Group - J

Like Volkswagen Beetle, the product (Bajaj Chetak) had lost its relevance."
- Rajiv Bajaj, MD, Bajaj Auto Ltd., in January 2006.

 The
The Bajaj
Bajaj group
group was
was founded
founded in
in 1926
1926 by
by Jamnalal
Jamnalal Bajaj
Bajaj (Jamnalal)
(Jamnalal) In
In 1945,
1945, Kamalnayan
Kamalnayan Bajaj,
Bajaj,
Jamnalal's
Jamnalal's son, set up Bachraj Trading Corporation Ltd. (BTCL), a trading company, to import and
son, set up Bachraj Trading Corporation Ltd. (BTCL), a trading company, to import and sell
sell
two- and three- wheelers.
two- and three- wheelers.


 This
This business
business continued
continued till
till 1959.
1959. In
In 1959,
1959, the
the company
company secured
secured aa license
license from
from the
the Government
Government of of
India (GoI) to manufacture two- and three-wheelers. In 1960, BTCL was renamed Bajaj
India (GoI) to manufacture two- and three-wheelers. In 1960, BTCL was renamed Bajaj Auto Ltd. (BAL)Auto Ltd. (BAL)
and
and the
the company
company went
went public.
public. The
The same
same year,
year, itit entered
entered into
into a
a technical
technical collaboration
collaboration with
with Piaggio
Piaggio for
for the
the
manufacture
manufacture of of scooters.
scooters.


 Bajaj
Bajaj Auto
Auto is
is the
the flagship
flagship of
of the
the Bajaj
Bajaj Group
Group of
of Companies.
Companies. Bajaj
Bajaj is
is currently
currently India's
India's largest
largest two-
two- and
and
three-wheeler
three-wheeler manufacturer
manufacturer and
and one
one of
of the
the biggest
biggest in
in the
the world.
world.


 Bajaj
Bajaj has
has long
long left
left behind
behind its
its annual
annual turnover
turnover of
of Rs.
Rs. 72
72 million
million 1968),
1968), to
to currently
currently register
register an
an impressive
impressive
figure
figure of
of Rs.
Rs. 81.06
81.06 billion.
billion.
 Bajaj Auto is one of India's most popular names in the two and three-wheelers sector, with more than
22 million vehicles on the road. Bajaj has a network of 14 offices, 12 warehouses, over 450 dealers
and more than, 1,200 service stations. Globally, Bajaj Auto has a presence in 50 countries.

 BAL is currently outperforming the industry growth rate in two-wheeler segment with 32% growth in
year 2004-05 v/s industry growth of 19%.

 Market share in Motorcycles is improving with every passing year. It has also increased from 28% in
2004-05 to 31% in 2005-06.

 Annual turnover for the year 2005-06 is Rs. 81.06 billion v/s Rs. 63.23 billion a year before - an
increase of 28% which is very healthy.

 BAL has significant presence in all the three basic segments - Price Segment, Value Segment and
Performance Segment - and has been showing increased sales in all the segments over years.

 Currently, BAL is selling over 1 lac motorcycles annually in Sri Lanka, further, they are commanding
50% market share in Central America.
The Turning Point:

 The early 1990s saw a recession in the Indian two-wheeler market. Overall sales of two-wheelers
declined by 15% in 1991 and 8% in 1992 .

 However, even as late as 1997-98, the scooter segment was the largest sub-segment in the two-
wheeler market. Scooters, with 42% of the market (in terms of unit sales), were followed by motorcycles
(37%), and mopeds (21%).

 By the end of FY 2000, the numbers clearly indicated that consumer preference had shifted firmly
toward motorcycles with four-stroke engines, scooter sales registered a fall of 41% in 2001.
The Fall of an Icon:

In January 2006, BAL announced that it had stopped production of the Chetak. With this announcement,
BAL closed a major chapter in its history.

Outlook:

 The late 1990s saw the popularity of scooters wane and motorcycles emerge as the new favorites in the
Indian two-wheeler market.

