Bajaj Auto Ltd Swot
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1 Indian Automobile Industry
The automobile industry in India is one of the largest in the world and one of the fastest growing globally. India’s passenger car and commercial vehicle manufacturing industry is sixth largest in the world. It is the second fastest growing automobile market in the world. According to the Society of Indian Automobile Manufacturers annual vehicle sales are projected to increase to 5 million by 2015 and more than 9 million by 2020. Automobile industry in India has huge potentials thanks to the growth of the middle class along with their overall economic growth. This is the reason of attraction for international brands who are trying hard to find new market for their products due to stagnated growth of auto sector in Europe, US and Japan. 1.1 PESTEL Analysis of the Indian Automobile Industry
At present 100% foreign direct investment is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is also allowed under automatic route in this sector. Automatic approval for foreign equity investment up to 100% of manufacture of automobiles and components is permitted. The automobile industry is delicensed.
Import of components is freely allowed.
In order to enforce compliance and energy conservation act, the government has recently given its nod to fuel mileage standards and labelling for new cars. SIAM is working on a voluntary recall policy that is in favour of auto manufacturers. On a similar note, government is in the process of constituting a national automotive board which would become a formal setup to look into the issue of recall of vehicles and hence improve manufacturing standards. No special tax on diesel cars.
General excise duty for automobiles has been hiked by 2% from 10% to 12% which will increase prices of small cars, two wheelers, etc. 1.1.2 Economical:
Inflation always has a negative impact on the industry. The industry comes to a standstill when there is an inflation in the market. The sales decrease because of the rise in prices of the vehicles. The prices of the vehicles have to be increased to meet the increase in price of the raw materials required for manufacturing. Higher interest rates have a negative impact on the industry. Higher interest rates means that it costs more for consumers to borrow money for auto loans. Therefore the demand decreases and hence the sales decrease. Inflation and high interest rates also dampens the economic growth. Therefore to obtain high economic growth and to increase the sales the inflation should be controlled and the interest rates should be kept low.
People across all age groups buy personal vehicles.
Rising per capita income, rising working population and middle class urbanization have all contributed to the growth of this industry. People are more inclined towards buying personal vehicles to maintain their status quo. People realize that during an emergency a personal vehicle will be more useful rather than relying on public modes of transport. 1.1.4 Technological:
Spending on R&D in India has increased over the last few years. Cost advantage India offers makes more players likely to scale up R&D outsourcing to India Role of IT is increasing in this industry. They are developing solutions for the automobile industry. The increasing environmental pollution is a concern for manufacturers and all associated with the industry. Some of the initiatives to reduce emission include introduction of fuel efficient cars, electric and hybrid cars. 1.1.5 Environmental:
Physical infrastructure such as roads and bridges affect the use of automobiles. If there is good availability of roads or the roads are smoothen it will affect the use of automobiles. Physical conditions like environmental situation affect the use of automobiles. If the environment is pleasant then it will lead to more use of vehicles. Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability. With the entry of global companies into the Indian market, advanced technologies, both in product and production process have developed. 1.1.6 Legal:
Legal provision relating to environmental population by automobiles. Legal provisions relating to safety measures.
Confirms the government’s intention on harmonizing the regulatory standards with the rest of the world Indian government auto policy aimed at promoting an integrated, phased and conductive growth of the Indian automobile industry. Establish an international hub for manufacturing small, affordable passenger cars as well as tractor and two wheelers. Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry
2 Bajaj Auto LTD: Company Overview
Bajaj Auto is the flagship of the Bajaj group of companies. It is a manufacturer of two-wheelers and three- wheelers in India. The company manufactures and markets scooters, motorcycles, passenger carriers and goods carriers. It also trades spare parts and accessories. The company operates in several countries in Latin America, Africa, Middle East, South and South East Asia. The company operates through two business segments: automotive and investment. Through its automotive segment, the company focuses on two-wheelers and three-wheelers. In two-wheelers, the company manufactures motorcycles and scooters. Bajaj Auto classifies motorcycles into three segments: entry segment, executive segment, and performance segment. The company manufactures motorcycles such as the Pulsar range (135 cc, 150 cc, 180 cc, 200 cc, and 220 cc), the 220 cc Avenger DTS-i (Digital Twin Spark- ignition) and a 250 cc Kawasaki Ninja 250R and the 650cc Kawasaki Ninja 650R (in collaboration with Kawasaki Heavy Industries).
