Bajaj considers new brand for low-cost bikes4 min read . Updated: 14 Sep 2008, 11:56 PM IST
Bajaj considers new brand for low-cost bikes
Bajaj considers new brand for low-cost bikes
Mumbai: In an about-face, Bajaj Auto Ltd, India’s second largest two-wheeler company by sales, is considering launching a sub-brand for its low-cost bikes to try and regain market share from Hero Honda Motors Ltd, said a person familiar with the situation.
The largest maker of premium bikes in the country, which currently sells only one 100cc bike, is already working on a plan to launch another low-cost bike, the biggest motorcycle segment in the country, said two vendors who supply auto parts to Bajaj Auto.
Such a move would be a reversal of managing director Rajiv Bajaj’s strategy of going upscale and focusing on the so-called executive and premium segments, which usually give better profit margins.
Bajaj confirmed that Bajaj Auto was considering the launch of a new brand but declined to disclose details.
“We are considering a lot of things including two-wheelers, three-wheelers and the small car with Renault," said his father and chairman Rahul Bajaj. “No decision has been taken by the board yet. On brands, (the) final decisions will be taken by the board."
Weaning customers away from the 100cc category to the executive and premium segments has not been easy for Bajaj Auto, especially in current market conditions. The slowing economy and 16-year-high inflation levels have hit the company’s premium bike market hard, as credit became more expensive after a series of interest rate hikes by the Reserve Bank of India.
Nearly half the bikes sold in India are financed by lenders, and the rise in borrowing costs has caused sales to flag. Overall two-wheeler sales shrunk by 8% in 2007-08, before bouncing back in the current fiscal.
Bajaj Auto’s premium 150cc and 180cc Pulsar bikes are priced up to Rs87,300, exclusive of taxes, while its only 100cc bike, the Platina, sells for about Rs36,000.
“Bajaj bore the brunt of the slowdown in the past two years," wrote Credit Suisse’s Govindrajan Chellappa and Swapnil Nandkar in a report on two-wheelers on 5 September. “Financing dried up in cities where Bajaj has relatively higher market share. Replacement demand was hit more, delaying the shift to premium bikes, a segment that Bajaj dominates."
Bajaj Auto lost market share because of its decision to shift its focus away from the 100cc segment, said another analyst with a domestic brokerage, asking not to be named.
Bajaj Auto’s market share in the motorcycle segment has slipped from 31.7% in 2006-07 to 25.4% so far this fiscal, according to data provided by the Society of Indian Automobile Manufacturers, or Siam. In the same period, bigger rival Hero Honda, with new introductions such as the sub-125cc Splendor and 150cc CBZ Xtreme, increased its market share from 48% to 57.4%.
The Bajaj Pulsar, introduced at the start of this decade, became a success in a market starved for premium bikes and now sells around 35,000 units a month, said an analyst who declined to be named. The company then sought to carve out a leadership position in the executive and premium segment, expecting it to be more lucrative than the entry-level 100cc category, he added.
“The only people who make money out of 100cc bikes are Hero Honda. We want to develop a motorcycle that isn’t a 100cc, but it has got to appeal to the 100cc customers," Bajaj had told Mint in an August 2007 interview. A month later he proceeded to launch the XCD 125cc motorcycle to take on Hero Honda’s Splendor and Passion bikes.
The XCD, priced at around Rs42,000, sells about 81,000 units every three months, according to Bajaj Auto. In comparison, Hero Honda’s Splendor, which is priced similarly, sells three times as much, according to figures provided by analysts.
Bajaj Auto has a 53% market share in the 125cc-plus category. Still, about 70% of the nearly six million motorcycles sold in the country every year fall in the 75-125cc segment, according to Siam data.
The firm will continue to focus on the 125cc and above segment. It will also likely launch up to four distinct platforms, including Platina at the lower end, XCD and Discover in the executive category, and Pulsar at the top, according to the Credit Suisse report.
Over the past couple of years, Bajaj Auto has picked up a 14.5% stake in Austrian sports bike maker KTM Power Sports AG, and the two firms are working together on a new series of 125cc and 250cc engines. Bajaj Auto also plans to import knocked-down kits of Japan’s Kawasaki bikes, starting with the heavier Ninja 250 motorcycle, in a bid to consolidate its market share in the higher end of the market.
As for its proposed new low-cost motorcycle, Bajaj Auto may include parts made in South-East Asia, including China, at price tags that could rattle the current price equation in the market, said one of the vendors mentioned earlier.
“The motorcycle is in the proposal stage. The company is still considering what kind of parts it will import from China," said the parts supplier, but he didn’t wish to be identified as it could hurt his negotiations with Bajaj Auto. Bajaj refused to comment on this.