Certain urban markets are underperforming because of lockdown-related measures but rural demand has compensated for the shortfall
Direct consumer purchases from showrooms of two-wheelers in July has jumped to 85 percent of pre-COVID-19 levels and is seen improving further in the coming months for India’s third largest bike maker Bajaj Auto.
While certain urban markets are underperforming because of lockdown-related measures rural demand has compensated for the shortfall, said a top official of Bajaj Auto talking to analysts over a conference call.
Rakesh Sharma, Executive Director - Bajaj Auto said, “In July, we have seen demand climb up to 85 percent for motorcycles. The first ten days of July have been pretty good. We have seen demand reaching almost 95 percent in the first ten days of July compared to July 2019. Lockdowns impacted the retail number in Bengaluru, Bihar and Guwahati. Now, we are back to 80-85 percent.”
Some of Bajaj’s dealerships, especially those in the containment zones, remain shut. Still about 95 percent of the company's total dealerships count are operating normally. In July 2019, the company clocked sales of nearly 171,000 motorcycles.
“There have been strong indications from the second half of June to now about demand being very swift in coming back to its normal levels. There are pockets like the larger metros which are underperforming and there are pockets which are doing extremely well like agri-dependent areas. There is no doubt that retailers have come charging back,” added Sharma.
In June, the chief executive of Royal Enfield Vinod Dasari claimed that fresh bookings were back to pre-Covid-19 period. However Dasari added that he was unsure how much of those bookings will get converted to actual sales. Hero MotoCorp, India’s largest bike maker, also claimed to have seen sales in June at about 90 percent of the pre-COVID-19 levels.
Like its peers, Bajaj Auto is also ramping up production across its three plants to replenish dealer inventory which has come down dramatically from its usual 40-45 days. But, regular disruptions in the supply chain are preventing companies from going for a full ramp up.
“Our motorcycle inventory is running below 30 days and certainly we would need to start building up inventory from next month onwards and hopefully a smooth supply chain will allow us to do that,” added Sharma.
With net profit getting eroded by 53 percent during the June quarter (which included zero sales in April) Bajaj Auto claims to have tightened its belt to reduce costs as much as possible. It has brought down fixed costs, cut capital expenditure and slashed marketing and promotion expenses.“We have correctly sized the advertising and marketing expenditure to the immediate outlook. When the enormity of Covid-19 struck us we shortened our operating horizon down to one month at a time instead of six months to one year time frame. We believe that a complete recovery in motorcycles to normal levels is right round the corner,” added Sharma.