The transformation of Bajaj Auto from a geared scooter company to a motorcycle seller, with a focus on exports, is remarkable.
Rarely has a company chronicled the history of a country the way Bajaj Auto has done in the case of India. Right from the days of founder Jamnalal Bajaj – such an ardent follower of Mahatma Gandhi that the latter had adopted him as his son – the company has been a proxy to everything that is India. But having realised that the company had lived for far too long just on nostalgia, current Managing Director Rajiv Bajaj is a man on a mission to transform the very way the world looks at Bajaj Auto. Is he on the right track? The Dollar Business investigates
Jayashankar Menon | @TheDollarBiz
Explaining what a Bajaj scooter meant to middle-class India to someone born after the mid-1980s can be a daunting task. From being the default dowry at a wedding, to a carrier of an entire family of four...Bajaj scooters used to be socialist India’s aspiration. It was India’s car on two-wheels! In fact, when in 2008, Ratan Tata spoke about the need for an ultra-low cost car for the “three-four family members on a scooter with a kid standing in the front, the guy driving and his wife sitting side saddle holding a little kid,” he was essentially, referring to his school buddy Rahul Bajaj’s company and how millions of his compatriots had virtually grown up on one of the gazillion scooters manufactured by it. However, after reading these lines, if the same millennial rushes out to see what this so-called Bajaj scooter looked like, he/she would struggle. It doesn’t matter if the person lived in South Mumbai or rural Bihar.
The transition – from start to completion – from scooters to motorcycles happened in a matter of just nine years. Bajaj Auto stopped manufacturing scooters in 2005. Today, its ‘brand new’ scooters have vanished from Indian streets. You might of course find one in an automobile museum. Just what happened in these few years? What actually caused India’s aspiration to change suddenly?
However, strange it might sound, it indeed was a fact that in the 60s and the 70s, one had to wait for a decade to get one’s hand on a Bajaj scooter. The reason: India’s dreaded License Permit Raj. However, starting the late 80s, the wind changed direction around the world. The iron curtain lifted. The Berlin wall crumbled. India too, although very hesitatingly, opened up to market forces. Free market is not just about market, it is about the free human spirit. It’s about a kid learning to say no to his father – no, I won’t stand in front of your scooter. And despite having fought tooth and nail, the then Manmohan Singh-led government’s plan to open up the economy in 1991, the visionary in Rahul Bajaj, who served as the MD of Bajaj Auto for 35 years before giving it up in 2005, could read the writing on the wall. He could sense that Bajaj Auto’s bread and butter – the geared scooter – will have no place in free-market India. He knew it was time for a transition. But he perhaps didn’t know what to do. Luckily for Rahul Bajaj, the transition of India’s two-wheeler market took a few years and gave him the breathing space to build capacities. But by the turn of the century, the market had turned on its head. Rahul Bajaj noted in his annual letter to shareholders in the year 2000, “The structure of the two-wheeler market is changing at a rapid pace. Younger people and those with significantly greater purchasing power now constitute an important segment of the market. The writing is on the wall. Over the last five years, we have faced a stagnant, even declining market for our mainstay – the traditional, metal bodied, side-engine mounted, kick-start scooters.” However, not the one to throw in the towel, he ended the letter promising “rapid ramping up of capacities for motorcycles...”
The transition Over the next five years, in every single annual letter to shareholders, Rahul Bajaj was seen pressing his case for motorcycles. In the FY2001 letter, he said, “The Company’s motorcycle manufacturing capacity has expanded to 50,000 per month.” A few months later in November 2001, Bajaj Auto launched what was going to be a game changer – the Pulsar. By the end of FY2002, the unthinkable had happened – Bajaj Auto had sold more motorcycles in the year than geared scooters! And the beat was actually a landslide. Motorcycle sales in FY2002 had beaten scooter sales by 60%. After this, it was just a matter of time. In FY2004, the company got a new sportier, younger-looking logo. In FY2005, Bajaj Auto sold close to 15x more motorcycles than scooters and by the end of the year, the last scooters were rolling out.
