Bajaj Auto has been making headlines, not just for its consistent performance, but for its remarkable ability to maintain a 20% margin for six consecutive quarters. Rakesh Sharma, ED, Bajaj Auto, sheds light on how the company is navigating a volatile global landscape while keeping a sharp focus on its bottom line through strategic initiatives.

The Pillars of Bajaj Auto's Resilience

Sharma describes the current market as a "short-term equilibrium" but acknowledges the unpredictable nature of future disturbances. Despite this, the company's performance, both in earnings and monthly sales, remains strong.

Bajaj Auto's versatile business model is a key factor in its inherent risk mitigation. The company operates across multiple segments:

• International Business: Spread across 100 countries, it contributes almost 40% of total revenue. While Africa has been steady but underperforming, Latin America has emerged as a powerhouse, becoming the number one market among emerging markets for motorcycles in volume terms and achieving twice the value of Africa. This strong position in Latin America significantly aided recovery when other markets faced challenges. Asia is also noted as steady.

• Three-Wheelers: A significant contributor to the overall business.

• Domestic Motorcycle Business: This includes the rapidly growing 125cc plus segment, which is expected to grow at twice the average industry rate.

• EV Business: The Electric Vehicle sector is a major growth driver, now contributing about 21% to domestic revenues, up from 10% last year. This growth is heartening, especially given the reduction in subsidies.

• Spare Parts Business: A substantial segment that adds to the company's diversified revenue streams.

Navigating Margin Headwinds and Market Share Dynamics

Maintaining a 20% margin isn't a fixed target but a consequence of pursuing strategic initiatives. However, this dynamic management involves balancing various factors like EV, three-wheelers, motorcycles, international business, and currency movements. For instance, expansion in Africa could potentially affect EV business margins. Despite the EV business initially being much below the 20% mark, Bajaj Auto has successfully navigated this to maintain its overall 20% margin.

When it comes to the domestic entry-level motorcycle segment, which constitutes about 48% of the Indian industry from a topline perspective, Bajaj Auto has a cautious approach. Sharma explains that this segment is currently a "red ocean", implying intense competition. The company is not aggressively pursuing market share here at the expense of profitability. Instead, they are happy to take a very measured approach, as aggressive price cuts, often seen in this segment, are not sustainable and can erode the bottom line. Bajaj Auto has tried various technical innovations like speed and tubeless tyres, digital consoles, and even ABS, but a sustainable pricing strategy is proving difficult in the entry level.

Export Outlook and the Rare Earth Magnet Challenge

The export outlook remains robust, with a guided 15-20% quarter-on-quarter increase, primarily driven by Latin America and parts of Asia. Bajaj Auto closely monitors 32 countries that account for about 70-75% of the industry, with 26 of them showing growth even in Q4. Bajaj Auto itself has grown 31% in these places.

Regarding price adjustments, particularly in African markets where bikes are used as taxis and purchases are commercial, Bajaj Auto has taken price cuts in one or two places. This isn't aimed at gaining market share but at keeping the industry ticking and ensuring the payback period for customers remains viable.

A significant challenge on the horizon is the pending final certification for rare earth magnets from China. China holds over 80% share in this complex extraction and refining process. Over 30 applications have been processed even by the Chinese embassy and sent, but there's no word back yet.

If this process doesn't go smoothly, Bajaj Auto will start facing disruption from July onwards. Developing alternate sources is a very medium-term solution, as it involves complex processes and significant time to master the extraction and refining, and for testing and validation of new vehicle systems. Many other companies also expect disruption from July onwards.

Bajaj Auto's journey demonstrates a strategic blend of diversification, cautious market approach, and dynamic management to thrive amidst global uncertainties, consistently delivering strong margins.

Source: Bajaj Auto thriving in chaos; maintaining 20% margin for 6 quarters: Rakesh Sharma
- The Economic Times