Bajaj gets ready to shift to top gear for output push

Bajaj Auto, which expects to wrap up this fiscal with over 4.5 million bikes and three-wheelers, has put a fast-track strategy in place to double output.

“We have strong brands in our portfolio and are reasonably confident that the next three years will see our annual numbers touch 10 million units,” Mr Rajiv Bajaj, Managing Director, told Business Line.

Cornerstone

The company's Pulsar and Discover motorcycles, which are the cornerstone of this brand strategy, have played a key role in helping numbers double over the last three years. Bajaj wrapped up 2008-09 at 2.2 million units, going up to 2.8 million in FY '10 and over 3.8 million bikes and three-wheelers in FY '11.

With production of over 2.25 million units in the first half of this fiscal, the company believes that the momentum is in place to end the year at around 4.5 million units. “Our starting point today is a lot stronger and more potent than what it was three years ago when we were still finding our way around,” Mr Bajaj said.

The following fiscal will kick off with “a flurry of launches” beginning with the KTM (the Austrian company where Bajaj has a near 40 per cent stake) bikes. Some interesting initiatives are expected with the top-selling Pulsar and Discover bikes as well as the RE-branded three-wheelers.

Focus on profits

More than the numbers, the company's top priority is to keep its focus intact on profits, especially with its EBITDA consistently clocking 20 per cent for sometime now.

“We have worked very hard on our cost structure over the last two decades and even when (sales) numbers were low, the back-end was pretty much in place,” he said. Today, the buyers are back and a strong front-end is keeping the margins at a happy level.

Bajaj Auto's fixed costs only take up five per cent of the overall structure with variable costs (materials, tools, consumables, electricity etc.) accounting for over 70 per cent.

The small fixed cost component ensures that even something as drastic as a 20 per cent slowdown will affect EBITDA only marginally.

“As a result, the needle will not move too much during times of distress. We have ensured that it is not going to be easy to rock the boat of this company,” Mr Bajaj said.

While the Discover has been the best piece of news from the viewpoint of establishing a presence in the elusive commuter category, the growing shift from the 100cc option has been welcome news. Of the 1.4 lakh plus units sold every month, the combined numbers of the more contemporary Discover 125 and 150 are more than the 100cc.

“If at least 51 per cent of these customers are already part of the bigger Discover kitty, the shift will only increase in the coming months. This is precisely in line with our intention of growing our presence in the 125cc commuter space,” Mr Bajaj said. Hero MotorCorp is the clear leader in the 100cc segment with its Splendor and Passion accounting for nearly three lakh motorcycles a month.