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LETTER TO THE SHAREHOLDERS
I have the pleasure of presenting to you the Annual Report for Eicher Motors Limited for the year 2013. Despite a challenging year for the Indian economy, and for the automotive industry in particular, I am pleased to inform you that Eicher Motors Limited has had an excellent year overall. We outgrew the industry in both our operating sectors –commercial vehicles and motorcycles, thereby recording our highest ever total income from operations at Rs. 6,810 crores. We did so while maintaining a strong market pricing and efficient operations, resulting in a record operating profit (EBIT) of Rs. 583 crores.
This out–performance is due to the robust and counter–intuitive business model that we have been putting into place over the last many years – an asset–light and lean operating model, sharply defined products, strong brand and customer experience, all aided by meticulous execution. Our aggressive business model continues to challenge the status quo in the market, and we take on much larger players and shape the market with our focussed approach. This process has been aided tremendously by our very conservative funding model, where we maintain no net debt, and large cash surpluses in Eicher Motors Limited and in our joint–venture with Volvo group, VE Comercial Vehicles Ltd (VECV). This allowed us to continue to push forward on all our long–term projects and investments despite an adverse working capital cycle in our CV business. The sustained investments during the downturn across all areas of our businesses – industry, product, distribution and brand – will help us continue this positive momentum in the years to come.
Our superlative performance, in a year that was generally forgettable for the automotive industry, won us the coveted Manufacturer of the Year 2014 at the CNBC TV 18 Overdrive Awards.
In line with our business objectives and growth, we have also refreshed Eicher's brand visual identity to mirror our growth and future direction. This new identity better captures the brand's growth trajectory and relevance in modern times with a forward tilt element. The word mark and the horse head that has been synonymous with the Eicher logo are now leaner and sharper as compared to the previous unit. The Eicher red has been identified as the corporate brand colour and will be used for Eicher Motors Limited. Our 50:50 joint venture with the Volvo Group –VE Commercial Vehicles – also uses the Eicher brand in its Eicher Trucks and Buses (ETB) division. As part of the new identity system, the product brand used by ETB will have a shade of blue next to the Eicher red. With a full new look–feel system that has been created to complete the visual identity, the refreshed identity will be rolled out across Eicher's diverse internal and external touch–points.
Our motorcycle business has been evolving rapidly over the last few years. Royal Enfield's growth trajectory began with the development of the Unit Construction Engine (UCE) platform that made its debut in 2009 with the launch of the Classic 500. With its clean, retro design and performance, the Classic has been a huge hit, particularly among the urban audiences. In 2010, we took another huge step at Royal Enfield when we upgraded our entire product range with the UCE – both in 350 and 500cc displacements. The all new Thunderbird 500 and 350, launched in 2012, was aimed at the long distance riding enthusiast. The new Thunderbird redefines highway cruising and with this we widened our reach even further to a younger demographic. Earlier in 2013 we also introduced the Bullet 500 – a more powerful and evolved version of the iconic Bullet for the traditional enthusiasts. In September 2013, Royal Enfield also launched the Continental GT, at the heart of which is the powerful and responsive 535cc UCE. The lightest, fastest and most powerful Royal Enfield in production, the Continental GT is a definitive classic sports motorcycle. With this launch, Royal Enfield now has four product families based on the UCE platform – Bullet, Classic, Thunderbird and Continental GT.
The Continental GT is a big milestone in Royal Enfield's recent history. In a post–performance era where consumers are increasingly looking for authentic, evocative and uncomplicated motorcycles, the Continental GT perfects the essential elements of the most influential idea in motorcycle history – cafe racing. We brought the core idea of rocker sub–culture from the 1960s UK roaring into the 21st century with a motorcycle that is outstanding fun to ride. Unveiled to media from 13 countries around the world in September 2013 in the UK, the bike – and its unique launch setting aimed at creating the right context for the product – drew laurels from even the most hardened critics in the world of global automotive journalism. Designed ground–up as a global product, the motorcycle engaged and captivated each of the 100 journalists when they put the bike through its paces from the iconic Ace Cafe, all the way to Brighton in the southern coast of the UK. As part of the launch event, several tours and workshops were organised with experts who curated various aspects of the Swinging 60's culture, fashion and cafe–racing history. The nature and scale of the event was a definite first for Royal Enfield. Drawing inspiration from the international launch event, we introduced the Continental GT in India at a carefully conceived event in Goa in November 2013. Like in the UK, the event in Goa too was on a huge scale with nearly 90 members of the Indian auto and lifestyle media taking to the roads of Goa simultaneously in a bid to evaluate whether the Continental GT would live up to their expectations. I am happy to say that we passed their test with flying colours. Both, the bike and the event, drew accolades from every section of the media. Their reviews are there for all to see at royalenfield.com/re–world/news . The Continental GT has also garnered several awards, including the coveted Indian Motorcycle of the Year (IMOTY) 2014, Best Motorcycle of the Year up to 1000cc and Best Design of the Year at the NDTV Car & Bike awards, Best Motorcycle of the Year up to 600cc at the Bike India awards, Most Beautiful Bike of the Year at the BBC Top Gear Awards and Readers' Choice Award at the ET Zigwheels awards, among others.
