Road Ahead

New Delhi, July 10: The board of Eicher Motors has given the permission to hive off its Royal Enfield business unit into a new subsidiary.

“Our board has given us the approval to transfer the motorcycle business into a new company and subject to shareholders’ approval, Royal Enfield will become a 100 per cent subsidiary,” Eicher group chairman S. Sandilya said.

The company plans to rope in strategic and financial investors to exploit the growth potential of the two-wheeler business.

A senior official said, “Hiving off Royal Enfield into a separate business unit is subject to shareholders’ approval. This will happen soon. However, it is too premature to say how much equity we would want to dilute.”

After the board meeting, the company informed the Bombay Stock Exchange that it “intends to transfer its Royal Enfield business by way of a slump sale and on a going concern basis to a new company proposed to be incorporated as a subsidiary in the national capital territory of Delhi, subject to the approval of the shareholders by means of a postal ballot”.

Last week, in a communiqu? to the BSE, Eicher said the board would “discuss various options related to the restructuring of the Royal Enfield business unit”.

Following the board’s decision, the Eicher scrip rallied on the BSE to close 12.15 per cent higher at Rs 266.30.

Royal Enfield, which operates in the niche category of premium motorcycles with engine capacities of 300cc and above, failed to accelerate sales last financial year.

In 2005-06, Royal Enfield clocked a sales of Rs 182 crore compared with Rs 163 crore in the previous fiscal. It had reported a loss of Rs 5.61 crore during the period against a profit before tax of Rs 66 lakh in 2004-05. This is the third round of restructuring of the Eicher group. Earlier, it merged Eicher Ltd and Eicher Motor Ltd, and then hived off the tractor division into Tractors and Farm Equipment.