Bajaj Auto's July sales plunge 18% to 2.81 lakh units

Moneycontrol Bureau

Bajaj Auto's total sales plunged 18 percent year-on-year to 2.81 lakh units in July, as motorcycles continued to see lacklusture demand. The Pune-based motorcycle maker has launched several new models like the Discover ST, Discover 100T in the last several months and more Discover models are around the corner. Yet, the company finds itself driving down a rough road. Its motorcycle sales in July were down 20 percent to 2.47 lakh units. Over April-July period, Bajaj Auto's motorcycle sales have declined 14 percent to 11.07 lakh units. The two-wheeler industry as such has been facing sluggish demand in the past several months. However, rivals' July sales figures indicate a far smoother road. Honda Motorcycle and Scooter India, for instance, said its sales last month were highest ever in its 13 years of Indian operations. The company sold 2.87 lakh two-wheelers in July, up 20 percent from a year ago, helped by "overwhelming response" for the Dream series of motorcycles, even as its Activa and other scooters continue to see strong demand. Hero MotoCorp, India's largest two-wheeler maker, also reported a marginal rise in two-wheeler sales at 4.88 lakh units, helped by good demand for its Glamour and Ignitor motorcycles and Pleasure and Maestro scooters. TVS Motor's sales in July declined 5 percent year-on-year to 1.54 lakh units. But its motorcycle sales were up 8 percent to 57,886 units. Bajaj Auto is the only company that doesn't make scooters and Rajiv Bajaj, the company's MD has said in the past that it is the motorcycle segment that will be its focus. He maintained on Friday that a fall in its motorcycle sales reflects the state of the industry and July is traditionally weak for motorcycles. The strike at its Chakan plant near Pune did not have any impact on the sales, Bajaj told CNBC-TV18. Meanwhile, Bajaj Auto's three-wheeler commercial vehicles also saw low demand in July, sales declined 2 percent to 34,499 units. Its total exports were also down 12 percent to 1.10 lakh units. For the April-July period, Bajaj Auto's total sales have declined 11 percent to 12.61 lakh units. Bajaj Auto was trading down 1.1 percent at Rs 1,912.70 on NSE in morning trade.

Below is the verbatim transcript of Rajiv Bajaj's interview on CNBC-TV18

Q: What is the impact of the Chakan plant on your number? How much did Chakan or loss of production from there take away from your numbers this month? A: Chakan had no impact on these numbers at all and so sales have not suffered for lack of availability of Chakan products.

Q: It means demand is very poor, does that makes it even more worrying, markets very tepid? A: Overall sales are down from 340,000 to 280,000. Within that, the first good news is as far as exports are concerned, over this quarter exports would normalise and turn positive. Last month they were still down 10 percent year on year but from August they will turn positive because we know what orders we have in hand in August and that is one positive thing for us. The other is the fact that the rupee is firmly at 60 or thereabouts and that has made an extremely good profitability in July. So, that is on the export front. On three wheelers, the industry has been negative. I am speaking specifically about the domestic industry where our sales have been flat at about 18,000. We have gained market share, while volumes are flat the good news is that we have gained share there. We have launched new three wheelers in an attempt to progressively replace our entire portfolio over the next 3-4 months and that has been well received. As far as domestic motorcycles are concerned, there is good news as well as not so good news. The good news is that the Pulsar platform of which we make the Pulsar, Avenger, all of this is made at Chakan and is close to 80,000 motorcycles. It is slightly better than normal and that is why we have lost nothing on that count. Of course, those bikes also make for very good profitability. The problem has been in the commuter motorcycle space. The Discover of which we do over a 100,000 motorcyles a month is only 82,000 this time and the Platina which we do about 50,000 is about 30,000 this time. It is 20,000 less on each of those and that simply reflects the state of the industry. At a retail level the industry is close to negative growth of about 15 percent in July and we did not want to push any stock into dealership so our retail and our billing is exactly matched. _PAGEBREAK_

