Bajaj Auto Limited (BAJAJAUTO) Earnings Call Transcript & Summary

Sorry, there are a lot of people on the queue. We can't...

Sure, sure. I'll come back in the queue.

[Operator Instructions] The next question is from the line of Chirag Shah from Edelweiss.

My first question is for Rakesh. Sir, my question for future domestic motorcycle demand, if you look at last 4 years, the domestic industry in a sense has been in a declining mode. They did around INR 12 million, INR 12.6 in million '18, which went to INR 13.5 million in '19. And after that, we have been around INR 10.5 million, INR 11 million range. So how should we look at this demand? Is it -- Can you change that to F '19 peak sooner or that was a slight abnormality and the normalized growth over last so many years that we have seen should be looked at the current base? How should one look at -- because premiumization seems to be picking up, but the volumes are not really picking up the way the general expectation has been.

Well, I must say the audio was not fully clear, but I -- as I understood, you're asking about how we should look at how demand for motorcycles unfolds in India when in the last 4 years, it has been continuously declining track. I agree with you that the last 4 years have not been good for the industry because it has got hit by many things. If you recall, first there was the BS-IV transition, and then there was the cost of -- additional costs of insurance, and then the BS-VI transition. And then, of course COVID, of course, disruption, which means that we have really back to 4 or 5 years ago as an industry. Basic -- fundamentally, the near-term outlook is not going to suddenly swing things dramatically. We would be happy if we are back at even FY '20 levels. But if you dive a bit deeper, I think the fundamental drivers of demand are still very much present. Some of these hurdles, the roadblocks -- the industry -- actually in the industry needs a little bit of a smooth run, a little bit of breathing space, a little bit of stability without either regulatory -- particularly, like, ABS came and CBS came. And many things have been happening in the industry. So because of the fundamental demand drivers, whether it is the youthful population, whether it's the penetration of road or Aadhaar card-led penetration of retail financing. Now I would say, certainly, there is a need for independent mobility. All these things when you put together, we definitely think over a period of 3 years, demand should rise. But it will be a snake in the tunnel thing. It's not going to be a linear movement. As we have seen, the last 2, 3 years have been very, very disruptive. And hopefully, some kind of environmental stability comes today, and that will allow the industry to breathe easier and achieve its potential, which I think is not yet fulfilled.

Sir, just a follow-up on this. On the new product or major upgrade, assuming this COVID scenario normalizes sooner, can you share some light how should we look at new launches or major upgrades or major platform change over the next 18 months? And are there any white spaces that you are targeting in domestic market?

So now we are thinking that this is not a one-off thing. The pandemic situation is in -- maybe in a more muted form, but it's going to remain -- this way of life is going to continue. And we are accelerating our product program so that it recovers some of the lost ground of last year. And we are going to continue with our strategy of putting out product in perspective. Yes, there was a thought in our mind that April and May is not proceeding as well, should we put out some new products. But then it's very difficult to time this now because there's so much of uncertainty. So we have -- we are going to be churning out -- we've got a full pipeline. I told -- described to you that there are 3 introductions which we have made, a couple of them are absolutely new products like the CT110X and also NS125, which expands our 125 footprint. You will see by -- in another, let's say, 6 months -- within 6 months, we will be putting out newer platforms and newer variants. Not just variant, but a new platform. And this is going to be a very significant thrust for FY '22.

And sir, 125cc platform needs more expansion because Pulsar can do limited profiling. Do you need a different type of profiling in 125cc to further take your market share up from the 19%, so I'm checking it as a participant. Is there a thought internally on those ranges?

Yes, of course, because we are very, very encouraged by the response of the customer in expanding this segment. And you are absolutely right that one brand cannot achieve everything -- and particularly because, as you know, this brand is being drawn from the sports segment. So we don't want to, obviously, stretch it too much to cover all types of subsegments within the 125cc segment. So yes, we are very encouraged that there seems to be a very big potential for driving this growth in this segment. And we are going to be looking at other pockets within the 125cc segment. We are also looking at building the 250cc segment because we feel that it's -- the quarter liter class is something which the 150cc customer is ready to move to. It will take time, but slowly and steadily, we are and I think that is right.

