Swaraj Baggonkar Moneycontrol News
Bajaj Auto is ready to play it aggressively in the entry motorcycle segment through price cuts that it hopes would buy it market share amid cut throat competition from the likes of Hero Motocorp.
The Pune-based company said it can "sacrifice profitability to generate volumes", especially in the 100cc motorcycle segment — a strategy which can play out for the next three years.
Bajaj Auto had cut prices of the CT100 model by Rs 2,000 in March to Rs 30,714 making it the cheapest geared motorcycle in the country. The strategy seems to be paying off as CT100 volumes surged 76% during the June quarter to 1.9 lakh units. The company's market share also improved to 34% from 25% in this segment, which is categorised as M1. The company is targeting 50% share in M1 segment which is currently dominated by Hero Motocorp’s HF Dawn.
Bajaj Auto hopes that the success in the M1 segment thrust visibility of its models in M3 segment, and thereby increase overall sales.
“Ideally, we would have liked to concentrate on the M3 and top-end segment that is what we had attempted during the last 2-3 years with the V and Discover. But for various reasons that did not work out. Now for a company of our size with global operations, a market share of 13-14% is unacceptable. And, therefore it is more of a situation that we have done it by force rather than by choice,” Kevin D’Sa, president (finance), Bajaj Auto said.
Segment strategy
Typically, M1 segment comprises 100cc motorcycles priced Rs 40,000 and above. Though the segment generates 50% of Bajaj’s total domestic volumes, it accounts for just 14% of the company’s turnover.
Hero’s HF Dawn is a competitor in this segment and as per Bajaj its volumes have remained stagnant. Buyers of such entry-level motorcycles mostly hail from hinterland or are buyers of used vehicles.
The volume growth came at a cost for Bajaj Auto as it posted lower-than-expectation results for the quarter ended June 30, 2018. Operating margin fell to 17.3%, lower that the 20% average the company achieved for several quarters.
In the next target slab, the M3 segment comprises motorcycles priced between Rs 50,000-70,000 with 125cc-to-150cc engines. The M2 segment consists of slightly premium entry bikes that cost Rs 45,000-Rs 50,000 with 100cc-to 125cc engines.
Senior company executives say sales of premium bikes under Pulsar and KTM brands, exports and three-wheeler revenues are offsetting the losses from sales of cheaper bikes.
As per D’Sa, "The M1 segment has expanded the fastest over the past few months given the growth in rural incomes. Whereas the M2 segment which has the Hero Splendor has grown only in single digit. Only the M1 and sports segment are growing (higher than other segments)."
“Hopefully in the next 2-3 years, we would have built up the portfolio in the entry segment," added D'sa. This, he hopes, will increase share in the M3 segment. And once the strategy works, "we will start to withdraw from the M1 segment a bit but that is two years away."
Bajaj’s attempt is to squeeze out the buyers of the M2 category bikes by offering M1 bikes at cheaper prices and also through launches in the M3 segment. The company will launch a new product in the M3 segment in the final quarter of this financial year.
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