Retail sales have continued to suffer. Those who insist that there is growth, let them put out their retail data year-on-year and the facts will speak for themselves, says Rajiv Bajaj, MD, Bajaj Auto.
You are planning to invest in a new plant at Chakan. A lot of players in your space are recalibrating their capex. They are wondering whether they want to invest more. Should we look at this as a sign of optimism that things are going to get better?
I would say this is a sign that our strategy is working and we are sticking with it because the test of a good strategy is that it holds you in good stead in difficult times and as you know our strategy quite simply has been to be a global motorcycle manufacturer and even over these last nine or ten months of this disruption, we have done relatively better and continue to do relatively better because we are not dependent on any one market or any one segment.
Now coming to the new plant in Chakan, we continue to believe that the kind of growth we have seen with KTM in the last 10 years will continue strongly into the future. When we first partnered KTM in 2007, it was making 65,000 motorcycles. Now they are close to manufacturing 300,000 motorcycles and over 100,000 of those were designed, developed and made at the first plant that we have at Chakan. It is our conviction that this kind of growth will continue with the brands KTM and Husqvarna into the future. I feel confident KTM will double volumes from here.
As you are perhaps aware, we now have a new partner in Triumph and we want to commercialise those products that we are developing together sometime in 2022-2023. Therefore the main focus of the new plant will be KTM, Husqvarna and Triumph motorcycles for which the world is our market and therefore we are making this investment.
Can you share anything more about this collaboration with Triumph? You said there will be a rollout in 2022-2023. What is the strategy there? What kind of vehicles will we see?
It is no secret that many manufacturers including BMW, Triumph, Harley-Davidson have been very inspired by the success of the Bajaj-KTM relationship. I know because they have all said as much to me and I think the simple way to describe the Triumph relationship would be that in its content and its intent, it is very similar to our partnership with KTM. In other words, we will develop new products together and so most of the development will be done here at our headquarters, at our R&D and engineering facilities in Pune.
These products will be manufactured by us and 98-99% of the content is usually domestic. It is so with KTM and I expect that to be the case with Triumph as well and in terms of marketing and sales, Bajaj will have responsibility not just for the Indian market but for some of the export markets as well including our neighbours in the subcontinent and some markets in Asia, Africa, etc. This is what we do for KTM as well because at the end of the day, we want to be part of the whole relationship. We do not want to just make somebody’s print and then ship it to them. We are not in that business. It will be a very wholesome relationship.
Right now, we have several products under development. Triumph products under development will be in the mid space just like the KTM motorcycles that we make and the Husqvarna ones as well. Sometime in 2022, when we had originally hoped to start up but obviously there have been several months of delay because of the Covid situation. Whether we will still manage it in 2022 or it will be more like 2023, we will know in a bit.
How does the new mutant Covid wave impact exports for KTM? Is there any disruption to your plan?
When the Covid pandemic started, there was a clear shift to personal mobility in the developed markets. I have never subscribed to the view that this is likely to be a significant phenomena in India because in India, whoever needs a two wheeler and can afford it, already has one. But in the developed markets of the US, Europe, Australia etc, most people use cars or public transport. The two-wheeler market is very small. So, if a section of people suddenly feel that it is safer to have their own two-wheelers, they can certainly afford to do so and use that instead of public transport. That’s why KTM has witnessed a very strong growth this year despite the disruption in March, April, May where all of us had different shades of lockdown.
KTM expects to finish this financial year on par with last year. I have heard of year-on-year growth rates in their markets being anywhere between 30% and 100%. Admittedly in volume terms, that is not huge but as you can imagine, these are very very profitable motorcycles and this kind of growth is not for the big motorcycles because the people who are shifting from public transport to a KTM motorcycle are shifting for the smaller ones in the 125-400 cc range.
We have actually witnessed a very strong growth in our KTM exports and therefore from a demand point of view, this has been a good thing for sure since the supply chain was terribly disrupted both at KTM end and certainly over here because the kind of lockdown that he affected here and that problem has not completely gone away.
We are still struggling and we know that recently there have been issues with supply of components, especially out of China. There has been a shortage of semiconductors, ECUs and issues with the availability of containers for exports. The supply chain is still to stabilise. As far as this second, third wave of Covid is concerned, frankly I do not know what it means to me. A virus is a virus if you suppress it through some means it may look like the cases are dropping, the infection is dropping. The minute you release people and allow them to carry on with life as usual, it will come back. Fundamentally, there is a flu out there and it is going to be there for sometime but what can we do? We have to cope with it the best we can.
What is your take on the impact of production linked incentive (PLI) schemes on the outlook for 2021?
Bajaj Auto was a big beneficiary of the MEIS export incentive because we export about half of what we make. So a 2% incentive on exports to us was a 1% effectively across the entire production of the company. Now this was suddenly and without any notice or explanation, withdrawn from this financial year and that was a big hit to a company like Bajaj. There has been an impact of Rs 250-300 crore a year on our business.
We were told that this incentive would not be available for this year so we had to reverse that out of our first quarter results. Of late, one has heard that the government may actually be able to pay this incentive but there is no clarity whether they actually will and even if they will, when will it happen.
