Eicher Motors: Owner-Operated Motorcycle Maker with Growth

Soumil Zaveri of DMZ Partners presented his in-depth investment thesis on Eicher Motors (India: EICHERMOT) at Asian Investing Summit 2019.

Thesis summary:

Eicher is the parent company of Royal Enfield, a global leader in the middleweight motorcycles segment, with the vast majority of business originating in India. The company has focused on distinctive motorcycles since 1901 and is the oldest motorcycle brand in continuous production.

The Royal Enfield business has had a robust scale-up, from 50,000 units (2010) to approximately 820,000 motorcycles in FY2018. This has been supported by continued premiumization in India’s motorcycle market (approximately 12.6 million units sold in FY18) as consumers upgrade from value-based, mileage-centric, and commute-focused products to more powerful motorbikes, which make riding more involved and leisure-based. Royal Enfield has dominant mindshare in this domain, with a long-standing focus on long-format rides and rider events and communities. Given the evocative and aspirational nature of the brand among the young and the growing middle class, and a pan-India store presence (875+ dealers), the business has a long growth runway.

To put the company’s size in perspective, it is interesting that commuter bike manufacturer Hero MotoCorp crossed the threshold of million two-wheelers sold in 1994 and sold more than 7.5 million units in FY2018. The Indian economy and consumption levels have come a long way since then. Royal Enfield appears likely to sell a multiple of the bikes it sells today a decade from now by mapping the upgrade preferences of Indian consumers, supported by rising discretionary spending and urbanization.

In addition to the domestic opportunity, Royal Enfield has the potential to emerge as one of India’s few home-grown brands to find success in global, “India-like” markets, with a deepening business presence in Latin America and Southeast Asia and a brand-accretive presence in developed markets like the UK and the US.

The business is run by a passionate and disciplined owner-operator, Siddhartha Lal, who displays immense clarity on the path ahead and remains acutely aware of curating the brand and retaining bandwidth where it is most required.

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About the instructor:

Soumil Zaveri moved to the US in 2005 to study Economics and Biology at Duke University. He had the good fortune of being taught by phenomenal professors including Dr. Emma Rasiel. In the summer of junior year, He interned with Goldman, Sachs & Co. in New York on the healthcare team within the Research division. He was extended a full time offer and joined the banking team there after graduation. Given the magnitude of changes affecting the western economies, the resilience of Asian ones and his desire to be back home, after a few years in New York, he moved back to Mumbai to start his own investment firm, and to work directly on allocating personal and family capital. He founded DMZ Partners in early 2011 with his father, Sanjay who has played a key role in shaping his investment philosophy. DMZ Partners has recently transitioned from allocating only family capital to a SEBI Registered Portfolio Manager. Soumil & Sanjay intend to cautiously curate their investor base to ensure that their investors’ philosophies and expectations are well aligned over the long-term.