Last fiscal will go down as one of the worst for Bajaj Auto. While revenues dipped a tad over three per cent, net profit plunged 57 per cent. A tough job at hand for Sanjiv Bajaj , general manager - corporate finance, even as he spoke to Rajesh Nair about corrective measures the company is taking and future plans.
FY01 has been a disaster. What is your outlook for the current fiscal?
FY01 has been one of the worst for the company. The prime reason has been the 41 per cent drop in sales of geared scooters. At 4.36 lakh scooters, we sold over three lakh less than 1999-2000. Besides, the buyback and VRS took up Rs 800 crore. This had its effect too, resulting in one of our lowest profits ever. Also, the last few years have seen the company and its products change to align with the growth segments of the market.
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With products, volumes and capacities aligned to capitalise on high-growth motorcycle segment, it is our strategy to gain leadership in the immediate and long term. Also, we are leaders in geared scooters and step-through segment. So while these segments have seen substantial de-growth, our efforts are to grow and improve market share through innovative products, financing and strong marketing.
We have an ambitious growth target in motorcycles from nearly 36,000 a month in fiscal 2001 to 50,000 a month this year. For fiscal 2002, we plan to sell about 40,000 geared scooters a month. With the removal of differential excise between motorcycles and step-throughs, the latter will be hit, and we are reducing our emphasis there. However, the 4-stroke step-through segment is very popular in South East Asia, thus offering a good export market for our 4-stroke M80.
But the perception is that Bajaj Auto has been too slow to adapt to changing consumer preferences...
In terms of products, we have more products in any segment than any other manufacturer. The Eliminator is a statement in brand, styling and image. The Boxer is currently a leader in utlility segment, while the Caliber and Acer are both very modern-looking products for the executive segment.
In ungeared scooters, we have Spirit and Spice. At the upper end we have Sapphire, currently the most modern in its segment. Also in three wheelers, we are present across all categories including CNG (compressed natural gas), 4/2-stroke, LPG (liquified petroleum gas) and diesel.
So, in terms of technology, product styling and initiatives, we are ahead of anyone else. However, what matters is the period it takes to move from manufacturing a million scooters to half or three quarters of a million motorcycles. The process takes time. Our motorcycles have performed well. And, this is clearly a step towards understanding the customer. However, not everybody can understand the customer all the time.
What initiatives are you taking to improve margins which are under considerable pressure?
The pressure on margins will continue this year too. Our strategy is to take a realistic but achievable price position on our products and not offer discounts. For instance, we reduced the prices of Boxer. We have put together an 18-month cost reduction plan that will make Boxer more profitable than it was before the cost reduction. We will have finished 70 to 80 per cent of the cost reduction exercise by September this year.
One of the main areas of reduction is the supply chain costs. Three to four years back, we made 4,000 motorcycles per month. Now it is almost 40,000.per month. Obviously, the fixed costs are getting distributed much better for our large vendors.
The second saving is from value engineering. As we gain product knowledge, we are able to improve on its cost attributes. The third area is marketing. Once our presence is established, the brand needn't be sustained with as much spending as what we had to earlier.
What has been your investment outlay for new products?
The total investment last year was about Rs 350 crore. It will be about Rs 150 crore this year, most of it for increasing the motorcycle capacity.
With Chinese products riding into India, isn't that a threat?
Their quality would still be at least five to ten per cent lower than ours with no major price difference. The existing price gap is largely due to the subsidies that the Chinese government gives the manufacturers. The opaqueness in reporting of profit and costing will disappear once China joins the WTO.
Doesn't the so-called loophole in the notification that came along with the customs duty hike in defining a CBU (completely built unit) put pressure on prices?
Semi knocked down (SKDs) kits and completely knocked down kits (CKDs) will attract a lower 35 per cent duty. However, it also needs to be assembled over here. Then there will be transportation cost, insurance costs, etc. On the other hand, when you are importing the full vehicle, then most of these costs are already taken care of in the increased duty (60 per cent).
So, for a CKD/SKD importer, although the costs may add up to as much as the CBU importer, it will not remain as low as 35 per cent too. It may be somewhere in the middle.
What is your pricing strategy for motorcycles?
The Caliber and the Acer will be well received in the fast growing executive segment. The Caliber is priced almost Rs 1,500 lower than the Splendor. While, the Acer will be priced marginally lower than the Caliber. The 150cc Pulsar, which is slated to be launched in the second half of this year, will be priced marginally higher than the Passion and also the Suzuki Fiero.
There has been a customer shift from Splendor to Passion which is selling 20,000 units a month. But Splendor sales have dropped from 75,000 to 55,000 a month. And we feel there is room for customers to move from Passion to the Pulsar.
The Boxer accounts for almost 80 per cent of your motorcycle sales. Are you not depending too much on a single product?
We are less dependent than Hero Honda is on the Splendor. We cannot do everything in one year. The Acer will be in the market by June-end. It is pitched against the Splendor targeting the urban executive. There could be some shift from Boxer, and then there is Caliber which would compete with Passion. We also expect the Boxer to compete with the CD100. Finally, at the super-premium end, we have the Eliminator. So we will cover the entire segment.
What is stopping the Pulsar from being launched?
An ideal step-over from the 100cc market, Pulsar is our first indigenously developed motorcycle. It has the potential to establish us as a motorcycle manufacturer with our own technological capabilities. It is currently undergoing tests and will be launched by August after some fine tuning.