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8/10/2019 Bajaj Auto Ltd_swot

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TABLE OF CONTENTS 1 Indian Automobile Industry ...................................................................... 2

1.1 PESTEL Analysis of the Indian Automobile Industry ..................................... 21.1.1 Political: ................................................................................. 2

1.1.2 Economical: ............................................................................. 2

1.1.3 Social: .................................................................................... 3

1.1.4 Technological: .......................................................................... 3

1.1.5 Environmental: ......................................................................... 3

1.1.6 Legal: .................................................................................... 4

2 Bajaj Auto LTD: Company Overview............................................................ 5

3 SWOT Analysis of Bajaj Auto Ltd. ............................................................... 63.1 Bajaj Auto Limited: Strengths ............................................................. 7

3.1.1 Strong market share ................................................................... 7

3.1.2 Robust brand recognition ............................................................. 7

3.2 Bajaj Auto Limited: Weaknesses .......................................................... 8

3.2.1 Vehicle recalls impacting the company's reputation .............................. 8

3.2.2 Labour dispute affecting production ................................................ 8

3.3 Bajaj Auto Limited: Opportunities ........................................................ 9

3.3.1 Growing two wheeler market in India ............................................... 93.3.2 Launch of new vehicles expands the company's product portfolio .............. 9

3.4 Bajaj Auto Limited: Threats .............................................................. 10

3.4.1 Intense competition in the two wheeler market ................................. 10

3.4.2 Increasing interest rates ............................................................. 10

3.4.3 Extensive environmental regulations ............................................... 11

4 Competitor Analysis: Bajaj Auto vs. Hero Motocorp: ....................................... 11

5 Bajaj Auto Ltd. Strategy to gain competitive Advantage: ................................. 12


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1 INDIANAUTOMOBILE INDUSTRY

The automobile industry in India is one of the largest in the world and one of the fastest

growing globally. Indias passenger car and commercial vehicle manufacturing industry is

sixth largest in the world. It is the second fastest growing automobile market in the world.

According to the Society of Indian Automobile Manufacturers annual vehicle sales are

projected to increase to 5 million by 2015 and more than 9 million by 2020.

Automobile industry in India has huge potentials thanks to the growth of the middle class

along with their overall economic growth. This is the reason of attraction for international

brands who are trying hard to find new market for their products due to stagnated growth

of auto sector in Europe, US and Japan.

1.1 PESTEL ANALYSIS OF THE INDIANAUTOMOBILEINDUSTRY

1.1.1 Political:

At present 100% foreign direct investment is permissible under automatic route in

this sector including passenger car segment.

The import of technology/technological upgradation on the royalty payment of 5%

without any duration limit and lump sum payment of USD 2 million is also allowed

under automatic route in this sector.

Automatic approval for foreign equity investment up to 100% of manufacture of

automobiles and components is permitted.

The automobile industry is delicensed. Import of components is freely allowed. In order to enforce compliance and energy conservation act, the government has

recently given its nod to fuel mileage standards and labelling for new cars.

SIAM is working on a voluntary recall policy that is in favour of auto manufacturers.

On a similar note, government is in the process of constituting a nationalautomotive board which would become a formal setup to look into the issue of

recall of vehicles and hence improve manufacturing standards.

No special tax on diesel cars. General excise duty for automobiles has been hiked by 2% from 10% to 12% which

will increase prices of small cars, two wheelers, etc.

1.1.2 Economical:

Inflation always has a negative impact on the industry. The industry comes to astandstill when there is an inflation in the market. The sales decrease because of


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the rise in prices of the vehicles. The prices of the vehicles have to be increased to

meet the increase in price of the raw materials required for manufacturing.

Higher interest rates have a negative impact on the industry. Higher interest rates

means that it costs more for consumers to borrow money for auto loans. Therefore

the demand decreases and hence the sales decrease.

Inflation and high interest rates also dampens the economic growth. Therefore to obtain high economic growth and to increase the sales the inflation

should be controlled and the interest rates should be kept low.

1.1.3 Social:

People across all age groups buy personal vehicles. Rising per capita income, rising working population and middle class urbanization

have all contributed to the growth of this industry.

People are more inclined towards buying personal vehicles to maintain their status

quo.

People realize that during an emergency a personal vehicle will be more useful

rather than relying on public modes of transport.

