Bajaj Auto Limited Interim Report

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BAJAJ AUTO LIMITEDTHE GAME GOES INTERNATIONAL

Submitted by:

Abhijit KSAkshay RaturiBashishth Gupta

Shivangi SamantSomsubhra Chatterjee

Submitted To:

Dr Janaki Naik

Prof. M.K.Seshasayee



BAL

BAJAJ AUTO LIMITED : THE GAMES GO INTERNATIONAL

Objective:

Grow from 10% to 30% market share (global).

For achieving the objective:

Achieve 50% sales through exports in next 3 years.

Description of the problem:

Market saturation in India. High level of competition in Indian market.

Attractive foreign markets. Rising level of competition in foreign markets.

Strategic issues:

Cash is strength: Bajaj Auto has been sitting on a cash pile for over five years now.Over the next couple of years, competition in the two-wheeler market is set tointensify. TVS Motors and Hero Honda are on a product expansion binge.

Delisting worry: What is worrying is that there is an idea to delist the investmentcompany (also an indirect indication that it would be listed initially). This would beclosing the valve of equitable ownership distribution.

Stake for Kawasaki: Bajaj Auto's attempt to vest the surplus cash in a separatecompany may be a prelude to offering a stake to Kawasaki of Japan in the equity ofthe automobile company.

Better value proposition: Shareholder interests may be better served if the cash isretained to pursue growth in a tough market. This would also obviate the need to fork-out fancy sums as stamp duty to the government for the demerger.

Strategies for the Overseas Markets:

Bajaj Auto looks at external markets primarily with three strategies: -

1) A market where all BAL need to do is distribute through CKD (completely knocked downunits) or CBU (completely built unit) routes.2) Markets where BAL need to create new products.3) Markets where BAL need to enter with existing products and probablywith a good distributor or a production facility or a joint venture.

Approaches to solve strategic issues:

SWOT analysis ( country wise) PESTLI analysis

Porter’s five force a nalysis



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Breakeven analysis for new plant (if possible)

Market analysis of Bajaj Auto Limited globally

Overview:

The Company exports to 57 countries, and is a market leader in 12 of these. the Africancontinent its largest market accounting for 41 per cent of the total overseas shipments.

It is followed by Asia and West Asia at 40 per cent for both motorcycles and three-wheelers.

35 per cent of the company's motorcycle sales are from exports. In Latin America, whereBajaj Auto sells 20 per cent of its total motorcycle exports, Pulsar 135 ranks among the topselling motorcycle models. Sales in South Asia touched a new high. Peace-time Sri Lankaclocked growth of 76%, while Bangladesh grew at 34% in 2010- 11, the company’s annualreport said. Africa and Latin America are the largest foreign markets for the company,accounting for 65 per cent of its exports, which reached 1.6 million units in fiscal 2012.

Competition is also set to increase for Bajaj Auto in its existing international markets as rivalHero MotoCorp, fresh from separating from long-time partner Honda, has set itself a target ofincreasing its portion of revenues from exports to 10 per cent, up from the current 2 per cent.

Bajaj Auto is even more ambitious: it is hoping to grow its share of sales from globalmotorcycle sales from 10 per cent to 30 per cent.

Bajaj Auto’s Export Market

The Company enjoys a healthy geographical spread. At 41% of the total exports Africaaccounts for the largest share by volume followed by Asia and Middle East at 40%. This for

both Motorcycles and Three wheelers. The Bajaj Auto is also India’s no1.e xporter ofMotorcycles and Three wheelers.

http://economictimes.indiatimes.com/topic/motorcycle%20sales

http://economictimes.indiatimes.com/topic/motorcycle%20sales



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Product wise, the highlights

The launch of Discover 125 ST and the Pulsar 200 NS across Latin America and Asia has been successful.

In Latin America, both these models have helped reinforce Bajaj Auto’s dominant leadership position. As in the last year, Boxer is the largest selling single brand in Africa.

A New 150 cc version of it, the BM150, has continued to do well in East Africa and Egypt.Within Africa, Nigeria has witnessed significant growth in volumes, and Bajaj Auto has

captured market share from Chinese brands.

African market information

The African market is the fastest growing motorcycle market in the world growing at a 21%CAGR in the past five years. With an overall population of 1 bn, very young and growingAlso at the fastest pace in the world, and with GDP per capita now approaching US$1,000Per capita; a stage at which two-wheeler volumes start taking off; Africa represents one ofThe most exciting opportunities for two-wheeler manufacturers. Bajaj’s 100 cc Boxer



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motorcycle, an entry- level product, is the company’s best -selling brand in Africa.

