00:00 Joining us on the show is Rakesh Sharma, ED at Bajaj Auto.
00:02 Rakesh, good morning and welcome to the show,
00:05 and always a pleasure to speak to you.
00:07 Good morning, Hiral.
00:09 Nice to be here.
00:10 Always a pleasure.
00:11 Rakesh, clearly, the outlook with regards
00:13 to the domestic business, including EVs,
00:15 is absolutely positive.
00:18 How are you pegging the exports from a recovery perspective?
00:21 Do you think it could be at the same pace,
00:23 or do you think it will be gradual?
00:27 Hiral, the recovery in exports, as you can see,
00:30 quarter on quarter, this time was just at 2%.
00:36 We have been saying that we are trying
00:38 to get each quarter to be better than the previous one.
00:41 We are now at about 70% of our peak performance, which
00:47 was two years ago in FY22.
00:52 The biggest drag over there is still
00:54 that Africa is only at 50% of its peak performance,
00:58 and South Asia is only at 60% of its peak performance.
01:03 But on the other hand, Latin America
01:06 is at 110% of its peak performance,
01:09 and Southeast Asia is also almost
01:13 at its peak performance.
01:15 However, the weight of Latin America and Southeast Asia
01:19 is still 30%, 35%.
01:22 65% of the weight is between South Asia and Africa.
01:27 So when you combine it, the recovery is still at about 70%.
01:35 But having said that, on the exports revenue front,
01:42 there is actually a 10% growth due to the two effects.
01:48 One is, of course, the gentle devaluation
01:50 in the Indian rupee.
01:52 And the second thing is that our mix,
01:55 thanks to the rise and success in Latin America,
01:59 our mixes in exports has also improved.
02:02 Pulsars are now 28% of our portfolio.
02:06 And therefore, the EBITDA has grown faster
02:09 than the top line in exports.
02:12 So while volumes is down by 8%, revenue is up by 10%,
02:16 and EBITDA in the business is up by a little more than that.
02:21 Right.
02:21 So when you mention about the margin side of it,
02:24 specifically the share of the high margin segment,
02:28 taking exports and the three wheelers into consideration,
02:31 on a sequential basis, there has been some bit of pressure,
02:33 not on a you're on your basis.
02:35 One, is it because the competitive intensity
02:38 in the overall motorcycle space is high?
02:42 And secondly, with regards to exports,
02:45 there is still some more time in terms of revival.
02:49 Are these two the major reasons?
02:51 Or do you think this is just a one off?
02:54 No, I am perhaps not seeing the numbers in the same way
02:59 that you all are.
03:00 Because actually, the whole improvement
03:06 in the margin architecture of Gujarat Auto
03:10 over the last two years, sequentially also,
03:13 has been achieved through improvement of mix,
03:18 of the business unit mix, in the sense
03:20 that the rise of three wheelers now at 40,000.
03:24 And the improvement of mix within the domestic motorcycle
03:27 business.
03:28 Now, from a situation where we were selling 50% of our sales
03:33 was only the Pulsars and above, now 70% of our business
03:39 is Pulsars and above.
03:41 So actually, when we look at the top half of the industry,
03:46 which you can say is premium in a way,
03:51 our performance, both in terms of margin and volumes
03:55 over there, is the single most important factor
03:59 in swinging the bottom line performance of the motorcycles
04:04 business unit over the last two years,
04:06 and also quarter on quarter.
04:09 Right.
04:09 Now, in terms of the 100 to 110 CC versus the 125 CC segment,
04:17 how are you looking at both of this?
04:18 Is it where you're seeing a shift happen with regards
04:23 to consumers from 100, 110 CC to 125?
04:27 And is that the focus for Bajaj Auto as well?
04:30 Or will the focus be in the entry level
04:33 where you will continue to introduce further products?
04:38 The shift is occurring, but albeit at a gradual pace.
04:46 Because these are very significant architectures
04:49 in the industry, and they shift over a period of time.
04:54 But definitely, we are seeing over two, three years,
04:58 a 2%, 3% point shift in favor of the 125 CC plus segment.