[Operator Instructions] The next question is from the line of [ Amin Virani ] from [ CLS India ].

My question was actually on the Chetak. So it was -- I just wanted to understand, you mentioned that the new orders were so high that you had to stop taking the orders. So I just want to get a sense, in the cities that you are present today, which are, as I understand, too, what is the kind of demand that you're seeing? And what is the kind of capacity that you have in case, over the next 12 to 18 months, as we go into newer cities and as demand goes up, what is the kind of capacity that you have from your end to supply to this demand if the EV scooter market really takes it?

Well, taking the capacity point first, our capacity is really determined by the ability of the vendors, particularly the international vendors to supply some components. A lot of these are on the electronic side. So we are not capacity limited in our immediate system. But it is from outside the system, particularly outside the country, that we are facing issues. And more than issue is the uncertainty. We can get more, we can get -- we are not getting the guarantees of continued supply, which is what is the reason why we are not opening the bookings full throttle. On the demand side, in 48 hours, we are to prove it, because we can't supply enough. So we feel that -- and this is at a highest level of price. You see we hardly faced any cancellations in the last 12 months. So I guess the precise answer will be really known when we go full throttle with supply and exhaust what is in the pipeline and make all efforts to seek more and more bookings, which will start to happen from July, August, September, I hope. That's the time when we will see what the limits are. Right now, we are not facing any issues. We are wanting to pick up our dispatches to full figure numbers very quickly in May, June.

Monthly full figure is what kind of numbers that...

It will be 1,000 unit deliveries immediately.

Okay. Okay. That's it. Secondly, just a question on the domestic motorcycle pricing in general. So even before the commodity prices increase, we have seen a significant price inflation because of BS-IV to BS-VI. At least initially, last year, it seemed that the market was able to absorb it on an incremental basis and almost all manufacturers passed on the pricing in a very judicious manner. I mean the remainder long down the site, is there any sense that you're getting from the ground in terms of how much of a price hike of customers are able to pay? And I mean, is there a limit in your mind to where does it become difficult going forward?

I must say that we -- one of the features of the -- despite growing the features of the FY '21 outcome is that the BS-VI-related price increases have been digested. Before COVID and before we entered FY '21, there was an income regarding the thing. But -- and as I said in my previous comments, we have not seen a wholesale downgrading to cheapen that. In fact, I'm not speaking just for Bajaj, but for the industry also, you can see these numbers in the SIAM report, et cetera. The cheapest variants are the ones, which are facing the biggest decline, and that is because that section of the customer has got very badly -- where is -- the customer above that, in the top half of the demand pyramid, seems to be responding much better and is taking the price increases. Otherwise, there is -- all the -- the most expensive 125cc, which is there. Why should that be the fastest growing? Of course, the proposition is strong, but it's coming in a price stack and the customer has understood it. I feel that the customer is going to seek substantive value. They're not going to pay money for some paint and sticker job, but they want a substantive value. If the value is there, they will pay the price for it is where -- is the takeout for us last year.

The next question is from the line of Kumar Rakesh from BNP Paribas.

My question was more around 3-wheelers and especially the electric 3-wheelers. So where are we right now on building our promised product for that? And what is -- could be our strategy in rolling out the 3-wheelers? Will it be the way we have done it for tubulars restricted to few cities? Or you go across the countries and start cannibalizing our own products? So what is going to be our commercial strategy when we eventually start launching our own product?

