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For Bajaj Auto, ASEAN is the next big global play

Murali Gopalan | Updated on January 03, 2019

Rakesh Sharma

Executive Director Rakesh Sharma is equally upbeat about Bangladesh where the company intends to strengthen its hold

For Rakesh Sharma, there could not have been a better start to 2019.

His company, Bajaj Auto, has shown good growth in its motorcycles and three-wheelers through the first nine months of the fiscal with the last quarter also looking promising. Exports are well on course to touching two million units for 2018-19.

And, finally, the New Year saw Sharma elevated as Executive Director of Bajaj Auto, coming close on the heels of his recent promotion as Chief Commercial Officer last year. From his point of view, though, it’s business as usual even while he admits that the tailwinds are firmly in place to take the growth story forward.

“ASEAN is the next big thing for us,” says Sharma, where the building blocks are now being put in place for countries such as Indonesia, Vietnam, Thailand and the Philippines. According to him, the results will start to show over the next couple of years when the overall growth vision for the region will start yielding tangible results.

Bajaj and partner KTM have already announced their intent to cooperate in Indonesia for motorcycles while for other parts of ASEAN, the strategies could be more individually focussed. No concrete plans have been drawn up though Sharma says it is only natural that the two will continue to exchange notes.

After all, Bajaj holds 48 per cent in KTM and the partnership has only grown from strength to strength since the time the two came together way back in 2007. At that time, Bajaj had a 14 per cent stake, which has now grown over three-fold and will soon see Swedish brand Husqvarna join the product parade next year.

Betting on Bangladesh

Beyond ASEAN, Shama is bullish about Bangladesh, a market in which Bajaj has been a key resident for many years now with its product offerings. What is interesting though is that India’s neighbour has been proactively working out an automotive roadmap in which two-wheelers will be an integral part of the growth plan.

“Bangladesh is clearly the star of the pack in Asia,” says Sharma, while indicating that Bajaj will now pull out all the stops to increase its share further in this market. More recently, Honda set up a new motorcycle plant in Bangladesh that clearly shows that the potential here is immense in terms of greater market penetration for two-wheelers.

Yet, it is not all rosy in Asia with Sri Lanka clearly in some sort of policy paralysis thanks in part to the political tumult seen in recent times. What is even more intriguing is that this market was seen to be more advanced than Bangladesh except that the latter is now catching up in a big way with its pragmatic approach in attracting new investments.

Likewise, continues Sharma, Latin America is not in top shape either right now with new governments suddenly turning more left of centre. In the process, the mood is more distinctly anti-business where incentives are also being knocked off in markets like Mexico, which are important to Bajaj.

Be it Argentina or Peru, Latin America seems shaky overall thanks to these new geopolitical realities that may just end up being obstacles to growth. The million dollar question is how long the headwinds will last especially when there is turmoil all around in the form of Brexit, the US-China trade wars and so on.

Africa doing well

The best piece of news to Sharma, though, is Africa, which accounts for 50 per cent of the company’s business and is doing brisk. “Africa is in a stable spot right now and things are in better control overall,” he says.

This is a welcome turnaround from the not-so-distant past when Africa was in the midst of extreme volatility, especially markets like Nigeria that depend on oil revenues. There is no indication of another rollercoaster ride emerging soon, which means Bajaj can hope to strengthen its base in this market.

While Africa accounts for half of its exports business, 15 per cent comes from Latin America and 35 per cent from Asia. In this backdrop, the importance of Bangladesh assumes significance especially with Latin America being wobbly and Sri Lanka still to get back to a greater level of normalcy.

All in all, Sharma is confident that Bajaj Auto is poised to “reach good double digit growth for exports in the near term”. This could well mean that the figure could go up to 2.3 million units in 2019-20 or even higher as the ASEAN share of the pie also grows in the process. Brazil and Europe will also be on the growth radar where KTM is likely to play a strong role as Bajaj Auto’s global ally.

Entry segment focus

Back home in India, Sharma believes that the strategy of focussing on the entry segment in motorcycles is paying off for the company in terms of building volumes for the CT100 and Platina. The other priority area is the sports segment where the Pulsar and Avenger are jointly leading the race even while efforts are on to grow the Dominar 400.

According to Sharma, it is quite evident that there is a rapidly growing base of new buyers in the entry segment, which has been borne out by the growing market response to the company’s CT100 and Platina combine. In fact, these two brands will be the engines for the next growth phase in 2019-20 where low-cost innovations will lead the way.

“Our success has been a result of smart product strategy and pricing,” says Sharma. The middle-end of the commuter motorcycle segment, in which Hero reigns supreme with the Splendor and Passion, is showing much slower growth compared to the entry and sports segments.

If this trend continues, it will be interesting to see how leadership dynamics will change in the process while keeping in mind that Honda is the clear leader in scooters. Hero is incidentally the leader in the entry-level with its HF series, which has also been showing growth.

Some headwinds

Even while he is bullish about growth prospects next fiscal, Sharma cautions that there could be possible disruptions coming in the next few months, more specifically from April onwards, when new safety norms in the form of ABS and CBS become mandatory for higher capacity engines. This will translate into more expensive price tags for motorcycles and it is too early to say how this will impact demand.

It is perhaps in this context that entry-level motorcycles will get a further shot in the arm and their numbers could soar thanks to the fact that they will be more affordable. The sports segment, likewise, will continue to get its share of buyers who do not mind paying more.

Beyond this, two-wheeler manufacturers will have another costing challenge with Bharat Stage VI emission norms becoming mandatory from April 2020. For Sharma, though, the priority would be to grow faster than this fiscal even while his company will have to contend with some serious headwinds.

Published on January 03, 2019

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