Bajaj Auto: Riding strong in tough conditions

Volume push from product launches and exports are likely to be the mainstay and provide some cushion to Bajaj Auto in FY13, as growth in the domestic market continues to be tepid. This is also visible in the September quarter. Despite new product launches in the quarter — the Discover ST and the Pulsar 200 NS — motorcycle sales fell seven per cent, in the domestic market.

However, it bucked the trend in the three-wheeler segment, due to introduction of three-wheeler diesel variants which helped domestic volumes grow three per cent against near-flat industry growth. While demand has been weak, the company has done well to curb the impact on its financials. Thus, despite a 10 per cent fall in September quarter volumes (two- and three-wheelers), revenues fell only four per cent, on higher realisations. Rising sales of its three-wheelers, Pulsar and higher range of the Discover motorbikes helped realisation improve six per cent year-on-year (YoY).

These also reflected in the Ebitda margins, at 18.4 per cent, down 40 basis points over the year-ago quarter but up 50 basis points sequentially. The company expects to maintain margins on price hikes for three-wheelers as well as Discover brands in July and October. The Street has given a thumbs up to the results, with the stock up nearly one per cent. At Rs 1,781, it trades at 13.7 times FY14 estimates, with price targets of Rs 1,850-2,000.

Domestic mkt: Muted growth

Domestic motorcycles volume fell 12 per cent YoY in the September quarter due to the slowdown. The muted picture continues with the first few days of the festival season showing flat to marginally positive growth, says the company’s president, finance, Kevin D’Sa. But it has improved market share both in the commuter segment (Discover) by 600 basis points to 25 per cent and the premium segment (Pulsar) by 500 basis points to 50 per cent in April-September.

While the management has maintained a five million (domestic/exports) target for FY13, analysts say it could achieve 4.4-4.5 million. Analysts say it is likely to bank on new launches (bike in January) to boost volumes. Things could look up in the three-wheeler segment, given the launch of diesel variants. If the introduction of new three-wheeler permits in Delhi and Hyderabad comes through, average monthly volumes could improve from 18-19,000 now to 20-22,000 a month.

Export focus

While exports (35 per cent of volumes) grew 31 per cent YoY in FY12 to 1.5 million units, these are down five per cent in the first half of the year at 800,000 units. For the September quarter, while motorcycle volume growth for exports fell less than that domestically, the fall was higher in three-wheeler exports, which saw a 22 per cent fall due to issues with the Sri Lankan market. Sales have recovered though on price cuts but are still 20-25 per cent lower than average market volumes.

The company continues to focus on the export markets and expects to ride on its tie-up with Kawasaki and existing distribution networks. The fastest growth is likely to come from Africa, growing at 10-15 per cent, accounting for 45 per cent of export volumes.

While the global slowdown continues to impact sales in non-African markets, entry into new markets and alliances should help. The company continues to stick to its target of doubling export volumes by 2016.

Siam slashes FY13 car sales outlook.

CAR sales in 2012-13 are set to record their worst performance in the last four years as consumer demand continues to be low on high interest rates, poor macro-economic conditions and high fuel prices.
The Society of Indian Automobile Manufacturers (Siam) on Wednesday slashed the sales growth outlook to 1-3% after the industry — for the second consecutive month — posted one of its worst monthly sales in September. Earlier in July, Siam had projected a more optimistic 9-11%. Similar abysmal growth levels were last seen in 2008-09 when sales grew 1.39%. Sales weren't robust last fiscal either, with growth at 2.35%.
The industry is now pinning hopes on festival season sales. Siam director general Vishnu Mathur said: “Diwali (in November) will help push up car sales, but it will still be subdued compared with other years”. New launches in the next few weeks, such as the Maruti Alto 800 and Chevrolet Sail, may also boost sales.
Though car sales continue to be low with grim prospects, utility vehicles may see a rise of 50-52% owing to strong demand for diesel vehicles. As a result, firms like Mahindra and Toyota Kirloskar will be major beneficiaries while Maruti Suzuki may see good sales of its multi-purpose vehicle, which comes in diesel variants also. Utility vehicle sales have already grown 56% to 2.55 lakh in the first half of the current fiscal.
Siam has reduced by half the growth projection for the overall auto industry during the current fiscal to 5-7%, from the previous target of 11-13% announced in July.