1.1.4 Technological:

Spending on R&D in India has increased over the last few years. Cost advantage India offers makes more players likely to scale up R&D outsourcing

to India

Role of IT is increasing in this industry. They are developing solutions for the

automobile industry.

The increasing environmental pollution is a concern for manufacturers and all

associated with the industry. Some of the initiatives to reduce emission include

introduction of fuel efficient cars, electric and hybrid cars.

1.1.5 Environmental:

Physical infrastructure such as roads and bridges affect the use of automobiles. If

there is good availability of roads or the roads are smoothen it will affect the use

of automobiles.

Physical conditions like environmental situation affect the use of automobiles. If

the environment is pleasant then it will lead to more use of vehicles.

Technological solutions helps in integrating the supply chain, hence reduce lossesand increase profitability.


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2 BAJAJ AUTO LTD: COMPANY OVERVIEW

Bajaj Auto is the flagship of the Bajaj group of companies. It is a manufacturer of two-

wheelers and three- wheelers in India. The company manufactures and markets scooters,

motorcycles, passenger carriers and goods carriers. It also trades spare parts and

accessories. The company operates in several countries in Latin America, Africa, Middle

East, South and South East Asia.

The company operates through two business segments: automotive and investment.

Through its automotive segment, the company focuses on two-wheelers and three-

wheelers. In two-wheelers, the company manufactures motorcycles and scooters. Bajaj

Auto classifies motorcycles into three segments: entry segment, executive segment, and

performance segment. The company manufactures motorcycles such as the Pulsar range

(135 cc, 150 cc, 180 cc, 200 cc, and 220 cc), the 220 cc Avenger DTS-i (Digital Twin Spark-

ignition) and a 250 cc Kawasaki Ninja 250R and the 650cc Kawasaki Ninja 650R (in

collaboration with Kawasaki Heavy Industries).

Under the executive segment, the company manufactures 125 cc motorcycles including

Discover DTS-I (150cc, 125cc and 100cc); and under the entry level segment it offers the

100 cc Platina motorcycles. In addition, Bajaj Auto manufactures scooters under the

brand, Kristal.The company has three manufacturing plants in India including Pantnagar in Uttarakhand

(manufactures Platina, Discover and Boxer); Chakan in Pune (Pulsar, Avenger, Ninja and

KTM); and Waluj in Aurangabad (manufactures Boxer, Platina, Discover and three-

wheelers).

In three-wheelers, Bajaj Auto manufactures goods carrier and passenger carrier three-

wheelers. The company manufactures a range of passenger carriers which include: 2-

stroke (2S), 4-stroke (4S), 4S compressed natural gas type, 4S liquefied petroleum gas type

and 4S diesel type vehicles. The company's goods carrier brands include GC Max Diesel, GC

Max CNG and RE 600. Its passenger carrier brands include Mega Max, RE 25, RE 45, RE

Diesel and RE GDI.

In FY2012, the company sold approximately 4,349,560 vehicles worldwide, of which

3,834,405 were two wheelers and 515,155 three wheelers. During the same year, the

company exported a total of 1,579,824 units, including 1,267,648 units of two wheelers

and 312,176 units of three wheelers.


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The company has a technical tie-up with Kawasaki Heavy Industries, Japan to produce a

range of two-wheelers in India. Since the tie-up, Bajaj Auto launched KB100, KB RTZ,

KB125, and 4S, 4S Champion, Boxer, Caliber, Caliber115, Wind125 and Kawasaki Bajaj

Eliminator. Recently, the company launched Ninja 250R and Ninja 650R.

Through the investments segment, the company invests in Bajaj Auto International

Holdings (BAIH), a 100% Netherlands based subsidiary, and PT Bajaj Indonesia which

assembles and markets Pulsars in Indonesia. Through BAIH, Bajaj Auto has a 47.18% equity

share in KTM Power Sports (KTM) in Austria, Europe's second largest sport motorcycle

manufacture.

3 SWOT ANALYSIS OF BAJAJ AUTO LTD.Bajaj Auto is an India-based manufacturer and marketer of two and three wheeled

vehicles which include scooters, motorcycles, passenger carriers and goods carriers. The

company is the world's third largest two wheeler manufacturer. Strong market share

provides significant competitive advantage and increases the company's bargaining power,

which in turn helps it to register higher sales growth and strengthen investor's confidence.