05:04 Within the 100 CC segment also, you
05:07 will see that the bottom one has weakened.
05:10 The bottom half of that 100 CC has weakened.
05:12 The top half has improved.
05:14 But having said that, this is only in terms of volumes.
05:18 If you try to map the industry actually in terms of the profit
05:23 pool, you will see that it is not 50%.
05:26 The bottom half is probably about a third.
05:29 And therefore, it is a little bit of a red ocean
05:32 compared to the blue ocean at the top.
05:34 And our approach has been to--
05:38 priority number one has been to succeed very significantly
05:43 in the top half of the industry.
05:45 And all our innovation, et cetera,
05:47 majorly focused in that segment.
05:50 And that's what the results we are seeing.
05:53 Our next priority is to try and expand this segment
05:58 and try and upgrade customers to the top half.
06:06 Because we feel that putting out a MeToo product
06:11 and waging a war on the basis of purely price
06:16 will get us some volume.
06:18 But I don't think it will do much for our profitability.
06:24 And in a very miniscule manner, it
06:27 will impact our profits.
06:29 So therefore, the approach is to invade the bottom half
06:35 from the adjacent segment of 125 CC,
06:39 rather than jumping to it and try
06:41 to do something which is sort of dilutive
06:46 of our overall financial performance.
06:49 So will it be at the same price point?
06:51 And will this also mean more upgrades
06:53 with regards to the Pulsar series at a breathtaking speed?
06:58 Yes.
06:59 The whole approach is that to widen the Pulsar portfolio.
07:02 Obviously, the innovation pipeline
07:06 has got a few new products in this space, which I hope
07:12 will not just attract customers sideways, that
07:15 is inside the segment, but will also attract the customers up
07:20 into these new products.
07:22 You will see that in the next fiscal,
07:25 we will be introducing products through which we
07:27 will attract both the 125 CC and the 100 CC customers.
07:33 Right.
07:34 Overall, Rakesh, with regards to where the replacement demand
07:37 wave is concerned, how are you looking at it?
07:40 Because if you talk about the two-wheeler industry in India,
07:43 between FY 2014 to '24, the CAGR growth
07:48 has just been around, say, 2%.
07:50 Now, that is something which will tell you that, yes,
07:53 the industry is looking at replacements.
07:56 Is that something which will be one of the tailwinds
07:58 for a company like yours?
08:01 I think that there is a reason to be cautiously optimistic
08:08 about the two-wheeler industry going forward.
08:12 I know that we have not yet, as an industry,
08:14 reached the peak which would have been attained, actually,
08:17 in FY '18-'19.
08:19 We are still below that.
08:21 But that is one of the reasons for optimism,
08:23 because that watermark has been reached.
08:26 The demographics of the country, meaning the youthful population,
08:30 the road structure which has come in,
08:34 which makes intercity, intertown, intervillage travel
08:41 feasible, and the penetration of retail financing, which
08:46 is now standing at about 70%, 75%,
08:49 it will probably go up to 85%.
08:51 All these things are very strong drivers.
08:54 But the two-wheeler segment, particularly
08:58 the mass market two-wheeler segment,
09:03 is a bellwether also of the state of economy in that space.
09:09 And the COVID and the initial economic recovery
09:15 had not reached the pockets of the customers in that space.
09:19 It is beginning to do now.
09:20 So we have to always take some of these fundamental drivers
09:25 which I talked about.
09:26 They are bolted on the macroeconomic performance
09:29 of the country.
09:30 And it is very, very sensitive.
09:33 The segment is very sensitive to the overall economic performance
09:38 in the country.
09:39 And as that improves, we start to see growth rates immediately
09:44 perk up, because there is space still for two-wheelers
09:48 to expand in the country.
09:50 And that is the reason why we are seeing that even
09:54 after a good season, sales didn't fall off in December.
09:57 And that is contributing to a positive outlook of almost 8%
10:01 to 10% growth in the coming--
10:04 we'll see what happens.
10:05 But most of the people are expecting the growth
10:08 to be 8% to 10%, which is quite solid for this size
10:13 of industry.
