Monday, July 23, 2018

Bajaj Auto AGM key takeaways - Continued aggression in domestic commute segment to hurt margins in coming years

Aggressive strategy in domestic motorcycles to hurt margins further
·         Rajiv Bajaj candidly admitted that making profitable commuter motorcycles has never been Bajaj Auto’s forte.
·         However, he indicated that they have done well in 1Q in the 100cc segment. They would continue their aggression in the 100cc commute segment in the coming fiscal and target to grow by 50% in 2HFY19 in this segment. He indicated that they would do whatever it takes, pricing, new products or higher promotional spend etc, to remain aggressive in the commute segment for the next 3-5 years
·         He further indicated that as a natural consequence, margins will come down further from current levels

Growing on to become a formidable global premium brand
·         Management indicated that KTM has globally sold 270k units in CY17 and they target to sell 350k units in CY18 and thereby emerge as the largest global premium brand outpacing Harley Davidson
·         They intend to launch the Husqvarna based models from next year onwards
·         He indicated that they would target to sell 0.5mn units pa between KTM and Husqvarna brands in the next few years
·         On their partnership with Triumph, he indicated that he remained hopeful that it would emerge as a partnership similar to KTM where they will be an equal technology partner, they would be able to manufacture Triumph models in India and sell those models in markets where Triumph is currently not present like Latin America, Asean etc
·         Over the next 5-10 years, between these 3 products, they would be selling much more products globally in the premium segment than all other global brands combined
·         They have recently struck a partnership with Modenas in Malaysia were Bajaj wants to establish a manufacturing base for sales into Asean markets. They would be able to localise upto 40% in this market
·         They also intend to open up marketing and sales offices in Bangkok and Thailand. They also intend to set up a design centre in Thailand to understand the pulse of the market

On readiness for BS VI and Electric mobility
·         As always, BAL would comply with emission norms well ahead of the deadline. In fact, they intend to launch their BS 6 compliant 3Ws one year ahead of the target, which is next year
·         They have recently started dispatching their Qute quadricycle to domestic dealerships. They intend to launch an Electric Qute before 2020
·         Management has indicated that they would launch an Electric two wheeler and that it could even be an Electric scooter

Feedback from Kevin’s interview on CNBC post results
·         BAL would target to aggressively grow in the commute segment
·         They have given a guidance to sell 4.8 mn units in FY19 (2.4mn units of domestic motorcycles, 2mn of exports and 375k units of domestic 3Ws)

Management promotions
·         Management has promoted Mr Rakesh Sharma to a newly formed position of Chief Commercial Officer (CCO) who will oversee all operations.
·         Mr K Grihapati has been promoted to head the International Business

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