Exit from scooters
Let us take bit of a flashback into the 70's and imagine a world in B&W. Bajaj introduced its first indigenous scooter brand - Chetak. Its practicality and reasonable price made it a blockbuster product for the company. Bajaj's name became synonymous with scooters, just like Colgate stood for toothpaste. In the 80's the company spawned few more brands like Priya, Super etc. and the brand slogan 'Humara Bajaj' was ubiquitous. In the absence of a formidable competition, the company had a near monopoly in two-wheelers.
Hero Honda's entry in 1984
HH started offering motorcycles to the Indian customers. Share of motorcycles among two wheelers increased gradually. Bajaj kept its fingers crossed on the scooter segment.
Entry of Honda Motorcycles and Scooters India in 2001
HMSI launched Activa gearless scooter which quickly became a success because of its easy handling, electric start, refined engine and distinct looks. Customers started migrating towards Honda and Bajaj's geared scooters began to appear ancient. Undisputed leadership often leads to indifference and ignorance (remember Kodak?). Bajaj went into a dormant state and failed to wake up to changing market dynamics until it was too late. It tied up with Kawasaki to enter into motorcycles in 1986 but found itself lagging behind. The iconic Chetak ran on ventilator support and was killed in 2005.
In a last minute attempt to salvage volumes, Bajaj came up with its gearless scooter 'Kristal' in 2006 which failed miserably. Once a dominating force, their market share fell significantly by 2009. MD Rajiv Bajaj decided to vacate the scooter segment citing focus on motorcycles. This is where we feel the company left the mine just before striking gold. Increased acceptance of modern gearless scooters among all age groups led to a phenomenal growth of this segment. Share of scooters has increased from 14 per cent in FY08 to about 25 per cent in FY14 and the absence of Bajaj served the growth pie in a platter to Honda, that too for free!
The idea to completely back off from scooters was not the ideal one because Bajaj had an extremely strong image of a scooter manufacturer with a high brand recall. 'Humara Bajaj' jingle still resonated with people. That image had to be shed and converted to Bajaj as a motorcycle maker, which was extremely tough even after spending truckloads of money on promotion. A new manufacturing plant along with R&D and product development facilities had to be established, which meant spending of more money.
Bajaj's dealers which were used to sell scooters now had to be re-trained to sell motorcycles. Also, the distribution network had to be modified. Add few more truckloads of money. Cost of lost opportunity. Probably worth more truckloads of money than the above three combined. If Bajaj stayed and captured even 15 per cent of the market, it would have earned more volumes than it currently gets from Platina.
Absence from scooter segment will continue to hurt Bajaj as scooters are likely to grow faster than motorcycles in the years to come.
Entry into Motorcycles
Bajaj's motorcycle journey began in 1986 with economy bike KB100 in collaboration with Kawasaki of Japan. The bike stayed in production for 10 years and spawned several variants. It was replaced with Boxer in 1997 which was further succeeded by CT100 in 2004.
Executive commuter bike Caliber was launched in 1998 and managed 1 lakh units within 12 months. It got succeeded by Wind 125 standard street bike in in 2003. This bike was rebadged within a year as Discover for the 125cc segment and the 100cc version was launched as Platina in 2006.
Bajaj entered the Premium bike segment with Pulsar and Eliminator in 2001. The Pulsar brand turned out to be a huge success for the company. Tens of design changes and hundreds of variants later it still continues. Eliminator was eliminated in 2005 and replaced with Avenger in 2005.
Bajaj also has a partnership with Austrian manufacturer KTM in which it also holds a 48 per cent stake. The KTM models available in India are Duke 200, Duke 390, RC200 and RC390. Next we break down Bajaj's performance in each segment and check if there is a devil in the details.
This is the segment which brings the highest volumes to the motorcycle market. Even a few percentage points of market share would translate into numbers in 5 digits. Keeping that in mind, Bajaj lost 1.87 per cent of its market share in 2014, even though the segment witnessed a decent growth of 4.44 per cent.
The company's range of Discover 100/100 M and Platina 100/ 100 ES finds itself hammered by market leader Hero Motocorp's onslaught through Splendor/ Passion/ HF Deluxe/ HF Dawn range of motorcycles, which sell almost 4 times in volumes. Clearly Bajaj falls short of offerings here and needs to introduce fresh products if it wants to capture a larger pie of this segment.
The exports however show a complete role reversal. Bajaj effectively dominates the market more or less holding on to its share of almost 74 per cent over the past three years. The Boxer and CT 100 brands of motorcycles, which are exclusively made for exports have been well received in the foreign markets. In fact, Boxer is the leading brand in Africa among all competitors. The company's exports grew 3.26 per cent in FY14 while the total exports in the segment grew by 4.43 per cent.
