Motorcycles to remain Bajaj Auto’s focus
Mumbai: Bajaj Auto Ltd, India’s largest exporter of motorcycles and three-wheelers, will remain focused in the motorcycle segment and will remain steadfast to the twin-brand strategy of Discover and Pulsar it adopted a few years ago, the company’s managing director Rajiv Bajaj said.
Bajaj defended the strategy even as the company’s motorcycle sales have underperformed in the local market compared to rivals’.
Bajaj has often been criticized for exiting the scooter market—a segment that has seen a brisk volume expansion in the last couple of years. However, Bajaj said, instead of spreading itself thin and getting into the scooter market, which is non-lucrative, the company would rather focus on expanding its presence in overseas markets—many have yet to be tapped by the company.
“A company that stays true to its core competency, strategy and positioning, are always more profitable,” Bajaj said in an interview.
Among publicly traded two-wheeler firms, Bajaj Auto leads, turning in an average 19% operating margin—a measure of profitability. It is followed by Hero MotoCorp Ltd’s 13% and TVS Motor Co.’s 6%.
Even though the company’s profitability remains impressive due to a presence in high-margin segments such as three-wheelers and strong exports, which account for 40% of the turnover, it has taken a drubbing in motorcycle sales in the recent past.
In the four months to July, Bajaj Auto’s sales fell 15% to 615,894 units from a year ago. The company’s market share also dropped to 16.96% from 21.74% in the same period, according to industry lobby group Society of Indian Automobile Manufacturers, or Siam. The overall motorcycle market grew 9% to 3.56 million units in the same period over a year ago.
Bajaj Auto’s sales have been dragged down by a contraction in volume and market share of its Discover range of motorcycles.
Over the past 10 years, since it launched the Discover brand in 2004, the company has launched multiple motorcycles under the brand at varied price points in the commuter segment, which include bikes with an engine displacement of 100cc to 135cc. However, with rivals like Honda Motorcycle and Scooter India Pvt. Ltd, Hero MotoCorp Ltd and others launching a slew of new models under separate brands, the Discover range has taken a beating with its marketshare falling significantly.
Analysts believe Bajaj Auto’s strategy of focusing only on two brands is making the company vulnerable to swings in consumer buying behaviour, at a time when rivals are inundating the market with new products, albeit with minor differentiation, under new brands. “To get into every segment of the motorcycle market post the exit from the high-growth scooter segment, the company has lost its focus and launched several models of Discover at multiple price points. This has led to confusion in the minds of consumers,” said Ashwin Patil, an analyst at LKP Research.
The launch of yet another model from the Discover stable in the 150cc category (on 11 August), according to Patil, is unlikely to have a major impact. Moreover, with competition heating up in the segment, volume upsurge for Bajaj will be limited, Patil said. “The company needs to launch models under new brands.”
Bajaj disagrees. “I don’t think the way to get it (market share) back is to launch a new brand. You start from scratch and people will keep wondering what it’s all about and we will have to answer the same question all over again.” The problem, he said, can lie in one of two areas—either in strategy or in execution. “I don’t think the strategy is wrong. I don’t mind having one or two brands as long as one is clear what it stands for.”
The issue, according to him, lies with the execution. Unlike the Pulsar segment where the company is a leader, the Discover’s position is that of a challenger, he said. The segment has been the stronghold of market leader Hero MotoCorp. Bajaj Auto, hence, would have done better by launching the new Discover 150 earlier. “What we have done today should have been done two years ago,” Bajaj said. Discover, he said, has got lost in a flurry of models from rival firms.
As part of the strategy to focus on premium models, Bajaj plans to launch the Pulsar Super Sport in the second half of the current fiscal. It will go slow on the entry-level commuter segment where it sells the Platina.
Meanwhile, defending his firm’s strategy of exiting the scooter market, a segment the company vacated in 2009, Bajaj said, notwithstanding the volume growth, “no one is making money selling scooters”.
The share of scooters in the two-wheeler market has risen from 15% two year ago to 25% in fiscal 2014, according to Siam, as the market has expanded with all two-wheeler makers introducing new models to tap into the young urban buyers. “A manufacturer has to think ahead and should be able to offer a product to meet the changing buyer trend,” said an analyst, who declined to be identified.
Bajaj remains unruffled by the criticism, saying that his firm would rather focus on expanding into newer geographies, many of which—like Thailand, Malaysia, and Vietnam—are big motorcycle markets yet to be tapped by the company.
Bajaj sells motorcycles to more than 50 countries.
The company owns 47% in Austrian sports motorcycle firm KTM Power Sports AG. It manufactures some of the models at its Chakan plant near Pune and exports it to many countries. Later this year, the company will start exporting KTM bikes to the US. It would perhaps be the first Indian auto company to export an automobile to the US, Bajaj said.
Meanwhile, the company foresees an enormous potential in the Africa region. We have only scratched the surface, Bajaj said, adding that shipments to Nigeria, for instance, have gone up to 50,000 units a month and are expected to go up further to 70,000 this year.
Bajaj has also entered many new countries, including Argentina and Mexico, in the past 12 months and plans to set foot in Brazil, one of the biggest Latin American markets for two-wheelers, with its partner KTM next year. “Why would this company distract itself by getting into scooters when it has so many markets to go to and we have wonderful partners like Kawasaki and KTM to approach it?”