In an exclusive interview with CNBC-TV18, Rajiv Bajaj, MD, Bajaj Auto, talks about his company’s increased presence in the two-wheeler market. He added that he expects motorcyle sales for September 2010 to be around 3 lakh units and sees a sale of more than 4.5 million units by 2012
Honda , the world's largest manufacturer of motorcycles is reportedly planning to reduce its 26% stake in its 26 year-old Indian joint venture with the Hero Group and rumour has it that Honda plans to completely exit the joint venture. Added to this Hero Honda, which still commands the lion's share in the fast-growing Indian motorcycle market, has off late seen mounting pressure from rival Bajaj Auto , that has launched variants in the high-volume 100cc version of the market.
In an exclusive interview with CNBC-TV18, Rajiv Bajaj, MD, Bajaj Auto, talks about his company’s increased presence in the two-wheeler market. Bajaj said there would be a greater competitive activity if Honda exits the joint venture.
He added that he expects motorcyle sales for September 2010 to be around three lakh units and sees a sale of more than 4.5 million units by 2012.
Below is a verbatim transcript. Also watch the accompanying videos.
Q: How do you think the market will get shaken up, once all these changes happen? Your key competitor might easily be left without the Honda name in key brands like Splendour and Passion. Do you think that makes any difference in the market place?
A: On the face of it, one would assume that with this change there would be greater competitive activity both for the export markets where one should expect Hero to be more active and also in the domestic market place one could expect more action from Honda.
From Bajaj Auto’s point of view, in the export markets we have no shortage of competition. We have the Japanese, Chinese, TVS and Hero Honda. In the domestic market place, as far as we are concerned what are of relevance to us are motor cycles HMSI that is Honda has five brands in place for over five years now. In a way nothing changes. But certainly in a general sense, competition will intensify.
Q: Do you think it makes a lot of change in the market place in the way your consumers perceive brands on whether there is an international component to it or not or do you think the essential change in the market place could be the relative aggression of your key competitor and its international partner, if and when they choose to go their own way?
A: I think there are two questions there from my point of view. One is the question of the brand, what is the brand? From my point of view, the brand is not Bajaj, it is Pulsar and Discover and in that sense the brands are for example Splendour and Passion. For the consumer that believes in these brands nothing changes.
I don’t think in the short-term say in the next year or two, we will see any sheen taken off those brands just because the Honda name is not there anymore because these are very successful brands that have been there for over a decade now. From a brand point of view, I think the consumer will repose confidence at least for some time with the Splendour and Passion till something changes from a competitive point of view.
Now in terms of how the competition should pan out I think this should be in a way good for the industry because the industry can go forward in two directions either it gets hyper competitive and gets commoditized or it gets increasingly specialized as people bring more technology to bear and try to create the perception of greater differentiation.
From my point of view the manufacturer’s role in this is secondary. It is the consumer who decides, whether he wants the market place to be commoditized or differentiated. The Indian consumers have told us repeatedly that he is not interested in the price players.
The days of the cheaper scooters are gone, starting with Super and Chetak, the days of the cheaper 100 CC bikes are gone, the days of the cheap ambassador and Fiat and Maruti 800 are gone, frankly I don’t see much traction for the Nano out there. So I think this market rewards those who bring better technology to bear, create better segmentation, better differentiation. This maybe more rewarding in the long-term and may make for a more profitable industry.
Q: There has been a lot of talk about how much global players bring to the table in terms of technology and expertise in their joint venture and affiliations with Indian manufacturers. How true is that in the two-wheeler space?
A: In general I would like to say that the two-wheeler game or more specifically for us the motorcycle game is far more a marketing game, far closer to the FMCG kind of business such as the Unilever or the P&G than the aircraft industry or the mobile phone industry or some other industry which maybe still driven by a lot of technology.
Here it is not the technology that is different, it is more about marketing and it is more about being first in the market place, with the USP, with a point of difference. I have said this often, it is not that the Pulsar is a better motorcycle than other 150 CC motorcycles; it is not that the Splendour is a better 100 CC bike than others out there. It is how you create the perception of a better product that is important and not the technology itself. So this is not a technology game, this is a marketing game.
Q: How is your business doing now? Have you added any further market share or are production constraints coming in the way?
A: No, we are adding a little market share. In fact it has been a record breaking time for us. This month we should do over 350,000 vehicles well over 300,000 motorcycles, which we have been struggling to achieve for sometime. Close to about 14,000 three-wheelers. I think both these will represent all time highs for us for any one month.
This quarter we will close at close to a million vehicles which will be the highest ever. This gives us confidence that our stated goal of four million vehicles for this year is something that is achievable. Even for the first half at over 1.9 million vehicles, this would be the best ever and it is not just sales. We did a 20% earnings before interest, tax, depreciation and amortization (EBITDA) in the first quarter.
We are certainly staying in that space if not a little better for the second quarter. Even in terms of profitability, it has been a very rewarding quarter for us. In terms of our key brands, we expect the Discover now to be close to 150,000 motorcycles a month. We should see that in this month and the next and for the Pulsar to be close to 100,000 bikes a month and these are in my view outstanding figures for true motorcycle brands.
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Hero Motocorp stock price
On July 28, 2014, Hero Motocorp closed at Rs 2533.20, down Rs 41.75, or 1.62 percent. The 52-week high of the share was Rs 2775.05 and the 52-week low was Rs 1777.80.
The company's trailing 12-month (TTM) EPS was at Rs 105.62 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 23.98. The latest book value of the company is Rs 280.43 per share. At current value, the price-to-book value of the company is 9.03.
READ MORE ON Rajiv Bajaj, Bajaj Auto, Udayan Mukherjee, Honda, Hero Group, Hero Honda, Bajaj Auto, two-wheeler market, motorcyle sales, TVS, Pulsar, Discover, Splendour, Passion, Super, Chetak, Maruti 800, Fiat
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