With the ContinentalGT motorcycle, RoyalEnfield also introduced 'Burn–up Wear' – well–crafted, meticulously–detailed, purpose–built motorcycling clothing and accessories. This line has been crafted from Royal Enfield rider experiences, in collaboration with veterans of riding apparel. The range includes a textile riding jacket, GT Brando leather jacket and a special edition co–branded leather jacket designed by the iconic Lewis Leathers based on their Lightning series. The collection also includes AGV helmets, all–weather ankle length shoes, long and short riding gloves and riding trousers. A selection of branded T–shirts and pit shirts complete the range. Royal Enfield had forayed into apparel and accessories in 2012 alongwith the introduction of the new Thunderbird.
At Royal Enfield, we believe that the experience of motorcycling should be such that it creates a sensorial connect between the man, his machine and the terrain. Globally, most leisure motorcycles have become extreme in their nature, and are either too heavy or too fast, and often too expensive. In many ways, they are intimidating for the rider. Our aim is to get the experience of motorcycling back to being approachable, immediate, unintimidating and one that provides unadulterated fun. We call this 'Pure Motorcycling'. For us, this is the core proposition of our brand and comes alive in our product experiences and various brand touch–points. Most of all, in our marquee rides where Royal Enfield customers get to experience motorcycling at its purest. In 2013, our biggest marquee ride, the Himalayan Odyssey, celebrated its 10th anniversary with 100 riders riding to Khardung La, the world's highest motorable road. This year Royal Enfield also conducted its first ever ride to Tibet – a monumental journey from Lucknow to Lhasa and beyond, finishing in Kathmandu.
To further enhance the 'Pure Motorcycling' brand promise of Royal Enfield, we have taken our retail experience to another level with the opening of our concept store at Select Citywalk mall in Saket, New Delhi. The new retail concept gives the customer a much more immersive brand experience, and showcases the motorcycles, apparel and accessories in a more personable manner. After fine–tuning the idea, we plan to roll out this concept to our hundreds of stores globally over the next few years. Do see the store concept in person if you can, or else online at www.royalenfield.com/saket
In April 2013, Royal Enfield also started commercial production from its state–of–the–art new facility in Oragadam, Tamil Nadu. Spread over 50 acres, the new plant is benchmarked to achieve the highest level of quality and productivity. Several parts that make up Royal Enfield's range of motorcycles were re–tooled to deliver exacting accuracy and finish. The substrate quality of the sheet metal parts, for instance, is at par with the best in the world. Completed in a record 11 months from the start of construction in February 2012, the Oragadam plant has been designed to optimise cost of production through relevant automation while retaining the human craftsmanship that is distinctive to Royal Enfield motorcycles. While the plant started with an initial installed capacity of 150,000 units in the first phase, given the growing demand of our motorcycles worldwide, the next phase of expansion at Oragadam is already under way and expected to be completed by CY 2015. We will be investing Rs. 600 crores towards capacity expansion and developments of new global product platforms over 2014 and 2015. Royal Enfield surpassed its target and sold 178,121 units in 2013 and we have also upwards revised our production plan for 2014 to 280,000 units. We are working towards maximising the production at Oragadam that will take the eventual production capacity to over 500,000 motorcycles per year.
All these actions on the brand and on our industrial capacity, along with further enhancement of our international reach, especially in developing markets, as well as our current and future motorcycle models will help us in getting closer to our ambition of global leadership in the mid–size motorcycle segment (250 to 750cc).
