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Cover Story
 

Going full Throttle Ahead
After Posting Impressive Numbers in The Last Fiscal, BAJAJ auto HAS a slew of New Projects to keep it on top of The Game.
Issue Date - 21/07/2011
 
For Bajaj Auto, India’s second-largest two wheeler, the past two years have been extremely eventful. In 2009, when Rajiv Bajaj, MD, Bajaj Auto, decided to pull the plug on the high-volume generating 100cc segment bike, the decision was seen as being knee-jerk by many industry observers even though it was made under the assumption that volumes from the 100cc segment would fall from 61% to 25%. The company clocked sales of 1,60,000 units in October 2009 as compared to 2,50,000 units in the same month a year ago, registering a 35% fall in sales. The months that followed saw quite a few strategic business shifts at Bajaj Auto.

To start with, Bajaj once again surprised itself and the industry by making a comeback into the entry-level segment with the launch of a new product Discover. The company followed this up by announcing its exit from the scooters segment and its decision to drop the parent brand from its product portfolio. The last two decisions once again set tongues wagging in the industry and caught many offguard, including Rajiv’s father, Rahul Bajaj, Chairman, Bajaj Auto. But by the end of FY2010-11, Rajiv Bajaj was standing tall and even the critics were offering him grudging admiration.

Numbers don’t lie. And for Bajaj Auto, the numbers really wax eloquent. The company declared revenue for last fiscal stood at Rs170 billion and its net profit soared to Rs36 billion at a whopping growth rate of 41%. In fact, there were plenty of other reasons to cheer about. The company’s bike sales crossed 3.3 million units in the last fiscal, showing a stellar growth of 35%. Similarly, in the CV segment, the growth recorded was 28% with sales of over 4.36 lakh units. All this at a time when input costs were hardening and inflation picking up. Not only did Bajaj Auto come out with flying colours, its rich product mix, higher volumes, and effective cost management enabled the company to declare an industry high operating EBITDA margin of 20.4% for FY11.

 
Too good to be true? Will Bajaj be able to sustain such a high margin in this fiscal even as raw materials and commodity prices threaten to take the wind out of the sails of many business enterprises? On its part, the company is not content with its recent laurels but is hungry for more. “We always consider profitable growth rather than focusing only on the top-line. Bajaj’s margins will continue to remain strong in the coming years as well,” claims Milind Bade, GM – Marketing, Bajaj Auto. At a time when rivals like Hero Honda was stuck going over the rituals of separation from Honda, Bajaj Auto was devoting all its time, efforts and energy in establishing the brand value of its Discover & Pulsar bikes. The company has not only created a family of products under these two brands, it will soon be entering the four-wheeler segment as well with the launch of its car that has been in the works since 2008.

As the company spreads its wings to new segments, the focus on its core two-wheelers business remains as strong as ever as is its awareness about the intensifying competition. To stay ahead of the curve, the company has crafted and is working on its triple-game strategy in the market, which will ensure profitable growth in the long term. First, the company is working on expanding its volumes from exports. Currently, Bajaj exports over 30% of its total production to the global markets. With KTM now under the Bajaj umbrella, the company is seriously looking to amplify its export numbers as it enters new markets in Europe, the US, Australia and Brazil. Second, it is working on a project to replace the Rs.5-lakh Bajaj three-wheelers with a more environment-friendly product. Even as the company is aware of the fact that the product will cost 15-20% more than its typical Rs1.1 lakh price tag, it is confident of pulling it off and nudge the project towards better product viability and enhanced profitability.

Another project on which the future of Bajaj Auto could be riding is the development of ‘Bharat Bike’. For quite sometime, the two-wheeler major has been working on expanding its base in the rural parts of the country, where a lucrative market is waiting to be tapped. The Bharat Bike project is part of Bajaj Auto’s plans to develop a 150-cc engine bike to run on rugged rural roads, which will cost Rs 40,000. Bajaj’s arch rival Hero Honda sells more than 45% of its total bike volumes in the rural parts of India, which explains why Bajaj is keen to make its Bharat Bike project work. However, this third strategy for Bajaj could prove to be a gamble. While the first two strategies (exports & development of a green auto-rickshaw) are expected to bring rich financial dividends for the company, its Bharat Bike project is expected to pull in volumes, though it will be tough retaining any appreciable margin on this product. The Nano, despite its low price took a toll on Tata Motors’ profitability. Is Mr. Bajaj listening?

Pawan Chabra           

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