Well, as I said last time also, the electric 3-wheeler is under development, the prototypes are being tested and we will put these out in the market. We feel that the business case like-for-like is not very supportive of a movement from ICE to electric. If there is regulatory support or if there is a subsidy support, then the matter is different. But like-for-like, if I was a 3-wheeler driver, I would not take the electric at this point of time. But having said that, we don't think that -- we think that this equation will change because it depends a lot on how the battery costs move and whether there is some outside support from the government, whether in terms of regulations or creating a protected space for electric. So we are going to calibrate the expansion of our business with how the industry unfolds. Our primary objective is to be in the forefront, absolute forefront of building capability for this business, but our objective is not to go out there and sell an electric 3-wheeler at any cost. We want to be the most capable electric 3-wheeler and electric 2-wheeler manufacturer. And if that requires us to do a certain level of business, because this cannot be just here, because we will do it. But we don't see any reason right now primarily because of the business case, underlying business case, we don't see any reason right now to move the needle artificially from ICE to electric. For example, we see the business case in moving the needle from 100cc to 125cc, because we feel that is something superior for the customer and there is some better margin for us. And we will do all in our power to move the needle in that manner. But in an electric's case, we will calibrate the response to how the market unfolds, whilst investing heavily into building capability and being ahead of competition in that respect.

So Rakesh, just for a clarification. So given that some of the unauthorized states and smaller players have already created a large electric 3-wheeler market, we don't intend to compete with them in that market. And also we don't expect a disruption by those players getting into the market in which we currently are.

So the market that they have created is in the lead acid-based battery-powered 3-wheelers. This is an area, after due thought, we felt that it is not really worth competing in because it's a substandard solution. This solution mushroomed more in response to 2 things and less driven by technology. And those 2 things were that there was an artificial restriction placed on IC 3-wheelers in terms of permits, so people would not. And second thing is the need for intra-city mobility was exploding. And in this time, this ramshackle contraptions imported from China based on very, very poor battery technologies have made an appearance and they are faring people around. This really is not the kind of solution. Because we are not creating good assets over there for the drivers and the users. We expected that and we felt that we -- our strategy will be built around the proven and the better lithium-ion type of technologies rather than the cheaper lead acid ones. We have to just look at what has happened in China to the entire, like I said, based mobility industry and what kind of problems that has created for the country. We don't want to participate in making that happen out here.

The next question is from the line of Sonal Gupta from UBS.

So just, Rakesh, to follow-up on Chetak. Actually, just wanted to understand in terms of the pricing strategy, like you mentioned, you've taken a significant increase. I think there was a INR 15,000 increase, and then there were supposedly -- I mean from what I saw, in the order of garage, there was a INR 28,000 increase. So I mean, like we seem to have had a very attractive price at INR 1 lakh, and now that has substantially changed. And also in light of, like, we are seeing some of the newer start-ups, which are looking to come in, in the market with an aggressive sort of pricing. I mean, like, I just want to understand your strategy in terms of the space because also on the other side, like while you've announced a new plant for advanced manufacturing, including bikes, I mean, we're not putting in a dedicated facility for EVs. So I mean, just putting all that in context, I wanted to get your sense on how do you approach this pricing for EVs? I understand the volumes are currently very low. And therefore, obviously, it's not profitable, maybe it's not profitable even at the current price that you are charging. But shouldn't we take a longer-term view and see that, potentially, this market could be $0.5 million or $1 million in 5 years and base our pricing on that basis? I mean, how do you think about it?

Yes. Sure. In fact, that is exactly what we should be doing. We should zoom out and we should take a longer-term view and not just take a very short-term view. If I, today, start selling these motorcycles at bicycle prices, our motorcycle market is going to explode. There is no doubt. Nobody will buy a cycle, people will buy a motorcycle, right? But we are not doing that. I think it is -- we are not the complete players to decide the destiny of this nascent industry. I don't think anyone is. The key thing is that the battery technology, the battery costs, the cell costs are what is controlling the advancement of this industry. We are wanting to write that. Now to artificially board ourselves on to something which is not in our control and try to do things just to expand the industry is not what we are going to do. We feel that, yes, over a period of time, the battery costs will come down and the industry will expand, and we want to write that way. But those costs are not in -- that is going to be the singular and fundamental driver of this industry. It is not ranging right, it is not charging the ecosystem. If the battery costs come down, the acquisition costs come down, there are enough entrepreneurs in the country and elsewhere to set up charging systems and offer -- and rid -- get consumers rid of this range anxiety. That will happen. That has happened. We've seen it in a few mobile unit charging. We've seen it in e-rickshaw charging on roadside mechanics. That will tucker. The sentiment you see is how the battery costs move. And so we want to wait for that. We want to write that, and we know that we can't wait for that to occur and then start our business. So therefore, I say we're going to be very aggressive in terms of capability building. But I'm not who -- we are not going to take it on our shoulders as a machinery to go in the industry irrespective, let the battery manufacturers and the battery technologies do it.

