bajaj strategy analysis
bajaj auto strategy...
A PROJECT REPORT ON
“STRATEGIC ANLYSIS OF BAJAJ AUTO LTD.”
Submitted By Pranay Sharma (36/08) Anju Bala Ahuja (48/08) Nipun Trikha (58/08) Abhishek Chanana (138/08)
Submitted to: Prof. S.P. Singh
INDEX Chapter 1
NAME Company history
PAGE NO 3
Completion in 1990
End of licence raj
• New toola in 1990 Product profile and financial performance
• Financial analysis Strategic analysis
Mission vision and values
Porter five forces model
• Other strategic issue Supply chain analysis
5 6 7
• Spare part division CORPORATE SOCIAL RESPONSIBILITY THE FUTURE AND RECOMMENDATIONS BIBLIOGRAPHY
32 36 41
CHAPTER ONE COMPANY HISTORY • ORIGINS • COMPETITION IN 1980 • END OF LICENSE RAJ • NEW TOOLS OF 1990’S • PRODUCT REVAMP IN 2000’S
Company History: Bajaj Auto Limited The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range of industries, spanning automobiles (two-wheelers and three-wheelers), home appliances, lighting, iron and steel, insurance, travel and finance. Bajaj Auto Limited is India's largest manufacturer of scooters and motorcycles. The company generally has lagged behind its Japanese rivals in technology, but has invested heavily to catch up. Its strong suit is high-volume production; it is the lowest-cost scooter maker in the world. Although publicly owned, the company has been controlled by the Bajaj family since its founding. Origins The Bajaj Group was formed in the first days of India's independence from Britain. Its founder, Jamnalal Bajaj, had been a follower of Mahatma Gandhi, who reportedly referred to him as a fifth son. 'Whenever I spoke of wealthy men becoming the trustees of their wealth for the common good I always had this merchant prince principally in mind,' said the Mahatma after Jamnalal's death. Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in 1942. Kamalnayan, however, was preoccupied with India's struggle for independence. After this was achieved, in 1947, Kamalnayan consolidated and diversified the group, branching into cement, ayurvedic medicines, electrical equipment, and appliances, as well as scooters. The precursor to Bajaj Auto had been formed on November 29, 1945 as M/s Bachraj Trading Ltd. It began selling imported two- and three-wheeled vehicles in 1948 and obtained a manufacturing license from the government 11 years later. The next year, 1960, Bajaj Auto became a public limited company. Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of Italy. In 1960, at the age of 22, he became the Indian licensee for the make; Bajaj Auto began producing its first two-wheelers the next year. Rahul Bajaj became the group's chief executive officer in 1968 after first picking up an MBA at Harvard. He lived next to the factory in Pune, an industrial city three hours' drive from Bombay. The company had an annual turnover of Rs 72 million at the time. By 1970, the company had produced 100,000 vehicles. The oil crisis soon drove cars off the roads in favor of two-wheelers, much cheaper to buy and many times more fuel-efficient. A number of new models were introduced in the 1970s, including the three-wheeler goods carrier and Bajaj Chetak early in the decade and the Bajaj Super and three-wheeled, rear engine 4
Autorickshaw in 1976 and 1977. Bajaj Auto produced 100,000 vehicles in the 1976-77 fiscal year alone. The technical collaboration agreement with Piaggio of Italy expired in 1977. Afterward, Piaggio, maker of the Vespa brand of scooters, filed patent infringement suits to block Bajaj scooter sales in the United States, United Kingdom, West Germany, and Hong Kong. Bajaj's scooter exports plummeted from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million) in 1981-82, although total revenues rose five percent to Rs 1.16 billion. Pretax profits were cut in half, to Rs 63 million. Rahul Kamalnayan Bajaj, 66, has stepped down as managing director of Bajaj Auto passing on the mantle of the company to his eldest son, Rajiv. Rahul Bajaj will continue as the chairman of the Bajaj conglomerate. Bajaj Auto is facing increased competition from Honda and Piaggio. Honda has overtaken Bajaj as India's No.1 scooter maker in the past two years. New Competition in the 1980s Japanese and Italian scooter companies began entering the Indian market in the early 1980s. Although some boasted superior technology and flashier brands, Bajaj Auto had built up several advantages in the previous decades. Its customers liked the durability of the product and the ready availability of maintenance; the company's distributors permeated the country. The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was immediately successful, and the company aimed to be able to make 60,000 of them a year by 1985. Capacity was the most important constraint for the Indian motorcycle industry. Although the country's total production rose from 262,000 vehicles in 1976 to 600,000 in 1982, companies like rival Lohia Machines had difficulty meeting demand. Bajaj Auto's advance orders for one of its new mini-motorcycles amounted to $57 million. Work on a new plant at Waluj, Aurangabad commenced in January 1984. The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the Kawasaki Bajaj KB100 motorcycles. The company was making 500,000 vehicles a year at this point. Although Rahul Bajaj credited much of his company's success with its focus on one type of product, he did attempt to diversify into tractor-trailers. In 1987 his attempt to buy control of Ahsok Leyland failed. END OF LICENSE RAJ The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion followed a year later. About this time, the Indian government was initiating a program of market liberalization, doing away with the old 'license raj' system, which limited the amount of investment any one company could make in a particular industry.
