Bajaj Auto to launch two new models in '08

Bajaj Auto has posted a standalone net profit of Rs 326.8 crore in Q3 FY08 as against Rs 344.8 crore in the same quarter of last year. Standalone net sales stood at Rs 2,501.7 crore as against Rs 2,568.2 crore YoY. Consolidated net sales went down at Rs 2,633.26 crore from Rs 2,696.03 crore YoY while net profit stood at Rs 273.82 crore from Rs 321.14 crore YoY.

Rajiv Bajaj, MD, Bajaj Auto, said the company's Q3 EBITDA stands at 14.6% as compared to 14.2% YoY. "EBIDTA is lower due to one-time expense for Platina."

Bajaj said the two-wheeler major plans to launch a new model in the next few months and another by year-end.

Overall, growth in the 100 cc industry is down by 20%, he said. "The 125 cc market grew from 1.83 lakh units to 1.88 lakh units. We plan to focus on the 125 cc segment, of which we have a current market share of 35%.""

He expects Q4 margins to be the same as Q3 but sees volumes lower. Three wheeler profitability will increase and help overall growth, he added.

Excerpts from CNBC-TV18’s exclusive interview with Rajiv Bajaj:



Q: How has this quarter been for you, because both topline and bottomline have been a tad disappointing? What is the margin for this quarter?



A: The street has enough problems of its own to sort out. But you got me on the defensive already. In my view, it is one of the good quarters we have had because our EBITDA is at 14.6%, which is higher than 14.2% of Q3 last year.



The two things I would like highlight are that we had a one-off compensation for dealers due to the reduction of prices on Platina and stocks being held by dealerships. That was about Rs 28 crore in October. If it had not been for that, the EBITDA would actually have been close to 15.7%.



I would like to point out that we have a VRS charge of Rs 51 crore because of the earlier retirement of workmen from our Aurangabad plant. So, this is an additional charge for Q3 and will be there also for Q4.



As opposed to that, in the previous year, it was only about Rs 10-12 crore. So, it is the one time price correction, which is behind us and the VRS charge that makes the difference between the street and us.



Q: What is happening to the TVS case? We believe that it was heard yesterday and has been postponed to today. Could you update us on what is happening?



A: I do not believe it has been postponed. It is just carrying on. I believe we presented arguments yesterday and will continue to do that today. Then, TVS makes its arguments and this may just take a few days.



Q: The street is been waiting to hear your take on Xceed’s success. We have just picked out news that Xceed could be doing only 30,000-40,000 units. Are you close to ramping up to your 75,000 units per month? Do you see visibility of selling that much of bikes per month?



A: In the middle segment, which is often called the value or the executive segment, Hero Honda has a stranglehold with about 94% market share before the Xceed was in.



Today, at the end of three months of our launching this product, we have 18% market share there. So, in a segment where everybody is a non-entity except for the market leader, to take 18% share away in three months is excellent performance. That does translate to only about 30,000-35,000 vehicles.



Where do we go from here? I believe that sales of this model will continue to climb because current consumers are very happy and the model is differentiated. It will sustain consumer interest. Will this model alone make it from 30,000 to 60,000 or 75,000 in the next three-four months? I do not think so. So, the answer for us is to put in the next product from this platform.



We said at the time of launch that we are putting in this capacity for a platform and not just for a single product. Nobody does that anymore.



In a few months, the second product will be out and we should see the next jump in volumes when that comes out. In fact, there will be a third one, towards the end of the year. So, once we have the three products from this platform in place, over a period of 12-15 months since September 9 last year, which is when we launched the first Xceed, we will be in a good position.



Q: Has the financing squeeze seen over the past six months abated? What is Bajaj Auto Finance doing to elevate this pain? Could you take us through that? We have also heard that you were doing 0% financing for a couple of your products, including the Xceed?



A: In general, the financing situation is well known. Even if one looks at the two-wheelers; there is a differential analysis here. The scooters are still growing, even though they need finance. If one looks at motorcycles; the 100cc industry is down. It is not just Bajaj Auto, but the industry as a whole is down by 20%. The 125cc and above has actually grown from an average of 1,83,000 a month to 1,88,000 a month. So there is 2% growth. Certainly, there is no fall there.



It simply tells us that probably the 100cc customer is the one who is in most need of finance and is more sensitive to the interest rate. He is also probably the customer, who in the eyes of the financier, is the least creditworthy relatively. So, he is the guy who is getting squeezed out when financiers are getting cautious.



So, the trend is the bigger motorcycle keeps growing; the smaller one or the 100cc does not grow because consumers do not want to buy it. On top of that, financiers do not want to finance it. So, strategically it aligns well with what we want to do.



Q: Strategically, it is good in the long-term. But two quarters ago, when we asked you how FY08 is likely to be, you told that you will close with sales of 3 million. As of now, you have done 1.98. Our calculations show that you will finish this year with close to 2.5 million units. We are seeing the difference that is happening. Is that how you see a little bit of pain coming through, in the short-term to medium-term?



A: Yes, this is true. The auto industry in general was not prepared for this kind of a squeeze at the front end. So, the story is the same, not just for the two-wheeler industry, but even for commercial vehicles and soon even for cars. It is very important to recognize that, as far as two-wheelers are concerned, this is still the second largest two-wheeler market in the world. It is terribly profitable.



Bajaj, even at 14.6% EBITDA for Q3, continues to be India’s most profitable automotive company. It is all the more important to be true to your strategy and prudent in the way you conduct your operations, so that you maintain profitability. Sooner or later, when the market begins to grow, you will grow again with it.



Q: Talking about profitability, we believe that steel companies are looking at a hike of 8-10% in the next one year. How are you looking at margins for the next twelve months?



A: I do not see any change from Q3. The situation will be the same. What will work against this quarter, in comparison to the previous quarter, will be that volumes will certainly be lower, because the previous quarter has the benefit of the entire festive season.



What will work for this quarter will be in terms of the product mix, especially in motorcycles. I also expect better growth in three-wheelers. So, that is what is going to help this quarter. We will not have that Rs 28 crore charge. So, overall, I see this quarter as very similar to the last one.



In terms of next year, our focus is going to be to grow the 125cc plus segment, as far as motorcycles are concerned, because this is the segment is now 35% of the market. It is a segment where we have 55% market share now. So we cannot do any better than that.



Our whole objective as a company has to be to take this from 35% to 70% of a market. Inevitably, it is going to get there as the country develops. The question is whether we can make it happen sooner rather than later. Other than that, we are going to focus on the bigger bikes, with Kawasaki and KTM, and continuing to push exports where we have been doing well. So, these are going to be our initiatives for the next year.



Q: How is your outlook on three-wheelers? You just said you are expecting better margins over there. Is Tata Ace being a point of concern for you? Are you seeing any pressure coming from Tata Nano for your three-wheelers?



A: All I said with respect to the Nano, when asked previously at the Auto Expo, was no comment and yet people found ways to associate comments with me that I did not make. So, I just want to stay clear off that. It has noting to do with this quarter’s results.



As far as our own three wheelers are concerned, I did not say that I expect them to be more profitable. I said I expect our profitability to be better because I expect us to be able to sell a few more three-wheelers in this quarter. We are now doing about 25,000 three-wheelers a month, which is about 50% market share and half of that is exported.



I expect both the domestic and export markets to do better in terms of sales of three wheelers in this quarter. If that happens, it has more than a proportionate impact on the overall profitability, because that is a very profitable segment for us.