Right. So just on that, I mean, given that the government is giving a INR 10,000 per kilowatt hour subsidy, isn't that substantially reducing the burden of the battery costs?

It is, but despite that, the cost -- the architecture is such that despite that, the initial acquisition cost is very high. And it's the same arithmetic for everyone. At our level of players, there is a very, very marginal difference, a little difference between what people are experiencing in terms of cost. But the comment I'm making to you is after factoring in the subsidy. And let's also be clear about 1 thing, that the subsidies may not remain forever. We all know the pressure that the government is under, and the subsidies may not remain forever. So the industry has to be able to beam, over a period of time, with the removal of subsidies and its impact on cost, price and therefore, consumer demand.

Okay. The next question is from the line of Aditya Jhawar from Investec Bank.

Just some clarification. So I mean, on the OpEx side, if you see on a sequential basis, there has been an increase, while the volume has come down on a sequential basis. And typically, discounting, as you also alluded, is relatively lower in Q4 versus Q3.

So I'll be clear. In Q3, I earned INR 73.6 to USD 1, which has come down to EUR 72.9 to USD 1. So sequentially, the realization has come down.

Okay. Okay. Okay. Fair enough. Now just the final question. In -- some clarification, in the comment of our strategy of the economic segment, you mentioned that we are pushing the customer up the value curve. But what we have seen in the last year is that since we discontinued some SKUs in the economic segment, we lost some market share. And you also alluded to the fact that the bottom of the pyramid is impacted because of the pandemic. So is there a thought process that -- sir, that continued SKUs will come back and that will give us more power to get back the market share in the economic segment?

Well, we are going to continue to attack the economy segment based on upgraded products. Because this strategy of offering a similar product at a lower price, it doesn't work for us, and it doesn't leverage the innate capability, which we believe which we possess, which is around our R&D and our ability to turn out innovative publicly differentiated products, which can bring some kind of a proposition to even the economy segment, whether it is in terms of styling, whether it's in terms of comfort, whether it's in terms of safety, et cetera. So even if when -- when demand comes back, our attempt will be only to offer better product at similar prices.

We have crossed 5:00 p.m., so we would take the last 2 questions, and then we will wind up.

Sir, should we move on to the next participant?

Yes. Two more questions, and then we will wind up.

The next question is from the line of Aditya from HDFC Securities.

Yes. A steady set of results in this quarter. I just had a question that we are hearing of a slowdown in tractor sales, and this segment is obviously very linked to rural. So how do you see the recovery in 2-wheelers this year in light of rural last year was a growth driver in that sense?

Actually, rural was a growth driver only in the period, at least that was our -- from our present. We could see that it was only, I would say, end of June, July, that period, which is traditionally when it occurs. Otherwise, the recovery of the free bound, which occurred, apart from the metro, it very much was right across the country. I would concede that yes, Delhi and Mumbai, the super metros did have a continued run off depressed demand. But otherwise, more or less, in fact, it did well. Towards the end, in fact, I would say that the really agrarian rural, rural towns were not performing well. It was the market down, the mundies and those areas of rural, which we are doing well. So even there, there are nuances. I think given the fact that there is a better monsoon, I mean, there is a reasonable monsoon expected. And on the back of, hopefully, better procurement prices, et cetera. We will see a repeat of the last year, it should be quite evenly spread out.

Okay. And then just another question on EVs. We've seen the indicator 450x, which is really, if I may say so, it could be the Pulsar of the EVs. Like you guys came into the Pulsar way back in 2002, created your innovation. That's how our motorcycle story really began. In that sense, the 450x today is the fastest scooter around as compared to ICE and EV and it's really created a certain halo around it. So do you think we may lose mind share? I understand volumes are not there. But in terms of mind share, right now, it's all going to a startup. So how do you see that playing out?

