Rajiv Bajaj, managing director and chief executive officer of Bajaj Auto Ltd, is looking at new launches in the motorcycle and passenger vehicle space—Bajaj Auto is currently developing a four-wheeler that will compete in the cargo-carrying space with light trucks.
The pending break-up of Bajaj Auto into three companies, an auto firm that will eventually have the same name, a finance and insurance firm (headed by Rajiv’s younger brother Sanjiv Bajaj), and a holding company, puts him firmly in charge of a business that he is widely perceived as having turned around through a product-centric approach.
After the announcement of the break-up, Bajaj Auto’s shares fell sharply on the Bombay Stock Exchange, largely because of the pricing of call options it has issued Germany’s Allianz SE with which it has two insurance joint ventures. The options allow Allianz to raise its stakes in the businesses, where they are currently capped at 26% in accordance with Indian law.
In an email interview with Mint, his first exchange of views since the announcement of the demerger, Rajiv Bajaj discussed the competitive environment that his firm faces and the future of Bajaj Auto. Edited excerpts:
After the demerger, what are the challenges that you see for the auto company?
The challenges for Bajaj pre- and post-demerger are no different: We have to develop bigger motorcycles, create a proper position for ourself in the four-wheeler market and establish Bajaj in more overseas markets.
Do you harbour hopes of ever pushing Hero Honda out of the No. 1 slot?
As far as being No.1 is concerned, the first question is: No. 1 in what? We are already No. 1 in image, which is why we are the leader in the 125cc-plus motorcycle segment. We are already No. 1 in profit. In fact, our operating profit in recent years has been the highest in the entire automobile industry, and not just in the two- and three-wheeler industry. We are already No. 1 in terms of market capitalization as well. Now, what remains is to be No. 1 in terms of sales numbers. This too will happen in due course, but I do not lay too much emphasis on this, since anybody can sell more by progressively giving away their products at a lower and lower price. We are not interested in such a business approach which, in the long term, benefits neither customers nor shareholders.
What is your take on the Rs1,187 crore in (Bajaj family) paper wealth being wiped out because of the fall in the Bajaj Auto stock price after the announcement of the demerger?
I am not among those who celebrate or mourn the rise or fall of a stock price on a short-term basis.
Why didn’t Bajaj Auto make the disclosures related to the insurance business earlier?
You may pose your queries regarding the demerger and insurance disclosure to our executive director, Sanjiv Bajaj.
What is your capital expenditure plan for the next few years?
We did previously announce that our capital expenditure over the next three years would be about Rs1,500 crore, of which about half would be spent on four-wheeler development.
By when do you plan to roll out your four-wheeled goods carrier?
Our four-wheeled goods carrier will be introduced in fiscal 2010. The passenger version of this vehicle is also under consideration, although no firm decision has been taken (on this) yet.
How long can auto makers continue to offer deep discounts to buyers despite falling margins?
The discounts you describe are really related only to the 100cc motorcycle segment and are required largely because in the absence of product excitement through design or performance, the only option available to manufacturers is to entice the customer by direct or indirect discounts. The impact of this phenomenon can be seen in the fourth quarter results of the major players. Bajaj was relatively much better off due to its relatively lower dependence on the 100cc motorcycle. In fact, unlike our major competitor, our operating profit actually improved from Q3 to Q4 (of 2006-07).
Our solution to this problem is to launch a new motorcycle platform in the second quarter of 2008, based on a highly fuel-efficient version of our DTS-i technology called DTS-Si—digital twin spark swirl induction. Through this innovation, we will deliver so much value to customers that we expect a majority of them to exit the 100cc motorcycle and upgrade themselves to this platform. This strategy of differentiation driven by patented innovation will ensure that we are immune to any further discounting by other 100cc brands. Specifications of the new motorcycle platform are confidential as of now.