Chakan production close to 50% of normal on Mon: Bajaj Auto

Production at Bajaj Auto's strike hit Chakan plant near Pune is improving day by day and output on Monday was close to 50 percent of normal, Rajiv Bajaj, MD, said on Tuesday.

Bajaj Auto produces 3,000 motorcycles at Chakan on a normal day and yesterday 1,400 units were produced (400 out of that was at Aurangabad). Also 450 people reported to work at the plant, Bajaj told CNBC-TV18. Workers at the company's Chakan plant have gone on strike since last week. The union's demands include a hike in wages and an option for workmen to subscribe to 500 equity shares of the company at Rs 1 a share. The strike caused a production loss of 20,000 units in June, the company said. Also Read: Bajaj Auto June sales skid 14% to 2.96 lakh units Bajaj said that the situation was "changing for the better" but it would be difficult to say when full production would resume at Chakan. Meanwhile, Bajaj said that its export markets, excluding Egypt, were seeing a recovery in demand. However, domestic demand remains weak, he added. Also Read: Tata Motors, Ashok Leyland slip on sluggish sales growth Below is the verbatim transcript of his interview to CNBC-TV18 Q: The Bajaj Auto numbers in June are nothing much to write home about. Is this an issue entirely because of the lack of production in Chakan or is it also that the market is shrinking and the competition is really heating up? A: I think it is more of the second to be honest. If you look at our exports to start with last month, they have been fairly flat Year-on-Year. This is bit of an improvement from preceding months when exports were actually trailing the previous year. True to expectation the export markets are coming back and I can say as of now, barring Egypt where we have to be a little watchful all other markets are behaving quite nicely. So, I think as far as exports are concerned we will see reasonable growth as we go ahead. On the commercial vehicles (CV) in the last month we have done a total of about 41,000 three wheelers as opposed to 27,000 in the previous June. That is actually an exceptional growth of over 50 percent. While that is not going to be the trend I think three wheelers will continue to be in positive territory. The exceptionally large growth last month comes because of very good performance in the overseas markets. As far as motorcycles are concerned we have actually done quite well with the motorcycles. We make at our Aurangabad and Pant Nagar plants where we have no production disruption. Those are the Discover brand motorcycles. Unfortunately since we have had this trouble all through June at the Chakan plant we have lost out on the production of Pulsar, Avenger, KTM and Kawasaki motorcycles. If you look at our numbers at 255,000 versus 318,000 last June in terms of motorcycles, that is 20 percent down and 10 percent is due to the loss of production. If we had another 25,000 vehicles from Chakan we would have been able to bill those to dealers. However, a 10 percent negative is a reflection of the state of the market. Our own estimates are that the motorcycle industry's retail sales were lower by almost 20 percent in June. Perhaps that does not show in the primary sales of some players as they have pushed stock once again to dealers. At the same time I would like to add one last comment that we cannot review June in isolation. I have been seeing since April that we expect a very good April, extraordinarily good May and a poor June because of the way the marriage season has shifted. So, I think if we look at the whole quarter we can see that there is still a negative growth However, it is not a 20 percent negative growth that was only in June. Q: How is July looking for you? Considering that the production loss is possibly going to seep into July as well can you just throw some light in terms of the domestic market production? What would you be assuming your run rate to be and do you expect the export markets to cushion it a little bit in terms of higher growth coming into July? A: On the export front we will meet the entire export commitment. Most of our exports is from the Aurangabad plant. Since everyday we have witnessed more people coming to work at the Chakan plant as well and we have prioritised export, because at Rs 60/dollar you make a lot of money exporting. So, I think we will meet our export commitment for the month of July. I equally expect us to continue with the good performance on three wheelers. The three wheelers both for domestic and exports are made entirely at the Aurangabad facility. So I do not see any problem there. As far as motorcycles are concerned while we will hopefully continue to do well with the Discover including the new Discover that is being launched this month, it is very hard to say what will happen out of Chakan. Q: How much maybe the overall monthly loss at Chakan and by when may you be in full production? A: It is hard to say. The situation is changing everyday, but thankfully it is changing for the better everyday. Yesterday we had about 450 people back at work out of a total of 