10:14 Right.
10:14 Rakesh, I'll quickly pack into questions.
10:16 How is the early read across with the white space
10:18 opportunity that you have with regards
10:21 to Triumph EV two-wheeler and three-wheeler?
10:24 Because I think the EV market share has already
10:26 gone to 14% versus a 10% in the two-wheeler space for you.
10:30 So how is the early read looking like?
10:33 What are we planning to do with regards to production?
10:36 And any concerns with the Red Sea issue?
10:38 Yeah, so our objective in EV two-wheelers,
10:45 once we had our supply chain sorted out,
10:48 both in terms of its cost and availability,
10:52 has been to expand the network.
10:54 And now we have started to expand our portfolio as well.
11:00 And our objective is to go out there and sell more and more.
11:06 I had said at the beginning of the quarter
11:08 that we will do--
11:09 we'll reach the 10,000 mark in quarter three,
11:12 which has happened.
11:13 We are now taking aim at reaching the 15,000 mark.
11:18 Of course, all these things are dependent on competitive action,
11:21 as you know.
11:22 But that is our aspiration.
11:24 And capacities have been lined up in that
11:28 to deliver that kind of outcome.
11:32 And then, of course, we will set sights on quarter four.
11:36 There is a discontinuity in the middle, which
11:39 is all centered around fame and how competition
11:43 and the industry responds to any change in fame.
11:47 And then we will set our aspirations for quarter four.
11:50 But we are not disadvantaged now in terms of capacity.
11:55 That is not a constraint.
11:57 Similarly, in Triumph, we have entered a new segment.
12:03 And we are taking a long-term view of this,
12:08 because the customer over here is sensitive.
12:12 We need to deliver a very fine customer experience,
12:16 not just of riding the product, but owning the product, et
12:22 cetera.
12:22 We have to put in those kind of capabilities.
12:25 We have opened up 50-plus showrooms
12:28 in the last few months in 42 cities.
12:31 We are going to take this to about 100.
12:33 And more than just opening the showrooms,
12:35 it is about delivery of the customer experience
12:38 and bringing the Triumph brand to life.
12:41 What entering the Triumph world really means.
12:44 Putting this capability, the nuts and bolts of it,
12:47 takes time.
12:48 And we are not shortchanging it.
12:50 We are aware of it, that we have to perk up this capability.
12:53 So it's a step-by-step.
12:55 What gives us encouragement is that in those markets where
12:58 we've been there for three, four months,
13:01 good markets like Bangalore, Cochin, Trivandrum,
13:05 which are the heartland of the 250 to 500 cc classic bikes,
13:11 we are achieving market share of 15% to 20%
13:14 in specifically those cities.
13:16 So that's a very encouraging thing,
13:18 which emboldens us to continue to invest in this capability
13:22 building.
13:23 Capacities are also being put in place.
13:26 Right now, we are looking at 10,000,
13:28 which will service both exports and domestic.
13:32 And then we will be increasing it further in quarter one
13:37 or so.
13:38 In terms of the Red Sea point, the question which you asked,
13:46 it has three kinds of impact.
13:48 One is that, of course, container availability,
13:51 when this whole cycle of container movement
13:54 gets interrupted, what happens is the container locations
13:58 become imbalanced.
13:59 So container availability and shipping opportunities
14:04 have impacted the schedules to some extent
14:08 in December and January.
14:10 The second thing is that, of course,
14:12 it starts taking more time because alternate routes
14:15 via the Cape of Good Hope have to be planned,
14:17 which add two, three weeks more to shipments
14:22 in Africa and Latin America.
14:24 Therefore, our partners have to invest a little bit more
14:26 because more stock is on the water.
14:29 So those supply schedules are also being relooked at.
14:33 And finally, the third impact is in terms of cost.
14:36 Freight rates have doubled.
14:39 What was $3,000 is almost $6,000 per container.
14:43 And that, again, has to translate into pricing.
14:47 Hopefully, if the conflagration doesn't widen,
14:51 we should be able to see through this interruption, which
14:56 I think is probably temporary, I'm hoping.
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