Dec 03, 2014, 11.37 AM | Source: CNBC-TV18
Rajiv Bajaj, managing director, Bajaj Auto says the company’s inventory level currently stands at 4-5 weeks and it will meet its 4 lakh unit sales target by the fiscal-end.
“ If one looks at the numbers over the last 4 months ever since we launched the upgraded Pulsar, I would not call them the new Pulsars, the upgraded Pulsars, we have actually gained share. ”
- Rajiv Bajaj (MD)
Speaking to CNBC-TV18, Bajaj says the company’s inventory level currently stands at 4-5 weeks and it will meet its 4 lakh unit sales target by the fiscal-end.
On the sales- front Bajaj says the industry’s retail sales are down 20 percent year-on-year as are the company’s. he says the industry has overbilled significantly in November while the company underbilled salightly as December is the company’s weakest month of the year.
The total vehicle sales of the company during last month stood at 3,09,259 units, marginally down by 0.42 percent, against 3,10,591 units in the same month a year ago, the statement added.
Below is the verbatim transcript of Rajiv Bajaj’s interview with CNBC-TV18's Menaka Doshi, Sonia Shenoy and Senthil Chengalvarayan.
Menaka: What would you diagnose as the reason for why your domestic sales have been poor, your market share has been slipping?
A: We have to look at the numbers a little carefully to understand what they are saying. Let me start with the industry and then I will come to Bajaj. If you go back two or three years there is an year when you had both Dussehra and Diwali in the same month of October and when you go on to the next month in November sales fall by about 40 percent at the retail level when you go from a big October into the subsequent November.
This year also we had Dussehra and Diwali in the month of October and the industry retail for the month of October was about 13.8 lakh motorcycle. If we were to apply the same factor of about 40 percent this retail should have been close to 8 lakh units in November, however, actual retail is about 7 lakh. So that is the first situation that at the retail level in November motorcycle sales are only about 7 lakh units. Of that Bajaj Auto’s retail is about 130,000 which forms the sale of 18.5 percent market share that we recorded at the retail level in the month of October. So, that is the first point I would like to make that there is an industry situation and this performance of Bajaj Auto is no different.
The second issue is which is relying more on the recent data which is a month to month change. If you were to look at industry billing now for the month of October it was at about 890,000 units or so whereas in this month it is about 850,000 units. I am comparing November last year with November this year.
November last year had Diwali, November this year did not have a Diwali because that was over on 23rd October. It sounds absurd to me that an industry that does about 890,000 motorcycles in November last year does as much as 850,000 in November this year. it makes no sense in the absence of Diwali. The industry cannot be down only three percent November to November. The industry is actually down 20 percent November to November.
Menaka: What is this then, inventory building is it?
A: This is huge inventory build up. In other words now, let’s talk about the short story. The story is while industry has built 852,000 motorcycles to be precise in November 2014 the actual retail is only 700,000 which means the industry has built up a stock of 152,000 motorcycles.
Now in our case the retail has actually been a shade better than billing. That is why at a retail level although we hold our 18.6-18.7 percent market share at a billing level it will look closer to 15 percent and that is what perhaps makes you say that Bajaj’s sales are slumpy and Bajaj is doing worse than the industry.
Menaka: What you are saying is that everybody else is in fact misrepresenting their sales numbers?
A: There is no misrepresentation at all. Billing is a very real number of primary sales from the manufacturer to the dealers. If you were to look at for example Bajajs\\' market share on a billing basis in the month of October it was 20.5 percent but at a retail level it was still 18.5 percent. This is bound to happen that if we try to track two things too closely from month to month you will find this kind of variation because your market share depends not just on yourself but what your competition is also billing or not billing.
Menaka: If I have understood you correctly, in a sense you are saying that your retail sales are higher than your billing. So, why is that for other manufacturers dealers are keen on inventory stocking a little bit more than they are keen on inventory stocking your brand?
A: I don’t know what the psyche of competitor dealers is but as a company we would not like stock up dealers at the end of November knowing well that December is the weakest month of the year and we don’t want dealers lumped with stocks of products made this year which have to be sold next year. What the compulsions are for the competition to stock up dealerships and whether they are planning to liquidate that in December through a promotion or a scheme that would be all very speculative on my part to comment on.
Menaka: You would have some idea, right? I come back to the question about falling market share, I know you have pointed out through the numbers that you have just laid out before us that in fact your market share has stayed around that 18 percent mark which is lower than the 24 percent that it was not a very long time ago. The reason why I keep coming back to this is, are you seeing decline in preference for your brand? Is for some reason Bajaj missing the excitement that it ought to have?
A: I would not say so. In previous months when I spoke I had made the point that we started this financial year with 20 percent market share. In July and August if you were to look at industry data from SIAM, our market share fell to a low of about 15 percent – the lowest in recent times. Thanks to the launch of Discover 150 in July and the performance after that we are up now to about 18.5 percent consistently for the last two months.
I have said previously that between January and April we have four launches in virtually every segment, four new products over four months. We hope to be back to about 22-23 percent market share by March-April. So, I think we are very much on course for that. The story for November is that every manufacturer’s market share is pretty much intact. Nobody has really gained at anybody's expense. However, the industry should have recorded 800000-820000 motorcycles has recorded only 700000 that is the issue.