Mathur said that the recent hike in diesel prices has led to a 15-20% increase in freight costs, forcing automakers to increase vehicle prices. Higher prices is deterring customers to make purchases.
“The reforms announced recently will not help directly, but market sentiments are certainly expected to improve. If more jobs and money flow into the economy, people will consume more goods,” he said.
Two-wheeler sales growth projection has also been lowered to 5-7% from the previously-announced 11-13%. Buyers in rural areas are believed to have delayed purchases because of the uncertainty in agricultural output after irregular monsoons. Urban buyers are finding auto loans too expensive.

According to Siam, the worst hit could be the commercial vehicle sector, which may post just a 3-5% growth in FY13.

“General industrial production and mining is down, while we are not yet clear how the farm output will be this year. This is why truckers are not expanding their fleet,” Mathur said.

The industry has sent a list of suggestions to the government to help the ailing sector, which includes incentives for fleet modernisation, re-introducing the JNNURM scheme and re-starting government purchases. Meanwhile, car sales in September dipped 5% over the corresponding month last year, though strong utility vehicle demand helped the over-arching passenger vehicles segment to post a 5% growth during the month. Market leader Maruti Suzuki bounced back after its labour problems with a 13% growth in the month, though rivals Hyundai and Tata Motors posted a 14% and 5% drop, respectively.

Two-wheelers were the worst performing segment with a 13% drop in sales in the month. This has been attributed to a cut back in production on low demand and a piling up of inventories at dealers.

Commercial vehicles sales numbers in September were flat, with the medium and heavy CV sub-segment posting a 15% drop in sales.

"My naivete helped me turn around Royal Enfield".

When Siddhartha Lal got married , he opted for something with more horsepower than the traditional mare - a Bullet. Lal's passion for biking in general and his motorcycle brand Royal Enfield in particular is well-known . Understandable, given that 38-year-old Lal cut his teeth in boardroom brain-storming with his gameplan for Royal Enfield.

Known as Motown's Mr Nice Guy, Lal has grown as a strategist since he asked his father for two years of 'grace period' to turn Royal Enfield around. The year was 2000. The company was making losses and the conventional wisdom was that Royal Enfield should be sold. It's a good thing Lal got his way. In the next 12 years, he has not only managed to turn Royal Enfield around but also helped restructure the group flagship Eicher Motors, often going against the grain of analyst and consultant wisdom.

Looking back, Lal credits his 'naivete' for what happened with Royal Enfield. "I was just 26 years old at that time," he says, "and the way I looked at it was simply that the brand had enormous potential . I could see that from a distance with my young and relatively naive eyes that the way we were running it at that time was not doing justice to the brand. I had absolutely no idea what the job entailed because I had no idea about the motorcycle business or any business as such. That naivete helped me take the plunge. Today , if you offer me a struggling business to recoup, I will think a little more before I take it up," he admits.

Lal's litmus test was when he decided to sell Eicher's tractors and engines business to Tafe. That was 2005 and the deal was valued at Rs 310 crore. Lal had by then decided that he wanted Eicher Motor to focus exclusively on commercial vehicles. While analysts lauded the move, auto industry insiders wondered whether the 'young man' was selling off his family silver. Lal's logic was simple — he wanted to have fewer businesses performing strongly. "The Eicher tractors sale was the visible part of the changes that we did at that time and they were many," he says. "We had scores of companies, including a garment business, a hand tool business, a pulp and merchant exports outfit, a consultancy firm and so on. None of them were doing fabulously well and any problem in any of them needed a lot of management attention. So as part of the strategy, every single one of them was either sold or shuttered. I'd rather we had one or two businesses performing extremely well than have a string of companies which were mediocre."

