New launches, better exports to assist recovery: Bajaj Auto

Automotive major Bajaj Auto's October sales declined to 3.84 lakh units versus 4.11 lakh units year-on-year (YoY). The three-wheeler sales of the company declined 26 percent to 37,000. Rajiv Bajaj, its managing director, however, says that the sales have been in line with the averages. The run rate for the segment is at 40,000 units per month and high sales in October 2012 were an outlier, tells CNBC-TV18.

In the two-wheeler segment, Bajaj expects to regain some of the lost market share. Sales of Boxer have been good, backed by strong export demand, he says. The company will try to push production of its Discover brands in the coming two months as their success will help in regaining their market share, he adds. He expects margins to be maintained at 20 percent and sees a turnaround in the company’s performance by the end of the financial year with new launches in the pipeline. Bajaj is also optimistic on better exports going forward. Nigeria has been the best performing export market so far, he says. Also read: Ashok Leyland may post Q2 loss at Rs 112 cr: Poll Below is the edited transcript of his interview to CNBC-TV18. Q: Can you take us through the performance this quarter? It has been sub-par compared to analysts’ estimates. What have the festive retail sales looked like? A: Our typical monthly rate on three-wheelers is about 40,000 per month. It is split almost evenly between domestic sales and exports. That is why for the whole of last year, we did about half a million three-wheelers. If you were to look at our year-to-date (Y-T-D) three-wheeler sales, Y-T-D sales are 268,000 versus 267,000 last year. All that happened in October last year was that we had unusually high sales especially from export markets like Egypt and Sri Lanka before they went into a bit of a tailspin. That is why 50,000 units that we recorded last year was a bit of an outlier and that makes this year 37,000 look unduly poor. Otherwise 37,000 is not very far from the 40,000. Q: Will this will be the average runrate for the next couple of months as well? A: It will be. I see no reason for it not to be because as I just said, we did that 268,000 in the first seven months. So if it had been 280,000, that is exactly 40,000. There will always be an odd month that is very high or very low in a particular year. As far as motorcycles are concerned, our sales on the Boxer continue to be good. Last month, we recorded almost 80,000 Boxers riding on a very strong export demand. The sales for the Platina and the Pulsar continue to be good. Our issue has been with the Discover brand and that is where we have to gain back the couple of percentage points on market share that we have lost. Last month, on Discover’s 100 cc model, we managed to produce about 30,000 of that. Our feedback suggests that it has been extremely well received. We are trying to push up production quickly in November and December for that model. So, the rate at which we will lock bigger numbers in motorcycles and therefore greater market share depends entirely on the success of the new models that we will launch of these new Discover platforms. _PAGEBREAK_ Q: Will you see some pressure on margins because of a market share gain? Will you spend more on ads or you give more discounts; either ways do you think margins would be a casualty? A: Yes and no because. If I were to compare with Q2 margins of 23 percent, EBITDA roughly, definitely as I did mention even at that time there will be a small step back from that. It will be mainly due to commodity cost that has come into effect from October 1. We are not in a position to pass all of that on even though we did effect some price rise. So, the main impact is going to come from that. In terms of the marketing cost, not really because A] there are no discounts, in fact the new models are positioned at somewhat higher price points. While marketing budgets can be troublesome, the expenditure is only on this one brand Discover. Pulsar being a leader doesn't mean much marketing behind it neither does the Platina. So, I still look at this quarter very confidently in terms of margins being in the 20 percent area. But yes, they will not probably be 23 percent as they were in the previous quarter which was again a kind of an outlier figure. Q: We were led to believe that there would be some kind of an improvement, we have got some good macro numbers like core sector numbers, but they came up positive as well export performances. There was this big rural boom argument that people were making. Are you getting even the stirrings of better demand domestically? A: We have talked about this over the last two-three months. I would still like to say yes, because I see better traction in the domestic market whether urban or rural. In the last two-three months perhaps the competition has benefited more from than what Bajaj has because we waited to launch the new Discover. Having launched that, I would certainly hope that this will work to our advantage as well and I have been told consistently since the month of June that it is after the Rabi crop from January, we will see the effect of the good monsoon, agriculture etc. I would still like to keep my fingers crossed and hope for the best.