Strategy: Eicher: Cranking Up The Old Horse

Beset by falling marketshares and losses, Eicher needs to make swift moves to arrest its slide.

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Although it had been planned almost two months in advance, S.S. Sandilya's 25-day jaunt to the US did not quite turn out the way he expected. For one, just a fortnight ahead of his departure on August 6, 2000, the 52-year-old Chief Executive Officer's company, Eicher, reported a loss for the first quarter of 2000-01. That was its first in the last 10 years.

So, what was intended to be a quiet getaway with his family, turned out to be a desperate business mission. Dashing between Chicago and New Jersey, Sandilya sat through as many as 10 business meetings, trying to line up buyers in the US market. Not that life back home is any easier for Eicher's CEO of six months. That's indeed a tragic denouement for the CEO of a company whose Chairman Vikram Lal redefined his and his family's role in the business as that of a strategic investor. but professionalisation and performance, as events have shown, are two very different Ps.

The all-professional company's tractors business, which fetches 60 per cent of its revenues, has been slammed in the recent past. Sales in the 24-horse power (HP) segment, which makes up 70 per cent of Eicher's tractor sales, have almost halved to 2,700 units in the first five months of the current fiscal. Reason? The excise duty on 24-HP tractors has been doubled to 16 per cent post Budget 2000, and that has narrowed the price differential between the big and small tractors by about Rs 12,000 per tractor. Notes Subodh Bhargava, 58, Advisor to the Eicher Group and its former CEO: ''That's forcing a shift in preference from lower HP tractors to more powerful tractors.''

Even its other big business of motorcycles, Royal Enfield-which adds one-fifth to the topline and is headed by P.K. Purang, 52-is in the doldrums. Partly because it operates in the 350 cc and above niche segment, Royal Enfield's sales during the first three months of this fiscal barely inched up 4 per cent. And unless the division can open the sluice gates to new products, it will remain an also-ran, accounting for just 1 per cent of the 5 lakh motorcycles sold in the first quarter of the current fiscal. Says an Eicher watcher: ''I don't think the issue facing Eicher today is a simple one of new product launches. Rather, it is one of re-inventing and re-establishing its old-line businesses.''

The statement, if a little exaggerated, is not totally inaccurate. Not only does Eicher have a modest share of 8.5 per cent of the tractors market, its attempt at moving up the horse-power hierarchy isn't exactly fail-safe. Foreign competitors such as John Deere, New Holland, and Renault have already pitched themselves in the premium end. That apart, there are domestic contenders, including Mahindra & Mahindra, Punjab Tractors, TAFE, and Escorts to reckon with.

Therefore, even if Eicher's indigenously developed high-power farm machines find takers in the market, the company's overall share will necessarily be limited. Agrees Sandeep Goel, 30, Senior Analyst, ICRA: ''A new player has to have some kind of a brand or price advantage. Eicher has neither.''

A 35-HP, two-cylinder tractor, Shahenshah, launched by Eicher in January, 1997, did not meet the company's expectations and has sold just 10,000 units so far. Two other models-35-HP and 45-HP variants-are doing well. Next year, a 50-HP machine is to be launched, and then some application-specific equipment for orchards and vineyards, paddy transplanters, and bailers. Says R.C. Jain, 54, Managing Director, Eicher Tractors, a division of Eicher: ''We are putting considerable resources behind the newer models.'' The company's spent Rs 35 crore on adding two assembly lines in its Bhopal facility, and is focusing on improving efficiencies.

As part of a voluntary retirement scheme (VRS), 250 employees were recently retired in the tractor business. Besides, overheads such as travel expenses and labour and material costs have come under the scalpel. Points out Deepak Dhawan, 47, Executive Director (Strategic Planning), Eicher: ''The budget is no longer the reference point for any cost item.''

Armed with cost-effective models, the company plans to expand its marketing beyond Haryana and Punjab-where growth in tractor demand has slipped into negative-to non-traditional markets like eastern Uttar Pradesh, Bihar, and Karnataka. 'Pragati' (Hindi for progress) marketing teams have been set up to scout for new dealers and raise channel-strength from 320 to 360 by March. And to stand out in the crowd, Eicher plans to use service as a differentiator. Besides providing spare parts even at the smallest dealer outlet, it will train mechanics.

Initial efforts seem to be paying off. In the quarter ended June 30, 2000, the revenue share of 24-HP tractors is down from 72 per cent to 46 per cent and that of 30-HP machines has doubled to 24 per cent. Even 31-40 HP tractors are fetching more money, raising their share from 16 per cent to 30 per cent. Says Sandilya: ''Our portfolio will depend less and less on the smaller tractors.''

It's a diametrically-opposite problem that plagues Eicher's motorcycles business. Royal Enfield is stuck in the power-bike segment, and to move down to categories of 100 cc to 125cc, it will have to make new investments wholesale. That's something its current financial health does not permit. (Incidentally, ICRA has downgraded Eicher's non-convertible debentures from LAA to LA+.)

But the company avers that it is committed to the high-end of the market. Says Sandilya: ''We are confident of success, as the domestic motorcycle market is gradually upgrading.'' In the past one year, mobikes like Honda CBZ and Suzuki Fiero in the power-styling segment, and Bajaj Caliber, in the economy-styling segment, have been launched. LML too plans a foray into this segment with its soon-to-be-launched Adreno and Energy. Purang also plans to roll out two new models-Lightning (535CC) and Classic Style (624CC)-for the export market. And if the company's reported negotiations for technology sourcing fructify, then a 250-cc bike will also be launched.

The recently commissioned Rs 30-crore motorcycle plant in Jaipur will ramp up production to 7,000 a year. Says Purang: ''The Indian motorcycle market is upgrading to the power segment, which will benefit us.'' Despite Sandilya's and Purang's optimism, the future for Enfield does not look bright. Most competitors boast better technology. That apart, the Japanese auto major, Honda, is joining the fray in the high-power segment after 2004.

Then, Sandilya has the gear business to resuscitate. Since almost half of what the unit manufactures is consumed in-house by Eicher tractors and light trucks, the division has borne the brunt of competition. It has posted losses and expects to continue with it this fiscal. Says Dhawan: ''The after-market has exploded with Telco and Ashok Leyland products, and the realisations have dropped dramatically.'' As a result, the gear business is now focusing on OE supplies, instead of the after-market.

The only silver lining to the dark cloud hovering over Eicher is the light trucks business. Eicher is well-established in the six-to-nine tonne segment, with an overall share of 12 per cent. Its sales jumped to Rs 85 crore in the first quarter compared to last year's Rs 58 crore, and the net profit stood at Rs 1.24 crore (Rs 44 lakh).

But that alone is unlikely to help Sandilya in turning around a group almost written off by Dalal Street.