Bajaj Auto Jan bike sales dip 12%, total sales fall 9%

Oil producing Nigeria, the biggest foreign market for Bajaj Auto, is going through an economic turmoil following a steep fall in crude prices. Bajaj said exports would pick up to around 1.65 lakh units after the elections in Nigeria next month. Retail sales in Nigeria are expected to fall around 40 percent till the elections, he said.

Bajaj said the company was seeing a bit of a hiccup in Egypt due to forex volatility. In Sri Lanka, another key market, the recent change of government has led to a freeze in new export orders, he said.

He said the company had seen good success in Mexico and Argentina recently, and was planning to enter 29 new markets by end of next March.

The only consolation in January numbers was a 14 percent increase in three-wheeler sales to 41,791 units. But given that three-wheeler sales accounts for barely 15 percent of total sales, this growth does not change the big picture for Bajaj Auto.

Below is the transcript of Rajiv Bajaj’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What would you blame this onto, do you think the industry is not picking up, do you think you are losing market share; this is a fairly big year-on-year (YoY) fall?A: Let me try and break it down for you and then the numbers will speak for themselves. As you correctly pointed out overall YoY sales are down about 9 percent; approximately 3,20,000 to 2,90,000. If we break that down by product we would see that three wheelers i.e. commercial vehicles have grown quite nicely about 14 percent from about 36,000 to 41,000. Within that if we look at markets as in domestic and exports, this time it is the domestic market that has performed nicely up about 35 percent from 12, 500 to 17,000 whereas exports have been flat at about 24,000. If we come to motorcycles, you are quite right to point out that there continues to be a YoY negative over there. Total motorcycle sales are just little shy of 2,50,000; roughly about a 1,30,000 domestic which is down continues to be down YoY. Exports are marginally up this time from about 1,13,000 to 1,18,000. So, coming back to your question what are the significant issues, for us there are two. One, domestic industry continues to be very sluggish and in my view we have to get past this Budget and we have to see whether sentiments revive, whether people make up their minds to come out and buy because the excise hike on January 1 has been a bit of a issue. For the industry 4-5 percent price increase is not small; it takes time to absorb that.

Sonia: I wanted to talk about the export market a little bit because this time around your exports have grown just 4 percent compared to the 10-15 percent that you used to enjoy in the last many months. Can you throw some more color on what went wrong in the export growth this time and will you be able to resume double digit growth from next month onwards? A: Every month that we have been speaking, the last few months I have been consistently saying that exports are looking good in fact if I remember right, growing about 22 percent YoY up until the last month. What has happened in the last month and we continued to deal with that this month is that two or three issues in two or three different major markets for us. First with Sri Lanka, I think I mentioned last time a large export order for motorcycles amounting to the export of a incremental 30,000 Discovers between January and April. We had every reason to believe that would go through because we did satisfy a similar order in the previous quarter. Unfortunately, it is about politics I think, with the change of government, the new government has kind of frozen temporarily that order. We are given to believe that we should expect that to go through and we should receive news to that effect in the next week or 10 days. However, with this sort of thing, till it happens you never know what is happening. The second issue is our biggest export market Nigeria which will I believe go through elections in February. If you see what happens during elections, typically retail falls by almost 50 percent. So, right now whether it is a Bajaj Motorcycle or a Samsung phone in Nigeria, sales are down about 40-45 percent particularly for motorcycles. I think that will continue up until the end of March at least, till the elections are behind them. Just to be candid and put everything on the table, we have a bit of a hiccup in Egypt as well in terms of their own forex availability. I am given to believe there are actually long queues for three wheelers there so demand is not an issue but forex is an issue. So, something is wrong in that part of the world as far as dollars, currency, exchange and stuff like that is concerned. However, hopefully these things pass as they always do, as they always have in recent years.Latha: How big is the Nigerian market, what percentage of your exports? A: Typically in recent months we have been exporting about 50,000 motorcycles every month to Nigeria of a typical total of 3,00,00-3,50,000 motorcycles each month for the company. So, that is big; it is about 20 percent. Similarly for three-wheelers; one reason why three-wheeler export is at 24,000 for January are flat YoY is because in Nigeria from doing 5000 plus three wheelers every month we have done only 4000 in retail terms last month again owing to the disruption due to the politics.

