Bajaj Auto Ltd, India’s largest maker of two-and three-wheelers, said its new plant here, which will farm out the bulk of production to vendors, will be the model for the company’s overseas expansion in Nigeria and Indonesia.
Bajaj has invested Rs150 crore in building a million-units-a-year factory here, in the northern state of Uttarakhand, less than a third of the Rs500 crore invested by its 16 auto-parts suppliers. It will make about three lakh units of its cheapest-selling bike, the Platina, per year.
The company only paints and assembles the motorcycle, outsourcing all other tasks to the vendors.
Consequently, productivity at the new plant will be over 1,600 vehicles per person, per year compared with 600 at its fastest assembly unit in Chakan, on the outskirts of Pune, where the more sophisticated and a greater portion of vehicles are put together.
“We can suitably scale down this model (of production at Pantnagar),” said Rajiv Bajaj, managing director of Bajaj Auto. “Even at 50,000 units a year,” this model would be profitable.
Bajaj is planning to build factories in Indonesia and Nigeria based on this model of production. These are markets where Bajaj assembles completely knocked-down kits imported from India.
“Worldwide, the industry is moving to these levels (of outsourcing) as companies want to make themselves leaner and focus on core things, such as final assembly and engines,’’ said Manish Mathur, a prinicipal at consulting firm ATKearney India.
Bajaj’s vendors aren’t complaining. They say they are scaling up, not just to make components for Bajaj, but for rivals such as Mahindra & Mahindra Ltd as well. Mahindra & Mahindra does not make any products that compete directly with the Platina, but makes three-wheelers which use some similar components.
“We get the same margins as Pune,” said Vivek Jindal, executive director, at Minda Industries Ltd, which sells batteries and horns to Bajaj. “We invested here since we could use the same facilities to supply to companies like the Tatas and Mahindras.” The company has invested Rs125 crore in Pantnagar but declined to state what its margins were.
Over 16% of Bajaj’s 2.7 million annual vehicle sales come from exports. The company expects overseas sales to account for 25% of overall sales in the next five years.
“Over the next five years, we’d like to become a significant player in the world market,” said Rahul Bajaj, chairman of Bajaj Auto, while inaugurating the factory.
The company plans to sell about 10,000 units a month in Nigeria and has just started assembly in Indonesia, said Sanjiv Bajaj, executive director for exports.
Indonesia is the third-largest two-wheeler market in the world after India and China, with domestic sales of four million units a year. In Nigeria, the largest market in Africa, over one million two-wheelers are sold a year.
Bajaj plans to shift the entire production of the 100-cc bike, the Platina, which sells for Rs33,000, to the new plant at Pantnagar. It cut prices on the model by Rs3,000 a week ago in anticipation of the lower cost of production and to market the product agressively.
“The economic incentives and the lean manufacturing will no doubt improve our profitability,” said Kevin D’ Sa, vice-president (finance) at Bajaj.
The Union government has granted a 10-year excise tax exemption and a five-year income-tax exemption to manufacturing units that start operations in the states of Himachal Pradesh, Uttarakhand and Sikkim before 31 March, 2010. This has seen investments over Rs20,000 crore flow into factories in these states.