1,500. Yesterday we have almost touched 50 percent of normal production. Normal production out of Chakan is 3,000 vehicles a day. We have made 1,400 vehicles. Out of these 1,400 motorcycles almost 400 were produced at the Aurangabad facility, whereas about a 1,000 or a little more were produced at Chakan itself. So, this increasing daily attendance and increasing daily production I would say is a positive sign. However, with the issues like these things can suddenly change for better or worse overnight. So, it is hard to put a month end number. _PAGEBREAK_ Q: Have you solved the core issue at Chakan? A: To my mind there are basically two issues. One is the issue for the demand of the shares of the company virtually free of cost. In my own mind this issue has been completely solved because the question does not arise. That is the end of that issue. The second issue is a discussion around the wage increment and some disciplinary action which has been taken against people who started disrupting work in the last few months. To me this is something that is an ongoing matter discussed between any management and union all the time. Why this union instead of coming to the discussion table has chosen to call for a strike which we have now filed for as being an illegal strike beats me. However, we will make every effort to bring them to the table and talk with them. Q: What is your market share in motorcycles this June compared to last June and what is your share in two wheeler space, because scooters are becoming fashionable and therefore will you ever think of bringing back the Bajaj Blade? A: I do not know the exact motorcycle market share for June, but I would hazard that as opposed to being at the level of 32-33 percent. It is probably around 30 percent, thanks to the loss of 25,000 vehicles which on an industry size of about 800,000 motorcycles is about 3 percent market share. So, I am working backwards from that and guestimating that it is about 30 percent. As far as scooters are concerned my view is very simple that there is always going to be a market for both scooters and motorcycles. The reality is motorcycle is still over 70 percent of the market and the reality is that we are only 30 percent of that. For us to grow the odds of our profitably going are much better if we stick with motorcycles. Even now when we do not have a production problem we are only able to sell 200,000 motorcycles domestically, whereas Hero is still doing twice that number for example. So, logically it should be far easier for Bajaj to go from 200,000 motorcycles to 400,000 motorcycles than to start from zero on scooters and make any headway there. If you look at some of our other competition, whether it is Mahindra that is trying to push two wheelers, whether it is TVS that is making many kind of two wheelers, whether it is Yamaha that is trying to focus on Ray and Deepika and all that sort of stuff. What you will see is players with focus are inevitably doing better. So, I think at this time any move to look at scooters would be fraught with danger. It would be a distraction. This is the time for Bajaj to focus on motorcycles and get to 400,000 motorcycles. Q: There are reports and you have been quoted as well saying that you will possibly shift production into other plants. By when would you take that call and would there be full production shift to other plants in terms of these key models which you produce at Chakan? A: I am not contemplating having to take that decision in the next few days. I am very hopeful that this matter can be resolved. At the same time we have to have a plan B and that is why we produce a few hundred motorcycles at Aurangabad. We made almost 400 yesterday and our goal will be to take this up to 800 motorcycles a day. However, that does not mean we are going to shift the rest of the production either to Aurangabad or to Pant Nagar. As it is not only a matter of making the production out of the other plants, we have to restore normalcy at this plant, we have to win back our people, we have to get the spirit back into the Chakan plant. So, I do not think we win by shifting production elsewhere. That is only a plan B, if in the very unlikely and undesirable event that becomes necessary. Otherwise our entire attempt at this time will be to bring this plant back to its normal functioning. Q: If you weed out all the seasonalities of marriage months and non-marriage months and production losses, are you at least smelling that the contraction in the market is going away and demand is improving at all? A: If I were to pay heed to what my sales people and some dealers are telling me then it seems to suggest that the festive season is around the corner. Which means at the time when the rains are gone, the harvesting is going to be done and people have a feel for what kind of prices the market will fetch them, this seem to suggest that we will see growth once again. All I can say is I do not know, but it is the first time in two years that I am hearing people saying something positive. How much is sentiment and hope and how much is reality I really do not know.