Jul 19, 2013 05:57 PM IST | Source: CNBC-TV18

Won't resort to huge discounts to boost sales: Bajaj Auto

The company‘s first quarter earnings matched market expectations, even though volume sales declined. Bajaj said his company had not lost any material market share on a year-on-year basis, adding that it had a 46 percent market share in the sports bike segment.

  • bselive
  • nselive
Todays L/H

Bajaj Auto could make an incremental profit of Rs 100 crore this quarter on the rupee alone, if the currency stays between 58-59 to the US dollar, Managing Director Rajiv Bajaj told CNBC-TV18 in an interview. This would also help the company maintain operating margins at 21 percent, he said.

The company’s first quarter earnings matched market expectations, even though volume sales declined. Bajaj said his company had not lost any material market share on a year-on-year basis, adding that it had a 46 percent market share in the sports bike segment. To bolster growth, Bajaj Auto will be focussing on the commuter segment bikes. Bajaj said his company was working on six new variations of the ‘Discover’ brand.

But he added that there would be no large discounts to boost sales. Bajaj is hopeful of motorcycle exports rising to 110,000 units monthly, from about 95,000 currently. He expects an average monthly run rate of 20,000 units for three-wheelers, and record three-wheeler sales this financial year.

Below is the edited transcript of his interview with CNBC-TV18:

Q: I read in your press release that you say that there could be further benefits from rupee depreciation that will accrue to the company. Can you tell us about what kind of impact that would have on your margins and whether you could sustain your margins at this 21.3 percent level that you clocked in this quarter?

A: It is hard to say because it depends on how the rupee moves and as you know well it has been very volatile in recent weeks. In the Q1, for the first two months of April and May our realisation was typically around 54 or 55 rupees to a dollar. In the month of June, I think that is closer to 57 or 58 rupees to the dollar and so that has made a significant impact in Q1.

In Q2, we would like to believe that if the rupee continues to stay at this level then it is for the entire quarter, for all three months that we would realise probably something like 58 or perhaps closer to 59 rupees to a dollar for everything that we export in this quarter and I don’t know the exact numbers, but I heard our CFO mentioned at the annual general meeting (AGM) today that what we stand to gain incrementally in Q2 assuming the rupee remains between 58-59 is something like an additional Rs 100 crore in terms of profits. Now whether that is before that or after tax I don’t know, but it would be significant.

Q: Just focusing on the domestic market share, that seems to have taken a bit of a hit this quarter. In your expectations going forward where do you think that your market share within the domestic market would be something you would be able to sustain as well as combating competitive intensity at the same time?

A: Let me give you a somewhat longer answer to that question. Essentially with the Pulsar we have in the sports segment a 46 percent market share and that market share has remained intact from Q1 last year to Q1 this year. Unfortunately, given the sentiments in the marketplace that segment itself is not really growing or is unlikely to grow in the near future, which means we must focus now on the second segment  that is the commuter segment where we compete primarily with the Discover.

Now let me tell you this that before the new Discovers were launched, starting July 2009, if you were to go back then you would see that our domestic motorcycle market share was around 15.9 percent, let us say 15 percent and once the new Discovers were launched, there were four of them launched over a period of six months in 2009. T  hat market share moved up to about 25 percent. So by December 2009, our motorcycle market share in the domestic market was around 25 percent.

Now in the last three and half years, since December 2009, it has remained there. Quarter-to-quarter it may go up by a percentage point or go down by one percentage point, that depends a lot on how everybody in the industry builds, adds to stock, depletes a stock etc. but the big picture is that we remain around that 25 percent level.

If that has to move up then as I was saying earlier we cannot really hope for much from the Pulsar, but we need to do something all over again with the Discover as we did in 2009.

Towards that purpose, we have been working for the last two years to create a new platform, infact two new platforms, which will yield us six new Discovers in this financial year. The first two of them we have just started production, just in the last few days both at our Aurangabad as well as at our Pantnagar plants. We have another big launch coming up by September, that will be the third Discover, new Discover this year and then in the second half, mostly in the Q3, we will launch the other three.


I am very hopeful that from what we learnt from our experience in 2009, we have built upon that and we will be able to once again repeat the same kind of success that we experienced then in the marketplace this financial year. Will 25 percent market share become 35 percent? I don’t think so. Can it become 30 percent? I would like to believe so because these six new bikes are really very nice, all new motorcycles, all under the brand Discover. So for us in FY14, as we have been saying the star of this year is going to be the Discover even if the superstar of this year is going to be the rupee.

Q: In order to maintain market share will you be looking at something like perhaps increasing discounts or price cuts, something that the market has not seen up until now. But analysts are fearing that we could start to see that emerge from the two wheeler space?

A: I can only say that – and I can say this not only on behalf of Bajaj, but the major competitors this is Hero and Honda, that beyond the usual promotions and finance schemes and that sort of stuff I have not really seen any evidence of this kind of thinking in any of the managements of the major motorcycle  makers and I think that is because we all recognise that it is not a discount of a Rs 1,000 or Rs 2,000 that is going to motivate a customer who is apparently weighed down by certain negative sentiments around him.

