Exports to get back to normal by June: Bajaj Auto

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Exports to get back to normal by June: Bajaj Auto

Rajiv Bajaj, Managing Director of Bajaj Auto, said exports will remain under pressure in April, May and will get back to normal from June. He sees domestic bike sales at 1.2 lakh units/month by June.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See latest News about Bajaj Auto See previous management interviews See what other Experts & Brokerages are saying about Bajaj Auto Bajaj Auto BSE | NSE 29/05/12 Are Mutual Funds betting on Bajaj Auto?

Q: What is the timeline? 2011 is what I remember. But is there anything more specific in terms of the launch date?

A: 2011 is right. Of course 2011 stretches from January 1 to December 31. So, I wouldn't elaborate on that. But we would like to put the car out some time in 2011.

Q: Coming back to two-wheelers, is there any change in your strategy to reach out? Much has been made about Hero Honda's rural strategy or getting into rural India. What is the strategy or is there any change at Bajaj? Also, along with that, if you can tell me whether there are any financing options that you are offering? Last time you told me that you'll were offering but people are not biting.

A: As far as our strategy is concerned, it remains unchanged. Let me just put it like this that, if two big competitors chase the same market i.e. the 100 cc segment, I think in the end all you would have is a commoditised industry.

Ever since we have moved away from that segment, one can see that - Hero Honda of course is doing very well. I don't think I need to elaborate on that, but Bajaj has also done well. Although sales in India may be under pressure, for example in the quarter that ended in December, with an EBITDA at 14.5%, we were in a pretty good position.

So, I think by focusing on a differentiated segment, if I may so, we do the industry a favour and we certainly do ourselves a favour. We will keep with that strategy because I think that is the correct strategy in the long-term.

As far as the rural aspect is concerned, quite frankly, I don't believe that there is anything called rural marketing at least in the auto industry in India because that would imply that either in terms of the product we make, or the communication we put out, or the financing we do, we should do something different as a manufacturer for the rural customer versus the urban.

Rural marketing in India only means rural reach, rural distribution. I don't think anybody has an edge over anyone else when it comes to that. Even if one does, I don't think that is a competitive edge you can hold on to for more than two or three months.

The trick is to get a product that would crack the middle of the market, which is the strength of Hero Honda, and we are working on such a product for launch in the second quarter of this financial year.

Q: A question on margins. Could you shed some light as to how do you see this particular quarter, which is coming up, keeping in mind that perhaps you have lower input costs, perhaps the cost of sales have spiked up a little bit? What kind of margins do you expect and what kind of capacity utilisation do you see in the quarter that ends in June and perhaps into the next quarter, if we can peer that far?

A: As I said before, I'd like our domestic sales to be up to 120,000 by June for motorcycles. If I add about 50,000 or so of exports to that, that is 170,000, and with three-wheelers that is 200,000. I think when we are at 200,000 a month, as we should be in June, we are pretty close to, let's say, 70% utilisation. By September, I'd like this figure to be up to about 250,000 on the back of the new launch that I just referred to.

In terms of margins, what is going to keep helping us is the product mix. The XCD 135 is very well priced, so are the new Pulsars out this month, so will be the new motorcycle out in the second quarter. We are also continuing to be assisted by the raw material prices.

On the whole, I think we are going to have a big impact from exports as well. Just to give you an idea, last year, by virtue of being hedged at Rs 40 to a dollar, we lost out about Rs 300 crore in terms of profit before tax. That won't be the case this year. So, I think there is a very big positive coming out of there as well.