It was hoping to increase its exports, which then amounted to just five percent of sales. The company began by shipping a few thousand vehicles a year to neighboring Sri Lanka and Bangladesh, but soon was reaching markets in Europe, Latin America, Africa, and West Asia. Its domestic market share, barely less than 50 percent, was slowly slipping. By 1994, Bajaj also was contemplating high-volume, low-cost car manufacture. Several of Bajaj's rivals were looking at this market as well, which was being rapidly liberalized by the Indian government. Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The company was the world's fourth largest manufacturer of two-wheelers, behind Japan's Honda, Suzuki, and Kawasaki. New models included the Bajaj Classic and the Bajaj Super Excel. Bajaj also signed development agreements with two Japanese engineering firms, Kubota and Tokyo R & D. Bajaj's most popular models cost about Rs 20,000. 'You just can't beat a Bajaj,' stated the company's marketing slogan. The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in 1997. The next year saw the debut of the Kawasaki Bajaj Caliber, the Spirit, and the Legend, India's first fourstroke scooter. The Caliber sold 100,000 units in its first 12 months. Bajaj was planning to build its third plant at a cost of Rs 4 billion ($111.6 million) to produce two new models, one to be developed in collaboration with Cagiva of Italy. NEW TOOLS IN THE 1990S Still, intense competition was beginning to hurt sales at home and abroad during the calendar year 1997. Bajaj's low-tech, low-cost cycles were not faring as well as its rivals' higher-end offerings, particularly in high-powered motorcycles, since poorer consumers were withstanding the worst of the recession. The company invested in its new Pune plant in order to introduce new models more quickly. The company spent Rs 7.5 billion ($185 million) on advanced, computercontrolled machine tools. It would need new models to comply with the more stringent emissions standards slated for 2000. Bajaj began installing Rs 800 catalytic converters to its two-stroke scooter models beginning in 1999. Although its domestic market share continued to slip, falling to 40.5 percent, Bajaj Auto's profits increased slightly at the end of the 1997-98 fiscal year. In fact, Rahul Bajaj was able to boast, 'My competitors are doing well, but my net profit is still more than the next four biggest companies combined.' Hero Honda was perhaps Bajaj's most serious local threat; in fact, in the fall of 1998, Honda Motor of Japan announced that it was withdrawing from this joint venture. REVAMPING THE DESIGN Bajaj Auto had quadrupled its product design staff to 500. It also acquired technology from its foreign partners, such as Kawasaki (motorcycles), Kubota (diesel engines), and Cagiva (scooters). 'Honda's annual spend on R & D is more than my turnover,' noted Ruhal Bajaj. His son, Sangiv Bajaj, was working to improve the company's supply chain management. A marketing executive was lured from TVS Suzuki to help push the new cycles. 6
Several new designs and a dozen upgrades of existing scooters came out in 1998 and 1999. These, and a surge in consumer confidence, propelled Bajaj to sales records, and it began to regain market share in the fast-growing motorcycle segment. Sales of three-wheelers fell as some states, citing traffic and pollution concerns, limited the number of permits issued for them. SHARE IN COMPETITOR In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65 million. The Italian firm had exited a relationship with entrepreneur Deepak Singhania and was looking to reenter the Indian market, possibly through acquisition. Piaggio itself had been mostly bought out by a German investment bank, Deutsche Morgan Grenfell (DMG), which was looking to sell some shares after turning the company around. Bajaj attached several conditions to his purchase of a minority share, including a seat on the board and an exclusive Piaggio distributorship in India. Employment fell from about 23,000 in 1995-96 (the year Bajaj suffered a two-month strike at its Waluj factory) to 17,000 in 1999-2000. The company planned to lay off another 2,000 workers in the short term and another 3,000 in the following three to four years. Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; Bajaj Electricals Ltd.; Bajaj Hindustan Ltd.; Maharashtra Scooters Ltd.; Mukand Ltd. Principal Competitors: Honda Motor Co., Ltd.; Suzuki Motor Corporation; Piaggio SpA.