Well, the industry is very nascent right now for us to start subsegmenting it and launching products for subsegment. But we deliberately took an opposite point of view. We felt that there are enough customers out there who would be attracted to elegance, style and robustness. That's why an alt steering body and very classic design scooter because we felt that was closer home to what the consumer was experiencing. But as the industry unfolds and the electric site becomes larger, there is nothing to say that we will not address emerging subsegments. As you know, that we, on one hand, are collaborating very closely with KTM to look at powerful -- to look at high-performance motorcycles, which can easily be platformed into the scooter space as well. That project is going on. In fact, they're going to take the elements of the chetak and try to see what they can do with it in Europe. So there is a very good collaboration going on, which addresses one end of the spectrum. You know that we have an alliance, we have an engagement with Juno, which is into micro mobility, which is into the sub 25 kilometers for our paid very, very light, short distance 2-wheelers. That's absolutely the other end of the spectrum. So from a -- we are collaborating with them to see how we can manufacture, design, code and introduce stuff at that time. So if you see, from that end of the spectrum, to the most powerful electric bike end of the spectrum, we are trying to have a very broad interface. And as and when it becomes -- makes business sense and becomes meaningful, we will subsegment the market, and we will launch products.

We'll take the last question from the line of Pramod Kumar from Goldman Sachs.

And congrats on a good set of numbers, Rakesh and Soumen. My question is on the same lines on -- I think we've had too many questions on EVs. But Rakesh, just wanted to understand, there is a bit of a concern in the investor community and even analysts that some of the Olas could really end up disrupting the market, of traditional car volumes in terms of -- and the fact that the traditional mainstream OEMs could be lagging behind, especially given the big announcements that they're making on charging infrastructure or capacities. So just want to understand your perspective because you're already dealing in -- you're seeing good response to change. Like you have global presence, so you're doing both the things at the same time. So I wanted to understand, how worried once should be from these kind of start-ups who are setting themselves up in space. And the mainstream companies are going to be kind of handicapped like what happened in the luxury car market globally on the EV side? Or do you see things differently?

Well, Pramod, I don't think that the 2-wheeler industry, which is us, and if I may say so, my colleagues and other companies, are going to face a Kodak moment. I think all of us have been educated quite well by the events of the disruptive changes, what the consequence of disruptive changes and having a myopic view of markets. We have to also thank Mr. Elon Musk and what he has achieved with Tesla opposite the 4-wheeler industry. And those case studies are all staring us in our face. I don't think it will be out of myopia that the -- the existing industry will be caught and it tanks down. I don't think that is going to occur. That -- I'm sure our competitors also, I mean, are established OEs. And certainly, we are very serious about the advent of the electric business and they will transform, whether it is in manufacturing, it is at the dealership, spare parts, service, how to engage with the customers, what customers will value. All those aspects, we are very, very alert to and sensitive to. We are an existing business. I mean, there are people who don't have any business. So that's why they have to make dramatic announcements. They have to invest. I mean, we don't have to invest because we have the capacities. We have the people, we have the R&D. I mean, we started investing in the R&D 5 years back on electric. We can't churn out the theater in '19 -- in 2020, within a few months. We've been working on it. The year prior to that, we have been assembling teams talking to vendors. So I don't think people will be -- got unaware. Everyone has moved past that. Suppose some of the start-ups are following a different business model, and we will have to wait and see. I would like to say here, that we will not follow that business model, which is private equity, driven and et cetera, et cetera. But I would like to zoom out, and I would like to say that the fate of this whole thing is not going to get decided in 1 quarter, 2 quarters or 3 quarters. This is a change which will occur over a period of time, and that is [ what will befall ]. It is the same thing like in scooter to motorcycles. So we are getting prepared for that. If there is a disruption, if there is a sudden explosion, if somebody wants to see some eyeballs and all -- in a frantic manner, we will deal with that situation. But we will be -- we would like to deal with it in a way which is more sustainable. And in the end, we will. In the end, we aspire for leadership. So that is our viewpoint. We are quite aware that there may be a collision in the marketplace of 2 different business models, ours and the private equity driven. But there are other factors also, which will decide success and failure. And this will have to be viewed over a period of time. But one thing I can tell you that certainly at Bajaj Auto, we are very clear and keen that we have to have top end capability.

