Bajaj is staging a fightback. But recovering lost ground won’t be easy.
After falling to a fourth position in the domestic two-wheeler space, Bajaj Auto is doing everything — from price cut to easy finance to free service to woo back buyers. But its competitors won’t sit idle.
Rajiv Ghosh
31 Jul 2018
RAJIV BAJAJ, MANAGING DIRECTOR, BAJAJ AUTO; PRADEEP GAUR/MINT/GETTY IMAGES
"Buland Bharat ki buland tasvir,
hamara Bajaj, hamara Bajaj"
The ad jingle for two-wheeler major Bajaj Auto fuelled the aspiration of a middle-class Indian to own a personal vehicle for the longest time and ruled the market for decades. But the company, which once painted a “Buland Bharat ki buland tasveer” (a strong India's strong picture) with its made-in-India scooters, is running low on gas.
Bajaj Auto, which used to enjoy a 24% share in the Indian two-wheeler market in 2012, is down to 15% in the first half of 2018. It is now the fourth-largest player in the domestic two-wheeler market in terms of sales and close to slipping into the fourth position in sales-and-service touchpoints.
The last one year has seen the best volume growth in four years for motorcycles in India. But the story does not end here.
Bajaj, on the back of good export numbers and strong profitability in its premium motorcycle and three-wheeler segments, despite the recent fall in margins, continues to enjoy the highest EBITDA (earnings before interest, tax, depreciation, and amortisation) margin among the top four two-wheeler manufacturers — Hero, Honda, and TVS. It also has the highest cash reserves of over INR16,000 crore.
Clearly, Bajaj has the muscle to fight back, say industry analysts.
Bajaj is adopting many strategies to regain lost glory.
Strategy #1: Price cuts and goodies
Bajaj Auto made four important moves in 2018.
March 29: It cut the price of the CT100, already the cheapest motorcycle in India. The entry-level variant is cheaper by INR2,000, while the mid-variant with kick-start and alloy wheels is now priced at INR32,000, a substantial price reduction of INR4,000. The CT100, with electric start and alloy wheels, is cheaper by INR2,000 to INR40,000 (all prices, ex-showroom Delhi).
April 18: The Bajaj Pulsar 150 twin-disc launched in India at INR78,016. It costs INR4,000 more than the standard variant and features a rear disc brake, wider rear tyre, bigger front disc, and beefier front forks.
July 5: Free one-year insurance, two-year free service, extended warranty, easy down payment, and EMI are offered. The promotional offer for July 2018 is likely to be extended in parts or full.
July 12: The Pulsar 150 Classic launched at a INR10,000 discount to existing variants. It has a stripped-down fork suspension, smaller front disc brakes, limited colour options, single-seat layout against split-seat layout, and thinner rear tyres, compared to the standard Pulsar. The standard Pulsar price was reduced by INR4,000.
According to industry sources, its competitors are also offering free insurance, similar warranty, and have also made financing of two-wheelers easier. Although they have not taken price moves as of now, Honda has introduced X Blade at a price similar to the Bajaj Pulsar with twin disc.
Strategy #2: Focus on commuter-bike segment
Bajaj Auto is expecting to regain its market share with a better performance in the commuter-bike segment. During an earnings call after the first quarter FY19 results, Kevin D’sa, president (finance), Bajaj Auto, said, “Given the value proposition that a Platina offers, why should a person pay INR5,000-INR6,000 more for a Hero Splendor. Also, a Hero HF is the same vehicle that the Splendor is.”
The specifications of the Hero HF resemble those of the Splendor, with similar chassis, same engine, even similar brakes and suspension.
This is at the heart of Bajaj’s product strategy for the commuter segment — push people away from the high-volume Splendor and Passion in the INR48,000-INR55,000 price band to the INR57,000-INR66,000 segments, where Hero Glamour and Honda CB Shine currently dominate with their 125cc engines. Bajaj wants to play in this segment with the newly launched Pulsar Classic and Discover 125 as well as with a likely Pulsar 125 variant in the fourth quarter of FY19.
