Tough to maintain margins at 22%: Bajaj Auto

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Tough to maintain margins at 22%: Bajaj Auto

Commenting on Bajaj Auto’s performance, its Managing Director Rajiv Bajaj said that the auto major lost Rs 100 crore on account of commodity prices. However, it made up for the loss on volumes and product mix.

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Q: How much leeway do you have right now to make any pricing adjustments given how competitive the situation is and where do you think it may more easily go through in 100 cc segment or on 135 cc space?

A: In the Pulsar space, since we are already priced at a premium to competition, typically we sell at 5% to 7% premium to the like-to-like competition. So I would say I don't think we have much leeway there but there the EBITDAs are very high. I am not unduly concerned about that. Also, the Pulsar franchise will double in terms of volumes with the launch of a new Pulsar. So that is what we will secure profitability there.

In terms of a Discover, I believe we do have leeway because we have priced ourselves very competitively to start with at Rs 40,000 because that is the category dominated by Hero Honda. On January 1, we increased price by Rs 1,000 once we sensed that the product had taken root quite strongly in the last six-months and if for the reason of commodity or for the reason of the impending emission regulations, we need to raise prices there, I believe we can do so.

Q: You had a very strong four quarters. As you go into 2010 from the numbers that you are talking about for the Discover and the Pulsar, it seems that you are expecting another year of robust growth. Do you think either higher interest rates or the talk about withdrawal of stimulus etc could rein in the kind of growth that you are talking about?

A: I feel Bajaj would be quite immune to that because our success this year which has turned out to be the best year ever in our history is on the back of the Discover in the commuter category, the new Pulsar in the sports category, the three-wheelers are growing due to the intra-city initiatives primarily the conversion from the gasoline driven vehicles, the gas driven vehicles and of course the exports which have very little if anything to do with subsidies.

So unlike perhaps the commercial vehicle space or some other space like that, Bajaj Auto's growth has come more from product, from exports and from emission regulation related matters. So competition is always a very strong threat but I don't think a small change in interest rates or increase in excise duty, let us say by 2%, is going to affect Bajaj Auto's momentum at this stage.

In fact, I am a supporter of the view that some kind of a rollback of subsidy should take place so that we all quickly readjust and realign ourselves to the real world.