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Bajaj Auto's margin seen to grow
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July 19, 2006

Sanjiv Bajaj, executive director, Bajaj Auto [Get Quote] says that their motorcycle mix is profitable, and they have also seen a boost in three-wheelers and exports growth, and all that put together is helping them on the margin side.

Excerpts from CNBC-TV18's exclusive interview with Sanjiv Bajaj:

You haven't seen the extent of raw material pressure as your key competitor Hero Honda is showing. Is there anything that you are doing to try and deal with the raw material pressures?

The material pressure is by and large the same for all of us. The difference could be on two sides. On one hand we are getting into contracts of differential periods with some of the larger manufacturers. In a way we are trying to reduce the volatility, atleast in terms of price increases.

But the second side of it is actually the sales side. If you see our mix in motorcycles, it has moved up significantly from the 100CC motorcycles to 125-150 and the other bikes, it is more profitable. In addition we have seen a boost in three-wheelers and export growth.

All these put together is helping us on the margin side. That is why if you see overall, the negative effect of material price increases is lowered for us.

The product mix aside, what can you do in terms of passing down some of these raw material hikes? Is the environment conducive enough to shore up realisations and pass down some of it to consumers given that competitive pressures are quite intense in your industry?

It depends on product to product. What we do is two things. We have a YoY cost reduction programme across our plants, across our suppliers, as well as through design. So we keep simplifying design using better materials and cutting cost.

But that naturally has a lead-time. The other thing that we do is, if you see our products, they get upgraded every couple of years. So they almost stand for the latest in style, performance and technology, which then enables us to take the price up as well.

For example from July 1, other than our lowest end product, which is the CT 100, we have taken prices up on the other motorcycles, on the entire three-wheeler range. We have the upgraded version of Pulsar Twins coming up in the next couple of months, which will help us review prices as well. We always believed in giving greater value to the customer and we believe through the process, it also enables us to get our margin that we desire.

Would it be fair to say this is probably going to be a more difficult year than the one that has gone by, not just in terms of raw material pressures but what is happening on interest rates as well. Do you think demand will overcome all of that?

Well demand so far has been very strong, especially if you see our range of products. We are substantially outgrowing the market and upping market share. So we do not see this year as the problem as far as demand is concerned.

In this industry, we have always said that any margin over 15-16 per cent at an EBIDTA level are very healthy margins for the top few players, given the kind volumes we do. So margins, we have to wait and watch a little bit, we have to see what happens with commodity prices in the coming quarters. But overall the year so far is atleast turning out the way we have projected it to be, which is fairly strong margins.

If you see for us, atleast, our margins in Q1 have actually gone up from 15.9 per cent to 16.5 per cent. People are comparing it partly with margins in Q4, which were not really comparable because we had certain one-time export benefits that came in there.

Also, Q1 every year coincides with our employee cost and bonuses, which happens once a year. To that extent if you see the last few years, normally Q1 shows the lowest EBIDTA margin. We are very confident about the rest of the year right now, keeping in mind that raw material prices could go up further. We will have to keep an eye on that.

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