Chapter 2 PRODUCT
PERFORMANCE • Motorcycles • Three wheelers • Overall performance of the company • Financial ratio analysis
Products Motorcycles Two-wheeler sales of Indian players are dominated by the domestic market and, within it, by motorcycles. After growing at a sharp clip from the late 1990s, motorcycle sales witnessed a 7.8% drop in volume in 2007-08, due to falling domestic demand as a result of rising interest rates and many private sector banks reducing their retail lending exposures. 2008-09 saw a modest increase in motorcycle sales of 4%, driven largely by growth in cash sales. Even so, sales of motorcycles (both domestic and exports) in 2008-09 has been lower than what it was in 200607, before the slowdown hit this sector. Chart A depicts the data from 1998-99. Chart A: Sales of two-wheelers (million units)
Despite the slight uptick in the industry’s sales volume, Bajaj Auto did not maintain volume growth, for reasons that will be discussed below. From 1.66 million motorcycles in 2007-08, the company’s domestic sales fell by23% to 1.28 million units in 2008-09. Some of this was compensated by a 31% increase in exports to 631,383 units. But it was not enough Consequently, Bajaj Auto’s market share (domestic and exports, combined) fell from 32.7% in 2007-08 to 28% in 2008-09. Table 1 gives the data. Table 1: Motorcycle sales, domestic and exports (in numbers) Year
31 March 2003 2004 2005 2006 2007 2008 2009
(nos. Sales growth
Millions) 3.757 4.317 5.218 6.201 7.100 6.544 6.806
31.3% 14.9% 20.9% 18.8% 14.5% (7.8%) 4.0%
Millions) 0.868 1.024 1.450 1.912 2.379 2.140 1.908
growth 32.3% 17.9% 41.6% 31.9% 24.4% (10.1%) (10.8%)
BAL’s market share 23.1% 23.7% 27.8% 30.8% 33.5% 32.7% 28.0%
Source: SIAM and Company data
Motorcycles: Domestic Sales for the Industry The company classifies motorcycles into three segments, based on consumer categories and approximate price points. These are: 10
Motorcycles of Bajaj can be categorized as: SEGMENT BIKES Entry segment:
100 cc motorcycles the at Rs.35, 000.
PRODUCTS The Hero Honda Passion
for 34% in India in Executive segment:
2008-09 comprises 100 cc to In this segment with HERO HONDA CBZ 135 cc motorcycles, two brands: XCD and Extreme priced
Rs.40, 000 to Rs.50, 000. Performance segment: These are sleek, high flagship performance,
our Karizma and Hunk
price points in excess cruiser, the Avenger. of Rs.50, 000.
BAL dominate this space, domestic
share in excess of 47%.
Three-wheelers The company’s domestic sales of three-wheelers in 2008-09 were 12% lower compared to the previous year, and stood at 135,473 units. Export demand grew at 2% to 139,056 units (see Table 2 above). However that was not sufficient to prevent a decline in the company’s total threewheeler sales — which fell by 5.4% to 274,529 units in 2008-09. Given that total industry sales shrank by 1.6% in 2008-09 over the previous year, while Bajaj Auto’s fell by 5.4%, the company’s market share dropped by 2.3 percentage points to 55.1%. At this market share however, Bajaj Auto remains the leading three-wheeler player in India. Table gives the data.
Passenger vehicle sales:
Rate of growth
Industry sales Bajaj Auto sales Bajaj Auto market share Goods carriers Industry sales Bajaj Auto sales Bajaj Auto market share Total 3-wheelers: Industry sales Bajaj Auto sales Bajaj Auto market share
375,180 263,598 70.3%
415,411 264,332 63.6%
10.7% 0.3% (6.7%)
130,826 26,714 20.4%
82,382 10,197 12.4%
(37.0%) (61.8%) (8.0%)
506,006 290,312 57.4%
497,793 274,529 55.1%
(1.6%) (5.4%) (2.3%)
Source: SIAM and Company data.
Overall Performance of the company: Financials: (Rs. In Million ) 2008-09 Net sales & other income 89,323 Gross profit before exceptional items, interest & depreciation
Total Sales: 2008-09 Motorcycles 1,907,853 Other two-wheelers 11,772 Total Two wheelers 1,919,625 Three wheelers 274,529 Total 2 & 3 wheelers 2,194,154
2007-08 (Nos.) (Nos.) 2,139,779 21,316 2,161,095 290,312 2,451,407
Of the above, exports were Two wheelers 633,463 Three wheelers 139,056 Total Exports 772,519
482,026 136,315 618,341
FINANCIAL ANALYSIS OF BAJAJ AUTO Liquidity and Solvency ratio’s This ratio suggests the short-term liquidity position of the firm. The following ratios are to be
(i) Current Ratio.
Current Assets = Debtors + Cash/Bank + Marketable Non Trade Investments + Stock + Loans & Advances + Prepaid Expenses. Current Liability = Creditors + Bank Overdraft + O/S Expenses. The ideal ratio is 2:1
Year Current Assets Current Liabilities
(Rs. In cr.)
(Rs. In cr.)
Analysis:-Current ratio is higher in 2009 as compared to 2008. There is decreased all current assets except other receivables which increased in 2009. The net current assets increased by Rs.238.62 cr. in 2009 and at same time current liabilities increased by Rs.200.9 cr. in 2009. It means Bajaj Auto Ltd., has sufficient current assets to pay current liabilities. Short term solvency of the company is satisfactory.
Management Efficiency ratio’s
This ratio finds how efficient the management is in their decision-making & utilization of the production capacity & other resources. (i) Inventory Turnover Ratio.
Year 2008 2009
Inventory Inventory Turnover Ratio
(Rs. in cr.)
(Rs. in cr.)
Analysis:The inventory turnover ratio in the year 2008 was 28.19 which indicate that 28.19 times in a year the inventory of the firm is converted into receivables or cash. However, in 2009, the inventory turnover ratio slightly decreased to 27.47. This was due to the fact that the Bajaj Auto Ltd. in 2009 invested more then 0.72 times the inventory in 2008.
