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Last Updated : Aug 13, 2019 04:30 PM IST | Source: CNBC-TV18

Market share in premium segment to grow in Q2: Bajaj Auto

In an interview with CNBC-TV18, Ravikumar says he expects launch of the upgraded Pulsar to push sales of premium segment bikes.

Bajaj Auto’s average realizations fell 12 percent to Rs 55,000 per unit during the June quarter, but should improve hereon, says S Ravikumar, President, Business Development, Bajaj Auto.

In an interview with CNBC-TV18, Ravikumar says he expects launch of the upgraded Pulsar to push sales of premium segment bikes.

The company's first quarter sales growth Bajaj Auto Q1 profit up 37%; revenue, EBITDA miss forecast Read more at : fell short of analyst estimates, and net profit rose 37 percent year-on-yer boosted by other income.

He says Bajaj Auto’s overall market share has improved 300 basis points during the June quarter and the market share in the premium segment could inch up this quarter.

He is confident of the company meeting its export target of 2 lakh units this year, and says demand in Nigeria is improving.

Bajaj Auto is looking to sell 6 lakh three wheelers this year.

Below is the transcript of S Ravikumar's interview on CNBC-TV18

Sonia: The topline growth of 6.8 percent has been below street expectations perhaps because of the way realisations have fallen sequentially both in the domestic and in the export business. Take us through whether you expect anymore pressure on realisations in the quarters to come?

A: For realisations the correct comparison would be from Q1 of last year to this Q1, if you see the realisations in Q1 of the last year it was around Rs 53,000 per unit it has gone to about Rs 55,500 per unit in the current quarter.

Sequential comparison is a bit concocted because of a substantial drop in volumes for example in Q4. Exports as you know tanked for various reasons and that along with the fact that the low priced exports for example, typically we do about 2.10 lakh units in a quarter, they dropped to about 1 lakh units in Q4. That added with the base effect had sort of thrown up a slightly higher than normal average realisation per unit and that is not the correct comparison to go by.

Sonia: Don't you think now the realisations will have to be adjusted to a new normal on the downside because you are selling more of your low margin products like the CT 100 and the Platina which is of course a great thing because the traction is picking up there but the blended realisations will move lower. So, do you expect this Rs 55000 per unit to continue for the quarters to come?

A: This quarter has been by and large correct representation of the proportions that will happen. In fact the new Pulsars which we have launched will increase the Super segment share. I think the foreign exchange rates are quite okay, exports are looking quite robust, three wheelers are doing quite robust, spare parts are going quite robust.

I think the proportion for example in the current quarter 2.50 lakh units is what we have sold of the M1 segment which is CT 100 about 1.75 lakh units and 75000 units of Platina. So, it is a very representative basket that you are seeing in Q1. Going forward I think things should improve from here in terms of average realisations per unit.

Anuj: In your high margin category do you think your are losing may be too much of a market share to say something like Royal Enfield may be because of shift in consumer demand or patterns or aspiration changes and there not being a similar product in that category for Bajaj Auto?

A: Royal Enfield is certainly a niche and that is something which we will see how to answer. It was announced in the AGM so I am sharing it also with you, going forward in Q3 you will see some action in the Avenger front, so things are happening there.

In the sports segment taken together with the launch of Pulsar AS 200, Pulsar AS 150 and Pulsar RS 200 we have been comfortably holding the position of about 43 percent plus market share.

Sonia: Coming back to the realisations, you said that they would improve going ahead. On export realisations we have seen a fall of around 6 percent sequentially, as you mentioned it is because of higher volumes of the low margin Boxer. Going ahead what kind of sustainable export realisations do you expect to see?

A: Going forward in terms of total exports we are well on track for 2 million annual target. I think the July numbers are going to be certainly 1.60 lakh plus and the mix is quite well balanced. Pulsar 200NS is doing great numbers in most of the countries. Three wheelers are doing really great numbers all over the place. Nigeria has nicely rebounded. I think the export story on all fronts including the average realizations is going to be very good.

Sonia: The reason why the stock is under a bit of pressure today is because by your own admission you had stated the last time we spoke that the June quarter will be the best quarter for Bajaj Auto but that has not really played out. So, there is a little bit of disappointment in the analyst and the investor community with respect to the expectations that the management themselves had set out. What kind of realistic expectations can we work with going ahead in terms of both the overall volumes and the margins?

A: I would slightly disagree with you there because 21.1 percent EBITDA is a fantastic number and there has been a sequential uptick in the percentage by more than 120 bps there. So, that has been very good.

There is a lot of concern about CT being the low margin product and whether the EBITDA we will be able to maintain or it will be pull down etc that has been belied. There has been some skepticism on total number of exports because of Nigeria, Egypt etc there was some sort of scepticism there, that has been completely belied.

