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Bajaj Auto Limited Few days back, I was watching the famous 1989 “Hamara Bajaj” advertisement on YouTube. The input from a forty second advertisement was more than enough for my brain to bring back all the pleasant memories from my childhood days. At a subconscious level my brain has created an association with the advertisement and all the pleasant childhood memories. This experience made me realize that the human brain is the most complex structure in the universe. Business Bajaj Auto started off in the year 1944 by selling imported two and three wheelers in India. In 1959 it obtained a license from the Government of India to manufacture two and three wheelers. In 1970, after spending more than a decade since getting the license, Bajaj Auto rolled out its 100,000th vehicle. Do you know how many vehicles it sold in the last fiscal year? In FY2015, it sold 3,811,201 vehicles in India and 62 other countries. The company designs, manufactures, and sells three kinds of vehicles (1) Two wheelers; ​ ​ Motorcycle a two­wheeled vehicle that is powered by a motor and has no pedals. (2) Three ​ ​ wheelers; RE a three­wheeled vehicle used for commercial purposes and it is the most widely used last mile public transportation solution in India. (3) Four wheelers; RE60 an intra­city ​ ​ multipurpose vehicle which could be used as a taxi or a self­drive rental and it is positioned between the autorickshaw and the four wheeler taxi. RE60 is fuel efficient and environmentally friendly. The company classifies the motorcycle industry into three different segments — Mileage, ​ Sports, and Premium. Within each segment there are few subsegments. The company ​ manufactures motorcycles in all three segments. Why do you need three kinds of motorcycles? The simple answer to this question is that everyone is different. In the table given below I have summarized all the motorcycles it manufactures across different segments. Segment Motorcycle Notes Mileage Boxer, CT100, Platina, and Price range from Rs 0.4 to 0.6 lacs. The Discover engine capacity ranges from 100 to 150 cc. It can travel up to 89.5 kilometers per litre. Sports Pulsar, Avenger, and KTM Price range from Rs 0.6 to 2.5 lacs. The engine capacity ranges from 150 to 500 cc. It can travel up to 65 kilometers per litre. Premium Kawasaki Ninja Price range from Rs 2.5 lacs and above. The engine capacity ranges from 250 to 500 cc. It can travel up to 30 kilometers per litre. Long back, I used to own a motorcycle in India. I viewed the motorcycle purely as a utility and its only purpose is to take me from point A to B. There are a couple of things that I expected from the motorcycle (1) High Mileage; the number of kilometers it can travel for a litre of petrol (2) ​ ​ ​ Low Price; the motorcycle should not only touch my mind but also my purse. Customers like me buy motorcycles from the Mileage segment. Some customers don’t view the motorcycle purely as a mode of transportation. They view it as a luxury good where they are used mostly for recreation, as a lifestyle accessory or a symbol of personal identity. These customers don’t care much about the mileage or price of the bike. And they pay up for quality by buying motorcycles from Sports and Premium segment. These bikes accelerate faster than the ones in the mileage segment because of the higher energy or thrust provided by the engines. The thrust produced by the engine is measured in cubic centimeters (CC). Higher CC engines provide more thrust and this results in faster acceleration and lesser mileage. In India the minimum age to apply for a permanent license to drive a motorcycle over 50cc is 18 years. Bajaj Auto’s motorcycle customers include anyone who is 18 years or older. Most of its customers are males as females prefer driving scooters instead of motorcycles. And Bajaj Auto exited the scooter segment completely in 2009 as it decided to focus only on motorcycles. The company has a Pan­India dealer network and authorized service centers. This reduces the search costs and enables customers to buy and maintain their motorcycles in quick time. In FY2015, around 54 percent of its motorcycles were sold in India. And the remaining 46 percent was sold in the International markets. Africa represents 45 percent of its international market. Take a look at the table given below which shows the motorcycle market share of the company in domestic and export markets. What do you see? The company has a healthy market share of 67.6 percent in the export markets and its share went up over the years. But in India it is losing market share and in the last five years, it lost over 10 percent share. Losing market share is not a joke and gaining it back is damn hard. Why is Bajaj Auto losing market share in India? Hold on to this question and we will come back to it later in the document. Bajaj Auto three wheelers, marketed under the brand name RE, are used for carrying passengers and it is the most widely used last mile public transportation solution in India. The company classifies its three wheelers into two different segments — Big and Small. Around 60 ​ ​ percent of RE it manufactures are small and the company maintains a leading market share of 80 percent. The remaining 40 percent of RE it manufactures are big and the company maintains only 18 percent market share. In order to drive a three wheeler in India one needs to apply for a permit from the state government. So RE sales are a function of new permits issued. This is what the company wrote in their latest annual report about the permits — “Maharashtra has issued fresh three­wheeler permits for around 80,000 units. The Company expects other large states such as Delhi and Andhra Pradesh to follow suit.”. Take a look at the table given below which shows the three wheeler market share of the company in domestic and export markets. What do you see? Over the years the company gained market share in India by increasing it from 39 to 44 percent. In the export markets, maintaining a market share of close to 70 percent is decent. Finally, the company is ready to launch its four wheeler, marketed under the brand name RE60, an intra­city multipurpose vehicle which could be used as a taxi or a self­drive rental. But the company couldn’t launch it as there are multiple petitions filed against this new vehicle category in the Indian Supreme Court. While there is still uncertainty about the launch of RE60 in India, the company has announced its plans to export it. As regards our quadricycle RE60, the product is ready for launch. However, RE 60 launch was mired in legal tangles created by vested interests filing multiple petitions in various High Courts, questioning the Government process in creation of this new category. Some of the High courts had, pending detailed hearings, ordered stay of the Government notification in the interim; while some others admitted the petitions, but did not find merit to grant a stay. In the face of stay orders, ARAI­ the testing agency, kept the approval and related processes in suspended abeyance. ­ Annual Report ​ In the table shown above you can see the break up of production capacity for each of its plant­product type. Bajaj Auto manufactures its two, three, and four wheelers in three plants located in India. Two of them are located at Waluj and Chakan in the state of Maharashtra and one plant at Pantnagar in the state of Uttranchal. Three factories put together has a production capacity of 6,060,000 vehicles. Compared to FY2015 sales the company has an excess production capacity of 37 percent. The company generates 56 percent of its revenue from India. And the remaining 44 percent is made in the international markets. The table given below shows the sales breakup between domestic and export markets. In the last four years sales from the international markets grew at the rate of 21 percent compared to the domestic market which didn’t grow at all. One of the major reasons for the no growth situation in the domestic markets is because of its Discover bike which is losing market share in the mileage­mid­level segment. The company explained this well in the latest annual report. However, there has been an overall fall in the volume of motorcycles. This has been mainly on account of Discover, which occupies the middle segment, between entry­level motorcycles on the one hand and the premium segment sport or supersport bikes on the other. Given the weight of this segment in the overall domestic market, the fall in ​ sales of Discover has dragged down the otherwise excellent performance of your Company in the two­wheeler front. Consequently, Bajaj Auto’s motorcycles have lost ​ domestic market share — from 24.4% two years ago to 20% last year, and then to 16.5% in FY2015. ­ Annual Report ​ The company doesn’t give the sales breakup between its two and three wheelers. Assuming the average cost of an RE (three wheeler) to be Rs 1.5 lacs the sales split between two and three wheelers comes to 65 and 35 percent. Its RE60 (four wheeler) didn’t generate any revenue in FY2015. The manufacturing process of two, three, and four wheelers basically involves metal cutting and metal forming (re­shaping metals without adding or removing material).

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