Moneycontrol
Sep 21, 2016 07:52 PM IST | Source: CNBC-TV18

Rajiv Bajaj says new launches will take fight to Royal Enfield

Speaking to CNBC-TV18 Rajiv Bajaj, MD of Bajaj Auto said industry didn't have a good run last year during Onam. The biggest issue for us is Nigeria, where were doing 40,000 motorocyles a month and now we are down to 15,000.” He said it was hard to predict what might happen.


Speaking to CNBC-TV18 Rajiv Bajaj, MD of Bajaj Auto said industry didn't have a good run last year during Onam.

Sales remained flat during the Onam period. “This time, sales were up 10 percent which is good,”  he said, adding that he is seeing positive growth in the double-digit space. The manner in which the industry is building on dealerships is anticipation of far higher growth, he said.

The bigger picture for the company is exports. On the exports front, I have a better picture, not a nice one, he said, adding that from October last year, exports took a downturn. In the first half of last year, the two-wheeler company did 1 million vehicle sales. In that sense from October the base effect will catch on, and exports will look like it will be good, he said.

He also highlighted how there have been ups and downs in several markets.


“The biggest issue for us is Nigeria, where were doing 40,000 motorocyles a month and now we are down to 15,000.” He said it was hard to predict what might happen.


In the foreseeable future, on the other hand, the company has had a good run in the domestic market. "We picked up 5-6 percent share in a year. We had good launches during October and November. As a result of these launches, our domestic motorcycle launches will move up by 40,000 vehicles a month."


The short story is Nigeria is not coming back in a hurry, he said. "Exports will not hit 160-170,000 for the next six months at least," he said.

Bajaj was also talking about high-powered bike he said would launch. It would be launched in November, he said. 

Regarding it, he said, "On the big motorcycle, I have also been waiting for a long time to get it right. We have to acknowledge that Enfield has 85 percent market share in that space, so we have to get everything absolutely right from the brand to the product to the launch, to the quality and price and all of that." 


Below is the verbatim transcript of Rajiv Bajaj’s interview to Sonia Shenoy, Latha Venkatesh & Anuj Singhal.


Sonia: What is the feedback that you are getting? Is the demand expected to pick up this festive season much better than what we have seen last year?


A: Let me give you some numbers off the ground. Last year, for example, Onam was not a great run for the industry. Sales remained flat during the Onam period. This time, sales are about 10 percent up. So, that is good. Similarly, if you look at the Ganesha festival in Maharashtra, last year it was pretty much flat. However, this time about 15 percent up.


Therefore, on the whole I would say that yes, compared to last year and perhaps even the year before, we are definitely seeing some positive growth which is, almost one can say, in double digit space but the manner in which the industry is over billing into dealerships is in anticipation of far higher growth and as of now I do not see any evidence on the ground for that.


Anuj: For market, the bigger picture is your exports and there has been quite a bit of volatility in that and that is something that you have admitted in the past as well that there could be some more volatility, but do you have a slightly better picture now in terms of what is happening on that front?


A: I have a slightly better picture but it is not a nice picture. Let me put it like this. One, it was from October last year that the exports took a downturn. In the first half of last year we did about a million vehicles in six months and then in the next half it was closer to 700,000 or 750,000. So, in that sense, from a mathematical point of view, from October the base effect will catch up and exports will look like they are at least stable if not perhaps a little positive, especially on three-wheelers. So, that is one.


The second thing is that while there are ups and downs in several markets as you well know, the biggest issue for us is Nigeria because where we were typically doing 40,000 motorcycles a month, we are now down to something like 15,000 motorcycles a month. However, going forward, of course, nobody has a crystal ball, neither do we and it is very hard to say what might happen. The currency is still very volatile. It changes week to week.


But I will tell you what we have done. We said to ourselves that this is not coming back in the foreseeable future. Now that could be six months, it could be even longer. On the other hand, we are having a very good run in the domestic market, as you obviously know. We have picked up 5-6 percent market share in about a year and we have four very significant launches in October and November. We think, as a result of these launches, our domestic motorcycle volumes each month, which has been this year, this financial year about 180,000-190,000 a month on an average, will move up by about 40,000 vehicles a month.