_PAGEBREAK_Latha: Your bike would cost about 20 percent more in naira terms because of the devaluation, that is hurting the most? A: The answer is yes and no. If I remember right, before the price increase was made we were priced about 1,12,000-1,13,000 naira; I believe it is now about 1, 23,000 naira. So, it is not quite 20 percent but still it is a significant price increase. Having said that, I don’t think that is the issue. Even if prices had remained stable, if you were to just look at previous years when Nigeria has gone through this election process which we know is not a very smooth process in that country, then we have always witnessed this kind of a sharp fall in sales because 98 percent of motorcycles are used as taxis and a lot of those taxi drivers just go back home at this time to participate in the local politics or that sort of thing. Sonia: You did indicate in the conference call that you will be looking at many new geographies by the end of FY15 and FY16. Will you go slow on entering these new markets because of the slowdown we have seen overall in exports and also if you can give us what an average monthly run rate could like in exports up until March, April until the elections in Nigeria are over? A: I think our work continues quite nicely in terms of entering new markets. We had a lot of success with the markets we entered recently such as Argentina and Mexico. If I remember right, we have about 29 markets that we are in the process of either identifying the partner or sending in first shipments, etc for both motorcycles and three wheelers. I think 15 for motorcycles, 14 for three wheelers. So, we will continue to work vigorously on that because that will be our growth engine for the next couple of years. In terms of volumes, as far as domestic sales are concerned, I did say sometime back that we hope that by the time we start the new financial year we are able to pullback domestic monthly volumes for motorcycles to a level of about 2,00,000 motorcycles which in my view would represent about 23 percent plus, minus 1 percent market share. I think we are very much on track to do that. The all new Platina we launched last month has been received very well; I wouldn’t say it has done very well; it has been received very well. We have another launch this month and another one next month as well. In terms of exports, it is a little hard for me to stay with a great deal of certainty in the sense that once the elections are over in Nigeria and assuming that the new government honours the contract for motorcycles that was issued by the previous government because that was not a precedential contract; it was issued by parliament by an act of parliament. So if that is smoothened out then I would like to believe that we would be back to about 1,30,000-1,40,000 motorcycles a month and about 25,000 give or take little bit three wheelers a month. So, we should be back at the monthly hit rate of 2 million vehicles, equivalent of 2 million vehicles a year as far as exports are concerned.

Latha: Have you noticed any improvement in your margins because some raw materials would be cheaper, will you therefore want to price down any of your products? A: Again yes and no, margins are better as we demonstrated in the last quarter because definitely commodities have softened. We have also passed on or let us say hiked prices a little bit very selectively on January 1 by 0.5 percent to 1 percent over and above the 4 percent excise change so that is going to help us. The rupee I believe is again back in the 62 per dollar plus zone so that is nice as well. So, in terms of margins we are very comfortable. As far as pricing is concerned that is a competitive issue. As long as we compete we would like to compete on price parity in the marketplace because otherwise we only set off a discount war and there is no end to that. Sonia: I just wanted one word from your end on what the prognosis is for the three wheeler space because you have been looking at the RE60 quadricycle launch with a lot of expectation and so is the market. I understand that you have received a favourable response from some of the fleet operators as well like Meru, OLA, etc to induct it into their fleet. Is that true and by when do you think this launch can come through and what could the run rate be for three wheelers? A: On the three-wheelers, as I said domestically recent months have been good. Fundamentally, it is a combination of two things. One, the completely new portfolio that we deployed into the marketplace over the last 12 months; that is doing really well for us especially in the diesel segment. Also, there have been permits released so as the combination of those two factors, 30-35 percent growth month after month, YoY domestic is very good and that is sustainable for sometime. On exports as I just said, if the couple of countries settle down – Nigeria and Sri Lanka I think we will be fine. So, 50,000 three wheelers a month as we have been doing for most of this financial year I think it is very much doable. Coming to the RE60, right now the government has to respond to certain petitions that have been filed and they are in the process of doing that. Government continues to be very supportive of this concept so I am hopeful that in this quarter we should have approval for this but when some thing is in court it is not over till it is over. As far as interest in the vehicle is concerned, from several quarters there is interest. I think it is fundamentally because it is not a just a new product. It is a new category. What everybody can see very easily is it is not a three wheeler because it has more than three wheels and it has a steering wheel, safety belts, doors and roof and all that stuff. On the other hand it is not a car so it is not only going to be cheaper but it is going to be twice the fuel economy of a typical small car. So, clearly people see the opportunity of a new category that is between a three wheeler and a car and that is the reason for the interest as far as first and last mile urban transportation is concerned.