 It was believed that the dramatic shift happened because players like BAL did not pay sufficient
attention to design, R&D, and customer satisfaction.

 The decline of the market for scooters was directly related to neglect of this segment over decades vis-
à-vis critical benefits (mileage), contemporary technology.
 Interestingly, the growth in the motorcycle segment was mainly driven by the demand from rural and semi-
urban consumers.

 An estimated 60% of the demand for motorcycles came from rural and semi-urban customers.

 The rise in their disposable incomes on account of good monsoons in the 1990s provided the normally
conservative rural and semi-urban customers with extra money that induced them to experiment with new,
innovative products.
 Shift from Scooter to Motorcycle
Scooter Motorcycle Moped
Overall
Year Total In '000
Growth No. % No. % No. %

1993 1,503.36 -6.40 709.73 47.2 379.06 25.2 414.57 27.6

1994 1,770.22 17.75 840.17 47.5 472.58 26.7 457.47 25.8
1995 2,209.23 24.80 1,033.52 46.8 652.01 29.5 523.70 23.7
1996 2,660.04 20.41 1,223.43 46.0 809.53 30.4 627.08 23.6
1997 2,963.49 11.41 1,301.05 43.9 978.68 33.0 683.76 23.1
1998 3,042.85 2.68 1,262.70 41.5 1,131.31 37.2 648.84 21.3
1999 3,403.43 11.85 1,325.87 39.0 1,395.66 41.0 681.90 20.0
2000 3,745.55 -0.80 901.88 24.0 2,156.03 58.0 687.64 18.0

Advanced technology, larger wheelbase, higher ground clearance and the ability to ride on bad roads
with less effort and less danger of skidding and decreased maintenance cost were the other factors
that encouraged customers to choose motorbikes over other two-wheelers.

Profile Change in Indian Two-Wheeler Industry

The demand shift from scooters to motorcycles in the 1990s was without parallel in any comparable
product category in India. This was mainly attributed to the change in customers' preference towards
fuel-efficient and aesthetically appealing models, which scooter manufacturers failed to provide.
 The Industry Analysis - Five Forces Analysis

External Environment
I.Entry Barriers:
The market runs on high economies of scale and on high economies of scope.
The need for technical expertise is high.
Owning a strong distribution network is important and is very costly.

II.Supplier Bargaining Power:

Suppliers of auto components are fragmented and are extremely critical for this industry since most of the component work is
outsourced. Proper supply chain management is a costly yet critical need.

III.Buyer's Bargaining Power:

Buyers in automobile market have more choice to choose from and the increasing competition is driving the bargaining power
of customers uphill. With more models to choose from in almost all categories.

IV.Industry Rivalry:
This instinct of the industry is primarily driven by the technical capabilities acquired over years of gestation under the technical
collaboration with international players.

V.Substitutes:
There is no perfect substitute to this industry. Also, if there is any substitute to a two-wheeler, Bajaj has presence in it.
 Key Earnings Drivers

Below are the key factors, which strongly affect the auto industry: -

 Government policy impact on petrol prices:

Petrol prices determine the running cost of two/three wheelers expressed in Rupees per kilometer.
Petrol prices are the highest in India as GOI subsidizes kerosene and diesel.

 Improvement in disposable income: With the increase in salary levels, due to entry of multinationals
following liberalization process and fifth pay commission, the disposable income has improved exponentially over the years.
This will have multiplier effect on demand for consumer durables including two-wheelers.

 Changes in prices of second-hand cars: The second hand car prices of small cars have come down
sharply in the recent past. This will shift the demand from higher-end two-wheelers to cars and affect the demand for two-
wheelers negatively.

 Implementation of mass transport system: Many states have planned to implement mass transport
systems in state capitals in the future. This will have negative impact on demand for two-wheelers in the long run.