Bajaj have divided the African market into five regions:

(i) Nigeria – largest two-wheeler importer globally (1.3mn units)

(ii) Western Africa – taxi market like Nigeria but dominated by Chinese (1mn units)

(iii) Eastern and Central Africa – region with the highest scope for growth (0.8mn units)

(iv) Northern Africa- Egypt seems to be attractive market but has unstable political scenario.

(v) Southern Africa currently does not offer much. We reckon Bajaj Auto’s two wheelerexports to Africa can grow from ~0.6mn units to 1.7mn in the next five years.

(1) Nigeria – being the largest market currently and even by potential given its population is~2x the second largest country; we have looked at Nigeria in detail Africa is among thefastest growing 2W market in the world. Nigeria is the largest market in Africa.Major bike is

boxer 100.The Boxer is best defined by the three R's; rugged, reliable and repairable.BAL has positioned Boxer as the bike that “Instils the sense of pride, security and assurance withinyou. The bike that commands respect. The bike that stays tough always. The bike that is halfhuman.”

(2) Western Africa – this is the second largest market in Africa consisting of countries likeTogo, Ivory Coast, Burkina and Mali -Boxer and Pulsar, Guinea- Boxer, Pulsar , Discover, Ct

and Platina Ghana-Boxer, Pulsar and Discover

(3) Eastern and Central Africa – third largest and the fastest growing market in the regionConsisting of countries like Tanzania- Boxer and Platina, Congo- boxer

(4) Northern Africa – being in Islamic region we reckon this region is not comfortable withthe idea of a motorcycle as a taxi so demand here is largely for personal use only. Egypt is thelargest market here, followed by Morocco and Algeria.

(5) Southern Africa – very small market with South Africa being the country with potential but a country where two-wheelers are still not widely accepted as a respectable.

Future requirement of units in Africa (next 3 years)

Growth rate =21%

Export market share of Bajaj = 41 %



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Export : Present and Expected(in units)

Year 2012 2013 2014 2015 2016No.of units 742517 898445 1087119 1315413 1591650

Latin America

Latin America was broadly flat YoY growth in 2012. Of the ~5 mn units total market, Brazilis nearly half at ~2 mn units but it is completely dominated by Japanese players such asHonda and Yamaha, who have over 90% share. Hence, for this analysis we have consideredthe rest of Latin America, excluding Brazil. The other large markets in the region areArgentina, Colombia, Peru and Mexico. Indian players have had a presence in countries suchas Colombia, Peru and negligible share in countries such as Argentina, Venezuela and Chilewhich we had highlighted as key opportunity for growth.

Market share =30%

Export share=18 %

Growth rate= 43%

Year 2012 2013 2014 2015 2016 No.of units 315965 442352 619292 867008 1213811

Asia and Middle East

Export Market Share for BAL = 40%

Sri Lanka= 76%`

Bangladesh=34%

As we know that export rate is 41% in Africa and required no. of unit in year 2016 isalmost 16 lakh. From this data we also predict the no. of units in Asia and me is 14 lakh,

because the export rate is 40%.

There has been huge decline in 3W markets in Sri Lanka due to increase in import tax from50% to 100%.



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Major Marketing Challenges:

Possible international division for sales and marketing. Pricing is issue because of volume. New dealership issue. Huge promotion is required especially in new markets. Competitive Analysis Positioning of BAL

Estimate forecast of sales in unit

Keeping in mind the current growth rate and respective market share of the BAL in threemajor continents, we have forecast the demand in units

Africa at 21%Latin America at 47%

Asia and Middle East assumed that export sale share will remain at 40% of the total export

CONTINENT Year 2014 2015 2016 Total units(for 3 years)

Africa(requiredunit)

1087119 1315413 1591650 3963282

Latin America 619292 867008 1213811 2700111

Asia and middleeast

900000(assumed) 1100000(assumed) 1400000(assumed) 3400000

Total 4205461

Our aim is to sell 5 million units through exports but as per our forecast it can achieve only4.21 million and is short of .794 million i.e. 7.94 lakhs.

