Royal Enfield may set up second plant as demand outstrips supply

Enfield in the process of identifying a new location for a factory near the plant it has at Thiruvottiyur in Chennai

New Delhi: Royal Enfield, the Eicher Motors Ltd unit that makes the iconic Bullet motorcycle, may set up a second factory near Chennai to overcome capacity constraints that make it difficult for the company to meet demand. 

It’s in the process of identifying a new location for a factory near the plant it has at Thiruvottiyur in Chennai, Royal Enfield’s chief operating officer Venki Padmanabhan said on the sidelines of the 50th annual convention of industry lobby group Society of Indian Automobile Manufacturers.

Royal Enfield has been unable to meet demand for its Classic 350 and 500 models, which were launched in November, with the waiting period extending to as much as nine months for some variants. 

“We had earlier talked about expanding the current capacity but we realized recently, there’s no scope of further expansion,” Padmanabhan said.

The existing plant, which has been producing 55,000 bikes a year, can at the most be stretched to 70,000, he said. 

“While the company is trying its best to deliver the bikes as fast as possible, it’s not bad to have a little demand-supply gap for a leisure, high-energy brand,” said Siddhartha Lal, managing director and chief executive at Eicher.

Enfield’s July domestic sales rose 10% to 4,775 units. The niche manufacturer plans to sell 100,000 units by 2012. 

“It makes no sense to be expanding in a 50-year-old factory,” Padmanabhan said.

The Enfield paintshop, which has, at times, been unable to cope with the rush in demand, may be upgraded, he said. The company has been using the paint facilities of Kinetic Motor Co. Ltd and TiCycles, he said. 

To squeeze out some more capacity, Enfield is adding another assembly line at the existing unit. This will start by November and could reduce the waiting period by at least one-third as capacity rises from 1,200 units to 1,500-1,800 a month, closing the gap with demand, which is currently at 2,000 bikes a month. 

The new plant it’s considering, will have an investment of Rs200 crore, with an installed capacity of 250,000. Royal Enfield is looking to grow at 15% annually, and expects the factory to be utilized fully by 2020. 

“Exports should be 10% of our volumes,” Padmanabhan said. “Today we are at 4%.”

To make its bikes Bharat Stage 3 emission compliant, Enfield is changing engines. It’s also preparing to roll out a new model every two years with more features and higher displacement. The company will launch the Cafe Racer model in 2012. 

“Our customer profile now also includes those who have experienced the Hero Honda Karizma and Bajaj Pulsar, besides cult bike lovers,” he said. 

Even as it’s aiming to step up production more to meet the demand, Enfield is not interested in over-investing in capacity and does not believe in market share metrics, Lal said.

“We will always retain the essence of the brand,” he said.

courtesy - livemint.com

author - shally seth