Domestic demand for 2-wheeler in April may dip but upbeat on exports: Bajaj Auto

Massive discounts had surfaced in the two-wheeler space from January but that is unlikely to impact margins for the fourth quarter, said Bajaj.

Motorcycle sales for Q4FY17 were down 8 percent at 2.44 versus 2.64 lakh units Q4FY16. Three-wheeler sales for March were down 33 percent at 27,962 versus 41,551 units year on year (YoY).

However, exports YoY for the month of March were up 1 percent at 1.03 lakh units versus 1.01 units. Motorcycle saw a positive growth, although three-wheelers continue to remain under pressure because big markets like Sri Lanka and Egypt continue to remain troubled.

‘Dominar’ crossed 10,000 units in sales in the fourth quarter. March alone saw sales of around 3000-4000 units, he added.

Below is the verbatim transcript of the interview.

Sonia: This month the numbers will be all over the place because of that massive discounts by many of your peers to get rid of their BS III inventory etc. But going ahead what is the trend looking like over the next couple of months?

A: I think on the whole, the second half has been very difficult compared to the first half. Let me give you some numbers. In the first half our domestic motorcycle sales were actually up 16 percent in fact all the way up to end of October. Whereas between November and March they had fallen and we have ended the year with just plus 5 percent on the domestic motorcycle front. Similarly, from being up 24 percent on three-wheeler sales between April and October last year, we have ended up at minus 1 percent. So, first due to demonetisation and then more recently as you said correctly due to the massive discounts in the market place there has been some impact on retail sales. However, I would like to now believe that that is behind us and going forward from April hopefully, things should normalise except that there will be a slight dip in demand thanks to all the preponement of sales in last month. Perhaps over this month’s things will normalise.

Latha: Supreme Court order came a little later in the month otherwise in March did you see any improvement at all?

A: Not really, we did not, but it is difficult to say because ever since about the end of January, we have seen discounts surfacing and what started initially as Rs 2,000-3,000 a motorcycle billed up to Rs 5,000 than Rs 7,000 than almost on the daily basis moving up to Rs 10,000-12,000-20,000, so it has become very difficult to in fact even define what is sales because most of what will be sales last month is nothing but challan cutting at a dealership. It is not really a sale to the end customer, so it would be difficult to hazard a guess. But, I am told that with the limits going away on withdrawal of cash from ATMs etc. the trade in general is expecting a good April and May driven also by the marriage season, so let us hope for the best.

Anuj: Of course you will have may be slightly more clarity on exports, though last time you told us that the picture is a bit hazy but in terms of the next financial year or the new financial year now any clarity on that?

A: Exports in fact is a little clearer than before. In fact in the first half, if I have my numbers right exports were down, and when I said first half actually I am counting up until the end of September were down 23 percent. For the year as a whole they are down 19 percent which means in the second half we have obviously done better. Particularly, on motorcycles you see a positive growth in March itself although three-wheelers continue to remain under pressure primarily because big markets like Sri Lanka and Egypt continue to remain troubled.

Going forward, we are certainly looking forward to significant growth over the last year specially with motorcycles for example I can share with you that in this month in the month of April we are hoping to clock something like 1,40,000 motorcycles and three-wheelers put together those are the orders that we have received. That if I were to simplistically extrapolate to almost 1.6 million vehicles is significantly better than the run rate we have seen in recent months. So, exports is looking more positive specially for motorcycles.

Sonia: I know you have never been a fan of this whole discounting and promotion business, but given that so much is happening now a days will it be hard for you to hold on to those industry leading margins of 20.3 percent that you clocked in the quarter gone by?

A: Frankly, we did not participate in this desperate discounting except for the last three days and frankly I think that was, let us just say it was greatness thrust upon us in the sense that when competition is discounting Rs 15,000-20,000 and a customer walks up to my dealership it becomes very difficult for my dealer to say I am sorry I have nothing to offer you. So, I don’t think he was trying to sell his stock he was trying to protect his showroom. But, I don’t think the impact on Bajaj Auto would be significant at all. It restricted to a very small number of vehicles over the last three days and in any case all BS III stocks are now ‘sold out’ and everything we are selling is BS IV at the given prices. So, margins per se will not be an issue but numbers and growth we have to wait and watch.

Latha: Bajaj Dominar, how is that doing?

A: Bajaj Dominar has done quite well. I don’t have the exact numbers for March, but certainly somewhere between 3,000 and 4,000 basis whatever we could produce the good news for us is that in just three months January, February, March since launch I think we have exceeded 10,000 units. So, now we have to just get to the point, we are doing 10,000 every month. I think this month we also start with exports, so it is looking very good.

Latha: I just thought by when will you start making Siddhartha Lal sweat?

A: Siddhartha Lal is sitting in cool and crisp London I don’t think he is going to sweat anytime soon.

Anuj: A word on three-wheeler sales, because I think that is the high margin business for you and there we have seen bit of downtick this month 33 percent down in fact?

A: True, having said that as I said for the first half of last year we were up 24 percent. I think it reflects the strength of the portfolio because in the petrol and alternate fuel portfolio we continue to be clear market leaders close to 90 percent share. We have outstanding products there now that comply with BS IV. On the diesel we did very well, with our new products as also with the introduction of the cargo vehicles over the last year. We got ourselves into an exceptional situation, so in terms of market share we improved even in the last quarter. Unfortunately, this industry like the commercial vehicle industry in general was really bludgeoned by demonetisation so it is coming back slowly. Having said that we are somewhat hopeful that the permits will bring through another 20,000-30,000 vehicles this year, so we are cautiously optimistic about that.

Sonia: Are you entering nay new export markets to hedge the kind of fall that we have seen in some of your traditional markets like Egypt and Nigeria?

A: Yes, indeed we are in fact we just started off in Myanmar in the last quarter. We got in to a good start and in the first half of this year we will actually deliver on road vehicles in Malaysia, we will hopefully start up in Thailand. In the last quarter we also started with KTM in Indonesia and that said I think to get ahead quite nicely. But for Vietnam which we have not figured out yet I think by September you will see Bajaj in all the major ASEAN markets and I think it is going to do very well for us.