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Bajaj Auto’s Move To Junk Profit-First Strategy Pays Off. But Will It Sustain?

Bajaj Auto’s focus on entry-level motorcycles paid off but will the growth sustain?

Employees work on the assembly line at the Bajaj Auto Ltd. plant in Chakan. (Photographer: Adeel Halim/Bloomberg)
Employees work on the assembly line at the Bajaj Auto Ltd. plant in Chakan. (Photographer: Adeel Halim/Bloomberg)

Bajaj Auto Ltd. gained market share at the expense of other two-wheeler makers in the year ended March 2019 as it focused on entry-level cheaper bikes.

The market share of the Pune-based company rose over 200 basis points to 12.3 percent, according to Maybank Kim Eng Securities, citing Society of Indian Automobile Manufacturers data. That came despite a slowdown in sales since the festive season last year. Share of market leader Hero MotoCorp Ltd. and second-placed Honda Motorcycles and Scooters India Ltd. declined during the period.

Bajaj Auto, once India’s largest two-wheeler maker, may take heart from the data as it got relegated to a distant third spot last year, with competitors upstaging it in the entry-level, executive and premium motorcycle segments. That forced the automaker, that prized margins over market share, to reduce prices of entry-level bikes, the biggest contributor to its sales volumes.

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The company’s motorcycle sales in March grew 27 percent over the same period last year, according to exchange filings, while that of Hero MotoCorp and Honda contracted. Bajaj Auto’s domestic motorcycle sales and exports grew 29 percent and 22 percent, respectively.

The commuter segment might be leading Bajaj Auto’s revival, Vinkesh Gulati, director of United Automobiles Ltd., a leading distributor for the two-wheeler maker, told BloombergQuint. “Aggressive pricing and promotions for Platina and CT100 motorcycles has boosted sales.”

The company’s premium segment may also have contributed, according to Jigar Shah, auto analyst at Maybank Kim Eng Securities. Sales of Pulsar bikes crossed 1 lakh units in March, he said.

The market share of the maker of Avenger Cruise and Dominar in the domestic motorcycle segment rose 300 basis points over last year, according to Maybank Kim Eng Securities, which cited SIAM data. By comparison, every other major motorbike maker saw its share decline, while it remained steady for TVS Motor Company Ltd.

CLSA said that the volume growth delivered by Bajaj Auto could reverse to some extent in this financial year. It estimates that the company’s overall volume growth—at 7 percent—could be the slowest among listed two-wheeler makers, compared with 9 percent for Hero MotoCorp and growth in excess of 10 percent for both Eicher Motors, the maker of Royal Enfield, and TVS Motor. This, according to the brokerage, could be led by the base effect and expectations of growth in sales.

Scooter Segment

Every two-wheeler maker barring TVS Motor sold fewer scooters in the year ended March 2019 over the previous fiscal, according to Maybank Kim Eng Securities. The Chennai-headquartered company’s market share rose by nearly 2 percentage points. That came despite overall sales of scooters dipping for the first time in six years, data compiled by BloombergQuint showed. Bajaj Auto—which once manufactured the iconic Chetak scooter—exited the segment nearly a decade ago.

Still, India’s two-wheeler market is yet to recover from the slowdown that began last year. Higher upfront insurance costs and costlier fuel hurt demand during the Diwali festival season, usually a period that sees a spike in sales. Year-end discounts didn’t help and volumes contracted in February and inventory piled up. While dealers were able to exhaust some of the existing stock in March, volumes declined over March last year. Dealers’ lobby acknowledged that the recovery in March was largely because of production cuts.

Two-wheeler sales are expected to slow down because of weak demand, higher insurance costs and weakening income levels, a dealer for Hero MotoCorp in north India told BloombergQuint—he didn’t wan’t to be identified out of business concerns. Inventory levels are still high, he said.

Honda Motorcycle & Scooter India said it supported its dealer network “with respect to interest burden” i.e. on working capital loans due to high inventory when sales slowed but has discontinued them in March, YS Guleria, vice president of sales and marketing, told BloombergQuint. “All this we have done while not engaging in a discount war with rivals.”