February 1, 2011: Rajiv Bajaj- MD, Bajaj Auto

A double-digit EBITDA margin is something Bajaj has almost made a habit of. In a situation like this (rising input costs), is that something more challenging or achieveable?
Yes, input costs will threaten that. We have managed over the last 18 months, to remain in the 20-22 percent space. However, what I think is more likely to challenge that is competitive pressure. Because in the end, our EBITDA of 20 percent is not in isolation of the rest of the industry. Our own anticipation is that our own EBITDA should be at somewhere around 6 or 7 percent points higher than the industry average. By industry average, I mean not just two-wheelers but cars, trucks – the whole auto industry. Typically the EBITDA is at 13 percent. The band is 10-15 percent typically. And as opposed to 13 we expect to be at 20.
This is also the year after the big split. And you’ll be looking at a competitor who will come in with more to prove now. How are you looking at that competition?
One should not be dismissive and say it’s just another competitor in the marketplace. Honda has been in this market for over ten years and in the motorcycle segment since 2004. Hero Honda is already the world’s largest motorcycle company for the last several years. So, I think the competition is always been there. On any operating lever, it is hard for us to make a case vis-a-vis Honda. Can Bajaj quality be significantly and distinctly better than Honda? I don’t think so. Can our costs be much lower? I don’t think so. Honda is there in China and India. Why should they match cost? In terms of distribution Honda has a wider distribution globally than Bajaj will even in the next five years. So, what is that parameter, what is the basis by which we can hope to compete? We can’t compete on some notion of having some knowledge of the Indian market. I don’t think there’s any such specific knowledge. So, we have to compete on strategy. That’s what we put into place two years ago in 2009. So far it has done very well for us.
At this juncture, you are also at crossroads where in the next three months you are to unveil a new strategy where you are taking the product name beyond the mother name. Are you completely on track with this?
Our strategy was not timed with any knowledge with these developments obviously because we conceived the strategy in 2007. It took two years for us to align our back end to it in terms of our products and capacities. We rolled it out into the marketplace in 2009. So, it’s a fortunate coincidence I would say. Our strategy relies on some principles. One of them is that often this approach of the mother brand is rooted in the belief that familiarity breeds success or comfort or security or some such notion. And that’s why marketers will often line extend a strong brand in the hope that that familiarity will propel business success. But I belong to the school that believes that familiarity only breeds contempt. It’s only novelty that breeds desire. I think from a consumer point of view the brand is what we call the product. The Pulsar is a brand, the Discover is a brand and if I may say the Splendor is the brand, the Passion is the brand because what that stands for is very clear. I don’t believe in the mother brand.
How will the new brand strategy manifest physically?
Mohammad Yunus (winner of the Nobel prize for peace) said a wonderful thing - “forget the helicopter view, the bird’s eyeview. The way to do it is the worm’s eyeview, the grounded view.” I would therefore say that just as we used the terminology ‘the mother brand’ we often say ‘the roof brand’. Our approach with Bajaj is not to use it as a roof brand but to use it as a ‘root brand’ to acknowledge that our origin or our lineage may stem from somewhere. But what has evolved out of it has its own personality as much as that I may belong to the Bajaj family but when I am Rajiv Bajaj, hopefully there will be something distinct about me. So, in the same way when we have...let’s say the consumer sees the company in three ways. One, in terms of the product. On the product we proudly say Pulsar or the Discover or the RE, for the motorcycle that we export to some countries we call it the Boxer. So, that’s the brand, however, the heart of the product which is the engine we say Bajaj DTSi because Bajaj DTSi is that unique differentiated technology which is this brand. The second place where he sees it is at the retail point. What is today Bajaj dealerships must become Pulsar and Discover dealerships. I think that’s so much more powerful because today the consumer has to wonder what’s inside the Bajaj dealership. Is he going to find a fan, a bottle of oil, a big bike, a small bike, a scooter possibly or a three-wheeler. He’s not very certain. But if you were to say Pulsar I think no second guess is required. The third place where he will see this is in terms of communication.
Hamara Pulsar?
No, we would not carry Hamara because we think...I like what someone said about branding a hole in the ground. A hole in the ground can be enlarged and expanded but it can’t be shifted. I think Hamara rests where Super and Chetak rest. It runs very deep there but that’s its place. It has no place with the Pulsar or the Discover.
How do you see a brand like Pulsar evolving over the next 5-10 years?