The change wasn't restricted to the strategy side alone. On the management side too, it coincided with the old guard moving out and the entire organization changing inside out. "We were an extremely top-heavy organization so we chopped it down and cleaned it up," says Lal. "When I moved from Royal Enfield to the corporate office I saw it as an opportunity to make big changes . We spent a year analyzing the scenario... it was a wellthought-out move."

Lal knew that there were skeptics even within the company but he was confident that the CV-focus would bear out. It took him another two years to put a rock solid partnership in place. "After the restructuring , we were left with two businesses — the major one was commercial vehicles and the niche one was motorcycles," he remembers. "I used to spend 80% of my time on the CV business - getting it off the ground, negotiating for a partner , getting everything in place." The search for a partner too took its time. After serious negotiations with Daimler - the team even flew down to India for a final pow-wow before signing on the dotted line but the discussions fizzled out — Eicher found the partner it was looking for. In December 2007, Swedish truck maker Volvo signed up with Eicher Motors, investing Rs 1,082 crore for a 50% stake in the joint venture company Volvo Eicher Commercial Vehicles (VECV). The JV stumbled on to the 2008 slowdown almost immediately and two years on, the cycle has turned once more. But with enough investments in place — Rs 1,000 crore in a new engine making plant to make India a global sourcing hub for Volvo, new product platforms, paint shops and lines and a new bus body plant — Lal is confident of riding out the slump. The good news is that both businesses are generating enough "positive cash flow" to keep the investors happy. VECV is using its internal accruals to fund its expansion programme. And as of September 2012, Royal Enfield has been enjoying "40-50 % growth for more than two years and that too constrained by production" , says Lal. RE's new Rs 150-crore plant in Chennai should be up and running by the first quarter of 2013 and the product pipeline is happily busy.

Not surprisingly, Lal isn't spooked by the slowdown. "CV is a cyclical industry and it faces a basic correction in cycle every 3-5 years," he says. "Sometimes it coincides with correction in the economy as well. It's a short-term issue dealt with short-term solutions , including improvements in production, cash flow and inventory . But we do not, for a second , ease off on our long-term investments and plans." By his own admission, Lal has had a frenetic decade ever since he offered to help turn around Royal Enfield. But the deal-making zeal hasn't come in the way of his passion for the brand that started his journey. That perhaps is one of the reasons why, despite some very lucrative offers, Lal has refused to part with his motorcycle company. Now with CEO Vinod Aggarwal running VECV, Lal has more time to focus on building up Royal Enfield as a classic brand. "I can now devote 50% of my time to RE," he says. "We are creating a market for that brand which is the practical leisure motorcycle market . It's a modern classic, a heritage brand that can be driven to work and also taken to mountain dirt tracks. Through all the tough times, we have stuck to our guns. It's only now that our focus is paying off," he says.

India Inc Talks Reforms with Geithner; Bernanke

Visiting US Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke today met corporate India leaders and discussed the recent American policy measures, including quantitative easing and the economic climate in the country.

“We got briefed by both on the US economic situation. We briefed them on India and said we were very confident now that the reform process is taking place,” Godrej group Chairman Adi Godrej told presspersons after the breakfast meet arranged by industry lobby CII, which he heads.

A majority of the business leaders said the recent decision of the Federal Reserve to inject a third round of liquidity injection and its implications were discussed.

“He (Bernanke) explained what the strategy for QE3 (quantitative easing 3) is and assured us that the implications are not going to be as large as people fear,” Vice-Chairman and Managing Director of infra financier IDFC, Rajiv Lall, said.

