Bajaj Auto sees some good fortune in times of Covid

The domestic two-wheeler market could be riding back towards the growth lane earlier than expected by many, if the market response to a major OEM like Bajaj Auto is any indication. During May, Bajaj Auto saw 81 percent drop with wholesale sales at 39,286 units in the pandemic-hit market. But the drop at the retail level has reduced to about 15 percent, during the first half of the current month.

“It's a very good sign that people are coming back and picking up from where they had left off. Nobody can do anything about those two months, but people are picking up. So I'm hoping that we will see a return to normalcy faster than expected,” said Rakesh Sharma, ED, Bajaj Auto in an exclusive interview to Autocar Professional.
(Full interview in Autocar Professional’s June 15 issue.  Download for free)

The addition of a new variant with a split-seat to the Pulsar 125 is a move by Bajaj Auto to tap this revival wave for growth. The motorcycle comes with a 5-speed gear box with primary kick to enable the rider start the bike in any gear, and ‘class-leading’ 11.8 PS of power, clip-on handlebars on a 31mm front fork. The new addition is aimed to enhance the 19-year old brand’s appeal in the 125cc motorcycle segment, which is a natural progression for the 100/110cc commuter motorcycle customer. 

Factors driving the faster than expected market revival at this point are seen as the pent-up demand from the lockdown period and also people’s willingness to get back to work. There may also be a Covid-19 impact as some consumers might prefer a personal vehicle over public transport.

According to Sharma there’s only anecdotal evidence of it till now. “We don't have sufficient and clear evidence that it has become a sizeable force. For that, we still need to wait for some time but I think there is a good likelihood that it will be one of the positive things for the motorcycle industry going forward.”

Even as a revival takes place, it’s not that the industry was in good shape before Covid-19. The overall industry was facing challenges as the country’s economy slowed down. Bajaj Auto, for instance, saw its domestic motorcycle sales drop 18 percent to 20,78,348 units during 2019-20. Sharma feels, there’s merit for economic stimulus packages by the government. He pointed out that, “To restart it, if there are stimulus packages, they will hopefully also address not just the Covid-related issues, but some of the general economic issues facing the consumer and the industry.”

The challenging economic conditions saw Bajaj Auto’s Q4 net profit remain flat at Rs 1,310 crore, compared to the same period last year. Even so, it has announced that during financial year FY2020, it has emerged as the largest two- and three-wheeler OEM in terms of revenue. The company says, over a ten-year period, ending March 31, 2020, it has clocked a CAGR of 10 percent. It’s EBITA margin for the last financial year was 17.6 percent. Bajaj Auto’s ambition and strategy to be increasingly a player in the global motorcycle industry seems to be also helping it maintain a healthy balance sheet.

Soumen Ray, CFO, Bajaj Auto highlighted that, “Our revenues and profits are not dependent on any specific sets of products or geography. Our strong operating performance is a combination of our export performance, product mix and forex, which allow us several levers to protect our industry leading margins.”

As for the domestic industry, the jury is out regarding the return of the good times. As for the lost volumes, Sharma takes an optimistic approach and says, “who is to say that two months of sale can’t come back and get recovered in the balance ten months.” However that likelihood, he adds, depends “a lot” on whether or not the society will be comfortable living with this pandemic or not by having the self-discipline, following regulations and “go about our lives with Covid being around us”.