Bajaj Auto will gain share not via discounts, but via smart strategy

Our EBITDA has over the last several years hovered around 20%, depending on various internal factors such as product mix and marketing spends and external ones such as commodity prices and forex rates. Needless to say that in a competitive world, our EBITDA must also be viewed relative to that of the industry.

More specifically, in the present context what’s important to note is that our higher EBITDA businesses — the domestic sport motorcycle, domestic three-wheeler, domestic KTM, exports, and spare parts businesses that together constitute over 80% of our revenue are all witnessing strong growth with no unusual margin pressures.

In the June quarter, we grew our domestic motorcycle business by nearly 40% year-on-year (YoY), including 45% in the sport segment and 38% in the commuter segment. Our domestic three-wheeler business grew 80%, and our exports by about 35% while continuing to clock an EBITDA margin that will in all probability be way ahead of our peers. That’s how I see our first quarter.

Marketing strategy is always a combination of product and price, never one or the other. Across our portfolio, our prices have without exception been similar to within +/- 5% of competition. In the past, we have clocked a 20% EBITDA not due to premium pricing but due to smart strategy; similarly in the future we will gain share not due to discounted pricing but due to smart strategy.

More specifically, of the six product-price interventions that we’ve made in domestic motorcycles since March, three are in the sport segment at a similar price to within +/-5% of the key competitor. This is where we’ve had our highest YoY growth of 45%. Of the other three interventions in the commuter space, only one is at a significantly lower price point. Virtually every consumer organization has some such sharply priced product representing poor profitability, it’s hardly unique to Bajaj.

I believe that in the long run, even the customer loses because poorly performing organizations can hardly ensure customer satisfaction on any important parameter. We firmly believe that what works for both customers and businesses — without exception — across the world is much better products at a similar price to competition and not similar products at a much lower price than competition. Are we not obliged at all times to compete as hard as we can, limited only by our imagination and resources? I’m ignorant of the existence of any golden middle path between being competitive and complacent.

I’ve said above that of our six product-price interventions since March only one is at a significantly lower price, and that is indeed the CT 100 KS at Rs 32,000. However, from our perspective what is important is that it’s not the price per se that’s new — we’ve had a CT100 at that price for over a year. What’s new is that we’ve upgraded the previous product in terms of style for as little as Rs 300. Frankly, the response has been way beyond our expectation as monthly volume for this product has grown from 5,000 to 50,000. Given this response, we now have a lot of room to improve this price point; in fact we have already increased prices earlier this month and I can tell you that we will be doing so again on September 1.

In any industry, there can by definition be only one lowest price product. And as I’ve elaborated above, a swallow doesn’t make a summer and neither does one price point a price war.  As a global motorcycle company we take pride in our versatile competitiveness — in our ability to tailor our product technology and cost to be relevant in markets ranging from Africa to Europe; we are the only motorcycle company in the world so far to demonstrate this ability. Consequently, we compete in low high margin segments not only in India but also across the world. This focus is not new; it has been integral to our strategy for over 10 years now.

Exports to Africa including Nigeria have indeed risen sharply but again their weight in our total sales isn’t anything new — it’s simply back to where it was two years ago before oil prices fell dramatically. On the other hand, exports are now benefiting from the recent depreciation of the Rupee to its lifetime low.