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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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Bajaj Auto Q3 net profit up 189.17% at Rs 475.1 Cr ALSO READ See latest News about Bajaj Auto See previous management interviews See what other Experts & Brokerages are saying about Bajaj Auto Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty? Other Stocks in this news Hero Honda Motors |

Bajaj Auto declared its third quarter results of FY10. Its Q3 net profit went up 189.17% to Rs 475.1 crore versus Rs 164.3 crore, on year-on-year basis (YoY). And its net sales increased 57.9% to Rs 3,165.8 crore from Rs 2,004.8 crore (YoY).

Commenting on the company'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.

Confident of growing in volumes and market share, Bajaj seemed a tad worried on the margins front. "It is tough to maintain margins at 22%," he said adding that the company however intended to hold margins above 20%.

He said that the company gained 11% market share while Hero Honda 's market share was down 7%. "We are working towards hiking our market share further to 36% from 33%."

Bajaj feels that new Pulsar 135 cc will contribute to the volumes. The company is targetting 30,000 units of new Pulsar 135 cc.

Here is a verbatim transcript of the exclusive interview with Rajiv Bajaj on CNBC-TV18. Also watch the accompanying video.

Q: You have had 22% operating margins for the last couple of quarters. That is very strong but can you maintain that kind of pace going forward into the next few quarters given where raw material prices are headed?

A: Actually, the commodity cycle is already been up over the last quarter and if you see even from Q2 to Q3, basically, we lost about Rs 100 crore to the rise in commodity prices. But we more than made that up in terms of higher volumes and a better mix. Bajaj Auto is in a position where it can continue to grow volume and market share because we are still only about a third of the market. Our three-wheeler business is also growing handsomely and exports are also strong. So, while 22% itself maybe very hard to maintain, I think we have lot of headroom for growth and profitable growth. I would certainly like to believe we can stay in the 20s.

Q: This point about market share - I know you have been saying that your market share has been going up but what confuses us a little bit is that pretty much all the three players are saying that. You are saying your market share is growing. Hero Honda told us last week that their market share is growing and TVS Motors is also telling us the same thing. So who is losing market share? You three make up the market.

A: A mathematics professor was once asked what 2+2 was and he said it is 4.0 and a marketing guy was asked what it was and he said what do you want it to be? So marketing people can be very clever about how they put the facts forward but the data shows that in Q4 last year, Bajaj Auto's motorcycle market share was 22%.

We finished Q3, that is, December 31 at 33%. We have gained 11% market share. Those are the figures that are reported to Society of Indian Automobile Manufacturers (SIAM). That is the basis on which we pay excise. If you are referring to the market leader - the figures for Hero Honda are simply this: They were at 57% and they finished at 50%. So, we have gained 11% and they have lost 7% and the rest of the competition has lost 4%. That is the fact.

Q: For this incremental 11% that you have got going - can you break it up into which products have seen the biggest bump up for you in market share?

A: Our growth so far has come basically from the enormous success of the Discover. The Discover was barely 20,000 a month and that has gone up to almost to 100,000 a month since the launch of the new Discover in July. So, 80,000 on an industry base of about 7 lakh every month is over 10% there itself. But of course since the industry has also grown, it is a little less than 10%.

The other success has been the Pulsar although it is not as big as Discover but that has grown as well. So we are basically focused now on these two brands and fortunately for us they both are growing.