Bajaj Auto Chairman's Speech > Engineering - Heavy > Chairman's Speech from Bajaj Auto - BSE: 532977, NSE: BAJAJ-AUTO

Bajaj Auto

BSE: 532977|NSE: BAJAJ-AUTO|ISIN: INE917I01010|SECTOR: Auto - 2 & 3 Wheelers
May 26, 16:00
-11.45 (-0.41%)
VOLUME 14,473
May 26, 15:45
-8.7 (-0.31%)
VOLUME 237,938
Mar 15
Chairman's Speech (Bajaj Auto) Year : Mar '16
Dear Shareholder,
 Let me start with some encouraging news. The data on national income
 released in February 2016 by the Central Statistical Organisation of
 the Government of India anticipates real GDP growth of 7.6% for 2015-16
 (FY2016)  up from 7.2% in the previous year. I believe this to be a
 reasonable estimate. Just as I believe that if we have good monsoons in
 2016-17, as the meteorological office has suggested, we should be set
 to achieve even higher growth of around 8% this fiscal. The worst is
 hopefully behind us.
 I will touch upon a somewhat worrisome macroeconomic issue towards the
 end of this letter. But for now I need to share with you the results of
 your Company. Despite headwinds in both the domestic and international
 markets, Bajaj Auto has performed very well. Here are the key
 - Net sales increased by 5.4% to Rs. 22,253 crore. Total operating income
 (net sales plus other operating income) grew by 5.3% to Rs. 22,967 crore.
 - Operating EBITDA increased by 17.5% to Rs. 5,147 crore. This is the
 highest in your Company''s history.
 - At 22.4% of net sales and other operating income, the operating
 EBITDA margin is, I believe, the highest in the industry.
 - Operating profits grew by 17.9% to a record of Rs.4,839 crore. The
 operating profit margin was 21.1% of net sales plus other operating
 income  also the best in the industry.
 - Profit before tax (PBT) increased by 31.8% to a record Rs. 5,385
 - Profit after tax (PAT) rose by 29.8% to Rs. 3,652 crore, another
 record for the Company.
 - Inspite of two dividend payouts in FY2016, surplus cash and cash
 equivalents as on 31 March 2016 was up by 7.5% to Rs. 9,089 crore.
 So, these are very good results, and your Company''s Management deserves
 congratulations for such achievements.
 Let me now touch upon some other aspects of Bajaj Auto''s performance.
 After three consecutive years of de-growth, your Company''s domestic
 sale of motorcycles increased by 7.2% to almost 1.9 million units. That
 has been very encouraging especially in an environment where overall
 demand still remains somewhat subdued. So, too, has Bajaj Auto done
 well in domestic sale of three-wheelers, which has increased by 8.8%
 over the previous year to just a tad short of 255,000 units.
 However, due to external factors, especially poor economic conditions
 and severe foreign currency constraints in some of the key importing
 countries, we have not succeeded in equal measure on the export front 
 both in motorcycles and three-wheelers. After a 15% growth in
 motorcycle exports last year, the numbers fell by 4.1% to 1.46 million
 units; and, similarly, on the back of a 9.2% growth in FY2015, exports
 of three-wheelers dropped by 1.6% to some 280,000 units. This does not
 take away from the fact that your Company remains India''s largest
 exporter of both motorcycles and three-wheelers and it still enjoys
 significant market shares. In fact it has improved its market share in
 important geographies: 24% in markets where it operates in Latin
 America, driven by the Pulsar 200NS; and 33% share in the relevant
 markets of Africa where the Boxer continues to lead our motorcycle
 sales. I hope that exports will pick up when some of these markets
 abroad get into better economic and financial shape.
 Regarding the domestic play, I am impressed by the strategy that Bajaj
 Auto has been following to garner significant market shares in certain
 key segments. Using what your Company''s Managing Director likes to call
 the strategy of creative differentiation  more of which is described
 in the Management Discussion and Analysis  we have succeeded in
 capturing major, often leading, market shares in three categories: (i)
 the super-sports segment with the KTM and the Pulsar RS 200; (ii) the
 sports or performance segment with the Pulsars and the Avengers; and
 (iii) the entry-level segment with the Platina and CT 100.
 In February 2016 your Company launched the V15, a 150 cc bike, to
 create a new and differentiated model for the large mass commuter
 segment. These are early days yet. But I hope that this new and more
 powerful offering will steadily increase Bajaj Auto''s presence in this
 important sector of the market  the more so as demand picks up with an
 overall economic rebound in FY2017.
 Amidst successes, there has been a disappointment. Your Company has
 produced what I believe to be an excellent Quadricycle called Qute
 (rhymes with ''cute''). In FY2016, we exported under 400 units to 13
 markets across the world. It was ready for introduction in India last
 year.  Unfortunately, everything has been held up by on-going court
 cases, which now await a final verdict in the Supreme Court. The matter
 is sub-judice. All I can hope for is a positive outcome, so that
 passengers in India enjoy the benefits of this fuel efficient and
 emission friendly four-wheeled vehicle as have their counterparts
 That brings me to the worrying macroeconomic theme that I alluded to
 earlier. Each year, India is producing an extra 12 million young people
 of an age that makes them ready for the nation''s workforce.
 Unfortunately, while there is no doubt that we as a country can
 increase our GDP growth initially to 8% per annum and then hit a
 steady-state of around 8.5% for several years, everything seems to
 suggest that employment will not rise at anywhere close to that rate of
 growth.  Indeed, all recent data across most manufacturing and service
 sector activities show that employment elasticities (namely, the
 percentage increase in employment for a percentage growth in value
 added) are not only less than unity, but often negative. Matters worsen
 if you juxtapose significantly greater skill and multi-tasking needs of
 the future with the inadequate educational and technical abilities of
 many who are entering the labour force  thanks to years of neglect of
 our schools, colleges and technical and vocational training
 institutions. How then can we expect to employ the majority of our
 youth even when we attain higher growth? And what will this do to
 inequality and social tensions?  I don''t have ready answers. But as a
 nationalist in his seventh decade, I am concerned.
 Finally, I live in wonderment with what technology brings in every day.
 I recently read a very good book by my friend Klaus Schwab of the World
 Economic Forum entitled The Fourth Industrial Revolution, where he
 writes of 23 deeply disruptive technological shifts that are on the
 anvil. Some of these are implantable technologies, wearable internet,
 artificial intelligence, the internet of things, ubiquitous robotics,
 3D printing and various forms of nano-technologies. I can only
 speculate how these could disrupt automobile manufacturing, especially
 of motorcycles, three-wheelers and other two-wheelers.  Since I am a
 generalist, these are but nave speculations and guesses. Perhaps the
 senior team of Bajaj Auto might want to pool resources to explore some
 of these out-of-the-box ideas in addition to what they are already
 Let me end by stating that I have great faith and confidence in the
 capability of your Company''s Management, and its ability to deliver
 good results in the future. Also, my thanks to our customers, dealers,
 vendors and employees who have always done their utmost for your
 Company. And my thanks to you, dear shareholders, for your long and
 continued support.
 With best regards,
 Rahul Bajaj 
 25 May 2016
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