Bajaj has also created an ultra-low-priced bike category with CT100, whose mid-variant with alloy wheels and self-start is priced at INR32,000. The entry-level variant with spoke wheels is priced at INR30,700. This is similar in price to a three-year-old used Hero Splendor. The cheapest bike from the Hero stable is the fast-growing HF priced at INR38,000. In fact, the CT100’s starting variant is cheaper than the TVS moped XL100.
Meanwhile, markets are nervous
The markets have not been very favourable to two-wheeler makers lately.
Stock prices of India-listed motorcycle OEMs are down over the last year, underperforming the 12% rise in the Nifty 50. Hero (-14%) and TVS (-12%), with a high dependence on the domestic motorcycle segment, have underperformed. Bajaj was down 5% in the same period. "The fall in the stock price of Bajaj Auto is a 4-sigma event. It is extremely rare. This has happened without any geopolitical news. It is the steepest fall the stock has experienced in a very long time," says Subhadip Nandy, a quant trader based in Kolkata.
Gaining back lost market share won’t be easy
According to Anupama Arora, vice president at rating agency ICRA, 60% of commuter-motorcycle buyers are from rural areas and seek the comfort of a well-known proven brand and not the motorcycle’s specifications. Thus, it is unlikely that buyers will shift their preference easily.
Sales happen because of product intervention, communication, distribution network, and promotions in form of offers or discounts, says Hardip Goindi, an industry consultant who was earlier president of marketing at TVS Motors.
A case in point is the CT100, which was relaunched at the lowest price point in 2015 at INR35,000 and its stripped-down version was launched at INR31,000 in January 2016.
The two launches created a flutter initially, but sales did not make the steady gains seen in the Hero HF. Prices also inched up because of BS-IV emission norms and commodity prices, before the recent reduction in prices made them cheaper.
The second example was the V brand, which was first launched in 150cc and subsequently in the 125cc model and were priced to take on CB Shine and Hero Glamour. But that too fizzled out.
Hero enjoys 15%-plus EBITDA margins selling commuter motorcycles, but Bajaj does not make EBITDA margins in its sub-150cc motorcycles. Thus, pricing alone will not work for Bajaj.
According to industry sources as well as admission by company officials, Bajaj is working hard on building the right product.
The company is also trying to expand its sales-and-service network as well as offer better experience in its showrooms and service centres. ET Prime’s visits to dealerships indicate that the promotional schemes are increasing footfalls in showrooms.
If the dealers sell higher volumes, their profitability improves. This will enable them to invest in their showrooms and service centres. Yet there is a long way to go before they can make a volume-per-touchpoint like their competitors. Brand-dilution risk
Some analysts say brand extensions across price points dilute value, particularly when going down the price curve. However, Jeffry Jacob, partner at global strategy consulting firm Roland Berger, disagrees and says going from lower to higher is a much bigger struggle for a brand.
Sometimes it a good policy to use the existing brand, which already has an established strength, to get into the lower segment, but it must be done smartly.
The customer who buys a higher-end vehicle is very clear that it is a different vehicle, with a different value proposition than something significantly cheaper. The market has seen that maturity in passenger vehicles.
“Earlier people would buy the basic variants and now everybody is buying the (higher) n-1 variant,” Jacob points out. The on-road price of the Creta varies from INR10 lakh to INR18 lakh, he says. In fact, the dual-disc Pulsar 150 provides better content, inspired by the higher-end Pulsar 180, and is aimed to raise the brand quotient of the Pulsar.
The road ahead
The continuation of easier financing will be fundamental to market-share gains at Bajaj Auto. The extended warranty period and two-year free service will help increase customer comfort.
A five-year warranty was introduced by Hero when it broke up with Honda to bolster its brand and it worked wonders for the company.
A more profitable dealership could improve the front-end and boost brand engagement. Bajaj is also building up digital advertising to connect with potential customers.
It is playing a game for which it needs to have a consistent and multi-pronged plan. Anything less won’t work.