Finance Minister P. Chidambaram, during interactions with Geithner yesterday, had expressed his concerns over the impact of the QE3 on commodity prices, as that will have a direct bearing on the Government’s and the RBI’s efforts at controlling inflation and boosting growth here.

To a question, Lall said contentious issues such as those surrounding visas to Indian IT professionals by the US and outsourcing were not raised by the Indian industry.

Mortgage major HDFC Chairman Deepak Parekh said the recent spate of reforms in the country, the need for the Government to reduce subsidies and boost growth were also discussed. “They (the US) are very positive (on the recent reforms),” he said.

Chanda Kochchar, Managing Director and CEO of the country’s largest private sector lender ICICI Bank said, “I think their outlook is positive. Of course, everybody recognises that much more needs to be done as well. But I think their initial reaction is very positive.”

Royal Enfield launches Thunderbird models

Royal Enfield, a part of the Eicher Group, launched its Royal Enfield Thunderbird 500 and the all-new Royal Enfield Thunderbird 350 on Thursday.

The Thunderbird 500 is priced at Rs. 1,82,571 and the Thunderbird 350 is priced at Rs. 1,43,346 (ex-showroom Mumbai).

“With the launch of the Thunderbird 500 with its unique 360-degree design language and its higher powered engine, we have again upped the ante in leisure motorcycling. We have been selling around 1,000 units per month of the Thunderbird 350 and we expect this number to rise significantly with these two products,” said Siddhartha Lal, MD & CEO, Eicher Motors, while speaking to The Hindu.

“It is no doubt a niche segment. When we launched Thunderbird 350 in 2002, we recognized a definite potential in the Indian market for cruisers and people are willing to upgrade. Not only is it good for long distance travel, but also daily commutes,” said Mr. Lal.

The Chennai plant would make engines for products assembled at the new plant coming up at Oragadam, near Chennai, said Mr. Lal. It would come up by March 2013.

“The new plant would initially only make Thunderbird bikes and we would have a combined capacity of 150,000 units per annum. However, by 2014-15, this capacity will increase significantly,” he said. The company is investing Rs. 150 crore in the new plant.

Royal Enfield makes Bullet 350, Bullet Electra, Classic 350, Classic 500, Classic Chrome, Thunderbird 350 and Desert Storm bikes and exports to 40 countries. “Exports account for less than 10 per cent of sales. We would export the new Thunderbirds only after meeting domestic demand.”

Mr. Lal said there was no industry slowdown impact. “We have a strong order book and some products like `Classic’ have a 6-8 month waiting period.’’

Yamaha cut share capital to write off Rs 1,050 cr losses

Two-wheeler maker India Yamaha Motor, a subsidiary of Yamaha Motor Corp of Japan, has written off losses to the extent of Rs 1,050 crore by reducing its capital, according to its submission to the Delhi High Court.

India Yamaha, which started operations in 2008 as a joint venture (JV) between Yamaha Motor and Mitsui & Co, is cancelling 105 crore equity shares of `10 each. The proposal has been approved by the privately held company’s board already.

“The paid-up equity share capital of the company is hereby reduced from `171 crore divided into 17.1 crore equity shares of `10 each to `66 crore divided into 6.6 crore equity shares of `10 each,” the filing said.

The court approved the scheme on October 4. India Yamaha is writing off the losses as they are quite substantial and any future profits would not shrink them much, the company said in its submission.

With smooth operations key to good performance in a “highly competitive market”, the company needs to revamp its image and restructure its financial situation, the court has observed. “It would be difficult to reduce the (substantial accumulated) losses within a short span of time through operating alone. It is their considered opinion that the effective method of reducing losses in a short period of time is by reducing the share capital of the company and writing off losses against the same.”

India Yamaha’s shareholders who will take a hit in the write-off are Yamaha Motor, Yamaha Motor Asia of Singapore and Bussan Automotive Singapore.

Hiroyuki Suzuki, India Yamaha’s CEO and MD, had earlier told the media that for the Indian operations to break even, the company would have to sell 5-6 lakh units a year.