The fall in Bajaj's market share in this segment can be compared to the fall in crude oil prices over the past one year, both have nearly halved. Bajaj lost 12.35 per cent of its market share in 2014, while the segment grew a miniscule 0.39 per cent over the previous year. Whatever share of pie was lost by Bajaj seems to have been equally distributed between Hero and Honda. This drastic performance of the company in a segment where it held one-third of the market needs to be probed deeper. The Discover brand has been losing its significance despite having given several product updates. What Bajaj has done is that they have extended the brand in both the upper 150cc segment and the lower 100c segment along with tens of variants. Two things could have happened here: Brand Dilution - presence in three different segments confused customers what Discover actually stands for, so they migrate to the competitors.
Cannibalization - A price sensitive buyer goes for the lower segment for more value for money and a performance seeking buyer opts for the upper segment rendering the middle segment of no consequence. The picture was not that bad in the exports where Bajaj lost 2.63 per cent market share over FY13 though there was an increase in the absolute numbers by 12.11 per cent over the previous year. The company holds 56.49 per cent of the exports in this segment. TVS and Suzuki, though exporting much lower numbers are steadily increasing their share.
This segment is yet another headache for Bajaj and for the industry as a whole. The segment volumes have shrunk by 20.67 per cent over the past two years while that for Bajaj have declined even faster at 36.76 per cent. As a result, Bajaj's market share has dwindled by a significant 10.42 per cent to land at 40.94 per cent.
A sigh of relief for Bajaj is that they still hold the leadership position in this segment and are fairly ahead of their closest competitor Honda which holds 26.67 per cent share. However, if this downward trend continues for another year their leadership position may be well within arm's reach of Honda.
The Pulsar 150 has been Bajaj's star product since its inception and its 'performance' bike image has clicked with the Indian customers. However, the company has given it the same treatment as the Discover. Pulsar now comes in 5 different engine options - 135/150/180/200/220 cc.
Bajaj has historically followed the strategy of putting more focus on the higher engine size segments. The company has also launched the Discover 150cc in 2014 to reinforce their market presence. Though these segments contribute a lower volume as compared to executive bikes, they are expected to grow significantly in the long term as the customers move upmarket. If that happens, Bajaj might have a competitive edge by having a stronger brand and a wider product portfolio.
The situation on the export side looks much worse than the domestic. The segment returnedto almost the same volumes in 2014 as it had in 2012 but sadly Bajaj's did not. Their volumes got eroded by 22.32 per cent. As a result, the share of exports dwindled from 65.51 per cent in FY12 to 51.05 per cent at the end of FY14. The volume eater for the company here is Yamaha Motors whose share increased from 20.79 per cent to 33.98 per cent over the two years. Here too, Bajaj's leadership position is under grave danger and the panic button should have been pressed by now.
This segment has only two players fighting with each other. Bajaj offers the Pulsar 180 and 200NS along with KTM Duke 200 and RC 200 while TVS's Apache RTR is their lone fighter. Contrary to expection, this lone fighter completely demolishes the comparatively fresh opposition single handedly. In FY14, TVS snatched away 10.20 per cent market share from Bajaj despite the product onslaught by the latter. This being a more premium segment with major customers being the urban youth, the importance of brand is significant. Keeping that in mind, having a strong domestic brand like Pulsar and a global brand like KTM has not helped Bajaj salvage its volumes.
On the other hand, exports in this segment have seen stellar growth for the company. Over the past two years Bajaj's volumes have grown by 171%, much faster than the overall export growth of 72 per cent. Much of this success is credited to new model launches namely Pulsar 200NS and KTM RC200.
This segment is a three sided battle among Pulsar & Avenger 220 from Bajaj, Karizma from Hero and CBR 250R from Honda, all of which are strong and popular brands. However, it's Bajaj which scores a convincing win over the others. Despite the segment volumes declining by 6.34 per cent since FY12, Bajaj has increased its market share from 57.29 to 67.87 percent. In absolute terms, out of 137454 units sold in 2014, 93290 units belonged to Bajaj. Once a marginal entity, the Avenger has now caught the fancy of urban Indians who want to ride cruisers. In FY14, the company sold about 41,000 Avengers and its demand has been increasing within a niche section of customers. Bajaj commands a major share of the exports in this segment and represented 78.63 per cent of the volumes in FY14. However, being an upper segment the volumes are comparatively low. On top of that, export volumes of the segment have declined by 56.12 per cent and that of Bajaj have gone down by 64.09 per cent in the span of two years.
Bajaj is a recent entrant in this segment with the KTM RC390 launch in 2014. The good news here is that in the first year itself the bike has managed to capture 15.85% of the market and it is expected to increase more by this year end. With its trademark orange frame and alloy wheels, the KTM's have become quite a rage among the youth in urban India. The rest of the segment belongs to the Royal Enfield heavyweights. RC390 provides a sports bike body style in this segment which otherwise has only street and cruiser bikes, hence offering a new proposition to attract buyers. Bajaj has exported more KTM's than it has sold in the domestic market and it has led to more than four-fold increase in the export volumes of this segment.