However, working in a competitive environment exerts a continued pressure on the

operations of the company, which may result in downward pricing pressure therebyadversely impacting Bajaj Auto's market share and results of operations.

Strengths Weaknesses

Strong market share

Robust brand recognition

Vehicle recalls impacting the company's

reputation

Labour dispute affecting production

Opportunities Threats

Growing two wheeler market in India

Launch of new vehicles expands the company's

product portfolio

Intense competition in the two wheeler market

Increasing interest rates

Extensive environmental regulations


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3.1 BAJAJ AUTO LIMITED: STRENGTHS

3.1.1 Strong market share

Bajaj Auto is the world's third largest two wheeler manufacturer and the second largest

two wheeler manufacturer in India. The company has a strong market share in India. In

FY2012, Bajaj Auto had a market share of 32.1% in the domestic motorcycle sales and

exports. The company dominates the performance segment, which is strongly contested by

every major two wheeler company with a large number of models vying for market share.

Bajaj Auto sold 716,267 motorcycles in this segment in FY2012, with a market share of

44%. The company's key brand in this segment, Pulsar, is the only brand in the

performance segment whose cumulative sales have crossed the five million mark.

Moreover, the company sold 8,500 KTM Duke 200 motorcycles in 2012, making it the

largest selling premium motorcycle brand in India.

Additionally, Bajaj Auto is a leading three-wheeler player from India, accounting for 58.8%

of total sales among all Indian manufacturers of three-wheelers. Further, Bajaj Auto is

India's largest exporter of two and three-wheelers with presence in over 50 countries

around the globe. It enjoys a dominant presence in Africa, Latin America and South Asia.

The company is a market leader in motorcycles in Colombia, Central America, Sri Lanka,

Bangladesh, Philippines, Nigeria, Uganda and Kenya. During FY2012, the company's exports

accounted 35% of its net revenues.

Thus, a strong market share provides significant competitive advantage and increases the

company's bargaining power, which in turn helps it to register higher sales growth and

strengthen investor's confidence.

3.1.2 Robust brand recognition

The company manufactures and markets scooters, motorcycles, passenger carriers and

goods carriers. It focuses on motorcycles in the two-wheeler and three-wheeler segment.

The company has well established brands in each of these vehicle segments. Bajaj Auto

manufactures motorcycles such as the Pulsar range (150 cc, 135 cc, 180 cc, 200 cc, and

220 cc), the 220 cc Avenger DTS-i (Digital Twin Spark-ignition) and a 250 cc Kawasaki Ninja

250R and the 650cc Kawasaki Ninja 650R (in collaboration with Kawasaki Heavy Industries)

under the performance segment. Additionally, the company builds the bike under license

from Austrian motorcycle maker, KTM Power Sports, in which its holds a 47.18% stake.

Under the executive segment, the company manufactures 125 cc motorcycles including

Discover DTS-I (150cc, 125cc and 100cc); and under the entry level segment, the 100 cc


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Platina motorcycles. In addition, Bajaj Auto manufactures scooters under the brand,

Kristal.

Moreover, its adoption of a brand-centric strategy, focusing on the differentiation and

positioning of the Discover and Pulsar brands has reflected on the company's robust

volumes. The repositioning of its brands has helped the company cater to the segment

between executive and premium bikes and also the entry and executive bikes. Moreover,

through Discover and Pulsar, Bajaj Auto has successfully transited from the low profit

Commuter STD segment to higher profit segments including the Commuter DLX and Sports.

The three-wheelers segment manufactures goods carrier and passenger carrier three-

wheelers. Bajaj Auto manufactures a range of passenger carriers which include: 2-stroke

(2S), 4-stroke (4S), 4S compressed natural gas type, 4S liquefied petroleum gas type and

4S diesel type. Therefore, the company's extensive range of products and well established

brands covering the diverse spectrum of the automotive market enables it to cater to a

wide range of customers and price points that further strengthens its reach and market

position.

3.2 BAJAJ AUTO LIMITED: WEAKNESSES

3.2.1 Vehicle recalls impacting the company's reputation

The company announced a number of safety recalls recently. For instance, in March 2012,

Bajaj Auto recalled a certain number of its Pulsar 220cc DTS-I motorcycles. The recall was

due to a problem with the starter motor that can lead to starting problems. The company

recalled only those that are believed to be carrying the potentially faulty part and not all

Pulsar 220 units. Hence, significant product recalls such as these would negatively impact

the consumer confidence in Bajaj Auto's products which would negatively influence the

company's brand image.