In a bid to turn its fortunes around, India Yamaha is rolling out gearless scooters, to be followed up by launch of 100cc vehicles later, which may replace existing models like YBR 110 and Crux, which have failed to make much impact in India.

Additionally, it is raising capacities at Surajpur and Faridabad, taking aggregate output to 10 lakh units a year, which will be scaled up to 18 lakh units when a greenfield project in Tamil Nadu becomes operational.

Yellow I love you - Vespa

Rational benefit-led communication eulogising about prolific mileage and muscular engine power is what the automobile advertising is mostly known for.The iconic Italian brand Vespa chooses to break the clutter with its maiden television campaign

MV Krishna who heads marketing for Vespa two wheelers admits his job is both tough and fun.To sell an automobile brand as a lifestyle statement instead of taking the rational-benefit route is a big risk in India.The reason he opted to take up the role of assistant vice president marketing at Piaggio Vehicles,after having worked in the automobile space for over 16 years on brands like TVS and Castrol is because he believes it is not just another two-wheeler.He has joined Vespa - a brand known for its associations with fashion and lifestyle,and that iconic imagery is what the new TV commercial created by Meridian Communication striving to establish.

The campaign is a simple story of a young fellow,getting ready one morning and zipping past on his canary yellow Vespa while being on the look-out for the correct accessory in this case the girl who matches his style,and of course,his Vespa.Colour,costumes,props,and music have all been used to full effect to grab attention.Agrees Krishna,There is a surreal tone to the ad flamboyant and exaggerated to accentuate the effect. The focus is clearly on the brands retro classic,yet modern chic imagery but with a sharp difference.Explains Satish deSa,executive creative director,Meridian Mumbai,We were clear that we wanted the European idiom of retro for the campaign and not the Om Shanti Om polka-dotted Indian retro look.
The challenge in auto-advertising has always been about the consumers need for the features and rock solid reasons to fork out cash.This campaign opts to stay away from the run-of-the-mill pegs - neither mileage nor pickup figures anywhere.Says Krishna,For a premium lifestyle brand like ours to navigate this tough path has been a challenge,where we have desisted in talking about the features in spite of the fact that the brand with its 125 cc powered 3-valve engine is at par with any other in the market.

Vespas communication for instance in Europe has never needed television advertising owing to its iconic status as well as familiarity.In India too,television was not the first medium of choice when the brand launched nearly four months ago.It chose a digital campaign,which was followed up with print and out-ofhome along with activation and below-the-line initiatives.Shares Samrat Bedi,head - Meridian Mumbai,It is probably the first ever strategically developed TV campaign for the Vespa brand. Launching on digital and not on a mass medium like television is a brave choice,many would feel,but there is logic in the sequence.Says Anuraag Khandelwal,executive creative director,Meridian Mumbai,Going mass early on with TV would have been a problem for many reasons.There was the brands heritage story to be told and there was a connect to be formed with the target audience and in our view these jobs were better done by other mediums like digital,print and BTL.

Sourabh Mishra,chief strategy officer,Saatchi & Saatchi India feels that while the new film is in the right strategic direction,the Vespa fan in him wishes the storytelling were a little richer.In his view it makes a lesser impact than one would expect from an icon like Vespa.

The film has been shot by the UK-based Harvey B-Brown whom Krishna recalls as being as fashionable as the brand itself.In Bedis view,Brown brought in lot of special elements in terms of the detailing in the frames as well as the overall look and feel.Satbir Singh,managing partner & chief creative officer,Havas Worldwide (formerly Euro RSCG) feels that the classic Vespa image has always been Gregory Peck and Audrey Hepburn in the 50s Hollywood classic Roman Holiday and would have preferred if the guy in the ad was more masculine like in the movies of 50s and 60s.A slightly more mature looking guy could have added a bit more.