And Rakesh, just a last one. According to you, given the customer preparedness and the cost curve, the way it is expected to fall, what will be the period where you think we'll see an inflection point on EVs, right? Is it like FY '24, 25? Where do you think is likely inflection point for EVs in India?

It's a very difficult one to answer because a lot of it depends on battery cost. A lot of the battery costs coming down depends on how much of supply is coming on stream. Right now, what is happening is not only current demand is outstripping supply, but people are also placing future contracts, large contracts, and I'm talking about 4-wheeler manufacturers also, were placed to -- and they are slightly ahead of the curve in terms of the industry development of EVs in the case. So that is driving the demand side, overall demand side up. Supply, it cannot increase linearly, as you know. It happens in steps. And it has been a bit slow in expanding because there are competing technologies, these things require huge investments and the big technology, battery technology, cell technology guys don't want to -- don't want to be getting caught on the wrong side. Then there are things like hybrids and fuel cells, et cetera, which are alternate technologies, which is sort of impeding supply coming on stream. Now this matching of demand and supply has to occur before the costs come down. From -- if I take a poll as to what the consultants are saying, what different stakeholders are saying, it does appear that it may take about 3 years for a point of inflection to be truly reached where this thing will acquire a very definitive momentum of its own. Still, it will be more of feel and push, somebody will just try to do something artificially and push the agenda along. But generally, it is felt between 3 to 5 years is when -- this is not Bajaj Auto view, like I said. This is a poll of polls kind of a thing. But generally, people feel that in the motorcycle space or the 2-wheeler space, it may take about 3 years for the point of inflection to be reached.

Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Soumen Ray for closing comments.

Thank you, Soumen here. Thanks a lot, everybody, for dialing in. As I say at the end of every call, Anand and myself, we are available. So can you -- we are available for any questions that you may have. But I'd like to sign off with 3, 4 things that I would like to leave you with. First, I think what holds Bajaj Auto in great stead is our ability to mitigate our risk through diversification. As you can see, exports is coming to the party in spite of all these pressures with domestic, we are still rock-solid because of our mix of almost half coming from exports, and that's also across multiple countries. I mean, in a year like that, like what has gone by, in Latin America, we actually sold more 2-wheelers than we did in the previous year. So that, I think, is a very important message. The next message I would like to reiterate is the dividend. We came up with a policy of 90%. If we have up to 90%, if we have more than INR 15,000 crores, we had about INR 17,500 crores. We have announced almost 90% dividend at INR 140 per share. So that is how we would like to reward our shareholders, and this has been a concern question, which we often face, and now we have replied it. The last bit is around margin. And I would like you to consider the facts. There is a rod set which, as Rakesh explained, is going to come. When and in what shape or form, we do not know, but that will be a clear bolt-on. ForEx rupee is a depreciating asset. We have baked in the costs, but obviously, the ForEx depreciation will help us deliver. Just to give you a sense, last year to this year, ForEx alone has added about INR 450 crores to the city, between FY '21 and FY '20. So that's a big play. Commercial vehicles would improve and that mix will improve, which will give us further headwind. So with this, we do have a tailwind. We do have a headwind, which is around the cost increase in Q1 continues, which will be a dampener in Q1. But in near future, I see our margins stabilize. I mean all of this, one must remember that it is very difficult when you're sitting at 18% to manage headwinds. It's much easier to manage headwinds when you have a lower number. So we have really stretched all our leverages, procurement or cost optimization. And that is in spite of lower volumes, we have delivered a margin which is higher than last year. We continue to focus on margin. But yes, in the near term, there could be some headwinds. But as I said, between ForEx, broad debt and CD volumes increasing, we should be directionally moving our margin upwards. With that, I wish all of you to be safe and thanks a lot for dialing the call.

Thank you very much. On behalf of Bajaj Auto Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.