Bajaj Auto ready for price war

Not ready to be bogged down by competitive pressures despite strain on margins, Bajaj Auto has said it was ready to meet any kind of price war "head-on" and could even afford a further reduction in prices.

"If the situation demands, of course...But we will not start a price war," said Rahul Bajaj, chairman of Bajaj Auto when asked if the company could go in for further reduction in prices. "If somebody starts a price war, we will not back out...We will meet it head-on, forever," Bajaj added.

Most of the companies in the motorcycle segment, including market leader Hero Honda and the second-largest Bajaj Auto, have seen margins under pressure due to a variety of factors, which includes continued higher price of inputs as well as lower realisations due to frequent price cuts and discounts.

For Bajaj Auto, the situation looks even more acute as a majority of the sales of the company, more than 60 per cent, were in the lower-end segment where it sells the popular 'CT 100' model.

Even as he admitted that margins "will remain under pressure", Bajaj said it was not much of a concern for the company. "Why should margins worry anybody except the stock market investor. As far as we know, we are doing around 14-15 per cent," he said, adding that the company was comfortable in the current position.

"When it is between 10 - 20 per cent and Bajaj Auto has cash reserves of over Rs 5,000 crore, how will it make any difference on the margins," Bajaj pointed out.

The company has chalked out an ambitious growth path in the Indian market and has seen its market share rise sharply over the past few years. In fact, Bajaj and Hero Honda are the only two bikemakers among the nine-odd manufacturers who have seen sales move northwards on a sustained basis.

Asked whether he was concerned that much of the sales was from the lower-end bikes, he said he was not worried on this front, saying overall sales of the company was rising. "No concern at all. We are selling this year over 2 million two-wheelers and three-wheelers," he said, pointing out that rising volumes were more than making up for everything.

To further give an impetus to sales, the company is planning new launches in the Indian market. This not only includes bikes but also scooters, where the company is planning three new launches over the next 18 months.

Bajaj Auto said it expects bike sales to rise about 40 per cent this fiscal over the 1.4 million units it sold last fiscal. Bike sales of Bajaj Auto in the first quarter of this fiscal were up 53 per cent while there was a 33 per cent jump in overall turnover which stood at Rs 1,634 crore. Profit post-tax stood at Rs 208 crore, up 28 per cent.

Apart from efforts in India, the company has also been trying to push sales in the foreign market. Of its total sales, as much as 88 per cent of Bajaj Auto's sales is in the domestic market while the rest is through exports.