Q: Do you see problems with the Discover and the Platina getting worse or lingering at this kind of level for a few more months? A: This was one difficult month for everyone including Bajaj. That is because for the commuter segments specifically July is known to be the worst month of the year. April-June is driven by good sentiments in terms of marriage season.  August and September are mini festival seasons in terms of Onam, Ganapati, Durga Puja and October-November is the big one. So, July is well known to be the worst month. Specifically for Bajaj, rest of the industry at least the major players have moved stocks to dealership in excess of retail and that is a common practice in the month of July. We would have done so as well as we did that last year. But the reason we cannot do it this year is because between July and December, we have six new Discover’s to launch. The first two started production in July so we cannot afford a stock of the old SKUs of the Discover in the dealerships and that is why we have refrained from any excess billing. In fact, our attempt will now be to build the new one. Whether it is for Bajaj or the industry, July was on-off aberration and now with the start of the mini festive season, from August onwards, the numbers can only improve.

Q: The worry is that people are down trading in your market and anything which has got a higher cc is beginning to lose sheen for the moment which has resulted in some market share losses for Bajaj Auto after moving the other way round on the way up for the last many quarters? Will that be a problem? A: I would give you a very specific data on that because we track that very closely. The down trading that you mentioned happened in the last financial year. To be very specific the spot segment which is typically taken as 150cc and above which use to be closer to 17-18 percent of the motorcycle market, the domestic motorcycle market had come to about 15-16 percent of the domestic motorcycle market. If one were to look at the actual data for April-May-June-July for the four months of this year compared to last year, one would actually see that it has remained rock steady. The people that had to down trade have done so already last year because last year was not a great year for the industry. Around 15 percent who now wants to buy the sports bike and could hyper the size that they are less sensitive now to the economic conditions than those buying Rs 40,000, 100 cc motorcycle. The data will bear me out that there is no further down trading happening in the last few months. Q: One of your key competitors Hero Honda is losing market share to Honda Motors – some of the industry participants seems to feel that Hero is clawing back, do you think there is more aggression from that competitor in the market that might have ramifications for your market share and product growth? A: The data shows that there is slight erosion in Hero’s market share. I am not surprised that it is only slight, I have always maintained that people don’t buy a Hero or a Honda, they buy Splendor or Passion and Splendor and Passion like Discover and Pulsar are strong brands. Honda won’t get away in this market just by putting in another undifferentiated 100 cc bike. Nevertheless, as Honda is expanding its distribution it is able to take a little market share away. They are taking it away only from Hero because whoever did not want Hero Honda was already coming to Bajaj, Yamaha or TVS so the overlap in the consumer’s mind is between Hero and Honda. The data does show that there is slight erosion in share. In the scooter market, Hero is gaining share in the domestic scooter market and Honda despite its outstanding scooter sales even in the last month has lost 1 percent share in the scooter segment not significant but that is the trend. It makes me wonder if there is another possibility that as Hero gets more aggressive with scooters, could some people actually move from Hero Motorcycles to Hero Scooter and as Honda is getting aggressive with motorcycles having launched two new 100 cc motorcycle in the last 12 months could it simply be that some people instead of buying Activa are now buying Yuga. It is very difficult to say how these things are happening but if one looks at it and takes the motorcycles numbers at face value, it suggest there is a small shift from Hero to Honda. Q: A word on margins because it appears that while volume growth is quite sluggish and may remain so for some time because of currency and other issues you may actually be able to hold margins around that 20 percent level? Do you think it could be a situation where your sales remain sluggish for a while but your profits are actually okay? A: Once again I would like to lean on data first before offering a comment. In Q1 we have demonstrated that the top-line was flat but the margins were at almost historic high of 21.3 percent. Since we are only into the second month of the quarter it is a little difficult to be very predictive but, even at this level of sales, margins should only rise if the rupee remains in the 60 to a dollar space. This is because in the last quarter we realised only about 54-55 rupees to a dollar on our exports in the month of April and May, it is only in June that we realise something closer to 58. In July that is closer to 59 or 60. If the rupee would be here, in terms of profitability, it will be historic for Bajaj Auto. But nevertheless, our focus now is moving the topline up because ultimately it is profit and growth. I am singularly focused on the Discover – upto December get all six of them out and then hopefully then you would be asking me not just about profit but also about the growth in the topline.