While the Indian motorcycling space has been evolving through 2013, the Indian commercial vehicles industry has been on the decline since 2011 after experiencing 30 per cent volume growth in 2009–10 and then 2010–11. Several factors in combination have resulted in the decline of the industry's year–on–year growth rate. Segment wise, the light, medium and heavy commercial vehicles, which is from 5 tonnes to 49 tonnes, bore the brunt of decelerating economic growth across the country with a negative growth rate of 32.5 per cent year on year.
Despite facing such challenging economic conditions in recent times however, VE Commercial Vehicles – the 50:50 joint venture between the Volvo Group and Eicher Motors Limited – has been progressing extremely well too. While the Indian commercial vehicle industry was in decline overall through 2013, we improved our heavy duty market share to 4.4 per cent in 2013 as compared to the 3.9 per cent market share we had in 2012. We have also continued our strong performance in the bus segment where we have improved our market share to 13.5 per cent in 2013 from 12 per cent in 2012.
The Volvo Group and Eicher Motors came together five years ago with a vision to drive modernisation in the CV industry in India and the developing world. In these five years VECV has grown from strength to strength. We have increased our market share across every segment we operate in as well as overall. Since the commencement of VECV, we have invested a total of over Rs. 1,800 crores in our business, and are on track to investing a cumulative Rs. 2,500 crores by the end of 2014. The main investments for the cutting edge manufacturing facilities are behind us now; we are deep into the investment phase of our path–breaking new products, and are now focussed on commercial investments to improve distribution, after sales support and customer experience.
In December 2013, we introduced 'The Future of Indian Trucking' to the world, with the unveiling of the new Eicher 'Pro series' range of trucks and buses ranging from 5–49 tonnes. The next generation of Eicher trucks and buses aims to continuously improve transportation efficiency in India and the developing markets through relevant modernisation, reducing ownership costs and thus enhancing economic growth and productivity. The 'Pro series' comprises 11 new products spanning the entire medium and heavy duty segments from 5 to 49 tonnes. With a completely new Pegasus–based front styling across the product family, the new range of vehicles is a quantum leap in each and every aspect. The new range of trucks is powered by new generation engines adapted from Volvo Group technology. Today we have the most professional, holistic and progressive approach to Indian trucking. VECV's philosophy of 'Go Pro' implies that our customers can truly work with and rely on a professional partner. Eicher's products, service and attitude are truly professional, and this enables our customers to become more productive, profitable and prosperous in their work and life.
As a company committed to long–term growth in the country and leadership in the CV industry, we have invested heavily in infrastructure and capacity expansion. We started commercial production of Volvo Group's new medium duty engine platform (MDEP) at our new VE Powertrain facility in Pithampur, Madhya Pradesh. With an initial production capacity of 25,000 units annually in the first phase and a plan to strategically increase production capacity in a phased manner to 100,000 units per annum, the new plant in Pithampur, which was set up with an investment of Rs. 375 crores, puts us in an extremely advantageous position with respect to the competition. The most technologically advanced engine manufacturing plant in the country, the MDEP also places us way ahead of the competition in engine technology. This new facility will be the base for the Volvo Group to source 5 and 8 base engines for its global Euro–5 and Euro–6 requirements; in addition, the same base engine will be used for Eicher brand's requirements in India for BS–3, BS–4 and beyond –giving us a strong volume base, revenue stream and global technology for our Indian products.
In October 2013, VECV also began commercial production at its new bus body plant. The plant will produce light, medium and heavy duty buses including the rear engine semi low floor buses. This state–of–the–art plant has robotic painting processes and is highly mechanised to ensure high quality consistency and productivity.
At our other 50:50 joint venture with Polaris Industries of the USA, we have continued to make good progress. The plant in Jaipur is in an advanced state of readiness, and our plans of producing a four–wheeled personal vehicle is also in an advanced stage of development. Commercial production at our plant in Jaipur is slated to start in 2015.
Overall, 2013 has been an excellent year for Eicher Motors Limited, and we have got a good trajectory into 2014. However, we don't take anything for granted and continue to find new ways of disrupting the status quo in all the markets that we operate in by truly understanding spoken and unspoken customer needs and converting those into better products and customer experience. While we still have much larger ambitions in both our businesses in India, we are now embarking on an international journey in commercial vehicles and motorcycles –and believe that the Eicher and Royal Enfield brands can truly become global brands in the future.
Managing Director & CEO Eicher Motors Limited