Bajaj Auto bets on Discover; to launch 2 Pulsars in FY14

It has been a nightmarish run for the overall automobile sector. The decline started with commercial vehicles followed by passenger car industry, which went through its worst phase in over 10 years. The two-wheeler sector, which for the longest time bucked the trend, posted at least moderate growth. In such a market scenario, Bajaj Auto is adopting two-pronged approach. Explaining the two-wheeler major's strategy, MD Rajiv Bajaj said models like the Ninja 300 and Ninja 650 cater to those looking for a super sport bike in the mid-engine range. "For those who are looking for something distinctive and different we have the Duke 200. In the next month or so it will be joined by a bigger sibling, the KTM Duke 390," he added. Emphasising the need to cater to all stratas of the market inspite of the slowdown in demand, he said each brand is individually exclusive in terms of positions that they occupy, but collectively they present an exhaustive option to the consumer. Bajaj offers a wide range of products from a Boxer or Discover all the way to a KTM and Husqvarna potentially making it a global motorcycle powerhouse. The company plans to enter the Indonesian market by the end of this year. Two new Pulsars are slated for launch this year, one of which would be smaller than the Pulsar 200, and the other much bigger. This is expected to help it defend the company's leadership position in this space. But the main focus will be on Discover, he elaborated. After the launch of the 100T model in January, sales have been good at 25,000 to 30,000 models per month, giving Bajaj a new foothold in the commuter segment. The company may launch six Discovers this fiscal. Here is the edited transcript of the interview with CNBC-TV18 Q: This was your fourth offering along with Kawasaki, the Ninja 300. So do we understand that in the premium motorcycle segment you have covered all the segments that you want to be present in or are there still some categories where we might see future offerings by Kawasaki? A: I would not say that we have covered all segments. It is not possible to do that, because the market size of the premium segment is rather small, and much as one would like to one has to limit oneself to a few offerings in the interest of having reasonable economies of scale for each SKU. So what we have done essentially is to have a two-pronged approach towards the premium segment. On the one hand on the basis of our 30 year old relationship with Kawasaki we have brought to the market two very fine motorcycles in the form of Ninja 300 and Ninja 650 and they are doing very well in their respective segments. This is for those who are looking for a super sport bike in the mid-engine range I would say. For those who are looking not for the very clichéd, fully-fared super sport, but for something that is very distinctive and different we have the KTM motorcycles and so far we have had one offering, the Duke 200, but it is no secret that very, very soon in the next month or so it will be joined by a bigger sibling, the KTM Duke 390 and that is a wonderful motorcycle. I can tell you it is a motorcycle with almost 45 hp, close to 300 bhp per tonne. It is a real brute of a machine and it is going to be a wonderful motorcycle, not just for India but for all global markets. So in this manner I think we are at least offering two very distinct choices to the consumer in the form of super sports and naked sports. Q: As you have maintained for the longest time, you are very clear that you want to maintain the 20 percent EBITDA margin on all your products. Does it help at a time like this when there is an overall slowdown to also have premium niche products in the market? A: I guess it depends on what we mean by help. Our journey as a motorcycle specialist towards becoming ultimately we hope, a global motorcycle powerhouse is going to be a long and hard journey. Obviously, in terms of volumes, in terms of millions of motorcycle per year, this business has to come from our mainstream brands which are the Pulsar, Discover and Boxer. But it is very important that while we garner volumes and market share from there, as a specialist of motorcycle, we should have the wherewithal to put out any and every technology that can be associated with the motorcycle business. I have never been one to believe that technology is something that you can simply buy off the shelf from some laboratory or some design house, somewhere - if does not work like that. So, how can a company that seeks to be the specialist of a certain area do something that is meaningful, in that, it keeps abreast with whatever is the latest in terms of technology and at the same time, does it in a business like manner? So,I would say that towards that end, our relationship or our engagement with both, KTM and Kawasaki, I would say is akin to having a pilot car ahead of us. Here we are on a Pulsar and a Discover making this long journey to becoming a motorcycle powerhouse. But a little ahead of us, at the right distance, we are pacing a pilot car in the form of Kawasaki and KTM and that pilot car is actually defining the leading edge of technology, of performance, of quality, whatever is the latest and the best in the motorcycle world. Therefore what Kawasaki and KTM do for us quantitatively is less important but what they do for us qualitatively is simply this that today, we are able to demonstrate with these motorcycles especially so with the KTMs which as you perhaps know are designed and manufactured by us for worldwide sale. What this is demonstrating is that Bajaj, its