As far as these PLI/ RoDTEP schemes are concerned, we understand the intent is to reward those who are exporting although it is a production linked incentive but then the basis is the distance travelled by the goods. Again as exporters, we are very enthusiastic about this development but since there are no details available, it is impossible for me to say what exactly the scheme is about and what will be the impact on Bajaj.
Have you given any inputs on what you would like to see as incentives?
Certainly not just Bajaj, as SIAM, we have given our inputs. I am not aware of the details but essentially at the very least, we should find restoration of the MEIS level of incentive. That should be the floor. Anything more that the government can do is always welcome. For example, I have heard several times that the objective of the government is to create global champions out of India and for this purpose, they wish to focus these benefits on certain sectors and certain companies who they believe stand a good chance of becoming global giants or global champions.
I cannot but agree with this objective because there is no point in a government fragmenting its resources over thousands of organisations. I completely agree with this focus. I would like to believe that the auto industry is important enough to be considered for this incentive and within which, given Bajaj’s track record for the last 15 years of exports should be considered. We now export almost half of what we make which is over two million vehicles a year. I would like to believe that Bajaj will be one of those companies that the government will believe is or can be a global champion.
Net-net, how would you look at 2020 in terms of sales, in terms of demand, in terms of recovery for your business and for two-wheelers specifically?
I will maintain that my view remains the same as it was in September and October and there was absolutely no contradiction in what I said. When I said that sales are negative year-on-year, particularly so for the entry level segment or the 100cc motorcycle, I was speaking in the context of retail sales and if manufacturers would transparently share their retail data on time as FADA has been asking them to, then the facts would speak for themselves.
Unfortunately, for reasons I do not understand, manufacturers resist sharing this data and continue to prefer to put out their wholesale data. Now wholesale being higher year-on-year in September and October is not surprising at all because we know that this year the festive season came in several weeks before last year so obviously September and October this year were going to look good compared to last year and that is exactly what happened for everyone, including for Bajaj.
When we did a high in October it was based on wholesales and we said that. The situation post the festive season again continues to be the same. By that I mean the retail situation because that is what matters at the end of the day and retail is negative year-on-year at least for Bajaj Auto. I cannot speak for others because I do not have access to that data and again, I am talking in the context of motorcycles, particularly entry level motorcycles.
Of course, Bajaj’s sports motorcycles are witnessing growth because that is an area of our strength and we have growth there particularly on the Pulsar brand we have a very handsome growth. We have growth in our exports. That is doing well for us but definitely on the entry side, there is degrowth and I would be just surprised if this de-growth is exclusively for Bajaj.. I would not know how to interpret or explain that.
To me, this de-growth at the entry level is logical because it is that customer who was laid off, it is that customer whose wages were cut, it is that customer who walked home in the form of a migrant. I do not see why people are surprised by this.
So can you quantify the de-growth in entry level for Bajaj Auto year on year?
I do not have the number on the back of my head but I did say in October that it looks like minus 20% and it would be somewhere around there. Now, part of this degrowth is a conscious doing on our part because we focussed more strongly on profitability which I believe is the right thing to do especially in times like this. What has happened is that while our market share at around 19 plus/minus 1% in domestic motorcycles has remained unchanged year on year, the profitability of our domestic motorcycle business in terms of the EBITDA margin has almost doubled year on year.
If you look at it from a volume and share point of view, you may find that we are where we were last year. But if you look at it from the point of view of profitability, we have moved way ahead. Now within a stagnant volume, we support motorcycle brands like Pulsar, Avenger, Dominar, KTM and Husqvarna have grown very nicely whereas the commuter end of it — CT and Platina == brands have de-grown. Part of this degrowth, which can be 20% or 15% now, would be exclusive to Bajaj Auto, but I would suspect there is at least 10% de-growth in the industry as far as entry level brands are concerned. I would be very surprised if that is not the case for the other players.
What is your response when you get trolled a lot for saying we are seeing degrowth when all of your peers are saying that the recovery has been smart and excellent. Your critics say that you are being “negative” even while your numbers are looking fine.
First of all. I am blissfully ignorant of anything that is being said on social media because I am not on any social media. I am not on Facebook or Twitter or Instagram or what have you. I do not know what is being said there. But as far as this matter is concerned, one has to just simply go by the facts.
If you are going to reduce the discussion to wholesale in September and October, that is a very myopic discussion. We can discuss this on a panel with retail data for the last 12 months, for the last 24 months and we can see how the industry was already in de-growth last year because of the three inimical factors of insurance, ABS regulation and BS-VI which combined to raise prices by between 30% and 40%. Now when I name these three factors, when I name their impact in rupees, nobody can deny this because it is a fact.
Once again, this year starting from March we have been hit by three more inimical factors – first the lockdown, then the withdrawal of the MEIS Scheme and then the disruption in imports particularly from China. In this situation, retail sales have continued to suffer and I do not know who they are, but these peers who insist that there is growth, let them put out their retail data year on year and the facts will speak for themselves.