PROFITABILITY RATIO Gross Profit Ratio
8.56 % 7.55 %
Analysis:The profit margin has decreased from 8.56% in 2008, to 7.55% in 2009. According to the figures, company has been successful in decreasing their Sales by Rs.126.98 cr. in 2009 but the increases in net income available common stock holders was 111% which leaded to a decrease in the profit margin.
Market Value Ratio.
Price Earning Ratio.
Year 2008 2009
Price Per Share
Earning Per Share
(Rs. in cr.)
(Rs. in cr.)
PER 0.19 0.22
Analysis:It can be seen from calculations that in year 2009 the ratio is more than doubled from 0.19 to 0.22. This was due to the fact that the price per share over the year has same with Rs.10 per share where as book value per share increased by just Rs.109.73 to Rs.129.23.
CHAPTER THREE STRATEGIC ANALYSIS a)Vision mission and values b)Logo c) SWOT Analysis d)Porter’s five Forces Model Analysis e) Managerial style f) Business strategies g)Other strategic issues
VISION MISSION AND VALUES
Bajaj doesn't have a straight vision or mission statement. They define it in terms of brand identity, brand essence (derived from mission) and brand values. Our Brand Identity Our Brand is the visual expression of our thoughts and actions. It conveys to everyone our intention to constantly inspire confidence. Our customers are the primary audience for our brand. Indeed, our Brand Identity is shaped as much by their belief in Bajaj as it is by our own vision. Everything we do must always reinforce the distinctiveness and the power of our brand. We can do this by living our brand essence and by continuously seeking to enhance our customers’ experience. In doing so, we ensure a special place for ourselves in the hearts and the minds of our customers.
Our Brand Essence Our Brand Essence is the soul of our brand. Our brand essence encapsulates our mission at Bajaj. It is the singular representation of our terms of endearment with our customers. It provides the basis on which we grow profitably in the market. Our Brand Essence is Excitement. Bajaj strives to inspire confidence through excitement engineering. Blending together youthful creativity and competitive technology to exceed the spoken and the implicit expectations of our customers. By challenging the given. By exploring the unknown and thereby stretching ourselves towards tomorrow, today.
Our Brand Values We live our brand by its values of Learning, Innovation, Perfection, Speed and Transparency. Bajaj will constantly inspire confidence through excitement engineering.
Learning Learning is how we ensure proactivity. It is a value that embraces knowledge as the platform for building well informed, reasoned, and decisive actions.
Innovation Innovation is how we create the future. It is a value that provokes us to reach beyond the obvious in pursuit of that which exceeds the ordinary.
Perfection Perfection is how we set new standards.It is a value that exhibits our determination to excel by endeavoring to establish new benchmarks all the time.
Speed Speed is how we convey clear conviction. It is a value that keeps us sharply responsive, mirroring our commitment towards our goals and processes.
Transparency Transparency is how we characterise ourselves. It is a value that makes us worthy of credibility through integrity, of trust through sensitivity and of loyalty through interdependence.
LOGO of BAJAJ:
INITIAL LOGO (upto 2004)
(upto LATEST LOGO (since 2007)
Hexagonal blue and white Completely blue logo to To stress the leadership logo signify modernity and position of the brand in dynamism the market
SWOT Analysis: Let's analyze the position of Bajaj in the current market set-up, evaluating its strengths, weaknesses, threats and opportunities available. Strengths: Highly experienced management. Product design and development capabilities. Extensive R & D focus. Widespread distribution network. High performance products across all categories. High export to domestic sales ratio. Great financial support network (For financing the automobile) High economies of scale. High economies of scope. Weaknesses:
Hasn't employed the excess cash for long. Still has no established brand to match Hero Honda's Splendor in commuter segment. Not a global player in spite of huge volumes. Not a globally recognizable brand (unlike the JV partner Kawasaki)
Threats: The competition catches-up any new innovation in no time. Threat of cheap imported motorcycles from China. 21
Margins getting squeezed from both the directions (Price as well as Cost) TATA Ace is a serious competition for the three-wheeler cargo segment. Opportunities: Double-digit growth in two-wheeler market. Untapped market above 180 cc in motorcycles. More maturity and movement towards higher-end motorcycles. The growing gearless trendy scooters and scooterette market. Growing world demand for entry-level motorcycles especially in emerging markets.
Porter’s Five Forces Analysis: Supplier Bargaining Power: Suppliers of auto components are fragmented and are extremely critical for this industry since most of the component work is outsourced. Proper supply chain management is a costly yet critical need. Buyer's Bargaining Power: Buyers in automobile market have more choice to choose from and the increasing competition is driving the bargaining power of customers uphill. With more models to choose from in almost all categories, the market forces have empowered the buyers to a large extent. Industry Rivalry: The industry rivalry is extremely high with any product being matched in a few months by competitor. This instinct of the industry is primarily driven by the technical capabilities acquired over years of gestation under the technical collaboration with international players. Substitutes: There is no perfect substitute to this industry. Also, if there is any substitute to a two-wheeler, Bajaj has presence in it. Cars, which again are a mode of transport, do never directly compete or come in consideration while selecting a two-wheeler, cycles do never even compete with the low entry level moped for even this choice comes at a comparatively higher economic potential.
