We have always looked at Pune as the go-to city as a manufacturing space, especially for auto. What is so special about Pune that makes it perhaps the Detroit of India?
Pune is quite a delightful city. First of all, it has a great climate. It lies in a rain shadow area. So it does not have torrential rains, but has lovely weather. And that would have attracted the people first which is how the cantonment side of Pune came in. I would say that we have to credit the pioneers with the start of the industrialisation of Pune – the families of Kirloskars, Bajajs, Firodias, the Kalyanis and people like that, who came from different places and set up their industries here.
Since then, there has been a very eclectic mix. There is the corporate crowd. The armed forces crowd; a good art and culture segment with FTII etc. So it is really a very good mix of people. And therefore, more and more people keep getting attracted to the Pune proposition.
Five years ago, less than 10% of Bajaj Auto total profits were coming from exports; that number is nearing 50% now and 46% of the total top line, according to the latest data on exports which has worked like a charm for you. Have you reached a peak because you are there in almost 100 countries now? Your distribution network is set up. Those countries where you are present have unique problems. So what has worked like a charm for you in terms of creating a leverage, giving you a fillip, is that edge going to get blunted going forward?
Well, first of all, you are right. Almost half of our production is exported to over 90 countries.
Which is a great strategy.
We do not get into segmental level profits. So I will skip that data point. But yes, exports are a very substantial part of our business and it is reflected in everything which we do, whether it is in the people we deploy or in our product development strategies etc. The export opportunity is just unfolding. We are far from seeing it getting exhausted. The scope for two-wheelers in parts of Latin America and Africa is enormous. The story has just started over there and the story is just about good quality products being available for the African customers. And there are countries like Uganda and Kenya, where organised retail finance has made its appearance. When that lever steps in, we will see a jump shift in the expansion of business in Africa and also in Latin America or the emerging markets of the world.
So I would say that we are in a very fortunate position in that we have got substantive positions in many countries. As the macroeconomic issues and the dark clouds blow over, we will again see a growth prospect there. Having said all this, the nature of international business is such that it is more volatile. Because of technological factors, because of macroeconomics, because of geopolitics, it is not going to be a linear growth. It is going to be a snake in the tunnel. It is going to be up and down and up and down.
So participating in international business is not for the faint hearted. It is not for the trader. It is not for the person who is short sighted. This is for the manufacturer. This is for people who have a genuine commitment to global play. That is what Bajaj is all about. I would say that the emerging markets story is far from exhausted. It holds a lot of potential still, and we are very optimistic about it. But we do not think it is going to play out very rapidly. There are going to be ups and downs and we will go through them.So the down that you saw in the last quarter, was that a one-off?
Well, the down cycle commenced in the beginning of last year, which is FY23 and I would say April, May, June, when the Fed made changes and the dollar became strong and then there was a weakening of a lot of emerging market currencies which had two consequences. One was that there was devaluation in these countries, meaning inflationary pressures. The second was that the central banks in these emerging markets took a very cautious position and started to preserve their dollars. Availability of dollars for international trade has reduced.
Has that changed for you?
That sort of set the whole cycle in the other direction. We are seeing some bottoming out of this in the last two-three months and now. We have not seen a rapid return to the period of FY21 and FY22 as yet. But macroeconomics sorts itself out if there is no further geopolitical tension because the fundamental drivers start to kick in. Again, the pendulum hopefully will shift but it is difficult to say exactly when that starts to gather pace.
So domestic sales are coming back. The pendulum has started shifting. So can I safely assume that the second half of Bajaj Auto, with both export and domestic businesses coming back on track, will be significantly better or marginally better than the first half?
I would say that the domestic business is definitely showing signs. There is a tailwind in the industry.
Significant or incremental?
I would say not significant. But it would be a good, solid recovery. I am not a great fan of these V-shaped recoveries because the sharper and the steeper the recovery is, there could be a problem. It is better for everyone, for the entire ecosystem, for the dealers, for the vendors, for the company, to see a robust recovery, even if it is a flatter recovery. We are seeing that happen.
When I am saying to you that it is a 3-5% single digit positive, it is a nice recovery to see. The top half of the segment is the higher single digits, 8-9% recovery.
Which is 125 plus?
Which is the 125cc plus. And in that, the kind of line up which we have seen is substantially greater than what our competitors have. So we have a range of products from 125cc to 400cc which are able to satisfy different kinds of customers. The kind of pipeline which we have for addressing this segment is also really rich and flowing. When I put all this together, the tailwind of the industry, the stronger tailwind in the top half, our presence over there, our pipeline over there, I can say that there is reason to be optimistic about the second half in domestic sales. The three-wheeler business has made a very strong comeback as the traffic has come. In the three-wheeler business, our market share has now gone up to 80%.
That is a cash cow for you.
Absolutely, it is a great engine. And it is on the back of great products which are combining very well with the government’s initiative of growing the CNG network. The customer, the three-wheeler driver, the cargo driver are adapting to the CNG-driven products very well and coming in vast numbers to us. So that recovery is very robust for us. Exports have bottomed out. It is not following the same trajectory and pace of recovery as the domestic business, but hopefully, step-by-step, that is also coming back. So yes, incremental to marginally incremental, but domestic is better than exports.
You made an entry into EV. Now legacy players are coming into EV. What are the chances that Bajaj Auto and the other legacy players will end up cannibalizing your ICE engine sales while building the EV portfolio?
First of all, we were one of the first among the larger companies to actually put out an EV scooter in 2019. At a very macro level, let me say at a philosophical level, it is not really up to us to decide whether we will cannibalize or we will not cannibalize. It is really up to the customer. If the customer adopts the EV, then we better be ready. Our mission is to be a leader in two-wheel and three-wheel mobility on a global basis. And to stay true to that mission, whether it is a gasoline-driven vehicle, whether it is a CNG-driven vehicle, whether it is a battery-driven vehicle, we better be on top of these technologies. That is the way we are looking at it.
But if I narrow it down and make it a little bit more transactional, at least in the short term, it opens up a very good opportunity for Bajaj Auto because the transition to EV is first happening in scooters because of the form and because of the space which is there to keep the battery and for various reasons. It is the scooters which are transitioning to electric powertrains. This is an area which we have not been in India.
In ASEAN, which after India and China, is the largest two-wheeler market, it is entirely step-throughs and scooters, which we have never been able to participate in. As that also transitions to electric, it opens up an opportunity for us. So I would say that there is a tremendous new business opportunity coming to us. Now, if I look at the three-wheeler market as purely three wheels, actually the auto has now shrunk to only 50%. Almost 50% is the e-rick, which are these very light vehicles, which have come in from China and other places to plug this huge gap between demand and supply, even while autos were being restricted by governmental action.
We could not access these markets because there was a permit regime. On the other side, there were these cheap and easy imports which were available and less than perfect solutions that were given to customers. Now with the three-wheeler also becoming EVs, that whole door opens up to us and we will go back to our customers, who took those vehicles out of necessity because auto was not available to them.
We have a lot of evidence that people who have used an e-rick for a couple of years, when they hear about an e-auto coming, they are very open to making that change because it is a more substantial and safer vehicle. It is more durable and comfortable. There is value. A lot of the commercial drivers are very focused on the resale value and stuff like that. So even in three-wheelers, there is a vast opportunity which is opening up.
