Expect market share to rise to 27-28% by end of FY20
Rajiv Bajaj, MD, Bajaj Auto
May 03, 2019 | Source: Livemint
Outlook on demand in the Auto Industry: Mr. Rajiv Bajaj, MD of Bajaj Auto said, that there is no particular incremental weakness in the industry, but there is weakness seen in the industry post the festive season. He said, that everyone will be progressively talking about how YoY there is de-growth and how retails are under pressure. He mentioned that retails are under pressure even in states like Maharashtra which had a strong festive season of Gudi Padwa. So despite the positive seasonal inputs, the market for some reason continues to be soft.
On how Bajaj Auto is differentiating versus peers in a tough demand situation: In the months gone by Bajaj Auto has done better numbers as compared to the street estimates and Mr. Rajiv Bajaj alluded to the fact that what is working for Bajaj Auto is the company’s showcase because one will see, not only in terms of growth has the company relatively outperformed the industry, but one will also see when Bajaj Auto announces its results later in May that despite all that has been said about Bajaj Auto discounting, the same impact on margins is there as there is for all those who have announced the results so far.
So Bajaj Auto’s MD said that as a company Bajaj Auto doesn’t discount. Mr. Bajaj has explained this in the past too that just because company sells one stock keeping unit (SKU) that is 10% of company’s portfolio at 10% discount doesn’t mean that Bajaj Auto is engaged in a price war or have initiated a price war. However, discounting or no discounting, what is worse, what is more inimical for results is when the company is distracted in its growth strategy. Mr. Bajaj mentioned that what is helping the company is its focus on the domestic motorcycles. Right now particularly in what company believes would happen in the market which is polarization and it talked about this the last time he gave his views, on one hand there are some people that are clearly down trading, going down to the more value for money 100-110cc space which is where Bajaj Auto is doing so well.
For example, Bajaj Auto’s Platina brand has grown 77% YoY in April 2019 and that’s unheard of especially in these times. In May it’s looking at 100% growth for Platina for example. Similarly, at the other end of the spectrum there are people who are moving up, who are choosing something better and that’s where Bajaj Auto is doing well with the Pulsar. That has again clocked double digit growth in April 2019 and the company is looking at more than 20% growth in May 2019 as well. So that is what helped Bajaj Auto in domestic motorcycles.
Outlook on 3-Wheelers and 2-Wheelers: MD, Bajaj Auto said, we are a market leader there, a global leader there, and we continue to focus very strongly on all segments over there, that niche is continuing to do very well for us. We have been a company that has always focused consistently on exports irrespective of where oil prices have been, where the rupee has been or what markets are troubled and what not. Therefore, as one may have noticed, in April the company has had the best ever exports scenario for any given April. So in one word, it is focus. Mr. Bajaj said it is perplexing to him why the two wheelers market is soft in India because it would be the cheapest mode of transportation and for four wheelers one could argue that there is a bit of a shift to say Ola, Uber. However, 2Ws travelling arithmetic logic would say it is the cheapest travel. So why is there so much of a slowdown in that especially in states such as Maharashtra?
However, the point was that while being fully aware of these factors, everybody went into the festive season saying it is going to be great, everybody ramped up production, stuffed the dealers to the gills, and then in January we started acknowledging that the market has been soft, people are carrying 100 days of inventory. So the truth is that nobody knows why it is soft. Mr. Bajaj said that this is not just for India, but in so many exports market too such a slowdown has been observed. He says, it’s very hard to explain why for example the market in Nigeria fell as it did about 18 months ago and that it rattled us so seriously because we are a big player there. However, today in Nigeria the market has completely turned around. Just to give a perspective of Nigerian market, that number to illustrate the point, in motorcycles April-on-April Bajaj Auto has grown by almost 50% to 50,000 motorcycles and in 3Ws again Bajaj Auto grew by about 30% to 6,000 3Ws. Why? I don’t know the answer to that why either. So, all one can do is actually adapt to the market. It is very hard to forecast.
On inventory levels and outlook going forward: Inventory levels were a big problem couple of months ago. Hero MotoCorp had said that their inventory levels were very high at 45-50 days plus. For Bajaj Auto, the inventory level was 55 days few months back and going forward the company would like to gently push it back down to the normal level of 45 days and do that by both means—by improving retail sales and we have managed to do that. Our domestic motorcycle retail growth is exactly 20% in April over last April at 2,16,000-2,17,000 motorcycles. So we are moving retail up every month. At the same time, as you may have noticed, our billing is 10,000 less than that. So, we have de-stocked the channel by 10,000, which is not a lot, but we really do not need to do much more than that because these are always at 55 days and this will slowly bring us back. By June or July we will be back to 45 days.
On financing trends for 4-Wheelers and 2Ws: While 4Ws are largely financed, Mr. Rajiv Bajaj said that according to him about 70% plus motorcycles at least are financed and a similar number of scooters to are financed. Besides, the weak festive season the liquidity issue as a result of IL&FS too impacted demand scenario as per the MD of Bajaj Auto. He said, that companies like TVS Motors, Hero MotoCorp, Bajaj Auto have been less impacted given the very strong in-house captive financing capability. In addition to this captive financing, Mr. Bajaj said that both TVS Motors and Bajaj Auto have also got their product strategy going for them respectively which has aided the relatively better performance. Hero MotoCorp has suffered a little more because in Mr. Bajaj’s view their product strategy is still wanting. However, companies such as HMSI or Honda Motors that do not have a captive retail finance arm, have suffered more. So, it is true that financing is very important for 2Ws also. The vast majority are financed and those who do not have this lever under their control, those original equipment manufacturer (OEMs) have been impacted.
On domestic market share of 22% it hit in March: Bajaj Auto’s market share was 22% in March, but Mr. Rajiv Bajaj said that it was an exception. For the quarter as a whole market share was about 20% according to Mr. Bajaj. In March it went up to 22% because the others de-stock heavily, disproportionately for that month. I do not have the numbers of the competition for the month of April but I would imagine we would be back around 20%. Mr. Bajaj expects the company to remain in this zone for the next month or two but after that he sounded very hopeful that Bajaj Auto will move towards the set target of 27-28% exit for FY20 and intends to achieve an average market share of 23-25%. He indicated that Bajaj Auto exited from FY18 to FY19 at 15% share. In FY19 exit market share was about 22% but its average was closer to 20%. To achieve the target of 23-25% average exit market share in FY20, Mr. Bajaj said that the company will exactly do the same thing that it did in FY19. He outlined that Bajaj Auto will play its three strong brands in the domestic motorcycle, which is CT, Platina, and Pulsar. The company has new products being launched towards the end of this quarter.