Pune based two-wheeler major Bajaj Auto has been racing ahead on the fast track on the back of healthy sales in motorcycles. While analysts are upbeat on its product and marketing strategy, they fear the monsoon could play spoilsport. The management's conservative dividend policy is also viewed by the market as being shareholder unfriendly.
Sanjiv Bajaj, vice president (finance), dispels all apprehensions on this score in an exclusive interview with The Smart Investor.
You have talked about 12 per cent volume growth for the company overall and 30 per cent for the motorcycle segment alone. What are your growth assumptions?
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We are assuming a good monsoon this year. Based on that the GDP should grow by around 5.5 to six per cent. And the general trend is that if GDP grows by around six per cent, the two-wheeler industry grows around 10 per cent. But if there is a big change in the monsoon, the volume figures will also change accordingly.
Can you provide some numbers on how monsoon impacts sales?
It's difficult to attribute numbers because there are too many opposing factors at work. In such situations, we chart out our plans based on our products and objectives. We believe it is easier to go for a bottom-up approach when the market is unstable.
How do the numbers stake up on a bottom-up basis? Isn't it ambitious given that you are predicting an industry growth rate of only 16 per cent for motorcycles; half that of your own?
In motorcycles, 25 per cent of the market comprises entry level motorcycles, where the Boxer is positioned. We have a 40 per cent marketshare here.
Boxer, in fact, happens to be the number two brand among two-wheelers. Then, about 15 per cent of the market comprises high-end bikes, where the Pulsar is positioned. Here, we are number one and have 40 per cent marketshare.
However, in the middle segment or the executive segment, which has 60 per cent of the market selling two million vehicles a year, our marketshare is only five per cent with the older Caliber.
But with the new Hoodibaba and the new Kawasaki 125 that we plan to launch in July, we expect our marketshare to go up to at least 20 per cent. That will give us the growth. This is a large segment where we have been underrepresented.
With competition hotting up in the motorcycle segment, what's your assessment of the likely pricing environment? Do you see pricing pressure building up and impacting margins?
If you look at our bikes for the next year, over half of them will be in the executive and higher-end segment where there is no pricing pressure, because in this segment it is not price alone that matters. For instance, Hero Honda had earlier reduced the prices of Joy and Don. But those bikes didn't do well.
But bikes like our Boxer and Max from TVS did well. So, pricing can't make all the difference. The challenge here is to create aspirational value around the product.
Also, the lower interest rates make it possible for customers to choose costlier bikes with only a marginal increase in the monthly installment. So, the customer does not mind paying a bit extra for a better bike.
At the lower-end, however, there could be pricing pressure. But that's a relatively small segment. Whenever it happens, we will react to it appropriately.
TVS has announced its intention to enter the 3-wheeler segment. Though 3-wheelers form a significant part of your revenues, not much investment seems to have gone into this segment. How are you planning to protect your turn here?
The three-wheeler market is not a monopolistic market. But we have a monopoly marketshare. There are many players like Piaggio, Mahindra & Mahindra, Scooters India and so on. We believe we have a superior product that's why we have a major marketshare.
We have invested fairly large sums in this segment towards building capacity and engine development. But its looks are so old that people think it is an old product.
The engine is the heart of a vehicle and we offer the cleanest engine in the world. And about TVS coming in, well, when the market is large and has opportunities outside the country as well, it will attract new players.
We have to be ready to face it. We have already launched a large goods carrier in March. We are working on some smaller sized 3-wheelers as well. Our total capex plan for this fiscal is about Rs 100-120 crore and some part of this will go towards 3-wheelers as well.
Bajaj Auto has always been a cash rich company, but dividend payouts have always been paltry and that's not seen as being shareholder friendly. Given your limited capex requirements, why are you averse to paying good dividends?
The desire of the management is not always to please its investors all the time but to do what is right for the company. We are sitting on Rs 2000- odd crore of cash and are proud to say it's all shareholder's money.
If you look at global players like Honda, Toyota, Yamaha or any other big auto player, you would find that they have huge reserves. Today, we have cash surplus which allows us to compete and grow. If we are not in a financially healthy position, we have to think twice before cutting prices.
But now, if we want, we can cut prices. But we don't do that as of now, because we do not want to start a price war. Now you are talking about the growing volumes of scooters in Honda.
Since it is a private company, we don't know how it is doing financially. Now, say Honda decides that it is willing to lose a few million dollars in India over the next five years to capture the market.
It won't make even a dent in their bottomline, but can kill every single player here. We have to be prepared for the worst while we plan for the future. Besides, we might want to make acquisitions abroad and the cash would come handy then.
Besides, I must add here that we bought-back 15 per cent of the outstanding capital last year by shelling out Rs 730 crore. Again, the company has raised only Rs 60 lakh from the Indian markets in late 60's.
And we have never approached the market again. If you look at the return we have delivered over the last forty years, it is about 24 per cent CAGR. That's a fairly decent return for shareholders.
What is your own perception about the company's stock price?
Stock price is important to the extent that it is a reflection of the company. By and large, the stock market values a company correctly.
When our stock was trading at Rs 225, the market perceived that we were doing badly. But the markets value shares based on the information they have. It can't see what we are doing internally. We were confident at that time that we would come out of it.
Similarly, if the market is valuing our stock at certain price, it is based on their perception of our performance. In the short-run, markets may not very efficient, but over the long-haul, they are more or less correct.