Eyeing market share gain with new Discover: Rajiv Bajaj

Bajaj Auto managing director Rajiv Bajaj said it would be tough to sustain the near-23 percent operating margin seen in the September.

Bajaj Auto reported strong second quarter numbers largely due to better realization in the export market because of a weak rupee. "The margin was unusually high even by our own standards," he said in an interview to CNBC-TV18. However, Bajaj was confident that the new launches in the September quarter should give added momentum to exports in the coming days. The company lost 2 percent market share in the two-wheeler segment during the quarter, and is hoping to recoup it through the new variant of the Discover model. Brokerage house Kotak Securities said in its result review note that a re-rating of the stock is contingent on the company increasing its domestic market share. The company realised Rs 60 to the dollar in Q2 and is hopeful that realization will be around the same range this quarter too. He is expecting strong festive season sales to boost the company’s bottomline, as festive sales typically increase 70-100 percent every year. Bajaj is targeting to sell 40 lakh units during the current financial year. Also Read: Bajaj Auto jumps 3% on September quarter performance Below is the edited transcript of Rajiv Bajaj’s interview with CNBC-TV18 Q: The good set of numbers that you have reported this time has come courtesy the rupee depreciation so now that the rupee has attained that appreciation path yet again, do you think these 23 percent margins may not be sustainable in the quarters to come? A: The short answer is that 23 percent may well be a peak because it is unusually high even by our standard. Definitely in the Q2 we have realized about Rs 60 to the dollar and there is no reason to believe that that is going to get any better. So in that sense I would say yes this pretty much should represent the peak. Q: You have been selling 145,000 units in the last two months in the export markets, should we expect that to be the run rate? A: The total export for Q2 is 400,000, so that is closer to about 135,000 per month, but in the last couple of months it has been higher. We would certainly like to think that can be maintained or perhaps even improved and hopefully October should be a little better. What is going to help us both in the domestic and export markets is all the new products that we have launched in the second quarter. While Q2 was held up more than anything by the exchange rate and that has helped us to weather many of the adversities, but we have the new discovers in now, we have a whole new range of three-wheelers in place for the market. We are hopeful that this will give us additional momentum in exports as well. Q: The other positive of this quarter is the improved share of the premium segment, premium segment bikes have gone up from 26 percent in Q1 to 39 percent in Q2. You will be able to maintain that because that gives you a decent uptick in margins? A: I hope we do not maintain that. What I mean is that this segment itself, the sports bike segment has shrunk somewhat over the last two years. We have been fortunate to maintain market share or actually to increase a little bit in terms of market share. However in Q2 as is usually the case the rural demand was weaker and therefore while the Pulsar held up in the urban markets, the Discover was especially slow. Also through the quarter, we were cutting back on dealer stock to make way for the new Discovers to come in and that is why the ratio has shifted in favour of exports, in favour of three-wheelers and in favour of Pulsar. But I do hope that the new discover will do very well. If it does do as well as we think or we hope it will, then of course the mix will change a little more in favour of the Discover but that is a very profitable brand for us as well. Q: What is the domestic two-wheeler market share that you think Bajaj Auto will stabilise at because that has been a bit of a concern for the market, you have been loosing a bit of the market share in the executive bikes segment in the domestic space. On an average what do you think a sustainable rate could be? A: The concern is very valid and approximately we have lost 2 percent domestic market share. Of which again approximately 1 percent is a weighted average effect because of the shrinkage of the Pulsar segment. Although our market share within the segment is intact but if you look at the weighted average effect there is a loss of overall market share there and about a percentage point or little more on the Discover segment, which has dropped the domestic market share to about 22 percent. Certainly, I have no reason to believe it will erode further. On the other hand of course we are very hopeful that with the launch of new Discover 100 we should gain some share. Just to put that into perspective, the last time we launched a new 100 CC Discover was in July 2009. At that time our domestic market share was about 15.5 percent. It moved up to about 24 percent in the next few months after that which is where it has remained more or less over the last four years. That is the kind of jump, about 8-9 percent in terms of market share in 2009. I am not sure that we will necessarily make the same impact, but surely we should gain a few percentage points of share. Q: In the Q1 call you had guided to a Q3 realization of 59/USD if the rupee remained at around 59. Given that now we have seen it move beyond the 60 level would you want to revise your guidance upwards? A: Very marginally if at all because in the second quarter, we have realized approximately 60/USD despite the fact that there were days when the rupee was well above 60/USD. That is simply because of the way we have hedged a large part of our exports. So, beyond 61-62/USD we really don't participate in those gains. Therefore, Q2 result in that sense is to be viewed in the context of 60/USD and not 63-64/USD. I feel that 60/USD appears to be realisable in Q3. I don't think it is going to be much better. I hope it is not going to strengthen from there.