 Availability of credit for vehicle purchase: The availability and cost of finance affects the demand for two-
and three-wheelers as the trend for increased credit purchases for consumer durables have increased over the years.
 Strengths:
 Highly experienced management.
 Product design and development capabilities.
 Extensive R & D focus.
 Widespread distribution network.
 High performance products across all
categories.
 High export to domestic sales ratio.
 Great financial support network (For financing
the automobile)
Opportunities:
 Double-digit growth in two-wheeler market.
 Untapped market above 180 cc in motorcycles.
 More maturity and movement towards higher-
end motorcycles.
 The growing gearless trendy scooters and
scooter market.
Weaknesses:
 Hasn't employed the excess cash for long.
 Still has no established brand to match Hero
Honda's Splendor in commuter segment.
 Not a global player in spite of huge volumes.
 Not a globally recognizable brand (unlike the
JV partner Kawasaki)
Threats:
 The competition catches-up any new
innovation in no time.
 Threat of cheap imported motorcycles from
China.
 Margins getting squeezed from both the
directions (Price as well as Cost)
 TATA Ace is a serious competition for the
three-wheeler cargo segment.
The company's growing pains.
 Bajaj Auto required a standardized solution for the issues they faced.

 Bajaj Auto decided to undertake a major business restructuring exercise

which involved:

 Re-organizing and redesigning the core business processes and establishing

a high performance management system.

 Gaining access to large number of users across different locations

 The Inevitable Change

Bajaj on internal analysis found that it lacked :

 The technical expertise to deliver competitive goods.

 The immediate inability to support the onslaught of competitors.

 Kawasaki of Japan is a world-renowned manufacturer of high performance

bikes. Bajaj entered into a strategic tie-up with Kawasaki in late 1990s to
enhance its product line and knowledge up-gradation to support long-term
strategies.

 Bajaj introduced a slew of products right from entry-level motorcycle to the

high premium segment right from 2001 onwards, and since then its raining
success all the way for Bajaj
Marketing Strategies

BAL adopted different marketing strategies for different models, few of them are discussed below: -

Kawasaki 4S:
The target customer was the father in the family but the target audience of the commercial was the son in the family.
The time at which Kawasaki 4S was launched Hero Honda was the market leader in fuel-efficient bikes and Yamaha
in the performance bikes.

Boxer :
It took the reins from where the Kawasaki 4S left. Target was the rural population and the price sensitive customer.
Boxer marketed as a value for money bike with great mileage.

Caliber :
The focus for the Caliber 115 was youth. And though Bajaj made the bike look bigger and feel more powerful than its
predecessor, the teaser campaign and the emphasis on the Caliber 115 being a `Hoodibabaa' bike placed it as a
trendy motorcycle.

Pulsar :
Pulsar was launched in direct competition to the Hero Honda's 'CBZ' model in 150 cc plus segment. The campaign
bared innovative punch line of "Definitely Male" positioning Pulsar to be a masculine-looking model with an appeal to
the performance sensitive customers.

Discover :
The same DTSI technology of Pulsar extended to 125 cc Discover was a great success. With this, Bajaj could realize
its success riding on the back of technological innovation rather than the joint venture way followed by competitors to
gain market share.
 FMCG Business Model

 BAL now is taking a leaf out of the FMCG business model to take the company
to greater heights.

 Bajaj has kicked off a project to completely restructure the company's retail
network and create multiple sales channels.

 Over the next few months, the company will set-up separate sales channels for
every segment of its business and consumers.

 Bajaj Auto's entire product portfolio, from the entry-level to the premium, is being
sold by the same dealers.

 Bajaj Auto also plans to set-up an independent network of dealers for the rural
areas, the needs of financing, selling, distribution and even after-sales service.
 Other Strategic Issues

Cash is strength:
Bajaj Auto has been sitting on a cash pile for over five years now. Over the next couple of
years, competition in the two-wheeler market is set to intensify. Bajaj Auto will need its
cash muscle. A look at its own story over the past five years provides valuable insight.

