FIFTY FIFTH ANNUAL REPORT 1999I 2000 contents Chairman’s Letter 4 Board of Directors 9 Management Discussion & Analysis 10 Corporate Governance 26 Shareholder Information 36 Highlights 40 Directors’ Report 43 Auditors’ Report 51 Balance Sheet & Profit and Loss Account 54 Reconcilitations under US GAAP & IAS 94 Bajaj Auto Holdings Ltd—22nd Annual Report 99 riding change highlights Turnover at Rs.42,155 million — 7.9 per cent Dividend for the year at Rs.10 per share, or higher than 1998-99 100 per cent of the face value Profit before tax at Rs.8,252 million — 8.8 per Reserves at Rs.30,847 million cent higher than 1998-99 State-of-the-art plant commissioned at Chakan Profit after tax at Rs.6,137 million — 13.5 per cent more than 1998-99 New products launched — a new Boxer, the Saffire, M80 Major and a range of four-stroke Earnings per share at Rs.53.17 — up from three wheelers using petrol and CNG Rs.46.31 in 1998-99 FIFTY FIFTH ANNUAL REPORT 1999| 2000 chairman’s letter Dear Shareholders It was in last year’s annual report of your liked it to be. On the plus side, your company company that I had first used a ‘Chairman’s witnessed a 5 per cent increase in sales revenue in Letter’ to communicate with you the 1999-2000 — Rs.37,051 million compared to performance, prospects and business focus of Rs.35,269 million in the previous year. This Bajaj Auto. Several of you liked this innovation. occurred despite a marginal decline in the As your chief fiduciary, I, too, felt that this was a number of vehicles sold, and was caused by useful way of discussing various aspects of the growth of motorcycle sales, which is relatively company. Therefore, we have decided to higher priced compared to traditional scooters continue with the trend. In fact, the ‘Chairman’s and other two-wheelers. Letter’ and a detailed chapter on ‘Management Your company’s profit after tax increased by Discussion and Analysis’ will be a permanent 13.6 per cent from Rs.5,405 million in 1998-99 feature of Bajaj Auto Annual Reports. to Rs.6,137 million in 1999-2000. However, The financial performance of your company this does not tell the story of operating profit. In for 1999-2000 is not as good as I would have 1999-2000, operating profit was Rs.5,827 4 million — less by Rs.610 million compared to In turn, this has led to two significant the previous year. This 9 per cent drop requires developments: explanation. Much of it is given in the M First, there has been a major shift away from Management Discussion and Analysis that scooters to motorcycles. Over the last five years, follows. However, it is also my duty to give you the market for basic scooters has declined my views on this matter. marginally, while that of motorcycles has Before going any further, let me make one increased at a compound annual rate of 25 per thing very clear. Even today, your company’s cent. In 1995-96, almost 1.2 million scooters operating profit as a percentage of operating were being sold, versus 661,000 motorcycles. income is higher than that of any two wheeler In 1999-2000, scooter sales clocked 1.1 company in India and, indeed, any company in million, while motorcycles had taken off to the automotive industry. Nevertheless, as the cross 1.6 million. chairman of your company, I am disappointed M Second, even within the scooter segment, there with the fall in operating profits from 20.9 per has been a shift away from traditional metal cent of operating income in 1998-99 to 18.2 per bodied models to the sleeker scooterettes. In cent in 1999-2000. And it is important for me to 1994-95, a little over 96,000 scooterettes were explain why this has happened. sold. Five years later in 1999-2000, sales had It has everything to do with ‘change’. As many more than doubled to over 258,000. of you may be aware, the structure of the two- It is no secret that Bajaj Auto’s mainstay was wheeler market is changing at a rapid pace. Some the traditional, metal bodied, side-engine clear trends have emerged. The most important mounted, kick-start scooters. Over the last five of these is the marked change in the customer years, the company has had to face a stagnant — profile. Younger people and those with even declining — market for these models. significantly greater purchasing power now The writing was on the wall. We realised five constitute an important segment of the market. years ago that the days of resting easy on the high margins from Chetaks and Supers were coming to an end. Expanding the market for our basic scooters would be necessary, but not sufficient in FIFTY FIFTH ANNUAL REPORT 1999| 2000 the long term. We refused to be a great but M80, and an entirely new look 150 cc, four- slowly