Managerial Style: Off late Bajaj Auto Limited, India’s premier automotive company, has emphasised a lot on organizational restructuring for the Auto business. With this restructuring, the existing business roles and responsibilities at the company has been strengthened and enhanced to ensure greater operational empowerment and effective management. The five pillars of this new structure (Strategic units) are R&D, Engineering, Two Wheeler Business Unit, and Commercial Vehicles Business Unit & International Business Unit. These pillars will be supported by functions of Finance, MIS, HR, Business Development and Commercial.
Pradeep Srivastava, who was VP-Engineering prior to restructuring, will now be President- Engineering. As per the reorganized structure the company will have three CEO’s. S. Sridhar, currently, VP, Mktg. & Sales Two-Wheelers, will now head the Two Wheeler Business Unit as CEO with manufacturing operations at Waluj and Akurdi also reporting to him. RC Maheshwari has joined Bajaj Auto as CEO Commercial Vehicles. The company is in the process of identifying a CEO for its International Business. The three CEO’s will be responsible for Top line, Business Growth & profitability of their respective businesses. Abraham Joseph will continue to lead Research & Development.
Marketing Strategies: The focus of BAL off late has been on providing the best of the class models at competitive prices. Most of the Bajaj models come loaded with the latest features within the price band acceptable by the market. BAL has been the pioneer in stretching competition into providing latest features in the price segment by updating the low price bikes with the latest features like diskbrakes, anti-skid technology and dual suspension, etc. BAL adopted different marketing strategies for different models, few of them are discussed below: Kawasaki 4S - First attempt by bajaj to make a mark in the motorcycle segment. The target customer was the father in the family but the target audience of the commercial was the son in the family. The time at which Kawasaki 4S was launched Hero Honda was the market leader in fuel-efficient bikes and Yamaha in the performance bikes. Boxer - It took the reins from where the Kawasaki 4S left. Target was the rural population and the price sensitive customer. Boxer marketed as a value for money bike with great mileage. Larger wheelbase, high ground clearance and high mileage were the selling factors and it was in direct competition to Hero Honda Dawn and Suzuki MX100. Caliber - The focus for the Caliber 115 was youth. And though Bajaj made the bike look bigger and feel more powerful than its 24
predecessor (characteristics that will attract the average, 25-plus, executive segment bike buyer), its approach towards advertising is even more radically different this time around. Bajaj gave the mandate for the ad campaign to Lowe, picking them from the clique of three agencies that do promos for the company (the other two being Leo Burnett and O&M). Going by the initial market response, the campaign was clearly a hit in the 5-10 years age bracket. So, the teaser campaign and the emphasis on the Caliber 115 being a `Hoodibabaa' bike placed it as a trendy motorcycle for the college-goers and the 25 plus executives both at the same time. Pulsar - Pulsar was launched in direct competition to the Hero Honda's 'CBZ' model in 150 cc plus segment. The campaign beared innovative punch line of "Definitely Male" positioning Pulsar to be a masculine-looking model with an appeal to the performance sensitive customers. The Pulsar went one step ahead of Hero Honda's 'CBZ' and launched a twin variant of Pulsar with the 180 cc model. The model was a great success and has already crossed 1 million mark in sales. Discover - The same DTSI technology of Pulsar extended to 125 cc Discover was a great success. With this, Bajaj could realize its success riding on the back of technological innovation rather than the joint venture way followed by competitors to gain market share. BAL now is taking a leaf out of the FMCG business model to take the company to greater heights.Bajaj has kicked off a project to completely restructure the company's retail network and create multiple sales channels. Over the next few months, the company will set-up separate sales channels for every segment of its business and consumers. Bajaj Auto's entire product portfolio, from the entry-level to the premium, is being sold by the same dealers. The restructuring will involve separate dealer networks catering to the urban and rural markets as well as its three-wheeler and premium bikes segments. Bajaj Auto also plans to set-up an independent network of dealers for the rural areas. The needs of financing, selling, distribution and even after-sales service are completely different 25
in the rural areas and do not makes sense for city dealers to control this. The company also plans to set-up exclusive dealerships for its three-wheeler products instead of having them sold through an estimated 300 of its existing dealers.