3.2.2 Labour dispute affecting production

The company has been involved in a conflict over wage and labour issues and it has been

suffering low bargaining power due to existence of collective bargaining agreements and

labour unions. On June 4, 2012, Bajaj Auto's two-wheeler plant in Pantnagar, Uttarakhand,

was affected by a workers' strike, bringing production down by over 50% for the day.

Around 1,200 workers at the company's Pantnagar plant, agitating over salary hike,

decided to go slow on production until their discussions with the management and the

owners come to a satisfactory conclusion. The workers were demanding for a pay increase

of INR 8,000 a month, but the company agreed for an INR1, 500 hike. Therefore, suchlabour issues disrupt operations which can hinder the reputation of Bajaj Auto. Further,


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strikes such as these in the near future would have an adverse impact on the company's

overall production output and its revenues.

3.3 BAJAJ AUTO LIMITED: OPPORTUNITIES

3.3.1 Growing two wheeler market in India

The Indian two wheeler market has witnessed a strong growth in the recent past and the

trend is likely to continue in the future. This was primarily due to the government stimulus

packages, better demand and lower loan interest rates. According to industry estimates,

the overall two wheeler industry sales increased by 16% from 13.3 million units in FY2011

to 15.4 million units in FY2012. This growth was mainly propelled by impressive strong 26%

growth in scooters from 2.1 million units to 2.7 million units and 14% growth in

motorcycles, from 10.5 million units to 11.9 million units. Scooters as a categorycontinued to gain share from motorcycles in the total two wheeler industry. Mopeds

registered a growth of 12% growing from 0.7 million units to 0.8 million units. In the

motorcycle category, growth was mainly propelled by 24% growth in economy segment.

The executive segment contributing to 60% of the volumes, grew by 12% while growth in

premium segment remained at 5%.

This encouraging trend in the industry has also made India the second fastest growing

market in the world following China. Bajaj Auto is a leading manufacturer of two

wheelers, which enjoys a 32.1% market share in the domestic motorcycle sales and

exports. Hence, the growing demand for two wheelers represents an opportunity for the

company to further capitalize on this market and expand its revenues and profits.

3.3.2 Launch of new vehicles expands the company's product portfolio

It is vital for any automotive company adopting new technology and launching new models

as per the customer requirement in order to survive and compete with other market

players in a highly competitive automobile market. For instance, in February 2013, Bajaj

Auto launched the 100 cc Discover 100T bike, featuring the company's patented 4-valve

DTS-i technology. The new bike delivers a 10.2 PS (horsepower), which is 30% more than

other 100cc motorcycles. Similarly, the company launched an upgraded version of its 650-

cc sports bike, Kawasaki Ninja, in August 2012. The latest version follows the launch of the

Ninja 650R introduced in June 2011. Further, Bajaj Auto launched the 'Discover 125 ST", in

May 2012. Powered by the company's patented 'DTS-iTwin Spark' technology, for the first

time in this category, the engine is designed with 4 valves. The bike delivers a record 13

PS of power, highest in the 125cc category.


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Thus, launching of new and innovative models of vehicles and technologies would allow

the company to strengthen its portfolio of two wheeler vehicles by attracting new

customers, while retaining its existing customers.

3.4 BAJAJ AUTO LIMITED: THREATS 3.4.1 Intense competition in the two wheeler market

The two wheeler market in India is highly competitive with fuel efficiency and price being

crucial considerations for success. In the Indian two wheeler market, competition is stiff

with around 10 players (including Bajaj Auto) competing for significant market shares. The

players include global giants like Honda, Suzuki and Yamaha as well as Indian players like

Hero Motocorp and TVS Motor. The increasing preference for Japanese brands has led to a

marked change in the two-wheeler market in India, with domestic companies facing fiercecompetition from their multinational counterparts. Currently, every fourth two-wheeler

sold in India is manufactured by Honda, Suzuki or Yamaha. As of November 2012, the

combined market share of these companies rose to about 25%, as compared to 15% in the

last five years. In the next few years, competition for domestic brands is expected to

intensify further, with foreign brands set to launch many products in every sub-segment of

the motorcycle and scooter categories.

Growth in number of products in the market increases the bargaining power of the

customer. Competition is expected to intensify with the focus on technology and price.