If one thought with the passing of the baton to Rajiv Bajaj from the ‘scooterwala’ father and manufacturing of geared scooters getting relegated to history books, Bajaj Auto’s transformation was complete, one couldn’t have been more wrong. For, things were just warming up. It was a time when the Indian economy was on a tear and the Sensex on fire. The ‘India Growth Story’ had worshipers all around the world. Money was pouring into the country at a rate of knots. The rupee was appreciating on a daily basis and auto sales were hitting the roof. Rajiv Bajaj, however, contrary to popular wisdom, was looking at foreign shores as Bajaj Auto’s exports crossed the quarter million mark in FY2006. 
From thereon, the strategy was simple – focus on exports. And the results were there for everyone to see.
In the decade between FY2005 and FY2014, Bajaj Auto’s exports as a percentage of sales, surged from about 10% to over 40%.
This meant that while its net sales in the same period went up over three-fold, they were overshadowed by exports that surged by over 11x. This also meant higher margins what with the government providing tons of export incentives. For example, in FY2014, Bajaj Auto reported Rs.335.94 crore as export incentives. Currently, Bajaj Auto exports to almost 60 countries. It claims to be the No. 1 or No. 2 in 17 of them and is by far, India’s top exporter of motorcycles. In fact, in FY2014, Bajaj Auto exported over 1.3 million motorcycles – more than 2/3rd of India’s total motorcycle exports. In terms of geographies, Africa in general and Nigeria in particular, seems to have taken a special liking for Bajaj motorcycles. According to Ashwin Patil of LKP Securities, “Nigeria accounts for almost 50% of Bajaj Auto’s motorcycle exports to Africa, and thanks to the popularity of the Boxer, the company’s pricing power in the Nigerian market is also very high.” Patil’s estimates suggest that Bajaj Auto’s margins in Nigeria are at least 6-7 percentage points higher than its overall margins. Does this mean all’s hunky dory with Bajaj Auto? Not actually.
With almost its entire focus on exports, Bajaj Auto is losing domestic market share by the day. Its domestic motorcycle sales fell by almost 15% in FY2014. This, when the motorcycle industry saw a 3.9% growth – third straight year with over 10 million in sales. It also meant that Bajaj Auto now has just a 20% share in the domestic motorcycle market and has recently been relegated to No. 4 in the overall two-wheeler market as an old quandary comes back to haunt it.
“Every 4th two-wheeler sold is a scooter,” read the headline of a leading newspaper a few weeks before this issue went to print. The transition of India from an ‘Only-scooter’ two-wheeler market until the early 90s to ‘What’s a scooter’ two-wheeler market in the first decade of the new century, has now turned full circle. While domestic motorcycle sales rose 3.9% in FY14, scooter sales surged by 23% as Indians lapped up new-age scooters from Honda, Piaggio, TVS, Hero Moto and even Suzuki and Mahindra. What must be worrisome for Bajaj Auto is the fact that this is not an aberration but a trend as scooter sales as a percentage of total two-wheeler sales has consistently risen from 14 in FY2008 to 25 in FY2014, while that for motorcycles have dipped from 79 to 70 during the same period. This has not gone unnoticed by Dalal Street as shares of Bajaj Auto have been forced to trade at a discount to those of rival Hero MotoCorp, which continues to focus on India.
While Rajiv Bajaj continues to bet on motorcycles and seem to have turned his back on scooters forever, he would do well to learn from what his father did in the 90s and early part of the last decade. Can we even imagine what would have happened if Rahul Bajaj had not reconciled to the changing dynamics of the market in the 90s and continued with geared scooters? Observers claim that time seems to have run out for Bajaj Auto. According to Patil, “Setting up a 30,000/month scooter manufacturing unit will cost close to Rs.1,000-1,200 crore but more importantly, the commissioning will take at least 24 months.” Bajaj Auto has lived India’s change. A look at its TVCs (from those popular jingles of the 80s trying to create an emotional bond with the buyer to the current ones that are more about specification) confirm this. And one would do well not betting against a company that has re-invented itself over and over again. Does it mean a new chapter is being quietly scripted in the corner office at the Bajaj Auto headquarters? The future of Bajaj Auto could be different. It could be about ‘also scooters’. As much as we know Rajiv, he loves yoga and wants to grow his company inside-out. We also know that he led the remaking story of Bajaj a decade back. No reason to believe therefore why he can’t adopt a top-down, organic approach to making change occur in Bajaj Auto’s build-and-sell strategy again. Only issue is, he doesn’t have nine years to decide and act. Not this time.
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