In fact in operations I think this is one of the best in maintaining the operating margins. Everybody calculated, I saw the consensus estimates etc of course the average realisations I think the analysts and people got it a bit wrong but whatever was the consensus estimate for operating margin, it was 20.3 percent and we have bang-on there, delivered on that 20.3 percent.

The second thing which I would like to mention here is the operating basket has been doing quite well. Coming to the non-operating area, even in the treasury we have delivered grand numbers there and we have this Rs 10000 crore, it is not a one-off and things are going to continue to play out on a recurring basis based on the returns that is going to come from treasury. So, both on operations and on treasury we have done a great job as far as Q1 is concerned and things will certainly unfold better in the quarters to come because in terms of domestic market share though on a quarterly basis improved by about 300 bps, in retail market share exit in June was upwards of 19.2 percent.

So, we have every reason to believe that domestic market share would keep increasing and as I told you exports are doing great, three wheeler is doing great, spare is doing great, KTM doing great, Pulsar is doing great, new Avenger is coming. So, things are going to be very good.


Anuj: Last time we spoke to Rajiv Bajaj on the Nigeria issue, he did say that there has been a bit of a hit. But he was not in position to quantify the hit because of what happened with currency issues. If you could tell us the situation in Nigeria and what kind of numbers are you reporting from Nigeria now?

A: Nigeria has very beautifully rebounded and in fact we are sitting on orders of about 46,000-47,000 units for the month of July itself. The hit was mainly in Q4. In Q1 itself, it completely rebounded to almost near normal and now it is better than normal in Nigeria.

Sonia: Can you throw us some more light on the three-wheeler market? This time you volumes have gone up by about 25 percent on a quarter-on-quarter basis between last quarter and now. Is there any major permit market that will open up on the three-wheeler sales front and what is the full year volume guidance, both if you can break up the domestic and exports for us?

A: The three-wheelers if you look at the domestic, in numbers, they are a bit low but in terms of market share, we have gone from 50 percent to about 55-56 percent. The domestic market share has really jumped by 500 basis points. So, all the upgrades of three-wheelers which have been played out in the market to the last year are paying dividends right now.

As far as exports is concerned, Egypt, Sri Lanka, Bangladesh, everything is on full track mode now. And there again, we have done very well. That is why you see a combined figure of about 21 percent growth quarter-on-quarter for this particular three-wheeler segment.

I think the total guidance in terms of the numbers, we should be doing somewhere around 600,000 units in a year.

Sonia: Just coming back to the margin picture, just to reiterate, you do hope to maintain and you will maintain this 20-21 percent margin levels despite your higher chunk of your sales from here on coming in from low margin products? Is that right?

A: The proof of the pudding is in the Q1 results. The operating margins are 20.3 and I would tell you that this would be a representative quarter in terms of the mix in terms of low margin versus medium margin, high margin products. And the currency is doing quite, I mean exports and the foreign exchange (Forex) rates are quite okay. Raw material rates are subdued, and certainly we should be in a position of our traditional 20 percent plus is very much there for the coming quarters.

Sonia: I fail to understand how that is possible because you yourself are saying that the CT 100 and Platina run rate will improve from 80,000 currently to about 1,00,000 per month very soon. Won’t it bring down the blended margin rate?

A: To be specific, when you are talking about average realisations per unit, I can share with you that between the last quarter and this quarter, the Pulsar average realisations have actually gone up. The second thing, more important to note is in the segment which you alluded to in term of the CT 100 and Platina, we have more than double the volumes. We have more than, from a 24 percent market share to almost about a 39-40 percent market share is what we have grown. Certainly, at these levels of operations, a huge amount of operating leverage kicks in.

So, if I am going to go from a 40 to a 80 in future quarter, then these questions are very irrelevant. But I have already displayed to you in a quarter where we have done 250,000 units of these “low-margin” products of CT 100 and Platina; Platina is certainly a better margin product of course, I have shown to you that we are delivering 20.3 percent.

Sonia: Two numbers for us. This time your market share has improved from 15-18 percent, how much more of an improvement can we expect by the end of this calendar year and the second by the end of FY16, what kind of volume targets would you lay out? You told us about exports, but what would the overall volume target be?

A: As said exports is about two million and the full year guidance will largely depend on how the Discover 125 plays out and how the product which we are going to launch in the middle segment - M2, M3 markets, that is going to play out. So, I would rather keep that for a later point in time.

Having said that, I told you in June, our exit market share in domestic was 19.2 percent in terms of retail and that is very happening for us. Going forward certainly, I have been holding on to this 23 percent exit market share by March. Let us stick to that line.

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First Published on Jul 23, 2015 03:27 pm
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