After falling to a fourth position in the domestic two-wheeler space, Bajaj Auto is doing everything — from price cut to easy finance to free service to woo back buyers. But its competitors won’t sit idle.
Rajiv Ghosh
31 Jul 2018
RAJIV BAJAJ, MANAGING DIRECTOR, BAJAJ AUTO; PRADEEP GAUR/MINT/GETTY IMAGES
"Buland Bharat ki buland tasvir,
hamara Bajaj, hamara Bajaj"
The ad jingle for two-wheeler major Bajaj Auto fuelled the aspiration of a middle-class Indian to own a personal vehicle for the longest time and ruled the market for decades. But the company, which once painted a “Buland Bharat ki buland tasveer” (a strong India's strong picture) with its made-in-India scooters, is running low on gas.
Bajaj Auto, which used to enjoy a 24% share in the Indian two-wheeler market in 2012, is down to 15% in the first half of 2018. It is now the fourth-largest player in the domestic two-wheeler market in terms of sales and close to slipping into the fourth position in sales-and-service touchpoints.
The last one year has seen the best volume growth in four years for motorcycles in India. But the story does not end here.
Bajaj, on the back of good export numbers and strong profitability in its premium motorcycle and three-wheeler segments, despite the recent fall in margins, continues to enjoy the highest EBITDA (earnings before interest, tax, depreciation, and amortisation) margin among the top four two-wheeler manufacturers — Hero, Honda, and TVS. It also has the highest cash reserves of over INR16,000 crore.
Clearly, Bajaj has the muscle to fight back, say industry analysts.
Bajaj is adopting many strategies to regain lost glory.
Strategy #1: Price cuts and goodies
Bajaj Auto made four important moves in 2018.
March 29: It cut the price of the CT100, already the cheapest motorcycle in India. The entry-level variant is cheaper by INR2,000, while the mid-variant with kick-start and alloy wheels is now priced at INR32,000, a substantial price reduction of INR4,000. The CT100, with electric start and alloy wheels, is cheaper by INR2,000 to INR40,000 (all prices, ex-showroom Delhi).
April 18: The Bajaj Pulsar 150 twin-disc launched in India at INR78,016. It costs INR4,000 more than the standard variant and features a rear disc brake, wider rear tyre, bigger front disc, and beefier front forks.
July 5: Free one-year insurance, two-year free service, extended warranty, easy down payment, and EMI are offered. The promotional offer for July 2018 is likely to be extended in parts or full.
July 12: The Pulsar 150 Classic launched at a INR10,000 discount to existing variants. It has a stripped-down fork suspension, smaller front disc brakes, limited colour options, single-seat layout against split-seat layout, and thinner rear tyres, compared to the standard Pulsar. The standard Pulsar price was reduced by INR4,000.
According to industry sources, its competitors are also offering free insurance, similar warranty, and have also made financing of two-wheelers easier. Although they have not taken price moves as of now, Honda has introduced X Blade at a price similar to the Bajaj Pulsar with twin disc.
Strategy #2: Focus on commuter-bike segment
Bajaj Auto is expecting to regain its market share with a better performance in the commuter-bike segment. During an earnings call after the first quarter FY19 results, Kevin D’sa, president (finance), Bajaj Auto, said, “Given the value proposition that a Platina offers, why should a person pay INR5,000-INR6,000 more for a Hero Splendor. Also, a Hero HF is the same vehicle that the Splendor is.”
The specifications of the Hero HF resemble those of the Splendor, with similar chassis, same engine, even similar brakes and suspension.
This is at the heart of Bajaj’s product strategy for the commuter segment — push people away from the high-volume Splendor and Passion in the INR48,000-INR55,000 price band to the INR57,000-INR66,000 segments, where Hero Glamour and Honda CB Shine currently dominate with their 125cc engines. Bajaj wants to play in this segment with the newly launched Pulsar Classic and Discover 125 as well as with a likely Pulsar 125 variant in the fourth quarter of FY19.