suppliers and its dealers have the capability here and now to design, to develop, to manufacture, to sell and to service motorcycles which have every conceivable technology that is available today. Tomorrow, this technology as and when necessary could be brought to bear upon a Pulsar or a Discover. So that is the confidence that it gives all our stakeholders and that is why this pilot car is so important for our business. _PAGEBREAK_ Q: Given the fact that you have KTM, which has now gone and acquired Husqvarna. You have extended your alliance from merely a technology alliance with Kawasaki to a much bigger sort of an alliance. How will you look to differentiate the various brands that you have got? The fact is that you have a KTM Duke 200, you have a Pulsar 200. Can you share the nuances based on which you will differentiate one brand from the other? A: Bajaj brands, that is the Pulsar, Discover and Boxer are essentially in the Value For Money (VFM) space and while one is more suited for sports like the Pulsar, the other more for commuting that is Discover and other for utility which is Boxer, but essentially they are VFM motorcycles. I would put the Kawasaki motorcycles led primarily by the Ninja one level above. Maybe in marketing terminology this is called mass premium or something like this where clearly for example you can see that Kawasaki is not focusing on motorcycles that are below 300cc which is why they are taking our Pulsar, and hopefully tomorrow our Discover to overseas markets like the Philippines in the past and Indonesia later this year. So Kawasaki would like to specialise a little above the Bajaj space and address that market in a focused manner.
KTM is very distinct because as you are perhaps aware, KTM is the world’s off-road racing champion. I do not know the exact number, but in their history they have over 200 wins in different races. They are for the last 11-12 years the Paris-Dakar champion, 12 years in a row. KTM is really an off-road motorcycle. You could say it is like the Range Rover of motorcycles and essentially their genes are of off-road riding and sometimes they make on-off road motorcycles like the Duke. KTM has its own space which is even more niche than Kawasaki’s. So if you were to depict this as a triangle I would say Bajaj is at the base which is the broadest as VFM and then you get into a mid-space which is Kawasaki which is little more specialised and performance oriented and really at the top very niche you have KTM which is almost like a weapon for very specific purpose. Q: Where are you fitting in Husqvarna in all this? A: Husqvarna is the peak of the KTM triangle at the top, because Husqvarna is the super-specialisation as far as off-road or motocross motorcycles are concerned and while it maybe very niche they have sales volume of no more than maybe 10,000 motorcycles a year. While Stefan Pierer would know this better, I would guess that that 10,000 is only going to become 20,000-30,000, it is never going to become 200,000 motorcycles a year.  But it is very, very meaningful to that audience that wants a bike for a very, very specific and special propose. So I think in this way you could say each brand is individually exclusive in terms of the positions that they occupy, but collectively they present an exhaustive option to the consumer. You can choose something all the way from a Boxer or Discover all the way to a KTM and Husqvarna and that is what potentially makes Bajaj a global motorcycle powerhouse. Q: A word also on your alliance with Kawasaki. It has been a little over six months since you announced that. Give us an update. You mentioned a short while back that you would be entering the Indonesian market by the end of this year. Just talk us a little bit through your overall plans going forward. A: We are to enter the market in the next few months. We reached an in-principle agreement with Kawasaki around March last year. In the last one year we have worked on three major aspects. One, the ground in terms of distribution, because we have to align our channel with theirs, so there has been a lot of work that has gone on in terms of distribution, sales service etc and that is pretty much on schedule. We have also had to work on the product as I just said to make certain finer improvements. We have been doing that together and we have come more or less to the end of that. The benefit of that work will be available on every Pulsar sold everywhere, not just on the Pulsar sold in Indonesia and finally we have to work on the brand and its position in the marketplace and that is the last little bit of work that is to be completed. We had said that approximately in the middle of this year we would go to Indonesia first with Pulsar 200NS and as of now we are on schedule to do that and we are very hopeful of a good result. _PAGEBREAK_ Q: There is a lot of competition now. TVS announced their alliance with BMW. They are expecting their first set of motorcycles to be launched in India by 2015. Many feel that their alliance is also loosely modelled on the alliance that you have with Kawasaki. How do you see competition because their motorcycles will be available in India by 2015? Overall, do you feel that this is also a sign of the Indian two-wheeler maturing? A: It will have to be rather longish answer to that question. I would say that I see three similarities and three differences. When I compare in my mind the TVS-BMW alliance with that of Bajaj-KTM, I think the similarity is this - first and foremost, they have declared their intension to work on motorcycles in the 250-500cc space which is exactly what Bajaj