November 1, 2012: Rajiv Bajaj, Managing Director, Bajaj Auto

Honda and Suzuki have been the biggest performers this year, primarily because of their rekindled interest in the Indian market. Experts say HMSI’s Dream Yuga has opened up battle lines in the entry-level mass segment which Bajaj Auto has given up on as it has moved up. What is your take on this?
Firstly, it must be acknowledged that Honda is the biggest two-wheeler company in the world. Yamaha and Suzuki are also majors. So, one must accept that they will definitely capture market share, not in a defeatist way but in a realist one. Secondly, we’ve always placed profits ahead of sales. Today, Bajaj Auto’s market share is about $10 billion. Yamaha’s is about a third of that while Suzuki has not made money in the two-wheeler segment in the last five years. In the end, we want to be Apple not Nokia. Therefore, we must keep our eyes on the ball in terms of sustainable growth and profitability. I’m not suggesting that Honda is buying market share but sometimes – to get volumes in – new players will play the volume game, even if it is at the expense of profits.

The Dream Yuga is the first of the many products in the range that targets the entry-level commuter segment. And this segment, most believe, is best protected during a slowdown. Does that worry you, as it’s a slice of the market that you’ve left behind?
I don’t want to sound over-confident but I’m quite reassured. I’ll explain. That is the end of the market which is really suffering right now. I’ve read media reports which state that the volumes of the Splendor, which is the leader in that segment, have halved in the past five months. I’ve seen it happen to Bajaj in the late ’90s and it’s happening now to Hero or rather that end of the market, as consumers want something more and better.

Do you think this is also a result of Honda targeting that market aggressively?
I don’t think that is the case. I just think that people are tired of the category, much like they were tired of the Chetak. That end of the market is not experiencing a fall but is going through a shift. Honda has come into that segment and I think it is catching a falling knife. The company has come in with a 100cc bike which is as unremarkable as the Splendor. There is not one (new) feature there. I don’t think they are doing themselves justice.

But Honda may say it has got nothing to prove. It is looking to penetrate the Tier 1, 2, 3, and 4 cities and that’s precisely what it is doing.
Well, Honda’s capacity for that is 30,000 motorcycles a month. Hero sells half a million monthly; 30,000 is not going to affect Hero. But going beyond capacity, I think there are two things happening. One is that most people associate Honda with Hero because of Hero Honda. Now that Honda is independent, it’s possible that the ones who want Honda are going there instead of Hero. That’s music to my ears. Two, if by making something that’s no better or different from what Hero’s been selling for 20 years, then over time it’ll be sending out a message that “this is all we’re capable of.” In the meantime, we’ve introduced the new Pulsar and the new Discover. Four-valve machines, triple-spark technology, five-speed gearbox. More than the technology, the pricing is crucial. Compared with the equivalent Honda and Hero models, the new Pulsar and the new Discover are priced at 3-5 percent premium. We will sell about 35,000 of the new Discover this month while the new Pulsar sales should hit around 8,000. The numbers prove my point. We set out to tell people that if you want something better, something more value-added by paying only a little more, then come to us. I think the Yuga only helps our cause.

Two years ago, you said the Pulsar, in the new avatar, could evolve into a range of products. Is that still on the cards?
The Pulsar platform is ready for the launch of two new Pulsars next year. The more illustrious of those will be a 375cc, high-performance, sports bike. I think it’ll take the brand into a new orbit altogether. Pulsar will move on in this fashion and the platform’s good for the next decade.In the next two to three months, off the Discover platform, we will launch the most technologically-advanced 100cc bike in the world. Typically, 100cc bikes are sold like a commodity in this market. We don’t want to be part of this rat-race. We’ve struggled for a long time while building our portfolio in the 125cc-above market, where we’re clear leaders. But we’ve been looking at the 100cc segment and thinking of ways to create a product with a difference. And I think we’ve cracked that. It’ll be the most expensive 100cc bike in the market, but I state that as a virtue. It’s a fantastic motorcycle with great technology. And I think this product will draw a large number of people to the entire exercise of paying a little more for a superior product.

How much of a premium are we talking about?
Maybe at a 5 percent premium. That’s great as 5 percent is not a lot for the customer but goes straight to the bottomline, which will boost my 15 percent EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) to 20 percent. So, 5 percent is very considerable in that sense. And for that much money, millions may move up.

That end is a volume market. Won’t how well you do depend on how much you can produce?
It will work. The size of that market is about 200,000 bikes a month. There’s the Passion, Yuga and the Splendor. This is the top of the pyramid in that segment. Since we have a 40 percent share in the segment which is right next to this (125cc), we hope consumers will grant us similar fortunes in this segment as well.