Companies

Demand back for Bajaj bikes but supply chain concerns remain

Murali Gopalan Mumbai | Updated on July 22, 2020

Bajaj Auto’s Executive Director Rakesh Sharma

A file photo Bajaj Auto workers at the Waluj plant   -  Source: Bajaj Auto website

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Bajaj Auto’s Executive Director, Rakesh Sharma, believes that the brisk motorcycle demand momentum in June augurs well for the coming months.

The company reported its first quarter (April-June) results on Wednesday where the Covid-19 impact and lockdowns led to net profit crashing by 53 per cent to ₹528 crore from ₹1,126 crore in the same period last year. Turnover was down by 58 per cent to ₹3,417 crore (₹8,197) crore.

“It is not as if the crushing economic situation of April and May has permanently extinguished demand…it has not!” Sharma told BusinessLine in a telephone interview. According to him, June has “indicated very strongly” that demand for motorcycles is still robust with “very good messages” coming in for July too.

“We are getting data from countries that each time a lockdown has receded, demand has surged. It has come back to normal pretty fast in India too,” said Sharma. This is borne out by statistics which show that while April was zero and May improved a bit to 20-30 per cent of normal demand, June saw a sharp rise to 70 per cent.

As Sharma explained, the first 10 days of July were even better at 90-95 per cent on a national average with some areas going beyond 100 per cent of normal demand levels. However, there were a few lockdowns in Maharashtra, Bihar, Orissa, Guwahati and Bengaluru that caused demand to slip back as a result of which “we are back to 85 per cent” in July.

“This tells us that if we manage the lockdown situation intelligently, we will not be wanting for demand,” said Sharma. There is also “no doubt” that the quality of demand is still the same. It is not as if the pandemic has “psychologically or mentally shifted” the customer from his earlier choice of a bike model.

“The structure of demand in terms of preferences for segments has largely remained intact,” continued Sharma. For instance, 50 per cent of sales in June were from the Pulsar even while common perception would suggest at people would make a beeline for a far more affordable option like the entry-level CT 100.

Yet, he added, both the Pulsar 125 and 150 have done “extremely well” with the brand expected to breach the 100,000 mark in monthly sales very soon. The Bajaj Auto ED, however, sounded a note of caution on the brisk demand for motorcycles.

“Total recovery is around the corner for motorcycles but a lot will depend on the Covid spread and the administration’s response, which are equally important. Both are independent and will play a big role in affecting demand,” he said. Even while the customer is ready to buy, he also needs the opportunity by the end of the day.

Cause for cheer

The other aspect of the demand pattern for bikes is that it is as buoyant in urban India as it is in rural regions. People in cities who were fence-sitters earlier now believe that two-wheelers are safer than public transport and “falling on to our side of the quadrant”.

While there is cause for cheer with demand back in place, concerns remain on the supply side. Bajaj Auto’s three plants spread across Maharashtra and Uttarakhand are on stream though interruptions keep happening from time to time with lockdowns in different States.

“It is a pan-India supply chain where there are vendors in Madurai, Chennai, Aurangabad etc and when they get into a shutdown (because of lockdowns) there is an interruption followed by a scramble,” explained Sharma. If demand “really returns” but the supply side interruption does not even out, the fear is that “we will be constrained not by demand but by smooth supply chain flow” in the months to come.

There were also concerns till last month on the stability of the exchange rate with “too much devaluation” taking place in Nigeria, Bolivia, Bangladesh and the Philippines which are important markets for Bajaj Auto. This could have affected demand but, fortunately, nothing of the kind happened and June ended up being stable. Sharma admitted that the commercial vehicle/autorickshaw business was an area of concern since it is an important part of the product portfolio. Regular committing has not taken off in many parts of the country and most drivers are at 35-40 per cent of their daily income levels. “These people are dependent on resumption of normal/daily life and that recovery is far slower than motorcycles,” he added.

Going forward, it remains to be seen how quickly this part of the business get back into full activity mode since there are added obstacles in the form of high down payments and EMIs which could deter fresh buying of autorickshaws.

 

 

Published on July 22, 2020

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