Bajaj monthly sales slip again; 'turned the bend', says MD

Bajaj recently launched two new bikes in the economy segment, the Platina ES and a refreshed CT100, and this has helped its entry-level motorcycles sales jump from 35,000 a month in January to about 60,000 in March, the MD said.

The company also has one launch every month this quarter in the sport segment, close on the heels of its recent Pulsar RS 200 launch.

Bajaj also added that, despite analyst concerns that the focus on cost-competitive entry-level motorcycles may erode its traditional margin strength, the company was aiming to hold on to its 20 percent EBITDA margin this year.

Following troubles in its key Egypt (lack of forex availability) and Nigerian (political turmoil) export markets, Bajaj said things were now coming back to normal.

Below is the transcript of the interview on CNBC-TV18.

Sonia: Could you give us what the numbers are – both the domestic sales total as well as export sales for Bajaj Auto?

A: For the month of March total sales are 250,000 and that includes motorcycles, three-wheelers, domestic exports within which motorcycles are 210,000, which is down about 20 percent year on year and three-wheelers are about 41,000, which is up about 20 percent year on year.

Sonia: What has the export performance been this time?

A: Exports in the month of March has been 100,000 units and that is part of the reason why overall sales are down.

I can run through a commentary of on the sales and starting with export – for the year as a whole we have finished with exports at 1.8 million vehicles and that is about 14 percent higher than the previous year. At the same time it must be said that up until the end of Q3 we were up about 22 percent, which means that the last quarter was difficult one for exports for reasons that we are all aware of.

However, let me give you some idea of where we expect exports to be for example this month we hope or we can see that we have enough orders for exports to be back up to about 150,000 units. So very much inline with what we did for the first nine months of last year.

I will give you some idea about two of the biggest markets that suffered in Q4; Egypt for example had a lot of foreign exchange issues. Egypt is a big market for us for three-wheelers and fortunately for now that seems to have been sorted. However, to understand the magnitude of the problem I can share with you that it took 18 banks to come together to put together all the money that the distributor needed to place orders for three-wheelers for April and May. Therefore, as of now Egypt is back on course.

The other market that caused a big disruption in Q4 for motorcycles was Nigeria where for the year we averaged about 40,000 motorcycles a month and over the last quarter that has fallen to as low as 10,000 motorcycles a month. We see ourselves back at 30,000-35,000 in April now that the elections are over and hopefully if things remain calm then from next month we should be back at 40,000 levels.

So on the whole for the year as a whole exports has done well and from April onwards we will see normal exports again and we are looking at 2 million vehicles to be exported this financial year.

Sonia: Because of the weakness that you have seen in the export market lately and the sudden strength of the dollar, would you have to undertake more price cuts in markets like Nigeria etc to make the product more affordable to the customers there?

A: Let me answer that in two parts. First, there is no issue as far as we are concerned in terms of the competitiveness in terms of price. The issue is just the physical availability of foreign exchange, if I may say so; many of these countries seem to be broke especially with what has happened to oil prices and even if our distributor for example today Nigeria is willing to pay upwards of 200 naira to a dollar. They simply cannot find enough dollars, so the issue is not the exchange rate itself.

Having said that the second part of my answer would be that we are in the process of implementing a price increase because unfortunately the foreign trade policy has reduced incentives to some markets which are large markets for us and in fact therefore we have to increase prices to compensate for that loss of incentive.

Latha: If they are so broke as to not have dollars, much like India was in 1991 then how you are still confident of getting back to 1 lakh units of export sales?

A: I can only go by the order that’s on my table and that is why I said that in the month of April we think we are going to be back to 150,000 units because those orders are in place. We think the same would be true for May but I cannot hazard a guess on what might happen in the second or third quarter because whether it’s Egypt, Nigeria, Argentina, Angola which are large markets for us, we are actually living by the month and that’s the reality.

Latha: Coming to the domestic market – the number 250,000 is quite a disappointment; you are running at 20 percent lower than last year for several months now. What is the position, will you have to reduce prices, will margins be under pressure in the quarter gone by or even in the one that started a week ago?

A: I will start with the three-wheelers – both for the year as a whole as well as in the last quarter three-wheelers fortunately in the domestic market have done very well for us, driven primarily by two engines – (1) the permits that were open and (2) the new products that we launched and completely refreshed our portfolio significantly, market share has gone up few percentage points and so three-wheelers has had a wonderful year in the domestic market in terms of topline and bottomline. Our target for this year in the domestic market is about 260,000 three-wheelers, so all good there.

Coming to motorcycles, we have started a series of product launches starting from January and the first success is coming of that so let me share some specific information. In January and February we launched two motorcycles into what is known as the entry level segment of the market. In this segment, in March 2014, Bajaj’s volumes were at 43,000 units. January this year was 35,000 and as soon as new products were launched, in February we were up 41,000 and in March we were up 60,000 and this month we are looking at about 80,000-85,000.

Therefore, both these new products has been extremely well received and they are going to provide us lot of impetus as far as our 100 cc motorcycle sales are concerned through this year. So that’s one piece of good news. It’s a story that is still unfolding.

At the other end of the spectrum, the sport motorcycle segment where Bajaj has always been the leader and we launched the new Pulsar RS200 last month. We have another big launch this month on April 14, again an all-new Pulsar. Going forward in May-June and July every month we have a significant launch in the sports segment.

This means by the end of this month if we put together the entry level segment and the sport segment, together they are about half the motorcycle industry. Bajaj will be a leader in half the industry and by virtue of these two segments we will see domestic volumes and market share rise quite significantly month on month from hereon.

Sonia: The fear is that in order to stem the market share loss it will come at a cost of diluting your margins because you have been quite aggressive in pricing the CT 100, now your entry level segment will form a higher proportion perhaps in near future of the total sales. Do you think that that 20 percent margin that you have been holding on to for many quarters maybe under threat because of this?

A: First of all we have held that margin despite all domestic and international market related concerns for five years now. Second, the CT is build on the platform of Boxer that we export largely to Africa, which is a very cost effectively engineered platform and that’s the reason for its competitive pricing.

Third, when we presented our budget for this year to the board, we have demonstrated that while pushing up volumes we can hold on to 20 percent EBITDA. The last and important point is that as much as in the entry level segment we hope to move from an average of 40,000 bikes a month to 80,000. We are also in the sport segment looking at moving from 60,000 Pulsars and Avengers to 80,000 – that’s a very profitable segment for us.

Sonia: Could you tell us whether you will manage to meet motorcycle market share target that you laid out of 24-25 percent and by when can we expect you to do that?

A: We should be in the 20s this month itself on the basis that we just spoke about and hopefully over this quarter as we have little more success with these new models that we putting out, I think we should get there.