Other 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 to intensify. TVS Motors and Hero Honda are on a product expansion binge. To fight this battle and retain its hard-earned market share in the motorcycle segment, Bajaj Auto will need its cash muscle. A look at its own story over the past five years provides valuable insight. Stake for Kawasaki: Bajaj Auto's attempt to vest the surplus cash in a separate company may be a prelude to offering a stake to Kawasaki of Japan in the equity of the automobile company. The latter has been playing an increasingly active role in Bajaj's recent models, and its brand name is also more visible in Bajaj bikes than in the past. Better value proposition: Shareholder interests may be better served if the cash is retained 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 de-merger. A combination of a large one-time dividend and a regular buyback program through the tender route may offer better value. A strategic stake for Kawasaki would only positively influence the stock's valuation. 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 or CBU routes. 2) Markets where BAL need to create new products. 3) Markets where BAL need to enter with existing products and probably with a good distributor or a production facility or a joint venture. Earlier, most of the products that Bajaj exported were scooters and some motorcycles. However, in its target markets, like in India, the shift was towards motorcycles. With the expansion in 27
Bajaj's own range to almost five-six platforms of motorcycles, it had a better offering to export, also the reason for its stronger showing. For the last fiscal, 60 per cent of its exports were twowheelers and the rest three-wheelers. Exports to middle Africa and the Saharan nations. Egypt and Iran also continue to be strong markets for Bajaj.
CHAPTER FOUR SUPPLY CHAIN ANALYSIS • Value chain management • Subsidiaries • Spare part division
Value Chain Management
Vendors – Bajaj Auto has a consolidated base of 180 vendors supplying components to all Bajaj Auto’s plants. A large number of vendors are located either near Pune or Aurangabad. Those that are far are encouraged to tie up with third party logistics providers, who along with local vendors supply multiple deliveries daily to Chakan & Waluj plant. Bajaj Auto has extended the TPM (Total Preventive Maintenance) to vendor as well. Around 60% by value of Bajaj vehicle is outsourced. Virtually no components are imported & 70% of Bajaj Auto’s requirements are sourced from within the state of Maharashtra. To improve quality, Bajaj Auto has also begun actively assisting its suppliers in finalizing joint ventures with counterparts in Japan, Italy, Taiwan & Spain. Key suppliers : Bajaj auto has approximately 198 suppliers for their raw materials. Some of the key suppliers are :-
JBM - Frames
MRF & Dunlop – tires
Minda - locks & ignition system
Reinder – headlamps & lights
Endurance – brakes, clutch & Cast wheel
Varroc – Plastic parts & Digital Meter
Max auto components – ignition system and switches
Silco cable – wires and cables
Makino industry – Brake shoes . Brake lining, clutch center
Inder auto industries- Chambers, Gaskets, Cylinder Piston kit.
KBX – disk Brakes assembly
Inventory policyBajaj auto maintains seven days inventory . Demand Estimations were based on Panel Regression, which takes into account bothtime series and cross section variation in data .All the Mediators are connected with each other through IT linkage to know exact status of delivery of goods Manufacturing locations Akurdi, Pune 411035 This is one of the oldest plant of bajaj auto ltd with production capacity of 0.6 million vehicles/ year. The plant has been closed in order to equip for four wheeler production Bajaj Nagar, Waluj Aurangabad 431136 This is second plant with production capacity of 0.86 million/ year .products manufactured here are Kristal, XCD and platina and commerial GC series Chakan Industrial Area, Chakan , Pune 411501 This is the biggest plant of bajaj auto Production Capacity of 1.2 million/ year , Product manufactured here are pulsar and avenger and commercial Ge series Pantnagar , Uttarakhand The most advanced plant of bajaj auto .It has Capacity of 0.9 million vehicles per year . product manufactured here are platina and XCD
Dealers- Bajaj Auto has a network of 422 dealers and over 1,300 authorized service centers. The company plans to increase the number of dealers to 500 by this financial year. A large number of these new dealerships are planned in semi-urban & rural areas.
During the financial year 2007-08, the company extended BASS (Bajaj Auto Service Standard) to standardize the workshops of 250 dealers & 50 authorized service centers. These programmers included a uniform external & internal look. This initiative has improved work hygiene, promoted consistent & better service quality, & greater productivity.
Faster turnaround of
serviced vehicles coupled with higher spare parts sales in converting such workshops into independent profit centers for the dealers.
Value chain of the company
Subsidiaries: PT. Bajaj Auto Indonesia (PT BAI), was incorporated as a subsidiary company in Indonesia with an issued, subscribed & paid-up capital of US$ 12.5 million (Rs.562 million) in 2006-07. Bajaj Auto holds 97.5% shares in this company, with balance being held by a local partner. The subsidiary company has accumulated losses of Rs. 830.7 million as on 31 March 2009. Through the efforts, which are planned in the coming years, it is expected that PT BAI will turn around within a reasonable time. During the year under review, sales and service network reach have been xpanded substantially covering the major cities of Jawa, Sumatara, Bali and Sulawesi islands. Total showroom 32
strength stands at around 63 numbers, covering 46 cities of Indonesia. PT BAI assembles and markets Bajaj Pulsar and Bajaj XCD in Indonesia, establishing Bajaj as a high quality tech-savvy brand. PT BAI plans to expand its presence, product range and reach towards becoming a strong player in this market currently dominated by Japanese 2-wheeler majors. Bajaj Auto International Holdings BV, Netherlands (BAIHBV) -was incorporated as a wholly owned subsidiary company in Netherlands with an issued, subscribed and paid-up capital of Euros 200,000 during 2007-08. Further capital of Euro 98.2 million was invested in this company during the previous year, by way of premium. It is proposed to make strategic investments in overseas ventures, by way of equity shares and / or loans and to undertake related activities through this company.