Delisting worry:
There is a hint of a buyback of shares of the investment company as this is the only way it
can be delisted. The company would not be short of cash to put through such a buyback.
Factors such as low valuation, low trading interest and the need to provide shareholders
may be cited as plausible reasons for the buyback.

Stake for Kawasaki:

Bajaj Auto's attempt to vest the surplus cash in a separate company may be a prelude to
offering a stake to Kawasaki of Japan in the equity of the automobile company.

Better value proposition:

Shareholder interests may be better served if the cash is retained to pursue growth in a
tough market. A combination of a large one-time dividend and a regular buyback program
through the tender route may offer better value.
 Strategies for the Overseas Markets

 Bajaj Auto has a huge, extensive and very well-equipped Research and Development wing geared to
meet two critical organizational goals: development of exciting new products that anticipate and meet
emerging customer needs in India and abroad, and development of eco-friendly automobile
technologies.

 Bajaj Auto R&D also enjoys access to the specialized expertise of leading international design and
automobile engineering companies working in specific areas.

 Based on their own brand of globalization, they have built their distribution network over 60 countries
worldwide and multiplied the exports from 1% of total turnover in Fiscal 1989-90 to over 5% in Fiscal
1996-97.

 The countries where their products have a large market are USA, Argentina, Colombia, Peru,
Bangladesh, Sri Lanka, Italy, Sweden, Germany, Iran and Egypt. Bajaj leads Colombia with 65% of the
scooter market, in Uruguay with 30% of the motorcycle market and in Bangladesh with 95% of the
three-wheeler market.

 Several new models are being developed specifically for global markets and with these the company
will progressively endeavor to establish its presence in Europe too.
 The Future

 The companies to concentrate on cost-cuts, technology enhancements and up-gradations

and styling. Their margins came under pressure as marketing costs escalated.

 In 2001, there were over 30 motorcycle brands in the market. However, with the top five
brands accounting for more than 60% of the market, only 40% of the market was available for
all other new brands put together.

 Despite the launch of more vehicles, the survival prospects of many of the individual
brands were deemed to be rather bleak.

 Further, the growth in the motorcycle segment was dependant on continuing favorable
market conditions. Analysts claimed that to sustain this growth rate, the segment would have
to completely cannibalize the market for scooters and a considerable part of the market for
scooters and mopeds.

 It was unlikely that the entire growth in the two-wheeler sector would be due to
motorcycles.
 Recommendations

 Around 50% of the two-wheeler consumers buy high quality products (products of executive and premium
segment motorcycles). Margins on these products are higher.

 BAL should adopt a deliberate strategy of focusing on executive and premium segment motorcycles and
three-wheelers, and is reducing its dependence on lower-end of motorcycles and scooters segment.

 High margin products - Pulsar, Discover, Three-wheelers, Avenger.

 Low margin products - Platina, Scooters, Mopeds.

 Company should keep focusing on the fast growing motorcycle segment.

 The company needs to tap the export market more efficiently as there is a huge potential to make India as
the world's two-wheelers production base. For this, it needs to look for joint ventures abroad.

 It needs to target the young age group more effectively as this group is extremely trend savvy. The
advertising should have a fresh look and the product should live up to the Gen-X's expectations.
Bajaj will constantly inspire confidence through excitement engineering.

Learning : Learning is how we ensure proactivity. It is a value that embraces

knowledge as the platform for building well informed, reasoned, and decisive
actions.

Innovation : Innovation is how we create the future. It is a value that provokes us

to reach beyond the obvious in pursuit of that which exceeds the ordinary.

Perfection : Perfection is how we set new standards. It is a value that exhibits our
determination to excel by endeavoring to establish new benchmarks all the time.

Speed: Speed is how we convey clear conviction. It is a value that keeps us

sharply responsive, mirroring our commitment towards our goals and processes.

Transparency : Transparency is how we characterize ourselves. It is a value that

makes us worthy of credibility through integrity, of trust through sensitivity and of
loyalty through interdependence.