Rajiv Bajaj, managing director of Bajaj Auto believes that the company should not have communicated Discover as a 100cc brand. It was always positioned as a 125cc motorcycle.
Bajaj Auto has recently won a fresh order of 1.25 lakh 125cc Discover bikes from the government of Sri Lanka. The company plans to execute the order from Sri Lanka itself in 3-4 months. But the bigger news here is it won a repeat order via the Sri Lankan distributor, says Rajiv Bajaj, managing director of Bajaj Auto.
The domestic motorcycle market size currently is at nine lakh. Bajaj is targeting 2.2 lakh motorcycle sales every month. He plans to increase market share to 24 percent next year against 18 percent now, while adding that the company’s market share will rise to 24 percent in six months from now. The company is looking at 70,000 Discover motorcycle sales and 80,000 Platina unit sales per month. It is also developing two new brands which do not currently exist and introduce two products under existing brands – Platina and Pulsar.
On Discover 125cc, Bajaj says the issue was with how the company communicated or promoted the brand. It was always positioned as a 125cc motorcycle. He adds that the company should not have positioned Discover as a 100cc brand, while adding that the 150cc Discover is doing very well.
On the company’s financials, he says Bajaj Auto managed to stay in the 20 percent EBITDA zone for five years and despite its issues with the Discover brand, the company has a robust strategy. Going ahead, he does not see higher advertising and marketing spends impacting margins.
Bajaj Auto has entered 29 new markets over the last 12 months.
Below is the verbatim transcript of Rajiv Bajaj's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: One thing which a lot of analysts said they were pleased about was that Bajaj Auto has admitted that some of the brands in different positioning are confusing the market, is that something that we are likely to see a change in the stands of Bajaj Auto from now to say next six months or so?
A: I don’t know what exactly they meant because in matters like this - what one says and what one hears can sometimes be a little different but I don’t think we made any such admission from what I understand from what you are saying right now. In fact in terms of our motorcycle business and I assume you are referring to the domestic motorcycle business essentially shared our plans with them towards the purpose of first taking our market share up to about 24 percent sometime over the next year and then we would like to go on further from there. So, that was the objective we shared with them.
In terms of the means towards that end simplistically I can put it into two parts and this is what we said to them, one, the new products that we would introduce under two of our existing brands, one the Platina and the other is the Pulsar and we actually showed them the new Platina that we have not showed outside so far. We also showed them four Pulsar’s two of which have not been shown to the public so far. So we showed them total of five new models under these two brands, so, in fact rightly or wrongly we showed them more and more products so I don’t know how they can say that we were actually thinking of pulling back on that.
The other thing we shared with them was the fact that we are in the process of developing two new brands which don’t exist in the domestic market today and these would be introduced over the next 12 months. So, we tried to convey as best as we could the basis for all of this.
Anuj: I was reading a report from Kotak which said that the company believes that the key reason for failure of Discover 100cc and 125cc was confused positioning. My follow-up question on that is that Sonia tells me that Discover 150cc is doing quite well why would you then launch a 100cc variant again, Discover 100cc; wouldn’t that be confusing, isn’t that something that is hurting Bajaj Auto?
A: Let us talk specifically about that because I think this needs to be clarified. Time and again before people can understand what we are saying; whether they agree with us or no is a different matter. What we have said that day in terms of Discover is that Discover was always positioned as a 125cc motorcycle that offered more than just A to B commuting. It was not just a mileage bike it was a mileage bike that was also fun to ride and this served us very well from the first time it was introduced in 2004.
It is also a reality that the Discover 100cc has been in the marketplace since 2005 and if you were to only look at the numbers since 2005 you would see that it has done exceptionally well as well. What we said on that day with respect to Discover as a brand and this I have said on your channel before is that where we have held is in not producing a 100cc or not; that is not the issue, the issue has been how we have communicated the brand. In recent years we had spent too much of advertising money trying to promote Discover as a 100cc brand. In hindsight as a result of that it has taken some of the sheen off that brand because its USP, its differentiation in the marketplace was that it is not a 100cc brand, it offers something more than a 100cc.