Spare parts Division: Automobiles need periodic replacement of parts. Not surprisingly, therefore, spare parts comprise a profitable business for major automobile manufacturers. The objectives of spare parts business of Bajaj Auto are to perform an effective role in supporting new vehicle sales, maintain vehicle goodwill' across different geographies, makes and consumer groups, and contribute to the bottom-line. These translate into three goals: * Make spare parts available to customer at all time. * Make them affordable. * Achieve profitable business growth and greater penetration. The company's spare parts business has done well. Domestic sales of spare parts grew by 17.5% to achieve a revenue of Rs.5.88 billion in 2008-09. And exports rose by 84% to Rs.1.45 billion. There is huge head room for further growth of this business. Even today, despite significant expansion of Bajaj Auto's authorised service network, more than 70% of the services during post-warranty
CHAPTER FIVE CORPORATE SOCIAL RESPONSIBILITIES • Environmental friendly techniques • Community leadership programmes: health education • Other CSR activities
• CORPORATE SOCIAL RESPONSIBILITY
Cost effective and Environmental strategies: Conservation of energy: As a part of continuing efforts to conserve various resources, following steps were taken to conserve energy: Electrical energy saving was achieved by installation of localised portable air compressors at various shops during low production periods, energy efficient screw compressors by replacing CPT compressors, real timer electrical circuits installed to switch off electrical equipments during lunch / tea breaks and during non utilisation of production equipments, fan less cooling towers for AC plants, high efficiency reflector fittings with electronic ballasts tube lights, use of LED & CFT street lights, replacement of 350 W air circulators by 180 W air circulators, 150 W MH lamps instead of 250 W HPSV lamps at shop floors, Variable Frequency Drives VFD) for ASUs in paint shops, washing machine blowers, compressors etc and rationalisation of pumping hours of main pump as well as booster pump of pump house. Water saving was achieved by replacement of old under-ground water pipes with aboveground pipes to avoid water wastage through leakage, drip irrigation system for gardening, installation of localised fresh water storage systems, usage of treated water for bin washing and paint shop process, rain water harvesting and use of biochemical additives to reduce frequency of water change in various paint processes; and LPG saving was achieved by installation of waste heat recovery system for hot water generation used in pretreatment process of paint shop, use of reflective coating inside furnaces for better heat retention, three-wheeler electrodeposition (ED) painting process changed from Acrylic ED to Cathodic ED, optimisation of loading pattern in CGC and seal quench furnaces, reduction of hot water temperature for pretreatment, use of bio- gas for cooking in canteens, start-up losses in ovens and hot water generation plants and changed design of paint jigs to reduce jig stripping frequency. 35
Impact of measures taken: As a result of the initiatives taken for conservation of energy and natural resources, the company has effected an overall reduction in consumption as under:-
Investment / savings: Investment for energy conservation activities: Rs.9.35 million Saving achieved through above activities: Rs.24.2 million
Community leadership programmes: During the year, the employees volunteered for blood donation camp at Deenanath Mangeshkar Hospital, Pune and Dr Susheela Tiwari Hospital, Pantnagar Fire fighting teams of the company along with vehicles responded to 20 Fire assistance calls from Government Fire Department / other industrial units outside the factory premises in the larger interests of saving invaluable life and property. Community Care: In line with the commitment to enrich the life of all with whom bajaj deals, it showes sensitivity to the employees, who opted for voluntary retirement at the Akurdi Plant. Soon after the Akurdi employees expressed their interest in accepting the Voluntary Retirement Scheme, the company organised a series of interactive meetings with leading financial institutions. The officers explained the need to prudently and safely invest the monies received, considering the various options available today. The company devised attractive schemes for interested employees so that they could receive regular monthly payments, in addition to lump sum compensation announced. They were also provided with options of taking loans at competitive rates of interest. By these actions, it is the company's endeavour that the employees, who have accepted voluntary retirement scheme, are independently self-sustaining and can take good care of their families. Employees were also guided for alternative possibilities, whether as employee or entrepreneur. Health: 37
Government of India- Ministry of Health and Family Welfare National Aids Control Organisation (NACO) and CII have initiated Public Private Partnership (PPP) in order to provide better healthcare to AIDs patients. The company has signed a tripartite MoU with NACO and Yeshwantrao Chavan Municipal Hospital (YCMH) in Pimpri to set up an Anti Retroviral Treatment Centre (ART Centre) at YCMH in Pimpri, Pune with the cooperation of Pimpri Chinchwad Municipal Corporation for HIV patients. Many dignitaries from Global Fund, WHO and such other organisations have visited the ART centre, which is the largest unit run by an industry under Public Private Partnership programme. Apart from two doctors and six supporting medical staff, the ART centre has added audio-visual facilities for group counseling, as a result of which the ART centre registration has reached 1,900 numbers and the unit is recognised today as one of the best ART centres in the country. Rural and community development activities and empowerment of women. Education: The company has launched a programme that would help SC/ST students achieve academic excellence and make them on par with those, who can afford coaching for entrance to IITs. During the year under review, one student with a brilliant academic record was identified from the underprivileged and low-income group, for reimbursement of complete fees for the preparation of IIT entrance test under the guidance of IITians Prashikshan Kendra. Under the central government initiative of Public Private Participation (PPP), the company has volunteered to adopt 3 ITIs (Industrial Training Institute) for up-gradation: * ITI Mulshi * ITI Haveli * ITI Ramnager The other activities include:
• Bajaj Auto Ltd. was the first and only company to launch ecologically friendly CNG engines for three wheelers in Delhi. • Bajaj Auto promotes several welfare programmes for its employees as well as various initiatives related to environment, health, education and rural development in the communities around the plant areas.