Operations

As per the BAL mission of achieving a sales of 10 million units by 2016,BAL has to maintainto look at various operational issues that are required to be addressed:

1. Required plant capacity.2. New plant location decision.3. Adhering to quality standards across all the plants.4. All facilities equipped with advanced technological mechanisms.

5. Reach of distribution channel.



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By 2016 required plant capacity (unit production wise): 10 million units

Current plant capacity : 6.36 million unitsAdditional plant capacity required (in next 3 years) : 3.64 million units

There is a definite need of an extra plant that too of twice the capacity of the current existingindividual plant.So the question arise where to set up this new plant i.e. in India or abroad??

If in India, we found that setting up a plant in Gujarat will be a good option due toinfrastructure, man power availability as well as good govt. support.

If abroad where should we setup in Africa where the growth has been great over the yearsand still continues to grow or in Latin America where the future possibilities of the untappedmarket like Brazil, Argentina and Chile seems to attract BAL.

Secondly they need to ensure that they provide the good quality products(core competency)and service by neglecting them due to large volume.



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Also BAL has acquired 47% stake in Austria’s KTM to spread its reach in the Latin Americamarkets and has tie up with Kawasaki to enter south Asian markets.

So what all further improvements can be done to improve the overall presence of the BAL inthe world market has to be considered.

Financial

The international ambitions of Bajaj will have a huge impact on its survival and revenue. Thecurrent trends indicate that the Indian markets are turning towards four wheelers, thus Bajajwill have to look at potential foreign markets. This will cost their coffers dearly. As the

projects requires huge financial forecasts. The following is only the glimpses of the relevantanalysis.

1. Impact on the function (finance)

2.

Stringent Cost reduction needed as prices needs to competitive3. New investment avenues and securing fresh investments

4. International market will drives financial teams to play in the futures market so as tohedge their

5. Costs as well as revenue in a highly volatile market

Approach to the problem:

1. Ratio analysis and fundamental company strength required for this project

2. (Balance sheet, p&l statements, cash flows,)

3. Share price fluctuations

4. (Portfolio analysis, cash flow analysis, data sources will be nseindia.com, moneycontrol.com, bseindia.com)

5. Relevant budget forecast

6. (Use of historical data along with the current market data to forecast the various budgets required by the company)

7. Hedging techniques

8. Any possible mergers or acquisition, and its valuations.



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IMPACT ON HR

Addressing the talent Acquisition issues :Bajaj Auto has a huge number of employees engaged with them, as far as talent acquisition isconcerned, it will be feasible enough to hire (if required) and train the new employee alongwith the existing sales force of targeted country to look after the sales in that particularcountry.

It is at proposal that if there is a new plant set up Top Level Management from India andAbroad country will look after its entire working . 5 Managers from India and 3 from theconcerned country will be part of top level management.

The training/on board program will enable the new employee to educate them about marketoffering that Bajaj Auto is providing.Will aid in improvement of how well can an employee contribute in increasing of sales andultimate goal of increasing the market presence.

Breaking the cultural barriers

An intensive training sessions would be conducted that would concentrate on

breaking cultural barriers that would minimise the friction at workplace betweenemployees.

Training will concentrate upon Top, Middle Level managers and other employeeswho work with diverse employees.

Environmental briefings: to provide information about history, geography, climate,government, economy, etc.

Orientation in culture: to familiarize the employees with value systems and culture ofthe host country and other country.

Cultural assimilator: expose employees of one culture to some of the attitudes,

customs, etc. of another culture. Language training: teach conversational language skills. Sensitivity training: to develop attitudinal flexibility. Field experience: to give first hand exposure to another culture.

CompensationThe compensation of employees will be based on the HR remuneration policies of thecompany in alignment of the targeted country Minimum Wages Act.As far as bonus is concerned every employee will be entitled for bonus of 3% if at all

sales unit exceeds the predetermined level of sales unit by 5%.



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Bibliography:

1. Annual Report of BAL for the year 2011,2012,20132. Credit Suisse- Indian 2 wheeler and 3 wheeler companies

3. http://www.ukessays.com/essays/marketing/bajaj-auto-is-a-major-india-automobile-manufacturer-marketing-essay.php

4. Bajaj Auto set to conquer motorcycle segments abroad5. Published October, 20126. Company revving up desi motorcycles on foreign land: Bajaj Auto MDExpress news service :

Wed Sep 19 2012

http://www.ukessays.com/essays/marketing/bajaj-auto-is-a-major-india-automobile-manufacturer-marketing-essay.php







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