So in effect what I am trying to say is the issue is not how many stock keeping unit (SKUs) are there in the leadership. I have said this before in fact to Sonia in more than one conversation that look at the Splendor, look at the Pulsar, look at the Activa – there are so many SKUs under each of these brands. Try buying a TV or a mobile phone, the showrooms are flooded with SKUs. The issue is not sales, the issue is marketing. Discover as a brand was marketed as being something superior to the 100cc.
I think where we have gone wrong with the Discover is to put the 100cc upfront and we have corrected that now by going to market with a 150cc Discover which you are very right in suggesting has taken off well, is doing well. It is only a matter of time before we restore Discover to its intended original position of being a commuter bike that is much more than just mileage. So, that process is underway and we are seeing the early benefits.
Ekta: If you are targeting a 6 percent increase in your market share in the coming year, give us a sense in terms of how this would translate in terms of average volumes or a run rate among all of your brands in the coming, what are you targeting internally?
A: The domestic motorcycle market size is a little more than 900,000 motorcycles and we have between 18 percent and 19 percent share. If we wish to get to 24 percent market share we need to clock about 2,20,000 motorcycles every month. So, this is how we are looking at it.
We expect that with the launch of the new Platina which is now just about four to six weeks away, we can see ourselves growing Platina volumes to a level of about 80,000 motorcycles a month - let us say two months after launch. So, if we were to be speaking in April and if our confidence is misplaced we should be up to that kind of a volume in the Platina segment. So, that is about 80,000 bikes a month.
On the Discover segment we are seeing ourselves at about 70,000 motorcycles a month thanks to the new 150cc. So, that is about 150,000 bikes and finally on the Pulsar segment where we do currently in the domestic market about 65,000 motorcycles a month, we expect to grow that also to about 75,000 motorcycles a month on the back of the new Pulsar that we showed. These will also be introduced progressively over the next quarter. That is why we would like to believe that six months from now we should be around that 24 percent target.
Anuj: Let us get back to the M1 segment again; two points one is that 50 percent of the market was already self start so do you think you were a bit late in that and b) why are you moving away from your own stated strategy of moving up the value chain or moving customers up the value chain by introducing two bikes in this particular segment?
A: The strategy is unchanged because today if you were to simply divide the market into 100cc and greater than 100cc, you have a 60-40 split. 60 percent of the people are still buying the 100cc motorcycle but 40 percent are willing to move up. For the 40 percent that are willing to move up we already have a Pulsar and a Discover and as I just mentioned and as we mentioned that day to the people who were here that we are in the process of developing another brand for that end of the market. In other words for 40 percent of the market Bajaj will now have not just two brands but three very soon.
In the balance 60 percent of the market which is the 100cc market we have as of now just one brand which is Platina. We have always focused on the higher end of the market, always given it priority because that is what is good for topline and bottomline. Having said that if 60 percent of the people are still buying a 100cc motorcycle and in three years time let us say this will be 50 percent I don’t think Bajaj will get to the 30 percent plus market share it wants to in the domestic marketplace on the back of just one brand which is the Platina. Ultimately every brand stands for a given attribute, a given USP in the marketplace. In our view the USP for the Platina is its mileage.
However, there might be customers who are looking for another USP and I am not going to say what that is right now; that would be saying too much but on that basis, on the basis of that USP if you were to introduce a second brand into the marketplace I think that is going to help us have a better impact and a better presence in the market which today is 60 percent of the industry size.
Ekta: Based on the repositioning that you are undertaking at this point in time and maybe the higher advertising that we could see or more aggressive advertising we could see if that is the case will that impact your margins in any way and how would you even sustain your margins if in case you have to invest more in repositioning?
A: First let me make the point that it is about five years now that we had our own share of ups and downs. There are things that have worked for us and every now and then we have initiative like the Xceed or more recently trouble with brand like Discover that doesn't work for us. Despite all of that for the last five years now and I think that is a considerable period of time we have managed to stay in the 20 percent EBITDA zone more or less; we have not stayed very far from there.
So, I feel it is about time you give it to us that our business strategy is so robust and this is what I tell to my own colleagues at Bajaj Auto that it is true that while everything else is working for us, both domestic and export market, it is true that we have a bit of a problem with the Discover. However, we are still a company which is growing, and that is recording a 20 percent EBITDA. So, it just shows how robust the strategy is. Just because one pillar is a little shaky, the whole building doesn't shake.
