Why Royal Enfield acquisition of Ducati could work for both motorcycle companies

Royal Enfield may be looking to acquire performance bike manufacturer Ducati. The Italian brand is owned by Volkswagen and the company is said to be looking to sell the brand as it wants to fund its electric vehicles plans.

While Eicher Motors, which owns Royal Enfield, has denied the reports, while Volkswagen has not confirmed it, the news comes as a surprise to many. This is a big development considering the growth in the performance motorcycle segment in India. In the last few years there have been several international performance motorcycle brands that have entered the country.

Ducati had official entered the Indian market in March 2015. Harley Davidson had entered India in 2009. While Triumph entered India at the end of 2013.

Besides this, there have been several companies such as Kawasaki and Suzuki which also have performance motorcycles in India.

The reason why Royal Enfield could go for the brand Ducati is that it will add more growth too the brand. Currently there has been a surge in demand for bikes above 500cc. While Royal Enfield has dominated the 250-500cc segment, it is not present in the above 500cc motorcycle segment. Building this category from scratch in India could see it face tremendous pressure for the company, but if it has a platform which is already built it can leverage it.

While the above 500cc motorcycle segment had taken a hit during demonetisation, it has been seeing a growth ever since. In November 2016 its sales stood at 295 units and grew to 358 units in December 2016. In January 2017 it grew to 417 units and sales further rose to 453 units by February. By March 2017 jumped to 682 units.

The sales in terms of units of over 500cc motorcycles maybe smaller in comparison to the 250-500cc segment, but what it does not make in terms of numbers it more than makes up in terms of the price range. For instance, Ducati's bikes in India starts from over Rs 7 lakh onwards. While Royal Enfield's bikes are much cheaper starting from just over Rs 1 lakh onwards.

However, Ducati still needs to build its presence in the Indian market as performance motorcycle makers Harley Davidson, Triumph and Kawasaki are ahead of it in terms of sales. Harley-Davidson has sold 2,892 units in FY17 (April 2016-March 2017). Kawasaki was next with 1,305 units during the period and Triumph with sales of 1,120 units.

Ducati could get a boost from Royal Enfield as it has a very strong presence all over India and could leverage its showrooms all over India. Currently, Ducati has only nine dealerships in India.

Another reason why Royal Enfield could acquire Ducati is its eyes on global expansion. Royal Enfield has been aggressively expanding in global markets. A large part of its bikes are exported to markets in North America and Latin America where it has a strong presence. The company now has also strengthened its position in Europe and Australia. With Ducati in its portfolio Royal Enfield can expand further in European and other international markets as the Italian brand's strong presence.