Missteps That Forced Bajaj Auto To Junk Its Profit-First Strategy
Bajaj Auto Ltd. prized its ability to not compromise profits for gaining market share. Nearly eight years ago, Managing Director Rajiv Bajaj said the success of any strategy depends on the profit it generates.
Not anymore, at least when Bajaj Auto, once India’s largest two-wheeler maker, has been relegated to a distant third spot. In fact, the company reduced prices in a segment that contributes the most to its sales volumes: entry-level motorcycles.
In the first quarter of FY19, the automaker cut prices of its CT 100 that competes with Hero MotoCorp Ltd.’s CD Dawn. The company also introduced a 110-cc variant of its Discover motorcycle in January as it aggressively looks to boost sales of its economy portfolio. The maker of Avenger cruiser, according to data shared by Crisil, sold 4.45 lakh units of the entry-level models from April to July this year—nearly half of what it sold in entire 2017-18 financial year. That’s still not enough to imply that the change in its strategy has started paying off.
Momentum from any new product or price-cut led initiative has not sustained beyond a few months for Bajaj Auto, according to Chirag Jain, auto analyst at SBI Capital Markets Ltd. “The company today has a far weaker Indian franchise compared to 2003,” he said. Slipping below the customers’ radar, Jain said, its market share fell below 10 percent.
The automaker has yet to respond to BloombergQuint’s emailed queries.
Bajaj Auto ceded ground to market leader Hero MotoCorp and second-placed Honda Motorcycles and Scooters India Ltd. That’s not just because of it missing out on the scooter boom. It lags rivals in the entry-level segment, and failed to cash in on demand for premium motorbikes.
To be sure, the share of economy category more than doubled in five years to about nearly 56 percent as of July in Bajaj Auto’s portfolio, according to Crisil. Demand for such models largely comes from smaller cities and rural areas, the biggest driver for two-wheeler sales in India.
Still, Bajaj Auto has not managed to challenge the dominance of Hero MotoCorp, which leads with 58.5 percent share in the economy segment. Bajaj sold nearly 9.5 lakh units in FY18 compared to Hero MotoCorp’s 18.8 lakh.
The gains in the entry-level segment came even as the sales slumped in the executive category. It was Bajaj Auto’s largest-selling segment in financial year 2013-14 with nearly 10 lakh units contributing 47 percent of its total volumes. The company went overboard, rolling out as many as six variants of the Discover. That left buyers confused.
“The strategy for multiple Discover models didn’t work and Bajaj Auto ended up losing market share,” said Avinash Gorakshakar, head of research at Joindre Capital Services Ltd.
The company admitted as much. Bajaj Auto had too many variants of the Discover, some of which included features that the market was not yet ready for, Eric Vaz, president at its motorcycle business, said earlier this year when it relaunched the Discover 125 cc and the Discover 110 cc.
Sales of the executive segment fell nearly by half in 2014-15 to 5.5 lakh units as the company pulled out most of the Discover units. From nearly half the total volumes, it now contributes just 4 percent as of July this year.
Misses Scooter Boom
Bajaj Auto, the owner of the iconic Chetak scooter that made it a household name in India, misread the market by discontinuing scooters. Their share in India’s two-wheelers sales more than doubled to 33 percent in the last decade.
Honda Motorcycles, riding on the success of its Activa, is now the nation’s No. 1 scooter maker, contributing 60 percent of the industry’s volumes. That helped it wrest market share from both Hero Motocorp and Bajaj Auto in the two-wheeler market, selling 3.1 million units in the year through March 2018.
And that’s not the only opportunity Bajaj Auto lost.
Non-Starter In Premium Segment
The company failed to put up a fight in the premium category dominated by Eicher Motor Ltd.’s Royal Enfield. The sales of the World War-era British brand, revived by Siddhartha Lal, quadrupled in the last five years to 8 lakh units in 2017-18.
Bajaj Auto’s Dominar comes nowhere close. Rajiv Bajaj, in a 2016 interview to CNBC-TV18, had said the company targeted to sell 2 lakh units of a year. It sold 20,000 last year.
In a nutshell, Bajaj Auto failed to claim leadership in any of the categories in the Indian market.
All is not lost though. Exports and growing three-wheeler sales have cushioned Bajaj Auto’s profitability. It now hopes that price cuts will help it regain lost market share.
Will that be enough?