The Pulsar is positioned in the sporty space in the sense that it’s not a boring commuter but it doesn't pretend to be a supersports bike either. Today we make four different Pulsars with four engine options between Rs 50,000 and 75,000. Now, if we have to take successful examples whether they are of Harley or Mercedes Benz, BMW any of these strong automotive brands it suggests to me that there are two three different things we can do to the Pulsar. One is the appearance, the form of the brand. Today it is presented in the form of a motorcycle. Could not the Pulsar be a scooter? Surely it will be a scooter. If there could be a sporty, happy, fast and sexy scooter but looks like a Pulsar without having to say it’s a Pulsar then I think there could be a scooter called the Pulsar for example.
Will you go down that path?
We have come all the way to a 220 Pulsar. I would say why couldn’t there be a 800cc Pulsar? I could keep growing motorcycles, and indeed scooters, in that direction. 800cc scooters are more the norm than exception in Europe today. Could there be a 800cc Pulsar scooter in Europe five years from now? Why not?
Have you got the roadmap of a larger bike, scooter, possible expansion of the brand?
Not everything is detailed out. Today, the world of two-wheelers is about 50 million vehicles a year and still growing, within which motorcycles account for 20 million. The rest is mopeds and scooters. If I disregard the moped and the scooter, by competing in the motorcycle space we compete for 60 percent of the volume of 2-wheelers globally and in fact in terms of revenues and profit, around 80 percent because motorcycles are more expensive. In this space which is characterised by 30 million motorcycles Bajaj last year sold little less than three million vehicles. This means that we have only 10 percent global marketshare. Since in India it is 27 percent, in most markets we have single digit marketshare. We see ourselves as a manufacturer of 10 million vehicles. We can see there is reason and logic there for us to grow to that kind of volume and that should come from our four brands – Pulsar, Discover which are our primary brands, then the Boxer which is for exports and the three-wheeler, RE.
Have you got a timeframe for this expansion?
I consider it quite silly to talk about sales without profitability. We said 4 million vehicles with 20 percent EBITDA. I think the 20 percent EBITDA is done. It seems that we are going to fall 3 percent short of the 4 million target. I think 97 percent accuracy is pretty good accuracy. We think next year we have a chance to do closer to 4.8 million. In the previous years we were 2.8, then 3.8, closer to 5 now. I believe we can keep adding a million units a year and then a little more in the next couple of years. I think 5-6 years is a good time frame to reach the 10 million mark.
Coming to the small car venture. Do you see it in conjunction with this? Now with the name not being part of your products, how are you going to position that?
Coming to the small car venture. Do you see it in conjunction with this? Now with the name not being part of your products, how are you going to position that?
How much of a say do you have in it?
It will be upto Renault and Nissan on how they want to brand it which will automatically decide how we are going to distribute it. This (the small car) will not be the only product that will be made and supplied because that will not make sense. The platform has been designed very intelligently to yield both three-wheeled products and four-wheeled products. At the very least we’ll use the same platform and make and offer in the market a new generation of three-wheelers. Once this platform is available from the middle of next year, we have the option of offering the marketplace a new generation of three-wheelers.
Given your decision to get out of the Bajaj moniker, what are the issues you face on the ground?
Of the 20 years that I have been at Bajaj, the first 15 were spent doing the obvious so to speak such as manufacturing, cranking up new products and it didn’t get me very far, so maybe I am just catching up or making up for the lost time.During this period, I have seen companies do well and then fade way. So I said to myself, if so many have perished and so many more are on the edge, its going to be a matter of time before Bajaj could be in trouble. So we really reflected deeply and asked ourselves when consumers can buy a Honda or Yamaha, why on earth should they buy a Bajaj, what can I say to them. Can I say my quality is twice as good, I am half the price? I can’t. And if I have to say, come to me because I make three million vehicles of good quality and price, the consumer can say Honda makes 15 million worldwide, so why should I come to you.Therefore, I knew that it was not on any operating lever like cost, quality or distribution, that we were going to find an answer. The most powerful strategy in marketing terms is an offence strategy when you try to be opposite to the leader. If Honda is going to be one size fits all, Bajaj is going to be the specialist of something. If Honda is the general physician, I will be the orthopaedic surgeon. Am I necessarily an orthopaedic surgeon? Perhaps not. But I must create the perception and the only way to do that is to do one thing all the time.
What kind of a lineup you have in terms of new launches?
In the volume space, there are only three kinds of motorcycles really. It is up to us to develop these brands - - Discover, Pulsar, and the Avenger forward, based on design, performance and price. So the way we would meet the Hondas in the market space is with a two-pronged approach -- to take the Pulsar forward, and because it comes from a platform, it will have certain advantages that I am pretty sure that the Honda bike will not have and on the other hand we will flank it at the other end with the KTM.