Banking on new Discover, duty cut won’t revive auto: Bajaj – Moneycontrol.com

19 Jan 2015 | Author: | Comments Off on Banking on new Discover, duty cut won’t revive auto: Bajaj – Moneycontrol.com


Banking on new Discover, duty cut won’t revive auto: Bajaj

Rajiv Bajaj

Bajaj Auto

A fter months of declining sales, the worst in the auto industry may be over and negative growth may be tapering off, believes Rajiv Bajaj, Managing Director at Bajaj Auto.

In an interview with CNBC-TV18, the Bajaj scion said the auto market is finally seeing signs of bottoming out and that the company is looking to add to its 19 percent market share with new models such as its recently-launched next-generation Discover 125cc.

Total sales for Bajaj Auto fell 7 percent to 3.18 lakh vehicles in the month of February, data released on Saturday showed. But exports remained strong, rising 7 percent.

Bajaj is now sitting on “near-normal four-five weeks” of inventory, he said, adding that pile-up is not a concern for the company anymore.

The MD also touched upon the issue of the massive excise cut that finance minister P Chidambaram had carried out in the February interim budget and said he did not believe the duty cut would address the fundamental weakness in the market. “Dealers have also not started passing on the excise duty benefits to customers yet.”

Bajaj also spoke about the recent turmoil in its export markets such as Egypt, where the previous government had banned imports soon before it fell. “The troubles in Egypt have been offset by growth in markets such as Nigeria where three-wheeler exports grew from 2,000 units in July last year to 6,000 in February.”

The automaker foresees export growth to be in double digits in the near term, Bajaj said, indicating its recent troubles with exports are behind.

Shares in Bajaj Auto have remained about flat over the past one-month and one-year periods.

Below is the interview of Rajiv Bajaj, MD, Bajaj Auto with Ekta Batra Anuj Singhal on CNBC-TV18.

Ekta: It seems that your February total sales have been better than what we have seen in the past two months. Your total sales were down 6 percent. Can you tell us how February has been for Bajaj Auto and what was the impact of any excise duty cuts that came in post February 17 and Vote on Account (VoA)?

A: I think the macro highlight is that after almost a year of negative growth what we are seeing now is that negative growth leveling off. If you look at our motorcycle numbers 273,000 compared with 291,000 year on year, commercial vehicles at almost 40,000 was 41,000, so you would see that the negative growth is tapering off.

At a specific level what has been positive for us over the last two months is that with each successive month we gained market share in domestic motorcycle so from a low in December we gained significant market share over 18 percent in January and 19 percent now in domestic motorcycle. So, that is driven primarily by the new Discover 100 and with the launch this month of the new 125 Discover, we should be gaining some more shares.

So, at a specific level that is very positive, let me put it other way from January to February while the industry degrew by 8.5 percent, the market leader degrew by almost 10 percent and our own degrowht is about 7 percent, so better than the industry and that is why the gained share.

Anuj: The key concern for the market is that is the export visibility going down for Bajaj Auto and in specific I want to know what is happening in Egypt. Is the three wheeler export ban going to stay?

A: I think the concerns regarding export visibility comes from the fact that people tend to see a part of the picture and not the whole picture. Let me tell you what I mean by that with reference to Egypt – over the last 12 months it is true that Egypt has been volatile for reasons, there have been months when we have exported nothing to Egypt, there have been months when we have exported as many as 12,000 three wheelers to Egypt and our average export is typically around 6,000 three wheelers to Egypt and about 3,000-4,000 motorcycles.

The current status as I am given to understand it changes every two weeks; four weeks back the status was that there was a discussion around a proposal to ban motorcycle and three wheelers for up a year. two weeks later the proposal changed, it was about reconsidering the ban for three months and a week later which is the last week it changed again because the government changed.

But what I want to say is that at the same time, for example in a market like Nigeria which is not very far from Egypt and Africa, our average three wheeler exports and I am talking about three wheelers because that is the largest export to Egypt, has risen from 1,500 to 2,000 month six months ago to almost 6,000 in February.

That is why if you look at our total export of three-wheelers in the month of February, if I am remembering it right, it stands at about 25,000 three wheelers which is a growth over 22,500 last February.

Similarly on motorcycle export, they were at 117,000 versus 112,000 last February, so that has grown about 4 percent as well and again we might have lost out on 3,000 in Egypt but we are up to 50,000 motorcycles a month in Nigeria.

