Bajaj Auto re’Discover’s volume driven 100cc segment  

July 18, 2009

The country's second-largest two-wheeler maker, Bajaj Auto Ltd (BAL), re-entered the volume-driven 100cc segment with its latest offering 'Discover', reversing the company's earlier decision to exit the arena.

BAL had earlier announced its exit from the 100cc segment and planned to position itself as a premium bike maker in the country. However, after that decision, its sales started falling in the domestic market.

During the quarter to end-June, Bajaj's total two-wheeler sales fell 23% compared with the industry growth of 2.6%.

In November 2008, Bajaj even lost its second position in sales to Honda Motorcycle and Scooter India, which it eventually regained. However, at that time, talking with Times of India Rahul Bajaj dismissed the trend as 'premature' and said, “Corporate sales ranking is never done on a monthly or quarterly basis. Its always on an annual basis. As of now, we are number 2. In my view for this financial year a verdict is premature before April 1, 2009. As for the next year, let’s see who is ahead on May 1, 2009.”  

In the motorcycle segment, the entry level 100cc vehicles constitutes a share of over 70% while the high end vehicles or the executive and premium motorcycles of 125cc and above makes the rest.

Since last two years, the automobile sales in India has been witnessing downturn, particularly the two-wheeler sales fell more significantly, due to hardening of interest rates and unavailability of easy finance.

Bajaj has been trying very hard to catch up with Hero Honda Motors Ltd (Hero Honda), the market leader in two-wheelers. Bajaj launched a 150cc motorcycle Pulsar in premium segment, which was gained a significant market share; or rather it was able to give a very good competition to Hero Honda.

The success of higher end models coupled with the dwindling sales in 100cc category, may have lead Bajaj to exit the 100cc segment altogether and concentrate more on the executive or above 100cc segment. Rajiv Bajaj, managing director, Bajaj Auto was consistently maintaining that the company would eventually exit the 100cc segment, which he felt was both non-profitable and laggard on account of 'product fatigue'.

At the same time, Pawan Munjal, managing director, Hero Honda, has said that his company believes that the 100cc segment is a huge market for it and they have a strategy in place and will continue to focus on this segment.

Last year in July, Bajaj launched XCD, its 125cc motorcycle with the company's much talked about DTS-Si technology. After initial success, XCD, however, failed to capture a dominant market position and its sales declined.

The company didn't provide detailed sales figures, but according to reports, XCD sales in January fell to 20,000 units from a target of 50,000 units. Incidentally, after XCD's successful initial run, the company said it will increase the production capacity for the model to 75,000 units.  

The XCD’s subdued sales numbers assume significance since it was positioned as the product that would give Bajaj a shot-in-the-arm, lure buyers of 100cc bikes to it, and catalyse the company’s shift from the 100cc business to the larger bikes.

Hero Honda rules to market for below 125cc category with a share of 82.3%, while Bajaj and TVS Motors, stood a distant second and third place with a market share of mere 8.4% and 8.1%, respectively.

What is the secret for Hero Honda's huge market share and rising sales? "Focus on the rural market is helping Hero Honda to post strong growth," said IDFC-SSKI Securities Ltd, in a report.

Echoing the same feeling Vaishali Jajoo, analyst, Angel Broking, in a report said: "The rural markets are expected to register better growth on account of the new demand arising from the relevant rural population, which is expected to help two-wheeler companies maintain their growth momentum registering 7% to 8% compound annual growth rate (CAGR) in volumes over the next few years."

India's market is divided roughly into two categories, urban and rural, depending on the needs and resources of consumers in those areas. For example, pricing and fuel efficiency matters most for rural consumers whereas the urban consumer would prefer more power and style in a motorcycle.

Bajaj, in an effort to capture the younger, tech savy urban consumers, seems to have ignored the rural market, since it has been almost two years; the company had not launched any new variant in the 100cc segment, which still is a preferred choice in rural market.

The 100cc motorcycles offer a better mileage at low cost compared with motorcycles in the above 100cc categories.

The question is whether Bajaj is paying a huge price for ignoring the rural market? Well, looking at the sales and market share figures, it seems to be the case. So the re-entry of Bajaj into the 100cc category is not a surprise, but was an event bound to happen. 

Bajaj claimed its new vehicle 'Discover' would run 80 km in a litre and it is positioning the new 100cc bike as an alternative to Hero Honda's Splendor and Passion in the volume-driven entry-level segment.

The company already sells Discover in 135cc category and the new vehicle is just a downgraded version of it, which comes at a price tag of Rs40,000. Whether the discovery will help Bajaj to move into top gears, as far as sales volumes are concerned, is still difficult to predict. -Yogesh Sapkale [email protected]