What is going to motivate him at least this is what we believe is something really new, different, ravishing, exciting and infact I can tell you this – the lowest price Discover that we have today in terms of ex-showroom prices is priced around Rs 44,000. The new Discovers will all be priced above this. So, we are very clear that the Indian consumer is always game for something better even if he has to pay a little more for that. This has been proven time and time again whether it is with scooters, bikes, cars, and any kind of consumer durable. So, I don’t think very easily anybody will give into this kind of a false temptation because there is nothing in the past to suggest that this works.

Q: In the export market although the rupee has salvaged things for you this time, the fact of the matter is that exports have slowed down a whole lot. We saw it in this quarter gone by and you yourself have witnessed how markets like Sri Lanka have cracked. Now that you are seeing some signs of stability emerge in that market. Can you give us any sort of ballpark guidance on how much exports can improve or recover as we head into FY14? Any kind of run rate that you are working with?

A: As you have correctly pointed out there has been a lot of turbulence in export markets for the last 12 months and as you again correctly remarked that a lot of that a lot of that is behind us now. Infact I can say this that except for Egypt, we really don’t have any concerns currently in any of our other major markets. Even in Egypt, the demand is very strong both for our motorcycle and three wheelers, but unfortunately they have a hard time getting access to dollars to open letter of credit (LCs) that would be accepted here.

Having said that in terms of numbers if I had to hazard a guess it would be this – in recent months we have been exporting about 95,000 motorcycles every month. I see this over the Q2 going back to well over a 100,000, I would like to think somewhere closer to 110,000 or a little more in terms of motorcycle exports every month.

Three wheelers have already come back quite nicely. Infact the month of June was exceptionally good in the sense that in June last year three wheeler exports if I remember right were as low as 9,000 because of all the problems in Egypt and Sri Lanka and some other markets, whereas in this June, I think the export was close to 20,000 units in terms of three wheelers.

I think it is only a matter of maybe two or three months before we come back to 25,000 plus three wheelers every month, not only because the markets have stabilised and distributor orders are coming in, but also because now we are launching the all new three wheelers, which will completely replace 100 percent of our existing portfolio. These vehicles, we are going to price them very competitively, but they have a lot more to offer in terms of power, fuel, economy, safety, comfort etc. So, I think there too new products are going to play a big role and I think a 110,000 motorcycles or more and 25,000 three wheelers or more every month is just around the corner.


Q: That pretty much summed up the question that I was going to ask you in terms of the volume mix that you will possibly be working with in FY14 considering that we know where the two wheeler situation is, we know that the INR depreciation is working for you in the export market and the three wheelers are now showing momentum. Based on that and based on the impetus that you would like to give both of those segments in particular for FY14 what sort of volume growth would you be possibly targeting on an internal basis if you have any estimates as of now?

A: We are not explicitly handing out guidance for the whole year but I will say this, in terms of exports I just finished telling you what I think the volumes in the mix could be. In terms of the domestic marketplace we are very confident of being around 20,000 vehicles per month as far as three wheelers go. Again remember on two factors, one, we see permits opening up for example in Hyderabad. Even in the state of Maharashtra we are given to believe that 35,000 permits would come in to play soon.

We are hopeful of Delhi as well although that has taken a little longer than originally anticipated. So, that is good news for the three wheeler business and of course we have already started introducing since May the new three wheelers into this market. So, that combination of permits and new products should mean that we should definitely sell 20,000 three wheelers a month on an average from here onwards and that could well take us at the end of the financial year to the highest ever number of three wheeler sold in a single financial year in a domestic market.

As far as motorcycles are concerned typically we were at 200,000 motorcycles a month. Along with the market we have slipped closer to 180,000-190,000 motorcycles a month. My hope, my desire, my expectation is that with the new Discover we should be closer to 250,000 motorcycles a month.

However, that will happen of course progressively as these are launched. So, if these are going to be launched between now and December six motorcycles in six months then I would like to think that for the same existing market conditions we can gain about 50,000 vehicles or thereabout in terms of motorcycles per month, around December, January we should find ourselves in that space. If that were to happen 50,000 on an industry size that is currently at about 750,000 is a very nice gain of 5-6 percent market share. That is what we are planning and hoping for, the rest time will tell.

Q: What is the exact production loss that you have seen at the Chakan plant up until now and when do you see the 100 percent production resume if there is any clarity on that?

A: Yes, we will have a loss of about 20,000 vehicles. After all that we have managed to produce both at Chakan and at Aurangabad this month, which is unfortunate. However, 20,000 out of 75,000 is just about 25 percent and is better than 100 percent.

In terms of resumption of a normal working, it is very hard to say. I think the situation is improving every day in terms of production attendance and I think the union is coming around to our view and so I would like to believe that within a few days the situation will normalise, but as of now I can’t put an exact, obviously a timeline to that.

Follow us on
Available On