shrinking scooter company. We had to stroke scooter called the Fusion. Many more make major inroads into the motorcycle and models are in the pipeline. scooterette markets — and that required new How have these changes affected your products, new branding, new marketing and new company’s operating profits for 1999-2000? The investments. answer lies in the change in product mix. As In last year’s annual report, I had written that explained earlier, motorcycles and scooterette over the last few years we had quietly started re- markets are expanding, and Bajaj Auto must During 1999-2000, engineering the company. What are these aggressively go after these markets. However, the your company launched changes? fact is that motorcycles and scooterettes enjoy several new products: It is useful to begin with changes that have lower margins compared to traditional scooters. the Saffire, the new 100 taken place in Bajaj Auto’s manufacturing Reading the Management Discussion and cc. four-stroke Boxer, capacity and production processes. The Chakan Analysis will substantiate that this is one of the the M80 Major and plant was commissioned in 1999-2000. Your major factors behind the fall in operating company’s desire to manufacture world class margins. four-stroke three products is exemplified by this new, state-of-the- Increasing competition invariably leads to a wheelers. Of these, the art facility, located approximately 20 kilometres decline in margins per unit of sale. But that does Boxer and the M80 away from Akurdi. Chakan has already started not necessarily translate to a fall in overall Major are already major producing two sleek, new generation, plastic operating profits. Bajaj Auto has a definite success stories. bodied scooters — the 60 cc. Sunny Spice and strategy in place to increase the top line, market the 92 cc. Saffire. During 2000-01, the plant will share, operating profits and the bottom line. It begin to produce a brand new motorcycle called consists of four major components: the Pulsar. In addition, capacity of the Waluj M Aggressively expanding the traditional scooter plant is being substantially increased so that your market. It is a very profitable segment and company can capitalise on the growing market cannot be ignored. We will pursue market for quality motorcycles. expansion by introducing new four-stroke During 1999-2000, your company launched models and offering attractive finance schemes. several new products: the Saffire, the new 100 cc. I do not believe that this market will die the way four-stroke Boxer, the new M80 Major and four- some pundits have predicted. A country of a stroke three wheelers. Launched in the first half billion people shall always have enough of the year, the Boxer and the M80 Major are families who will begin their motoring lives already major success stories. An aggressively with traditional, low cost scooters. The trick is priced, rugged product, the Boxer is primarily to target these people. targeted at the rapidly growing rural and semi- M Rapidly ramping up capacities and production urban markets, and has notched very impressive of motorcycles and new generation scooters sales within the first eight months of its launch. and scooterettes. This is a major area where we The M80 Major has helped us to increase our will target higher top line growth and greater market share in the step-thru segment. market share. The year 2000-01 will see four new two- M Actively optimise on input costs, especially of wheelers: two motorcycles (the Pulsar and the bought out items. In 1998-99, Bajaj Auto 175 cc. Eliminator), a four-stroke version of the launched an ambitious vendor development 7 programme called Scorpio, aimed at improving international players are entering the arena: quality of supplies, enhancing product Piaggio and Honda. Your company is development capability of vendors, and determined to do everything that is needed to reducing costs by restructuring the vendor fight for greater market share in a far more base. I believe that Scorpio will play a role in competitive milieu. This requires funds — for enhancing quality at lower unit costs. capacity creation, brand building, market Moreover, Bajaj Auto’s Cell-level Cost expansion, new dealer and distribution services, Management (CCM) activity has yielded cost maintaining prices, export efforts, collaborating Your company is savings in power consumption, cutting tools with partners for new products and technologies, determined to do and consumables. It will be extended across- and for financing mergers and acquisitions that everything that is the-board to all elements of the manufacturing are sure to become a reality.