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Bajaj Auto fights for a share in a shrinking pie

Apr 4, 2000

Bajaj Auto Ltd (BAL) has reported sales of 1.39 m units for FY2000, a decline of 1% YoY. For the month of March'2000 total sales fell by 15% YoY to 0.13 m units as compared to 0.16m units for March'99. BAL is the world's third and India's largest two wheeler manufacturer. The company commands a 57% market share in scooters, 7% in mopeds and 22% in motorcycles. BAL reported a net profit of Rs 3.98 bn for the first nine months of FY2000.

The break up of BAL's unit sales is given below:

Scooters, Indian motorcycles and three wheelers accounted for 77% of FY2000 sales, hence a decline in these segments have contributed to an overall decline in sale units for BAL in FY2000.

The Japanese motorcycle sales of BAL remained buoyant in line with the growth in the motorcycle industry, BAL saw this segment growing by 28% YoY in FY2000. BAL has done very well in the scooterette segment which grew by 44% in FY2000, a marked improvement from FY99 where its sales fell by 7.4% YoY. This improvement in FY2000 was largely due to introduction of new models during the year.

Inspite of the overall decline in sales, BAL's market share in the 2HFY2000 has improved in each of the segments due to its efforts of launching new models and improvement of the existing ones.

The overall scooter industry is facing difficult times mainly due to a shift in consumer preferences from scooters to motorcycles, hence BAL is no exception. The main reason for this shift has been that motorcycles are more popular because of better driving comfort and also better mileage. Also motorcycles are preferred in rural areas due to large size of wheel base. As the agricultural sector has performed better as compared to the industrial sector in the last couple of years this has lead to higher agricultural income in rural areas and hence higher demand for motorcycles.

BAL will have to continue to fight to increase its market share in the declining scooter market by spending more on research and development to develop new models which are more fuel efficient and with improved features etc. Also the company needs to focus more on motorcycles which is a fast growing market. In order to protect its market share it needs to come out with new models in both scooters and motorcycles.

Spending on research and development and introduction of new vehicles should not pose a problem for BAL as it has enough cash surplus to funds these activities. In FY99 BAL spent 1.06% of sales in research and development as compared to 0.9% in FY98.

As per the FY99 balance sheet of BAL, the total of investments, cash and loans and advances is Rs 31.8 bn. BAL will be spending close to Rs 6.75 bn of this in the buy back of its shares which it has announced recently. Hence it still has a huge surplus left part of which can be used for its research and development efforts.

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