40% GST on big bikes will deter investments; exploring ways to ease impact, says Royal Enfield CEO
Royal Enfield has delivered record sales in Q2 and the festive season in the September to October period. GST reduction from 28% to 18% on motorcycles up to 350cc allowed the company to sell over 2.5 lakh vehicles during the festive period. But going forward, the company is working on alternatives in case the GST rate on bikes over 350cc remains at 40%.
"Royal Enfield is taking time to reflect, but we will not take any knee-jerk reactions. But the GST hike is going to deter us from investing in R&D for higher capacity motorcycles if the scale is not there in domestic markets", said B Govindrajan, the CEO of Royal Enfield, in an exclusive interview to CNBC-TV18 on the sidelines of the company's Motoverse festival in Goa.
The CEO said that while the inquiries and bookings are growing and the demand for motorcycles up to 350cc is likely to sustain, there was a clear drop in inquiry levels for bikes over 350cc. This is after the government reduced the rate of tax for bikes up to 350cc to 18% from 28% but increased tax on bikes over 350cc from 28% to 40%. For context, approximately 9-10% of Royal Enfield volumes come from the 450cc plus segment, which is now likely to be impacted.
"We are trying to explain to the government that a lower uniform GST rate of 18% would allow companies to achieve scale with 450cc and 650cc bikes in India, and this would in turn help in taking bigger motorcycles to export markets at a more affordable price”, said Govindrajan. He added that while the company was not putting off any future product plans for now but at the same time it was imperative to work on alternatives to minimise the impact.
Expanding Domestic Capacity
Buoyed by strong demand for Royal Enfield’s 350cc motorcycles, including the Hunter, Meteor, Classic and the Bullet, Royal Enfield is working on increasing capacity from 1.2 million units to 1.5 million units by Q1 of FY27. Rather than setting up fresh capacity, Royal Enfield is setting up additional capacity modules in existing plants for greater cost efficiency.
The company has also showcased four new products at the Royal Enfield Motorverse festival in Goa. Apart from the electric Flying Flea Scrambler, Royal Enfield has showcased the Bullet 650cc, the all black Himalayan Mana rally edition and the Meteor 350 Sundowner edition. All the motorcycles will be launched in India and global markets in the coming months.
Targeting Greater Exports
Royal Enfield CEO Govindrajan said that the company was targeting a 30% YoY growth in export volumes in FY26. “We are working to increase exports of 450cc and 650cc to 65 countries to offset the GST hike impact. Royal Enfield has an 89% market share in the middle-weight motorcycle segment in India and an 8-9% market share globally. We want to replicate the success we have in India in global markets as well”, he said.
Royal Enfield is already the number 2 in the UK in terms of market share in the middle-weight segment, has attained a leadership position in SAARC countries and is among the top 3 in other Asian markets.
“We don’t want to be just traders who export bikes, and therefore Royal Enfield has established subsidiaries & six CKD plants in global markets. We have also taken upon ourselves the distribution and retail sales of motorcycles in key markets so that we are closer to the customer “, he said.
Govindrajan added that Brazil is the next major volume driver for the brand and Royal Enfield is likely to double down on the Brazil market in the months to come.
In order to cater to global customers, Royal Enfield has launched the 650cc Bullet to commemorate the 125th anniversary of the brand.
Working With a Startup Mentality
Govindrajan said that at a time when technology and customer preferences are changing fast, it was important to be agile and have a startup mindset. “We are a 125-year-old company with a startup mentality. For us, less is more and we would rather take time to make products which last rather than launch products every three months”, he added.
In the face of current geopolitical & trade-related challenges, Royal Enfield will continue focusing on the middle-weight motorcycle segment in the 250cc to 750cc space. “We feel the era for heavy bikes is getting over, and people want motorcycles they can control and handle easily. Therefore, we will continue to launch products adjacent to our core categories”, said the CEO.
The CEO did not confirm or deny the possibility of Royal Enfield launching a 250cc bike or a 750cc bike in the near future, but hinted that the company could showcase some new products at the EICMA Motor Show in Milan next year.