On that basis I would say that when we go forward and we put in new brands we are going to do it with the same approach, with the same strategy that we have created Pulsar, Discover and Platina so far which is quite simply in marketing lingo creating not just new products but creating products that creates categories in the marketplace. When you do that two things happen, one, you have pricing power and that is why a Pulsar, Discover or a Platina is sold at par with its relevant competition in the marketplace in terms of price.
Two you don't have to spend a lot of money in advertising or promotions and stuff like that. So, I don't see any issue for the bottomline going forward, any inimical effect to the bottomline at all. The marketing spends will go up but then so also will the topline. So, in percentage terms I don’t see any change being anticipated.
Anuj: Just a word on one more brand extension, the Pulsar 400cc. Do you think by extending the Pulsar brand you can compete with Royal Enfield in the premium category? We have seen a big rerating in Eicher Motors stock because of what has happened with Royal Enfield, do you think that is a market in which you have a footing or you can get a footing?
A: Yes and no to be very honest because I don’t think that people buy cc's. So, just because the Pulsar is a 400cc somebody who buys a 350cc or a 500cc Royal Enfield will necessarily come over; I think that is too simplistic. However, on the other hand if there are 25,000 or 30,000 people buying Royal Enfield out there I am equally unconvinced that all of them buy it because it's a retro or a slapstick looking motorcycle that as my good friend Siddhartha says offers easy riding. I don’t think that is the case either.
I just see a bunch of people there for example living out of Pune, I see a lot of college students who are very proud to ride a Royal Enfield. Now, some of them undoubtedly would want to stay with that but some of them maybe doing that because they had no other choice; what is the choice in the marketplace a) Yamaha R15 or a Honda CBR 150. That just doesn't cut it, that is too pedestrian for them. So, if people were to come across a choice of the motorcycle we showed at the auto expo which were the Super Sports 400 (SS400) and the Cruiser Sports 400 (CS400) some of them would say instead of this for a similar price I am willing to move to that. Now, whether that will be 5 percent of Royal Enfield or 50 percent of Royal Enfield only time will tell.
Ekta: Tell us about this order from Sri Lanka for your export market. You said in your management meet as well that exports are on a strong footing. It is going to be may be stronger in the next 3-5 years. Tell us about the Sri Lankan order in specific and what can we expect in FY15 in terms of percentage growth from the export market for Bajaj?
A: The Sri Lankan order is less important of the two issues here in the sense that we have already received and executed a order of about 50000 motorcycles. They were all Discover 125. So, at least the Sri Lankan's love the Discover so far.
Second part is more gratifying which is that we have a repeat order of about 100000 or 125000 I am not exactly sure which we will be executing in the next few months. So, that is very nice. We appreciate that business. Having said that it is a one time thing. So, we will execute that by April but what is more important is the kind of growth we are seeing in all our major export markets.
I will share with you the summary that we put forth that day with our guests which is that we have entered 29 new markets over the last 12 months or so for our motorcycles and our three wheelers - 15 for the motorcycles and 14 for three wheelers. We have started shipments to all these markets. So, we are very hopeful whether it is the markets of Argentina and Mexico in motorcycles or other markets for three wheelers like the Philippines, we are very hopeful that these are going to be the new growth avenues for exports going into the future and that is why we said to them that in a 4-5 year timeframe we expect to double our exports from the very high base at which it is already.
Anuj: What is the latest update from Nigeria, were you able to pass on the impact because of the currency devaluation? This is important because this may impact some more countries as well given the way the dollar has been behaving off late?
A: As I had spoken aloud if I may say so that day some of this was to be passed on in terms of a retail price, that has been already done. Some of it was to be absorbed by the distributors, that has been done. Some of it was to be absorbed by Bajaj in terms of a reduction in FOB but we were fortunate we did not have to do anything. So, I can confirm to you that the FOB price of a motorcycle and three wheeler remains unchanged.
Anuj: That hasn't impacted your market share at all?
A: I can't say anything so far because the price has been increased just about 10 days back, for me to give you an accurate answer I must wait at least a month to see if there has been an impact. However so far there is no visible impact.