CHAPTER SIX • THE FUTURE • RECOMMENDATIONS
THE FUTURE Bajaj-Renault-Nissan to drive small car (ULC) Bajaj Auto has redrafted its bike strategy for this fiscal that will see the Pulsar and Discover act as the key growth drivers. The script goes according to plan, it has have set ourselves a target of 200,000 units from both brands by March 2010. Bajaj Auto and the Renault-Nissan Alliance to build the car code- named ULC with wholesale price range starting from 2500 USD
All this is part of a renewed thrust by the company to focus on two key requirements of the market which, over the years, have pretty much remained constant for either fuel-efficient commuter bikes or sporty, powerful products. The Discover has now been positioned to fulfill the former need in a segment where Hero Honda reigns supreme while the Pulsar has established itself in the sporty slot, with monthly sales of over 40,000 units.
Bajaj Auto Ltd has announced that the company may launch a small car in the year 2010 in India. The second largest two wheeler maker in India will enter the small car segment in partnership with French car giant Renault and Nissan. The small car prototype was unveiled today and the company wants to promote the vehicle as economical and affordable car. The Bajaj Auto’s car will be expensive as it will meet safety and emission norms. The standard version will come with an air conditioner. 40
Bajaj Auto has said in a statement that the car will offer a mileage of 34 kilometer per litter. Bajaj will launch the car in Petrol and Diesel variants. Bajaj has plans to manufacture the small car at its facility in Chakan near Pune.
Bajaj Auto Ltd = 50 per cent Bajaj Auto, which is yet to sign a joint venture agreement with its partners, Renault and Nissan. The ULC project was conceived as a three-way alliance where Bajaj would hold 50 per cent equity.
Renault = 25 per cent The ULC project was conceived as a three-way alliance where Renault would hold 25 per cent equity.
Nissan = 25 per cent The ULC project was conceived as a three-way alliance where Nissaan would hold 25 per cent equity.
Bajaj Auto, which is yet to sign a joint venture agreement with its partners, Renault and Nissan. The ULC project was conceived as a three-way alliance where Bajaj would hold 50 per cent equity with Renault and Nissan accounting for 25 per cent each. Bajaj-Renault-Nissan will miss its 2011 deadline on its ultra-low-cost car project. Bajaj Auto managing director Rajiv Bajaj has ordered that the work done so far on the project be scrapped and has demanded major modifications on design, positioning and other details, according to a person familiar with the development.
Recommendations The impression of Bajaj in the minds of the public is that it is a moped & a three-wheeler company, & it is a very orthodox & unhappening image in the minds of the youth. It should use a powerful brand ambassador & individual whom the youth can relate with.
It should aggressively market itself as a motorcycle company & move from its traditional mindset (Rahul Bajaj had once stated that he had only one department in his company the dispatch department & that he did not require a marketing department.)
Bajaj should aggressively push sales of higher margin products & launch new products in niche segments.
Bajaj should also try & push for tie-ups & Joint Ventures in foreign market & try & increase its export base. (E.g. Tata Motors tie-up with Rover for marketing of India & Joint Venture with Senegal government for manufacturing trucks & commercial vehicles.)
Bajaj should look for possible mergers & acquisitions. (E.g. Maharashtra Scooters) & try & improve its distribution network & provide it with products in niche segments & help increase production capacity & provide economies of scale.
Bajaj should evaluate the process of backward integration as it has huge cash reserves surplus. This process would help it in acquiring inputs continuously at lower cost & at regular intervals.
Increase its dealer network to tap rural growing markets by going in for tie-ups & offering better margins to dealers.
The key to Bajaj real success lies in Research & development. How it is able to use value analysis & value engineering by adding new features to its existing product line & how it is able to come out with new product for different niche markets. Analysis of different alternatives like outsourcing, in-house, purchase & tie-up should be evaluated.
BIBLIOGRAPHY • www.bajajauto.com • http://www.business-standard.com/india/news/bajaj-autorevamps-organisational-structure/ • http://www.karmayog.org/csr500companies/csr500companie s_7373.htm • www.wikipedia.org • http://www.bma.ac.in/KnowledgeCentre/index1.html • http://www.prdomain.com/companies/B/BajajAuto • http://www.coolavenues.com/know/gm