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We know how to draw a line between growth and greed: Rajiv Bajaj

Interview with MD & CEO of Bajaj Auto

Shyamal Majumdar  |  Mumbai 

Rajiv Bajaj explains why it doesn’t make sense to bet on multiple horses, in an interview with Shyamal Majumdar. Excerpts:

Bajaj Auto remains the most profitable automobile company. How did you manage that?
Profitability is our most important objective and the brand focus has played a key role in giving us pricing power and cost effectiveness. Pulsar, Discover and the RE branded three-wheelers are sold at a slight premium to competition because the customer knows it’s worth the price. Even a discount of 5 per cent shaves off that much from your EBITDA margins. We have avoided that. Most importantly, we know how to draw a line between growth and greed.

Second, cost effectiveness. Raw material accounts for 70 per cent of the cost of a two-wheeler — that’s the same for everyone. But where we save hugely is on our marketing and advertising cost. Since I am not trying to manufacture all kinds of vehicles, my marketing cost is focused and limited, unlike many of our competitors who are losing money trying to sell everything.

In the process, they are trying to promote their weakest child. I am more focused on a defensive strategy — my marketing budget is focused on only a few brands and aimed at existing customers to give them greater confidence that they have bought a great product. I have never tried to buy market share. So it’s not a surprise that Bajaj Auto’s operating profit margin is 20 per cent compared to the (two-wheeler) industry average of 10 per cent.

But aren’t you limiting your options by focusing only on a few brands?
The narrower a brand, the deeper it runs. Our twin-brand strategy shows why less is actually more. The strategy recognises that if you aim for the widest and deepest market presence, you must do so with the narrowest and sharpest product portfolio. The market has evolved; so I would rather be a McDonald’s serving one type of burgers all over the world rather than an Udupi restaurant which tries to serve everything to cater to all kinds of local tastes.

We had gone out of scooters, and even out of cheaper 100 cc motorbikes, as one has to specialise. If we were competing only for India, I would make everything. If I was competing for Asia, I would make scooters and motorcycles. If I am competing for global dominance, I must run deep in one area — hence, our focus on motorcycles. Two-wheelers are a fast moving consumer durables industry, as we compete more on marketing than on technology.

On global play, you have substantial exports but mainly to developing economies. What are your plans on this front?
Our exports have grown over the past decade from being zero to 35 per cent of our sales. I expect such growth to continue. The potential is tremendous. At four million mobikes a year, we have roughly 10 per cent of the global market share by volumes. Our target is to take that to 20 per cent, which itself will double the size of the company. In any case, the growth is coming from developing economies; not the developed. That’s why all marquee names in the world are coming to India.

What is your plan for KTM, where you picked up a large stake?
We have a 39.8 per cent stake in KTM. And contrary to perception, it’s not for technology; it’s for marketing alone. The KTM Duke 125, which has 99 per cent localisation, is manufactured at our Chakan plant. Today, Duke 125 is a class leader across all of Europe. It’s largely a brand play: KTM is the second largest premium two-wheeler brand in Europe after BMW. In terms of volumes, KTM and BMW are second only to Harley Davidson in the world. So I have got a fantastic brand presence abroad at a reasonable cost. Every premium brand has a heritage, which is difficult to create all over again.

Then why did you remove the Bajaj brand from all your products? Hamara Bajaj was also a heritage brand in many ways.
No brand can be stretched across all product categories. It’s individual brands that matter and there is no point in sitting on ego here. Bajaj is still a great employer brand, a great stock market brand and a great CSR brand.

How difficult was it to make this transition from dumping scooters to becoming a motorcycle specialist?
It was tough. But we knew we had to make that transition. In the 60s and 70s, Chetak offered a value-benefit equation. But the market has evolved and today motorcycles are 80 per cent of the market. People also had to realize that the one size fits all approach of being a Bajaj doesn’t work anymore as the market is not that homogeneous anymore. In hindsight, we were right as others who couldn’t or didn’t make the transition away from scooters didn’t survive. The most challenging of course was changing the mindset of people. Please remember everybody in the company and our dealers were used to a 10-year waiting period for scooters. The idiom of ‘now you have to chase customers’ was Greek to them.

Now that the scooters market has revived, will you get back to scooters?
As I said, we have very good scope of doubling the size of the company by increasing our market share in the global mobikes market. The tailwind is with mobikes; so it doesn’t make sense to shift focus. Some people say Bajaj Auto can derisk its business by getting back to scooters. I respond to them by replacing the word ‘derisk’ with ‘defocus’. At this point, we are focused on increasing our global market share from 10 to 20 per cent. In future, when the share touches 30 per cent, we might get into a period of diminishing returns from mobikes. Maybe, we can think of scooters then. But this is all in the realm of speculation.

With RE 60, you are trying to upgrade three-wheelers. Given the price sensitivities involved in this segment, how will you make it a profitable product?
In the three-wheeler space we have a peculiar issue. On the one hand it’s an immensely profitable product (operating profit margin is 30 per cent); on the other hand, there is no real barrier to entry. Hence, we had to raise the bar somehow. the RE 60 will cost a little more, but we can still make a good profit. Customers will benefit even though fuel costs will be around 20 per cent more, depending on usage. The maintenance price will be almost similar. We will make sure that passengers get enough comfort. The size of the vehicle will be the same as an auto.

Was the Tata Nano an inspiration for the RE 60?
No. There is a basic difference — while Nano was targeting the two-wheeler population who wanted to upgrade to a four wheeler, we are sticking to the same set of customers — the auto drivers and passengers. We are giving them the assurance of comfort. We are very clear in the positioning of the RE 60 — it’s not targeted at the four-wheeler segment. I have no intention of claiming that the RE 60 is the cheapest car in the world.

The Pulsar and Discover have seen a tremendous growth rate. How confident are you of maintaining that pace of growth?
If we are smart enough to create them, there is a good chance that we are up to the task of keeping it going.

What are the key challenges you see for Bajaj Auto, given the uncertain economic scenario and less spending power for consumers?
Stay true to strategy at all times.

Your father has told you that if you have to keep your job, you have to maintain a 20 per cent volume growth? Aren’t you nervous?
I don’t believe in survival being the sole prerogative of the paranoid. On a serious note, I am alright as long as I know that the logic of what I am doing is strong enough for remaining competitive.

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First Published: Tue, March 20 2012. 00:53 IST