and KTM are doing. Secondly, BMW is supposed to bring technology or aspirations to the project which is certainly what KTM also brings to Bajaj. Thirdly, TVS obviously is suppose to bring primarily a certain cost efficiency or cost arbitrage to the project which is certainly what Bajaj brings to the table in terms of designing and manufacturing KTM motorcycles out of India. So I think these are the three similarities. But I think there are three notable differences. First and foremost, Bajaj is already a dominant leader of the sport segment with almost 50 percent market share. Between domestic and export markets, we sell almost one million Pulsars every year. So, when we venture to make the effort to develop motorcycles in this space, we have the comfort of risking that project on one million motorcycles every year. TVS has perhaps a 1/10th of Bajaj’s volume in that space. So, just very objectively and candidly, I would think that this has a somewhat greater risk for TVS because the project is resting in relatively very small volumes at least from a TVS point of view. The second issue, beyond products is that of the brand. What I mean by that is that KTM has been for the last so many decades in the smaller motorcycles, as small as 50-60cc for little kids that might want to race all the way up to over one litre motorcycle. So these segments are not new for KTM. Bajaj as I just finished saying, is a leader of this space. So we are already a existing player and we already have strong positions in this space. However, from what I have read, I can understand that BMW has said, this is the first time ever that BMW is getting into this space. TVS as I just finished saying is a relatively small player and perhaps even in the Indian context is number four in this space, so the BMW and TVS brands are nowhere else dominant or well known or associated with this space of motorcycling as are KTM and Bajaj. Q: You are confident of maintaining your dominant position in the sports motorcycle category? A: I don’t know the future anymore than anyone else does but I can say this ever since the Pulsar was introduced in 2001, we have been by far the dominant leader of that space. So we have a pretty good track record for the last 12 years or so and for a new entrant to come in and make an impact is very difficult. Let me give you a simple analysis, just because Honda and Toyota make small cars like the Brio or Etios, are they able to really challenge Maruti in the small car space - ‘No’. So it will not be easy for TVS or BMW brand to compete in the space where Bajaj and KTM have been dominant for a long time. So that’s the second difference. The third difference is at the corporate level. Bajaj today owns half of KTM. So from the joint project, even if there is no benefit to Bajaj, let’s say all the benefit is to KTM in terms of cost arbitrage - that is still advantageous to Bajaj because KTM is half owned by Bajaj. On the other hand, if the products that are born out of the TVS-BMW alliance are not so meaningful to TVS because they are too expensive or too niche for this market. Let’s say the main benefit is for BMW, I personally don’t know enough then to understand what the benefit for TVS is. I can see the very significant advantage to BMW. They get relatively cheaper motorcycle to sell all over the world but what’s in it for TVS is not very clear to me. Q: Let’s just briefly talk also about the mass segment. What kind of products do we see from you on the Discover and the Pulsar platform for this year? A: We have several launches lined up for this year. We have at least two new Pulsars. I can say this much - one will be smaller than Pulsar 200NS and one that will be much bigger. So I think that is going to help us defend our leadership of this space and that is very important for us so two new Pulsars in this year. However, this year, our main focus will be on the Discover brand and Discover segment because I think after launching the Discover 100T in January of which we are able to already sell between 25,000-30,000 a month, this has given us a new foothold into the commuter segment because it is for the first time in our history that we are selling in large numbers a 100cc motorcycle which is a space more associated with Hero MotoCorp. We are selling large volumes of 100cc motorcycle wherein that motorcycle is the most expensive 100cc motorcycle in India today. So this is telling us that if people are willing to shell out five percent more for the Discover 100T, perhaps they have come to accept that this is an outstanding 100cc motorcycle. If we have managed to create that excellence then the next logical step is to scale that excellence. What I mean by that is this - currently in the domestic market, we sell between 100,000-110,000 Discovers every month. I would like to see that number grow significantly. When I say significantly, I mean to something that is over 150,000 a month. The Discover 100T provides us some answers as to how we could do that. So as of now, we have planned the launch of several new Discovers. In fact, I can say specifically that we have six Discovers that are being ready for launch for this financial year. We may or may not launch all six. We will launch somewhere between four and six depending on the competitive situation because whether we like it or not. Often what we do depends on what our competition is so somewhere between four and six new Discovers. I am very hopeful and I am very keen that with that, we should see a 50 percent increase if not more in the sales of Discover which would then catapult Bajaj Motorcycle volumes to the next level.