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Tough to keep margins at 22%

Tough to keep margins at 22%
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First Published: Wed, Jan 13 2010. 10 58 PM IST

Planning ahead: Bajaj Auto managing director Rajiv Bajaj says the company has a lot of headroom for growth. Harikrishna Katragadda / Mint
Planning ahead: Bajaj Auto managing director Rajiv Bajaj says the company has a lot of headroom for growth. Harikrishna Katragadda / Mint
Updated: Wed, Jan 13 2010. 10 58 PM IST
Pune: Motorcycle maker Bajaj Auto Ltd, which posted an increase of 189% in third quarter net profit to Rs475 crore from a year earlier, countered an increase in commodity prices with higher sales volumes and a better product mix. Managing director Rajiv Bajaj is confident of expanding volumes and market share, but says maintaining margins at 22% is tough. Edited excerpts from an interview:
You have had 22% operating margins for the last couple of quarters. Can you maintain that kind of pace?
Planning ahead: Bajaj Auto managing director Rajiv Bajaj says the company has a lot of headroom for growth. Harikrishna Katragadda / Mint
Actually, the commodity cycle has already been up over the last quarter and...from Q2 to Q3, basically, we lost about Rs100 crore to the rise in commodity prices. But we more than made that up in terms of higher volumes and a better mix. Bajaj Auto is in a position where it can continue to grow volume and market share because we are still only about a third of the market. Our three-wheeler business is also growing handsomely and exports are also strong. So, while 22% itself maybe very hard to maintain, I think we have lot of headroom for growth, and profitable growth. I would certainly like to believe we can stay in the 20s.
You are saying your market share is growing. Hero Honda told us last week that its market share is growing and TVS Motors is also telling us the same thing. So who is losing market share? You three make up the market.
...data shows that in Q4 last year, Bajaj Auto’s motorcycle market share was 22%.
We finished Q3, that is December 31, at 33%. We have gained 11% market share...If you are referring to the market leader—the figures for Hero Honda are simply this: They were at 57% and they finished at 50%. So, we have gained 11% and they have lost 7% and the rest of the competition has lost 4%. That is the fact.
For this incremental 11%, can you break it up into which products have seen the biggest bump-up for you in market share?
Our growth so far has come basically from the enormous success of the Discover. The Discover was barely 20,000 a month and that has gone up almost to 100,000 a month since the launch of the new Discover in July. So 80,000 on an industry base of about 700,000 every month is over 10% there itself. But of course, since the industry has also grown, it is a little less than 10%. The other success has been the Pulsar although it is not as big as Discover...
Because of the way raw material prices are moving, do you expect to start seeing some pressure on realizations as well?
I do. We are in the middle of the “up” in the commodity cycle and certainly that will continue in the foreseeable future. At the same time, the Discover competes in a space where our market share in that commuter segment is still under 25%. We believe we can grow that. We launched a new Pulsar last month, which will contribute to volumes from this month onwards. We are targeting over 30,000 of that new product. That is a very profitable product as you can imagine.
Three-wheeler sales have been upped 25%. That is growing and our exports are growing like never before. So although the commodities will put pressure on us, I think more volume, better mix and also better realization in terms of the rupee—we are very nicely hedged at a minimum of Rs47 to a dollar for the rest of this year, and I think that is going to help us as well.
cnbctv18@livemint.com
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First Published: Wed, Jan 13 2010. 10 58 PM IST
More Topics: CNBC-TV18 | Bajaj Auto | Rajiv Bajaj | Discover | Bike |