"The motorcycle industry is less of a technology and more of a marketing industry. It is a game of brands. The industry is highly competitive both in domestic and export markets. The only way to create a durable competitive advantage in this industry is to specialize in a niche and create a brand out of it.
2. A motorcycle company which creates a new subsegment by introducing a branded product gets rewarded by customers with a very high market share, which is profitable and it lasts for a very long time. This is what Hero Honda’s Splendor did in the 90s by creating a new segment. It sells more than one million Splendors every year. Recently this happened to Royal Enfield, owned by Eicher Motors, which is the leader in the S2 subsegment with more than 90 percent market share. "
"Customers of RE don’t view their motorcycle purely as a mode of transportation. They view it as a luxury good where they are used mostly for recreation, as a lifestyle accessory or a symbol of personal identity. These customers don’t care much about the mileage or price of the bike"
"RE business has an asset light business model which enables it to turnover its fixed and working capital at very high rates. And this resulted in generating ROIC greater than 200 percent. It has a negative working capital because of its high bargaining power with vendors and distributors. It has a cash conversion cycle of negative 30 days. In 2014 it had an operating margin of 22.55 percent. This is better than that of any other motorcycle company in the world, and possibly the highest level compared to any automotive brand globally as well. Harley Davidson the world leader in the premium branded motorcycle generates an operating margin of around 20 percent. Over the years REs operating margin 7 improved significantly by going up from 7 to 22 percent"
"Motorcycle business which we must humbly accept that the technology has saturated long time back. If you read the auto magazines, we would look very foolish because if you make commuter bikes we are competing on the last 1.3 kilometers mileage. And if you make sports bike then you need four stop watches to find out who is one third of a second faster than whom. In other words everybody’s product is like everybody else’s. And it can point to a very commoditized industry - Rajiv Bajaj"