The extent of pricing reductions varies from year to year, and takes the form of reductions

in direct sales prices. Therefore, working in such a competitive environment exerts a

continued pressure on the operations of the company, which may result in downward

pricing pressure thereby adversely impacting its market share and results of operations.

3.4.2 Increasing interest rates

The bank interest rates in India have been consistently growing from the past few years.

The interest rate decisions are taken by the Reserve Bank of India's Central Board of

Directors. From 2000 to 2013, India's average interest rate was 6.55% reaching an

historical high of 14.5% in August 2000 and a record low of 4.25% in April 2009. Moreover,

India's benchmark policy rate that determines the interest rate is currently at 7.5%,

whereas China's rate stands at 6.56%, the US have its benchmark interest rate at 0.25%,

the UK at 0.50% and Euro area has approximately 1%. Increasing interest rates tends to

influence the consumers' decision making in buying vehicles as they tend to purchase

vehicles at lower interest rates.


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Hence, a consistent increase in the bank interest rates in India would negatively influence

the growth in Indian automobile sales which in turn would impact the company's vehicle

sales.

3.4.3 Extensive environmental regulations

The company is subjected to extensive governmental regulations regarding vehicle

emission levels, noise, safety and levels of pollutants generated by its production

facilities. These regulations are likely to become more stringent in the near future. The

emission norms that are in force for two-wheelers and three- wheelers are more stringent

than the Euro II norms. India implemented the Bharat Stage (BS) 2 norms throughout the

country in 2005 and BS 3 norms from October 2010, which are more stringent than the

previous norms. BS emissions standards regulate the output of air pollutants, such as

nitrogen oxides (NOx), carbon monoxide (CO), hydrocarbons (HC), particulate matter (PM),

soot, and, sulfur oxides (SOx), by motor vehicles and other equipment.

Hence, more stringent vehicle emission regulations in the future may lead to significant

compliance costs for Bajaj Auto, which may have an adverse impact on the profitability.

4 COMPETITOR ANALYSIS: BAJAJ AUTO VS. HERO MOTOCORP: Market Share: The market share of Hero MotoCorp last year was 56% while that of

Bajaj Auto was 25.6%.

Volume Growth: Hero MotoCorp had a volume growth of 16.5% last year while

Bajaj Auto had a volume growth of 7.4%.

Operating Profit Margin: The operating profit margin of Bajaj Auto is 18% while

Hero MotoCorp has operating profit margin of 11-12%

Strategic Alliances: Hero has broken its partnership with Honda but it has teamed

up with the worlds largest privately owned engine developer, AVL of Austria, to

develop technology for its 100 cc and 110 cc models the Splender Range and thePassion. It has also signed a technology sharing deal with US motorcycle firm Erik

Buell racing. On the other hand Bajaj Auto is counting on its five year alliance with

KTM of Austria to crack open new markets and produce higher end products.

Price Segments: KTM and Pulsar make Bajaj Auto a powerhouse in the 60000 plus

bike segment. But in the 45000-50000 price band, Hero dominates. Even in the

40000-45000 price range Hero reigns supreme.

Distribution Network: Over the years, Hero MotoCorp has built its distribution

network of 700 dealers and 3700 service centres. More than 2000 rural channel


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partners work on the rural vertical through the har gaon har aangan program.

Over the past four years, its distribution network has grown nearly 2x compared to

peers. The distribution network is fairly spread across the rural and semi urban

areas. On the other hand Bajaj Auto has a distribution network of 485 dealers and

over 1600 authorized service centres. It has 171 exclusive dealers for the three

wheeler segment and has total 3750 rural outlets in rural areas.

5 BAJAJ AUTO LTD. STRATEGY TO GAIN COMPETITIVEADVANTAGE:

Various strategies employed by the company to improve business over the past two years:

Bajaj Auto formed an alliance with Renault-Nissan to manufacture a low emissionand high fuel efficiency car. The car named RE-60 was unveiled in January, 2012. It

is an effort to challenge Tatas Nano car.

Bajaj Auto acquired a 38% stake in Austrian bike maker KTM power sports and

introduced products from its range in the Indian market. The first product was the

Duke 125 cc.

Bajaj Auto has a 98.9% stake in PT Bajaj Indonesia. It is a subsidiary of Bajaj Auto.

It assembles and markets pulsars in Indonesia.

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