Bajaj has also created an ultra-low-priced bike category with CT100, whose mid-variant with alloy wheels and self-start is priced at INR32,000. The entry-level variant with spoke wheels is priced at INR30,700. This is similar in price to a three-year-old used Hero Splendor. The cheapest bike from the Hero stable is the fast-growing HF priced at INR38,000. In fact, the CT100’s starting variant is cheaper than the TVS moped XL100.
Meanwhile, markets are nervous
The markets have not been very favourable to two-wheeler makers lately.
Stock prices of India-listed motorcycle OEMs are down over the last year, underperforming the 12% rise in the Nifty 50. Hero (-14%) and TVS (-12%), with a high dependence on the domestic motorcycle segment, have underperformed. Bajaj was down 5% in the same period. "The fall in the stock price of Bajaj Auto is a 4-sigma event. It is extremely rare. This has happened without any geopolitical news. It is the steepest fall the stock has experienced in a very long time," says Subhadip Nandy, a quant trader based in Kolkata.
Gaining back lost market share won’t be easy
According to Anupama Arora, vice president at rating agency ICRA, 60% of commuter-motorcycle buyers are from rural areas and seek the comfort of a well-known proven brand and not the motorcycle’s specifications. Thus, it is unlikely that buyers will shift their preference easily.
Sales happen because of product intervention, communication, distribution network, and promotions in form of offers or discounts, says Hardip Goindi, an industry consultant who was earlier president of marketing at TVS Motors.
A case in point is the CT100, which was relaunched at the lowest price point in 2015 at INR35,000 and its stripped-down version was launched at INR31,000 in January 2016.
The two launches created a flutter initially, but sales did not make the steady gains seen in the Hero HF. Prices also inched up because of BS-IV emission norms and commodity prices, before the recent reduction in prices made them cheaper.
The second example was the V brand, which was first launched in 150cc and subsequently in the 125cc model and were priced to take on CB Shine and Hero Glamour. But that too fizzled out.
Hero enjoys 15%-plus EBITDA margins selling commuter motorcycles, but Bajaj does not make EBITDA margins in its sub-150cc motorcycles. Thus, pricing alone will not work for Bajaj.
According to industry sources as well as admission by company officials, Bajaj is working hard on building the right product.
The company is also trying to expand its sales-and-service network as well as offer better experience in its showrooms and service centres. ET Prime’s visits to dealerships indicate that the promotional schemes are increasing footfalls in showrooms.
If the dealers sell higher volumes, their profitability improves. This will enable them to invest in their showrooms and service centres. Yet there is a long way to go before they can make a volume-per-touchpoint like their competitors. Brand-dilution risk
Some analysts say brand extensions across price points dilute value, particularly when going down the price curve. However, Jeffry Jacob, partner at global strategy consulting firm Roland Berger, disagrees and says going from lower to higher is a much bigger struggle for a brand.
Sometimes it a good policy to use the existing brand, which already has an established strength, to get into the lower segment, but it must be done smartly.
The customer who buys a higher-end vehicle is very clear that it is a different vehicle, with a different value proposition than something significantly cheaper. The market has seen that maturity in passenger vehicles.
“Earlier people would buy the basic variants and now everybody is buying the (higher) n-1 variant,” Jacob points out. The on-road price of the Creta varies from INR10 lakh to INR18 lakh, he says. In fact, the dual-disc Pulsar 150 provides better content, inspired by the higher-end Pulsar 180, and is aimed to raise the brand quotient of the Pulsar.
The road ahead
The continuation of easier financing will be fundamental to market-share gains at Bajaj Auto. The extended warranty period and two-year free service will help increase customer comfort.
A five-year warranty was introduced by Hero when it broke up with Honda to bolster its brand and it worked wonders for the company.
A more profitable dealership could improve the front-end and boost brand engagement. Bajaj is also building up digital advertising to connect with potential customers.
It is playing a game for which it needs to have a consistent and multi-pronged plan. Anything less won’t work.
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