Will new launches help Bajaj maintain lead over Honda

Nachiket Kelkar
Moneycontrol.com

Bajaj Auto has for long been a dominant number two player in the Indian two-wheeler market.  But its dominance is being challenged by Honda Motorcycle and Scooter India. HMSI is increasingly becoming very aggressive in the Indian market, ever since its parent Honda of Japan, ended its partnership with India's largest two-wheeler maker Hero last year. HMSI, earlier this week, launched its low-cost 110cc Dream Yuga motorcycle. This is where Hero MotoCorp's Splendor has ruled for years and a segment, where Bajaj has slipped. "In the 100cc, it is no secret for the last twenty years, we have been a laggard, we have been number two, we continue to be number two in the domestic market. Between the Platina and the Discover 100cc, we sell only 85,000 a month versus let us say the market leader selling maybe perhaps close to 4,00,000 a month. It is no secret we have to improve our performance there," Rajiv Bajaj, MD, told CNBC-TV18 on Thursday. HMSI expects its sales (including scooters and motorcycles) will rise around 30% to 27.5 lakh units in the current financial year. Bajaj Auto sold 25.67 lakh motorcycles in the domestic market last year. It has a target to sell 50 lakh units (including two-wheelers, three-wheelers and exports) in FY13. Motorcycle exports accounted for 33% of Bajaj's total motorcycle sales last year, while it exported more than half of its three-wheelers. While HMSI has launched the Dream Yuga, Bajaj too has several launches up its sleeve. Bajaj launched its all new 125 cc Discover ST this week. Its highly anticipated Pulsar 200 NS, which it had unveiled end of Jan, will start sellng in Maharashtra from next week. It will reach other states by July and exports begin in August. Apart from rising competition, slowing sales is another concern. Two-wheeler sales hit speed bumps in the fourth quarter. Bajaj Auto sold 6,16,516 units in the domestic market, slightly lower than 617,255 units it sold in the year ago quarter.
                                    
Bajaj and the overall industry as such is hoping these new launches will spur growth. Kevin D'sa, president - finance at Bajaj Auto, said in a conference call they are banking significantly on the Discover range models to drive growth. Apart from the Discover, the company also sells the Platina in the 100-125 cc motorcycle segment, which is also expected to do well as more customers seek low-cost fuel effecient models. Platna sells around 55,000 units per month in the marriage season, but usually tapers down to around 35,000 units after that, according to D'Sa. But he feels, in the current environment, sales will likely remain in the 55,000-60,000 range. Bajaj Auto also this year started selling the Duke 200 cc sports motorcycle from the Austrian bike maker KTM's stable. Bajaj Auto now holds 47% stake in KTM. Duke 200 currently sells around 1,000 units a month, according to D'Sa. Overall in the first quarter (April-June) the two-wheeler industry is expected to grow around 6%, and he says one shouldn't expect any "significant bump up" in the second quarter too. Analysts also voice similar opinions. "We believe domestic volume growth will remain under pressure in first half as we expect petrol prices to increase further in June while competition in the 100-125cc space is likely to intensify," said Hitesh Goel of Kotak Institutional Equities. The slowdown in sales has had impact on Bajaj's production too. At its Pantnagar plant in Uttarakhand, for instance, Bajaj Auto has a capacity of 18 lakh vehicles per year, but can't use full capacity due to sluggish demand. Apart from the two-wheelers, three-wheeler CV sales have hit road blocks too. In Jan-March, Bajaj Auto's three-wheeler sales slipped 3% to 53,237 units. D'sa says this slowdown will likely continue in the near future as no new auto permits have been announced in any state right now. Bajaj Auto has been focussing on expanding its export markets over the last few years and its products have been well received in south Asia, Africa and Latin America.  Last month, Sri Lankan government shocked automakers, with a sharp increase in import duties, which has hurt sales there. Prices shot up 40-50% due to the duty hike. According to D'Sa, Bajaj Auto sells around 12,000 motorcycles and 10,000 three-wheelers in Sri Lanka every month. In May it didn't export any vehicle to the island nation. Bajaj Auto sells vehicles there through its local partner David Pieris Motor. D'Sa said the shock will take time to absorb and expects pressure on sales to continue for 2-3 months as the local dealer is unlikely to place any order before liquidating current inventory. Bajaj Auto on Thursday said net profit declined 45% year-on-year to Rs 772 crore in the fourth quarter. It had Rs 827 crore surplus on pre-payment of sales tax deferral liability in the year ago quarter. The company's profit after tax excluding exceptional items was up 12% to Rs 759 crore. Its operating margin was at 19.7%. While net profit met expectations, total income rose lower-than-expected 12% from a year ago to Rs 4,651 crore in Jan-March. Analysts on average had expected Bajaj Auto's quarterly net profit at Rs 770 crore on revenue of Rs 4,780 crore. The revenue was lower than expectations due to 5% sequential decline in export realisations, Kotak's Goel said. He advises investors "sell" Bajaj Auto shares. Bajaj Auto shares on Friday closed down 3% at Rs 1,528.50 on NSE. nachiket.kelkar@moneycontrol.com