Menaka: How are you assessing demand in the market right now? The reason I ask this is because actually to be fair across the auto industry the numbers over the last few months have been confusing. We have seen some upsurge over a few months. Then the last couple of months were not very good and now back again exports has been the big play for many companies. So how are you assessing demand at this point of time?
A: From our point of view two-three things are happening. One, as you said yourself, exports has been outstanding. In fact in November again we had the highest level of exports for Bajaj in any November, so that has been good.
In terms of the domestic marketplace let me comment on the commercial vehicles or the three wheelers. For us it has been good because the recent months this fiscal have been witness to the release of a lot of permit and since we are stronger when it comes to the smaller three wheeler segment i.e. greatly influenced by permits. So, again we have done very well on that front and that is why even in November we sold a total of about 47,000 three wheelers.
As far as motorcycles are concerned what I am seeing is two phenomena, one is the expansion of the premium segment which is good news for us because that is where we are strongest with the Pulsar with about 45 percent share and we can see that in recent months that segment has moved up from being about 14 percent of the industry to being about 17-18 percent of the industry.
So that is a very good sign whether it is driven by sentiment or some rationality I don’t know yet. The second phenomena we are seeing is also a bit of down trading from the mid segment where consumers are moving to cheaper 100 CC motorcycles partly driven by aggressive promotions from manufacturers including new product launches. So, really the middle is shrinking, the bottom segment is growing a bit and so is the sports segment.
Sonia: The other players in the segment are getting very aggressive. So for example Honda has launched a new 160CC Unicorn in the premium segment. Do you fear that even though the segment in itself is expanding Bajaj’s own Pulsar brand could be under threat and that 45 percent market share could be under threat?
A: I have to say yes and no. I have to say yes because when you have 45 percent share of a segment which is almost 2 million motorcycles a year and disproportionately profitable obviously everybody is going to try and take something away from you. Having said that if you look at the numbers over the last four months ever since we launched the upgraded Pulsar, I would not call them the new Pulsars, the upgraded Pulsars, we have actually gained shares. We were at about 42 percent and we are closer to about 46 percent now.
In October it was 50 percent but that might be an aberration. So, the reality is that we have actually a clean share in a growing segment. Secondly, I would make these points. One, which we have learnt the hard way, you don’t ever win with a better product; you only win with a different product. No 160CC or 150CC or 180CC motorcycle is going to take anything away from a Pulsar because Pulsar covers the space from 150CC to 250CC and by growing into something that is a little better nobody has ever won market share.
The second comment I would make and the last one on this issue is that we ourselves, as I told you the last time, have some big launches for the Pulsar. The bigger motorcycle that we showed at the auto expo and those are due for March and April as I was just telling. So, I would like to believe that we can at least hold on to this 45 percent market share that we have reached now.
Sonia: You have been telling us for the past three to six months that other peers have been overbilling in this market. Hand on heart how can Hero be putting so much stock in the market without actual demand being there?
A: Assuming that somebody from Hero or HMSI is listening in, let me clarify I am not accusing anyone of overbilling. All I am saying is some manufacturers bill more than retail in one month, some manufacturers do it in the other month. For Hero as I understand, they are better placed to answer this question, they had a very good October in terms of retail and I am sure that they have shed 100000 or 200000 of their stock that was accumulated in that month. So, October was obviously a big month for them. If the industry was 13.76 lets say 14 lakh and Hero is half the industry they must have retailed 700000 motorcycles and probably billed 550000. So, all they are doing in that sense is putting back that stock in the month of November. That is why I said in Bajajs' case for example our billing based market share which showed 20.5 percent in October was probably 18.5 percent and that which looks like 15 percent in this month in November is also 18.5 percent, that is all I am saying.
Sonia: Just a couple of more numbers. Can you tell me what the exact inventory levels were at the end of October for Bajaj. How much have they come down by at the end of November and also a couple of months back you have indicated that you are looking to resume that 4 lakh per month run rate by which month do you think you could get to that level again?
A: In terms of inventory we are between four and five week now. We carried somewhat higher level of inventory up until June or July but we have corrected that over July and August which is why in those two months once again our billing based market share was only 15 percent although retail was better. So we are now at four to five weeks which is absolutely perfect. It is optimum, it is not too little, it is not too more.
If we have to hit 400,000, 50,000 comes from the three wheelers. So we need 350,000 motor cycles. Typically we are doing about 140,000 motorcycles in the export market which means we need a shade over 200,000 in the domestic market and on a sustainable consistent basis irrespective of high season and low season we will get to that figure by the end of this fiscal. We will meet the launches that we have in place in January and February to cater there by March.
Bajaj Auto stock price
On June 24, 2016, Bajaj Auto closed at Rs 2679.00, up Rs 27.75, or 1.05 percent. The 52-week high of the share was Rs 2687.40 and the 52-week low was Rs 2133.15.
The company's trailing 12-month (TTM) EPS was at Rs 126.22 per share as per the quarter ended March 2016. The stock's price-to-earnings (P/E) ratio was 21.22. The latest book value of the company is Rs 495.72 per share. At current value, the price-to-book value of the company is 5.40.
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