When Royal Enfield makes scooters, then we will too: Rajiv Bajaj's statement & what he meant

When Royal Enfield makes scooters, then we will too: Rajiv Bajaj’s statement & what he meant

At Bajaj Auto’s Annual General Meeting, shareholders were clamouring for the brand to go back to the scooter market, and restore some sort of nostalgic pride in the brand that once dominated the segment with the Chetak and Super scooters. The motorcycle manufacturer’s managing director Rajiv Bajaj’s response to what Moneycontrol claims is an annual clamouring for scooters was simple – that the motorcycle market is bigger and more profitable than the scooter market.

bajaj pulsar

He gave the example of rival Royal Enfield that concentrates on bikes, and stated that he would build scooters again, when Royal Enfield decides to jump into the game.

Bajaj in his reply to shareholders said,

I can assure you for any company, especially for us, to participate in every single segment. Best example of that is that of my friend Siddharth Lal (CEO Eicher Motors, the owners of Royal Enfield. He participates in almost no market and his company does very well in because it stays within its given niche of making a Royal Enfield as Royal Enfield should be.

So I have only one request. Before you ask me again next year to make scooters can you please ask Siddharth Lal to make scooters? If he makes scooters I promise you I will also make scooters. Siddharth Lal makes 29% EBIDTA margin, perhaps even more because he does not make scooters.

So by taking the example of Royal Enfield is Rajiv Bajaj talking sense or just trying to keep shareholders at bay? The answer is very simple and straightforward; Mr Bajaj statement makes sense and is based on facts.

Bajaj Scooter Featured 1

To understand his statement to shareholders, lets’ take a look at the following points.

  1. Motorcycle sales are rising again and the segment is bigger than the scooter segment – In the first four months of the financial year 2018-19, the Indian two-wheeler market has seen motorcycles exit showrooms at nearly double the rate of scooters making their way onto Indian roads thanks to a slew of new launches and increasing demand in rural areas. In the first four months of the financial year, as per SIAM, 4.8 million motorcycles hit Indian roads compared to 2.41 million scooters.
  2. Profitability – Bajaj’s ultimate aim like any other company is to be profitable. The scooter market is dominated by one name – Honda Activa and is very price-focused. Multiple segments in the motorcycle market, especially the ones with bikes with higher displacement engines allow bike manufacturers to make a better margin of profit for every unit sold, which is exactly what Royal Enfield does. By sticking to profitable bikes like the Pulsar series and its commuter bikes, and with plans to make bikes with engines over 400-cc, Bajaj is sticking to segments that allow it to pull in the cash. With partners like KTM and now Triumph working with them, Bajaj is able to keep costs of developing these bikes to a more manageable level ensuring good returns and profits. The same can be said for Royal Enfield, who only make bikes that appeal to their customers and are more profitable to build.
  3. Playing to their Strengths – Bajaj has been going from strength to strength with its bikes, especially the Pulsar and its low-capacity commuter bikes, all of which sold in higher numbers year-on-year (YOY), for the month of June with the CT100 and Pulsar 150 leading the way with 168% and 119% YOY growth, respectively. By playing to its strengths and building profitable bikes, like RE does with the Bullet, and by keeping clear of the smaller scooter segment, Bajaj avoids having to deal with Honda’s ravaging Activa, which sold more units compared to the combined sales of the next 9 scooters in the top 10 for sales in June 2018.