Commercial vehicles - three wheelers
Bajaj is the world's largest producer and India's largest exporter of three wheelers. The company's brand RE (which stand for Rear Engine) range has three wheelers running on diesel, alternative and hybrid power. In FY14, Bajaj held 39 per cent share in the domestic market but sales numbers declined. The drop can be attributed to sluggish economy and lower issue of permits by transport authorities. The competition from Piaggio and Mahindra is also increasing in this space. Numbers did grow in exports but slower than the overall market. As a result, share of exports dropped down from 83.8 per cent in FY13 to 73.8 per cent in FY14. The control still stays with Bajaj here.
The re-branding exercise gone haywire
In the beginning of 2011, Bajaj decided to withdraw its family name from its products and develop individual brands having their own identity. The rationale behind this was since Bajaj group diversified into areas like electrical, finance etc, having the family name would confuse the buyer what they actually stand for. So basically, Bajaj had restructured itself from a branded house (many products under an umbrella brand) to a house of brands (separate brands owned by a parent). For exampleVolkswagen is a house of brands - Audi, Bentley, Lamborghini function separately and do not carry VW badge anywhere. Though aimed at reducing confusion the exercise seems to have created just that. The brands now functioning independently are poaching into each other's territory. Discover has stepped into Platina's segment, Pulsar has model in KTM's space etc. These overlaps create misunderstandings in terms of positioning resulting in diluted brands and cannibalization of sales. Bajaj has seen its market share decline since then.
The big picture
Overall, the Indian domestic motorcycle market has grown 42.75 per cent by volumes since FY10. Sales reached at an all-time high of 10.47 million units in FY14. For Bajaj on the other hand, the situation is not that rosy. From a market share peak of 26.80 per cent in FY11, the company has had three consecutive years of declining market share. The last year was the worst of the lot as Bajaj lost 4.4 per cent market share pulling it down to 20 per cent.
A major chunk of this loss is credited to the dismal performance of Discover in the high volume sub- 125cc segment. Bajaj has made a classic mistake of line extension of a fading brand in the hope of increasing sales. This coupled with new product launches and aggressive sales promotion by the competition has only made matters worse. Bajaj would have to reframe its strategy for the commuter bike segment if it wants to stay relevant.
Moving over to exports, the ball is in Bajaj's court and they are keeping it with themselves.It seems they are doing things right everywhere except in India. They have maintained their dominance and driven the Indian motorcycle exports with their growth. Over a five year timeframe since FY10, industry exports have grown by 79.74 per cent in tune with Bajaj's exports swelling by 82.50 per cent. The only speed breaker in an otherwise smooth road for the company has been the decline in market share in FY14. Bajaj's share in exports came down by 2.60 per cent to 66.70 per cent.
The reason why exports have been givenmuch attention all through the analysis is explained when we consider the domestic vs. export revenues of the company. Exports are contributing an increasingly higher share of revenues over the years. From 28.2 per cent in FY10, the share has risen to 41.6 per cent of total income in FY14. In this time frame, there has been a 151 per cent increase in export revenues while domestic earnings increased by 38.39 per cent only.
If the trend continues, we might see Bajaj earning more from exports within the next two years, laughing its way to the bank in front of other domestic players saying, "Heck! If wecouldn't get much cash from our home, we earn it from outside."
Looking at Bajaj's financials in isolation would not have given us much to talk about so we decided to compare it against the biggest fish available in the two-wheeler market - Hero Motocorp. This is when interesting insights begin to surface.
In FY14 Hero sold about 6.24 million units including scooters whereas Bajaj managed 3.42 million motorcycles,just 54.79 per cent of Hero's sales.
But when it comes to earnings, we do not see the two companies separated by such a huge margin but very much comparable. Bajaj earned Rs. 20158 croe as net revenue in FY14, which is 80.23 per cent of what Hero netted. This basically indicates that though Hero sells much more units, Bajaj earns much more PER unit. In fact they earn highest margins in the industry.
But that's still not the biggest surprise. Start comparing profits of both firms and its Bajaj which leaves Hero behind by the same margin it lost out in unit volumes. Bajaj's net profits were 3234 crore in FY14, which is 53 per cent more than that of Hero. And this is not an anomaly, it has been a trend since FY11. Hero's profitstry to jump but gravity seems to pull them back.
The road ahead Bajaj totally lost its balance in the scooter segment and skipped an opportunity. In motorcycles too, domestic sales have gone downhill and competitors are closing in fast. Had it not been for the exports, Bajaj would have been bleeding profusely. Where would they have been if they fought back in scooters or had volumes like Hero?
So where does it leave us on Bajaj? Should we criticize them for losing their domestic market share or applaud them for earning highest profits in the industry?
In the future we expect to see more variants of Pulsars and Platinas being rolled out. Discover needs some urgent attention to stop its free fall. Bajaj wants to create a whole new segment of Quadricycles with its RE60 but it has been caught in controversies regarding its safety and operation. It has to wait for the government classification and rules for this type of vehicle.
(Tanmay Mathur is a Product Analyst at Adobe and Dr. Jyoti Kainth is Assistant Professor at IMT Ghaziabad)