Bajaj Auto: Discovering the Platina

Rajiv Bajaj is on a high. First Bajaj Auto raced into the executive segment with the Discover snapping up a share of 21 per cent. Traditionally rival Hero Honda's stronghold, the Pune-based bike maker had never managed to get beyond 10 per cent.

Next, it was the entry space that Bajaj Auto decided to focus on. It had always been a strong contender here with the CT 100, but TVS Motors' Star City was catching up.

In April this year, the Platina 100cc was launched and by September, with sales hitting the one lakh figure, it had left the competition behind. Bajaj Auto now has an enviable 47 per cent share in the economy space.

Why then does the company want to move out of the 100 cc segment ? It's quite simple really. The Platina today accounts for nearly 44 per cent of Bajaj Auto's motorcycle volumes and together with the CT100, the entry segment now accounts for around 50 per cent of sales.

That's not really great news because the keen competition in the space puts realisations from these bikes under pressure. Admits managing director Rajiv Bajaj, " Margins are certainly lower in the 100cc segment as compared to those in the 125cc and the 150cc segments. Of course the lower margins are compensated by higher volumes, but not to the extent desired."

The Platina was launched at Rs 36,000 but the company was forced to reduce the price to Rs 34,000 soon after. That's why despite a strong 30 per cent growth in the topline to Rs 2,400 crore, in the September quarter, the operating profit margins slipped nearly 200 basis points y-o-y to 15 per cent. Realisations accounted for just two per cent of the topline growth, with 28 per cent arising out of better volumes.

As S.Ramnath, an analyst at SSI Securities points out, "These bikes are priced in the region of Rs 35,000-Rs 36,000 and the operating margins for this range are unattractive, given the pressure from rising input costs and ad spends."

So what Bajaj Auto is looking to do is to get customers to upgrade.That's not too difficult in times when disposable income and aspirations are rising and credit is available at affordable interest rates. Says the junior Bajaj, who spends a good deal of time with his R&D team or on the test track,"No doubt the 100 cc segment is large today but with new products offering superior technology and performance we expect a significant shift."

According to S. Sridhar, VP, Marketing and Sales, consumer research shows that buyers are willing to move up the product line and want better aesthetics and performance. Says he, "We have seen that buyers in the executive segment too want higher levels of power and performance and that's where we got the idea for making the Discover 125cc a more powerful vehicle." It was this feedback together with the patented exclusive Bajaj DTS-i technology that resulted in a high performance bike 125cc Discover DTS-i, one of the company's success stories.

Bajaj Auto now hopes to repeat the formula by making only bigger bikes"�110cc or more"�but pricing them attractively enough"� so as to tempt customers to spend a little more. Says Bajaj, "We feel that from customers' point of view, our new platform will offer a superior value than what 100cc bikes offer right now."

Typically 125cc bikes retail at around Rs 42,000-Rs 44,000 and if Bajaj can hawk them even at around Rs 37, 000-Rs 39,000, it should be able to get volumes. Observes Ramnath, "The production cost for a 125 cc bike is around Rs 28,000-Rs 30,000. So if the company can sell higher volumes in the 125cc space by lowering the price a little, it should be able to sustain operating margins. While refusing to comment on margins, Bajaj says he's definitely looking to cut costs whether it's in distribution or by sourcing from international markets. He also wants to reduce the marketing cost per vehicle by focusing on key brands. Not so long ago, Rajiv Bajaj's aim was to overtake Hero Honda to be India's largest motorcycle manufacturer. Today, the ambition has gone way beyond that. As they say ,nothing succeeds like success.