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Announcing the launch of the new Discover at a price of Rs 42,000, Rajiv Bajaj, MD, Bajaj Auto said the company expects to sell 100,000 Discovers every month in the domestic market.
Announcing the launch of the new Discover at a price of Rs 42,000, Rajiv Bajaj, MD, Bajaj Auto said the company expects to sell 100,000 Discovers every month in the domestic market. The launch is expected to bring double digit growth in volumes to the brand Discover.
A confident Bajaj aims to defend leadership in the 125CC segment. He further stated that the company’s FY13 volume target will be maintained at 5 million units. Bajaj also revealed that a new motorcycle is scheduled for launch in June 2012.
Below is an edited transcript of his interview. Also watch the accompanying video.
Q: What would be the highlight of this new launch?
A: The highlight would be that so far staying true to the strategy for the last three years, we have focussed on the more profitable end of the market. While we continue to do that, with new launches like KTM and the new Pulsar that will shortly be in showrooms. We are taking a small and gentle step towards the larger belly of the market, which is closer to a Rs 40,000 price point. Our brand Discover is a little too sophisticated to quite get there, so we have introduced a variant at Rs 42,000.
Q: How much might that take the contribution of Discover to, to the total numbers you sell?
A: We sell about 100,000 Discovers every month in the domestic market. About 65% of that is 65,000 are sold in 125 cc and above space. So 100 CC Discover is only about 35,000 a month. I am very hopeful that with this launch, this number should increase significantly, certainly in very high double digits but it’s not possible to put an exact number.
Q: Two months back, when we had spoken to you about monthly sales, you had indicated that fewer launches had hurt the performance of the company in terms of sales in FY12. Now that you have got new launches going in FY13, what could be the sales volume you are expecting? Could it be higher than 5 million which you had spoken about?
A: We already targeted a little more than 5 million for this year. It is difficult to say how much more but we would certainly like to achieve 5 million, which would be a nice growth on the 4.35 million, which we closed last year.
Q: You indicated that this new product is coming in at the value added segment. Would it imply with the new launch of Discover you would see higher margins?
A: Any product that we introduce has to also shoulder the responsibility of keeping the company in a 20% operating margin space. That is true for RE60, for Pulsar and for the new Discover. If today a 100 people buy motorcycles every month in India, 34% of them buy motorcycles in 125 CC and above space. This number has actually grown; this was only 31% last year, so a 3% growth here is a very significant shift.
So consumers are not down trading, which is what I sometimes hear in the media but consumers are actually moving up. In this space, which is 34%, Bajaj continues to be the leader with over 40% market share.
We need to do two things now; as a company, we need to defend our leadership in this space and to growth this space, which is what the new Pulsar and other motorcycles will do. At the same time, we are laggards in the 100 CC market, where people typically buy products closer to Rs 40,000 price point. We are unable to reach that price point without compromising our margins, so we will have put in something at Rs 42,000.
Q: For overall sales estimates, you had told us that your 4.5 million sales could go to 5 million at the end of FY13; would you want to revise that number upward or downward from what you have seen of FY13?
A: It is just the first month, so I should be consistent and stay with what I said last time.
Q: Even then sentimentally, are things improving? We had a bit of rate cut and it has been passed down by SBI itself, has all that meant that consumer sentiment has improved at all?
A: Unfortunately I have to say ‘no’ because the poor motorcycle is at the bottom of the food chain. More specifically, March was a little better because a lot of consumers bought in anticipation of taxes going up in the Budget itself. Also, in some parts of the country, March witnessed certain festivities like Gudi Padwa etc. April is a slow month and my view is the industry will be in single digit growth in the month of April.
Q: Last time you had spoken about a recovery in May, does that still stand?
A: I am hopeful that that would be true of Bajaj Auto because we have started this Discover only few days ago and we will be in full production next month. We are hoping to make as many as 30,000 motorcycles of the new Discover next month. The Pulsar will also be in the market place in the dealer showrooms. I would like to believe that with these initiatives, we can provide a step-up in our sales momentum but surely the competitors are also doing something. So we have to wait and watch.
Q: What is the possible number of launches in 2012?
A: In recent months, since February KTM and Pulsar, Discover is the third. Just as we are about to put out in a matter of days the ‘all new Pulsar’, we have a completely all new ground up of motorcycle schedule for launch in June. It is something that we will share with the media in the middle of May and we are very excited about that.
Bajaj Auto stock price
On February 25, 2014, Bajaj Auto closed at Rs 1905.00, up Rs 42.90, or 2.30 percent. The 52-week high of the share was Rs 2193.85 and the 52-week low was Rs 1657.50.
The company's trailing 12-month (TTM) EPS was at Rs 112.15 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 16.99. The latest book value of the company is Rs 273.08 per share. At current value, the price-to-book value of the company is 6.98.
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