Bajaj Auto’s stock price touched its new 52-week high rallying 4% after September Quarter 2023 results were announced. Market leader in three-wheelers and 125cc motorcycles in India delivered strong Q2FY24 numbers supported by 15% increase in its average selling price (ASP). Thus, even with an 8% YoY volume decline, revenues came in at Rs 10,838 crore, up 6.2% YoY in Q2FY24.
While volume growth seems to be on the recovery path in September 2023, will Bajaj Auto (BAL) recover its FY22 peak volume levels.
Export volumes to recover, BAL to enter new three-wheeler markets
“Return to peak level performance will be slow and steady and not a quick one”, said Rakesh Sharma, Executive Director, Bajaj Auto. He further added that current export volumes were two-thirds of FY22 peak levels. Bajaj Auto has been reporting lackluster and muted export growth since Q3FY22.
But the management is optimistic on export volume recovery in the coming quarters. On a sequential basis, exports volumes have increased 11% and 14% in July and September 2023 respectively. According to the management, recovery is happening across all regions. Africa reported double-digit volume growth QoQ powered by Nigeria and Asia, MENA and Latin America reported single-digit volume growth sequentially in Q2FY24. While two-wheeler export recovery is happening at a faster rate, management is working towards building three-wheeler export volumes impacted by Egypt’s three-wheeler export ban. Egypt accounted for about 30-35% of BAL’s three-wheeler volumes. The company is entering 11 new markets to make up for the lost Egypt export volumes. Speaking on three-wheeler export volume recovery, Sharma said that the company had earlier undertaken a similar task with Sri Lanka three-wheeler ban. BAL entered new markets, Columbia, Bolivia, Philippines, Ghana to name a few, making up for the 25,000 unit Srilankan market.
Ensuring steady recovery in exports is one of the five focus areas which BAL intends to pursue aggressively in the near future. According to the management, other four focus areas are; drive growth in 125cc segment through new launches, to further expand three-wheeler market share in India, expand Chetak’s capacity and distribution network and augment Triumph volumes in India and overseas.
Strong growth in 125cc+ segment, Triumph to start exports
The 125cc+ segment accounts for nearly 65% of BAL volumes. Sharma said that the 125cc+ with a weightage of 51% in the motorcycle industry is growing faster than the 100 cc segment.
The company plans to launch six new models of the Pulsar franchise in the next six months pushing its market share (currently at 30% in 125cc segment) to new highs. Bajaj Auto’s retail volumes grew above 20% YoY in the July-September 2023 period on the back of the 125cc+ performance which grew by 36% YoY, significantly outpacing the rest of the industry.
In the middle-weight motorcycle segment (250-750 cc), Triumph twins, Speed 400x and Scrambler 400X have been well received. BAL and Triumph motorcycles (UK) entered into a strategic partnership in 2020 to manufacture the middle-weight segment (250-750cc) motorcycles. Triumph motorcycles are currently manufactured in BAL’s Chakan plant with the capacity of 5000-7000 units per month and is expected to increase to 10,000 units by the end of FY24. Exports of Triumph twins is expected to start by the end of October 2023. BAL is also ready with its third generation KTM 250/390 duke expected to be launched in December Quarter 2023. Competitive intensity has soared in 250cc+ premium bike segment with the entry of Harley Davidson and Triumph motorcycles. Market leader in the middle-weight segment, Royal Enfield which always believed in word-of-mouth promotional strategy undertook an aggressive Bullet 350 campaign. Whether Royal Enfield cedes its market share to Harley Davidson and Triumph, the next few months will give a better picture.
Bajaj Auto’s e-auto presence to expand to 40 cities
BAL launched its e-auto in Agra in Q2FY24 and has captured 70% market share. Already introduced in 10 cities, e-auto has commenced phase 2 of calibrated expansion to 40 cities expected to be completed in the next six months, said Sharma. He further added that the big push for e-auto will come in FY25. The company’s market share is around 60-80% in the overall three-wheeler market and nearly 90% in CNG three-wheeler market.
According to the management, the battery cost of a three-wheeler is lower than a two-wheeler. E-auto’s advertising & promotion expenditure is also low with BAL’s high brand equity and government’s production linked incentive (PLI) scheme ensures that e-auto is not margin dilutive. Bajaj Auto operating margins in Q2FY24 stood at 19.65% up 250 basis points (bps) driven by cost and price management, better foreign realizations, rich product mix and softer commodity cost.
Chetak gaining ground in Indian electric scooter market
Ola Electric is the undisputed market leader in the electric scooter market in India with nearly 30% market share. Chetak’s (BAL electric scooter) market share is at 11% which was earlier mere 4% in FY23, said Sharma. He further added, “We are targeting customers which are economically driven and for whom scooter format is acceptable. Anybody riding more than 50 kilometers per day will save substantially by shifting to electric scooters”. Currently Chetak is present in 120 cities and aims to expand its distribution network to 180 cities by the end of FY24. Speaking on Chetak’s sales, Sharma said, “We are pushing for a 10,000 unit sales mark this quarter and build on it in Q4FY24”. The company is planning to launch new Chetak models by the end of Q4FY24 and also in Q1FY24.
The overall two-wheeler segment is expected to grow by 12-15% during festive season and the BAL’s management expects the company also to grow comfortably. The 33- day festive season accounts for about 15-17% of total yearly two-wheeler volumes. Speaking on post festive growth, Sharma said, “Whether the two-wheeler growth is a phuljhadi (sparkle) or there is sustained improvement in the fortunes of the industry. It will be visible by November end.”