So, Bajaj’s export situation will be better if people look at the whole picture and understand how we delist our export. We might have trouble in a market or two in a given month but at the same time there are other markets that are outperforming and therefore on the whole we continue to grow.

Ekta: How much does the Egypt export part contribute to EBITDA because I am reading a report and that says that around 6 percent of the EBITDA in Q3 was from Bajaj Auto’s exports to Egypt?

A: It is quite possible. Candidly the answer is: I cannot calculate the Egypt EBITDA as a percentage of Bajaj Auto, but perhaps that number is accurate but once again it is a matter of looking at the whole puzzle rather than a part of puzzle.

Ekta: If I look at your past two months and I see these export figures for February, it has tapered down in terms of percentage growth at least because in the previous month you did 7 percent before that you did 19 percent and this month you have done 5 percent, so in that sense is this month just an aberration or what is the run rate that we could expect in terms of exports and like you mentioned its been so volatile, so hence will the growth be volatile for exports going forward as well?

A: In the near term, I expect exports to remain in the double-digit space. Therefore, some times that might be 8 percent and some times it might be 15 percent but certainly in the double digit space and that is what we are budgeting although we have not finalised that but that is what we are budgeting for the next year also.

In the month of March too, we may not be exporting three wheelers to Egypt this month, we are going to export over 6000 three wheelers to Nigeria. So, I think on the whole there is more good news from our export market.

Anuj: Let us talk about domestic market. Two point question: (a) what has the cut in excise duty done? Has it resulted in any kind of increased demand? and (b) we have had another round of petrol price hike over the weekend.

Do you think we are now reaching a stage where the monthly cost of running a bike is proving to be a bit of a deterrent?

Bajaj Discover

A: On the ground we have not seen so far any enhanced traction after the budget. In fact both for ourselves and when we talk for the industry and not just two wheelers but also cars. What we understand is that that is the situation all round.

But I think we are jumping to a conclusion — we might be jumping to a conclusion too soon.

What I mean is essentially what happened is that dealers have not passed on the excise benefit to customers by and large, this is what I think is true and give it another three weeks and by end of March we will see improved traction in terms of sales.

But I will say also what I said right after the excise cut that I think this is a very temporary measure and this will only serve to prepone some sales that this is not going to change the fundamental situation in the market place because whether its petrol price whose hike can only dampen sentiment further or whether it is the other uncertainties around politics or inflation etc. I think those concerns are far greater than a 4 percent cut in excise. So while that was a good move in isolation but in the bigger picture it is marginal.

Anuj: What has been the response to Discover 100 and will we see some more launches in the 100 CC?

Ekta: 125 was also launched in March. If you can add what the response has been on that as well?

A: Certainly, the 100 has done very well. I think that is the one single reason why we are now gaining share month-on-month two months in a row. But the 100 is not what the Discover is about. Discover in keeping with Bajaj, DNA is about sporty motorcycle where the 125 is far more relevant — that is what we are launching this month and that is why I am hopeful that our gain in market share in the domestic motorcycle market will gain further momentum from this month onwards, and as we expand the production of 125 in April as well.

So I think over the next two-three months, we are going to see very rapid growth in domestic motorcycle market share.

Ekta: I had one question with regards to the inventory levels that you are working with at this point in time and what exactly is the production capacity utilisation especially for the domestic market at this point?

A: Our total motorcycle capacity is about 375,000 motorcycles every month. Typically we are now been doing about the 300,000 or a little over that.

As far as inventories are concerned, fortunately we cut back significantly after the festive season was over and therefore from an inventory level that was five and six weeks, we are now at about four-five weeks of inventory, which I would say is near normal.

So at least for us inventory is not a concern and as I have been saying repeatedly, we had to do this i.e. we have to cut back on the inventory especially of the old Discovers at an accelerated pace because we were launching new ones, we have to make space for the new ones. So there is no concern at all.

Bajaj Auto stock price

On March 14, 2014, Bajaj Auto closed at Rs 1973.65, up Rs 5.25, or 0.27 percent. The 52-week high of the share was Rs 2193.85 and the 52-week low was Rs 1657.50.

The company’s trailing 12-month (TTM) EPS was at Rs 112.15 per share as per the quarter ended December 2013. The stock’s price-to-earnings (P/E) ratio was 17.6. The latest book value of the company is Rs 273.08 per share.

At current value, the price-to-book value of the company is 7.23.

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