swarm of hungry insects bent on devouring it.”
And there is truth in the statement. Time and again we have seen hungry insects attacking that jar of honey.
Yippie attacking Maggi in the instant noodles category
Safari going after VIP Industries in the luggage and backpack category
JSW, Pidilite,& Grasim entering the Asian Paints’ territory in paints.
I can go on and on.
But the fact of the matter is that each case is different. The “honey and the insect” situation is far more nuanced than we think it is. But let’s get back to our RE vs others story.
Do you remember the “Haathi Mat Palo” campaign by Bajaj some 5 years ago?
Here’s a 3-minute video to refresh your memory.
Bajaj launched Dominar at that time and took a dig at Royal Enfield.
Fast forward five years, in FY23 they sold only ~15000 Dominar bikes.
I believe it is too early to think that Triumph and Harley have arrived.
RE is not just a manufacturing product that can be copied and replicated. It is far bigger, stronger, and more difficult than that.
A distinct brand with a clear identity. None of the others (Hero, Bajaj, or TVS) have that.
And brand building is harder than it looks.
It needs so much work internally at the company level and so much externally at the distribution and customer level.
Source: Company’s latest presentation
Against the vast distribution network of RE, Harley and Triumph today put together have less than 60 stores/showrooms across India.
And that is not all. Look at how RE has expanded it’s footprint globally.
Even if you look at the total number of motorcycles sold around the world, RE is a clear winner with 8,34,895 motorcycles sold in FY23. Harley’s numbers are steadily declining over the last 5 years as you can see below. In CY22, they sold close to 1.75 lacs bikes only.
Source: https://www.statista.com/statistics/252220/worldwide-motorcycle-retail-sales-of-harley-davidson/
Triumph is gaining traction every year but is still at less than a lac units sold a year. And if you read this you will realize that India is not their major market yet.
RE became a global brand in 10 years. Only in the last 2-3 years, we are seeing some good global numbers. What we don’t see is the efforts put in behind that organically in the 7 yrs before that.
Hero, Bajaj, Mahindra, Honda, or TVS at least at the current stage don’t have that culture built in them.
And neither they have the patience or the DNA to wait for such a long time to build that kind of brand.
They will always go for the short-term route. Whatever gives them good visibility of volume and profit growth in the next 2-3 years, they will drift towards that. And to make matters worse for them, they have too many categories to manage.
RE has just 1.
Having said that. There is another story of “Adopt & Die” that comes to my mind just now.
“Adapt or die.” – Billy Beane, ‘Moneyball’
And in that story, of Hare and Hounds, what we also need to understand is that only the fast-running Hares survive. The ones who adapt. Slow Hares get eaten, increasing the number of fast Hares in the gene pool. A Hound must be quick to catch a Hare, but only quick enough to stay well fed. You can think of it like an evolutionary arms race in which predators constantly apply pressure, forcing their prey into fitness.
And sure the Hounds are putting some good pressure.
Check out these two hard-hitting pieces.
Triumph 400s Cross 10,000 Bookings Within 10 Days – That’s 223 Crore Potential Revenue!
Harley X440 Bookings, Availability, Deliveries
What remains to be seen now is will the Hare run faster for his life than the Hounds running for their dinner or the robbers will succeed in their quest of robbing the bank err Royal Enfield.
Let me know what you think in the comment section.
Happy Investing!
P.S. I may be biased in my views. Please do not consider it as a recommendation to Buy or Sell.