So, we have done a little bit of rationalisation of capacity at our Aurangabad plant and we have moved Nigeria capacity to domestic products which is not a bad thing at all because, a] it has saved us a lot of investment and b] that will be used to sell motorcycles into this market which will obviously be more profitable than the Boxers we send out to Nigeria. So, the short story is, we have said to ourselves that Nigeria is not coming back in a hurry and to that extent exports will not hit the rate of 160,000-170,000 per month that we used to till September last year, for the next six months at least.

Latha: So, where does all this lead us in terms of margins? You said you have four new launches, will that mean more money ultimately at earnings before interest, taxes, depreciation and amortisation (EBITDA) level?


A: No, not really. We have demonstrated adequately with recent launches whether it is a new version of an existing Platina or an all new V. If a brand is well-positioned, it has pricing power; you do not need to put a lot of money behind advertising. So, what you are going to see is Bajaj really firing on all four cylinders over the next quarter because we have a launch in the entry-level segment where we have almost caught up with the market leader. We have a launch in the mid segment where we have done very well with primarily with the V. We are averaging now 30,000 motorcycles a month and I anticipate by December this will be 50,000 a month. We did very well in our stronghold, the sport segment with the new Avengers last year and I am very pleased to say that we are going to launch between now and December, the 2017 range of the Pulsar, so significant change there in both their appearance and performance. And finally, for my brother Siddhartha Lal of Eicher Motors, I have an all-new big 400 cc motorcycle out very soon and that is going to be very good for the bottomline.


Sonia: I was just coming to that because for motor enthusiasts all over, they are looking forward to that new launch and spy picks are to be believed, is it the Pulsar Vantage sport, the 400 cc that you are going to launch? And in which month, you said between October and November, but we have been waiting for six months for this launch. When exactly do you plan to launch it and in this middle motorcycle segment, what kind of market share growth are you looking at?


A: On the big motorcycle, I have also been waiting for a long time to get it right. We have to acknowledge that Enfield has 85 percent market share in that space, so we have to get everything absolutely right from the brand to the product to the launch, to the quality and price and all of that. Honestly, this launch was to be in the end of August, but then we realised that it will distract us from building volumes for the festive season and so, we have now delayed it to November. So, November is when this launch will be. I do not have an exact date.


It will be an interesting launch because it will not be in all probability a Pulsar. For now, let me just say that a 400 cc Pulsar makes as much sense as a 150 cc Royal Enfield. So, when we are getting into a different category, it would be wise to look at a new brand. So, that is a big move that I am happy to share with you today.


However, on the mid-segment, I am not exactly sure about market shares because it is still in single digits. My guess would be we are at about 7-8 percent market share. And it is an axiom in marketing that you must first get to a critical market share of at least 20 percent in a segment to be significant. So, our hope or our desire is that aided by the new launch, we should get closer to that. Perhaps we will see evidence of that by December or January, once we have fully ramped up production of that model.


Sonia: I am most excited to hear about the launch of a new brand, because the feeling was that you would move ahead with the Pulsar itself. But if you pick a leaf from Royal Enfield’s success, they have created many well-entrenched brands in different categories, whether it is the Classic, the Thunderbird, the Bullet, etc. So, tell us, for this new brand, what kind of capex have you lined up over the next one year and what are you targeting in terms of market share in this segment itself?


A: Whatever capex had to be incurred has already been incurred because the product is ready to go to market. I do not have an exact number off-hand, but typically it does not cost more than Rs 30-40 crore to put a product together in this space. So, I would imagine that between developments and tooling costs, that is what it would be. In terms of production investments; nothing very significant because our manufacturing lines are very flexible, so it is easy to introduce a new model using the existing facilities.

In terms of market share, it is very hard to say because the route that we are going to take is essentially very contra-intuitive, as always. We will put out there a motorcycle, and I said this to you before on Yoga Day, that would be the opposite of a Royal Enfield, because we believe that if we make another motorcycle that is like a Royal Enfield, people will just buy a Royal Enfield. We are not about to do something that endorses the leader. We will do something that presents an alternative to the leader. Of the 55,000 people that buy Enfield, whether we will get 5,000, 10,000 or 15,000, I do not know, but I appeal to Siddhartha through brotherhood advertisement, brotherhood is about caring being sharing. I hope he will share with me.

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