At Bajaj Auto’s corporate headquarters in Akurdi near Pune one cannot miss an installation of a globe with flags of as many as 70 countries. These are export destinations for company’s two- and three-wheelers.
At a time when the domestic market has been reeling under a prolonged slowdown, a strong order book from the export markets has offered a good buffer and has helped Bajaj outperform its peers in terms of gains to the shareholders and margins.
In line with the broader slowing trend in the domestic market, however, Bajaj’s volumes skidded 14 per cent to 1,833,060 units in the first nine months of the fiscal, according to Society of Indian Automobile Manufacturers (Siam). The overall two-wheeler market fell 15.8 per cent to 15,255,979 units in the period.
But, in the quarter that ended in December, the company reported an Ebitda margin (earnings before interest, tax, depreciation and amortisation) of 17.9 per cent against 16.3 per cent a year ago. It was largely aided by an increased realisation from exports and a favourable foreign exchange.
As on February 26, Bajaj Auto’s market capitalisation (marketcap) was Rs 85,362 crore, up from Rs 84,352 crore on March 29, 2019. All its peers including Hero MotoCorp, TVS Motor and Eicher Motor have seen marketcap getting eroded in the same period (see chart).
The largest exporter of motorcycles and three-wheelers from India envisages closing the current fiscal with a record overseas shipment of 2.2 million units (motorcycles and three wheelers) a year-on-year increase of 6.2 per cent, says Rakesh Sharma, executive director at Bajaj Auto. This will be the second consecutive year of 2 million plus exports for the motorcycle and three wheeler maker.
Currently, Africa is the single largest export destination for Bajaj with every second motorcycle getting exported to the region. It is followed by South Asia and Middle East which constitute 20 per cent. Latin America and Asean account for 18 per cent and 12 per cent respectively. In each of the regions Bajaj has followed the strategy of “start small and then go deep and wide,” and it has mostly paid off, says Sharma.
In all these markets the company has chosen a dealer-driven model -- it has appointed a dealer which has taken responsibility to import the vehicles and distribute. In other words, Bajaj doesn't have a manufacturing or assembling base in any of these markets. Even in countries that give emphasis to higher local content, company’s dealer partners have taken the onus to source and distribute Bajaj products. The distribution-led model instead has helped the firm to hedge its risks and benefit from the expertise of the local partner.
That said, it was a different story 27 years ago. Sometime in the early 1990s when Rajiv Bajaj joined Bajaj Auto and asked his father Rahul Bajaj what the latter wanted him to do with the company, he told him: “Bajaj Auto should be world class and that can happen when the company exports 20 per cent of its products.”
Bajaj’s latest share of exports in the overall production mix indicates the engineer from University of Warwick executed the advice from the father to the tee — more than four out of every 10 motorcycles the Pune-based company produces, are exported. To reflect the change and reinforce its positioning as a global motorcycle maker, last January after more than four decades of Humara Bajaj tagline the company released its new identity as “The World's Favourite Indian”.
Its stellar performance hasn’t gone unnoticed by the analysts. “The growth in exports is firm and would offset the domestic weakness. This makes Bajaj a good defensive play during times of uncertain domestic demand,” wrote Joseph George, analyst at IIFL in a research report on Bajaj Auto after the December quarter earnings. Strong growth in exports and potential currency gains provide a hedge against the weak demand scenario in the domestic market, he added. George expects domestic demand to remain weak till early part of fiscal 2020-21 due to BSVI price hike.
Bajaj's Sharma says his firm has always been export-oriented. “I have heard stories that even during the scooter days the chairman (Rahul Bajaj) would say, despite a five-year waiting for the Chetak, some portion should be exported.” But the real thrust came after the transition from scooters to motorcycles — 2005-06 onwards. The success of the Pulsar gave lot of confidence to the company, says Sharma. “From then to the next decade was our teenage,” he adds. There was no looking back from then onwards as revenue and volume share from exports started climbing steadily. It currently accounts for 47 per cent in revenue and 41 per cent of volume.
Sharma, who has been steering the company into newer markets over the past decade, remains confident that unless there is a major geopolitical disturbance or a currency fluctuation triggered by tension among countries, exports will remain a very powerful engine of growth for Bajaj Auto. “Unless there are big things, the outlook is fairly steady. More of what we have seen in the recent past is what's going to unfold in the future,” he said.
The firm that exports to 71 countries of the world is now executing another phase of its exports strategy that will help the maker of Pulsar and Discover models make deeper inroads into the Asean (Association of South East Asian Nation) region — a market it has struggled to break into in the past because of a tough competition from the Japanese brands. It also plans to set foot in Europe.
After its initial bid to establish presence in markets like Thailand, Malaysia, Philippines, Vietnam and Indonesia, failed owing to strong customer affinity with the Japanese brands, forcing the company to exit the Asean region, it re-entered the region a couple of years ago piggybacking KTM which has a better brand recall in the region and things have started looking up in some countries like Malaysia and Philippines, says Sharma. Bajaj’s alliance with UK-based Triumph Motorcycle will also help in making inroads into mature markets like Europe where the former has a strong presence.
In Africa, Bajaj has been competing against the Chinese, in Latin America against the Japanese and Chinese, in Asean it is pitted against the Japanese manufacturers -- Honda and Yamaha, among others. The small steps the company took in each of the regions in the first phase of the export plan, endowed it with lot knowledge which in turn helped it firm up the go-to-market strategy, says Sharma.
It is not motorcycle alone which has made inroads in markets outside India. Company’s RE branded three-wheelers in goods and passenger carrier too has a big share in the export story. It has created 16 new markets for three-wheelers which never had a three-wheeler, claims Sharma.
As much as identification of the export destination has been the centerpiece of the export strategy, the choice of platforms and product portfolio, pricing, costs and whether to have a model specific for a region or a global one was equally critical. Over the past decade Bajaj has worked on all these dimensions and developed a template which in turn has helped the firm expands quite dramatically, says Sharma.
But the ride for Bajaj Auto has not been without roadblocks and the company has often woken up to sudden changes in local laws, regulation, emphasis on import substitution in some of its key export destinations etc. But the sudden changes haven’t flustered Sharma and his team. “It is important to have a long -term view of the market and stay in the market,” he points out. Some countries banned imports but Bajaj continued to service the markets through service camps, spares, after sales etc and used the period for which the ban was in place to build its customer franchise.