Under the executive segment, the company manufactures 125 cc motorcycles including Discover DTS-I (150cc, 125cc and 100cc); and under the entry level segment it offers the 100 cc Platina motorcycles. In addition, Bajaj Auto manufactures scooters under the brand, Kristal. The company has three manufacturing plants in India including Pantnagar in Uttarakhand (manufactures Platina, Discover and Boxer); Chakan in Pune (Pulsar, Avenger, Ninja and KTM); and Waluj in Aurangabad (manufactures Boxer, Platina, Discover and three-wheelers). In three-wheelers, Bajaj Auto manufactures goods carrier and passenger carrier three-wheelers. The company manufactures a range of passenger carriers which include: 2-stroke (2S), 4-stroke (4S), 4S compressed natural gas type, 4S liquefied petroleum gas type and 4S diesel type vehicles. The company’s goods carrier brands include GC Max Diesel, GC Max CNG and RE 600. Its passenger carrier brands include Mega Max, RE 25, RE 45, RE Diesel and RE GDI.
In FY2012, the company sold approximately 4,349,560 vehicles worldwide, of which 3,834,405 were two wheelers and 515,155 three wheelers. During the same year, the company exported a total of 1,579,824 units, including 1,267,648 units of two wheelers and 312,176 units of three wheelers. The company has a technical tie-up with Kawasaki Heavy Industries, Japan to produce a range of two-wheelers in India. Since the tie-up, Bajaj Auto launched KB100, KB RTZ, KB125, and 4S, 4S Champion, Boxer, Caliber, Caliber115, Wind125 and Kawasaki Bajaj Eliminator. Recently, the company launched Ninja 250R and Ninja 650R. Through the investments segment, the company invests in Bajaj Auto International Holdings (BAIH), a 100% Netherlands based subsidiary, and PT Bajaj Indonesia which assembles and markets Pulsars in Indonesia. Through BAIH, Bajaj Auto has a 47.18% equity share in KTM Power Sports (KTM) in Austria, Europe’s second largest sport motorcycle manufacture.
3 SWOT Analysis of Bajaj Auto Ltd.
Bajaj Auto is an India-based manufacturer and marketer of two and three wheeled vehicles which include scooters, motorcycles, passenger carriers and goods carriers. The company is the world’s third largest two wheeler manufacturer. Strong market share provides significant competitive advantage and increases the company’s bargaining power, which in turn helps it to register higher sales growth and strengthen investor’s confidence. However, working in a competitive environment exerts a continued pressure on the operations of the company, which may result in downward pricing pressure thereby adversely impacting Bajaj Auto’s market share and results of operations. Strengths
Strong market share
Robust brand recognition
Vehicle recalls impacting the company’s reputation
Labour dispute affecting production
Growing two wheeler market in India
Launch of new vehicles expands the company’s product portfolio Intense competition in the two wheeler market
Increasing interest rates
Extensive environmental regulations
3.1 Bajaj Auto Limited: Strengths
3.1.1 Strong market share
Bajaj Auto is the world’s third largest two wheeler manufacturer and the second largest two wheeler manufacturer in India. The company has a strong market share in India. In FY2012, Bajaj Auto had a market share of 32.1% in the domestic motorcycle sales and exports. The company dominates the performance segment, which is strongly contested by every major two wheeler company with a large number of models vying for market share. Bajaj Auto sold 716,267 motorcycles in this segment in FY2012, with a market share of 44%. The company’s key brand in this segment, Pulsar, is the only brand in the performance segment whose cumulative sales have crossed the five million mark. Moreover, the company sold 8,500 KTM Duke 200 motorcycles in 2012, making it the largest selling premium motorcycle brand in India. Additionally, Bajaj Auto is a leading three-wheeler player from India, accounting for 58.8% of total sales among all Indian manufacturers of three-wheelers.
Further, Bajaj Auto is India’s largest exporter of two and three-wheelers with presence in over 50 countries around the globe. It enjoys a dominant presence in Africa, Latin America and South Asia. The company is a market leader in motorcycles in Colombia, Central America, Sri Lanka, Bangladesh, Philippines, Nigeria, Uganda and Kenya. During FY2012, the company’s exports accounted 35% of its net revenues. Thus, a strong market share provides significant competitive advantage and increases the company’s bargaining power, which in turn helps it to register higher sales growth and strengthen investor’s confidence. 3.1.2 Robust brand recognition
The company manufactures and markets scooters, motorcycles, passenger carriers and goods carriers. It focuses on motorcycles in the two-wheeler and three-wheeler segment. The company has well established brands in each of these vehicle segments. Bajaj Auto manufactures motorcycles such as the Pulsar range (150 cc, 135 cc, 180 cc, 200 cc, and 220 cc), the 220 cc Avenger DTS-i (Digital Twin Spark-ignition) and a 250 cc Kawasaki Ninja 250R and the 650cc Kawasaki Ninja 650R (in collaboration with Kawasaki Heavy Industries) under the performance segment. Additionally, the company builds the bike under license from Austrian motorcycle maker, KTM Power Sports, in which its holds a 47.18% stake. Under the executive segment, the company manufactures 125 cc motorcycles including Discover DTS-I (150cc, 125cc and 100cc); and under the entry level segment, the 100 cc Platina motorcycles.
In addition, Bajaj Auto manufactures scooters under the brand, Kristal. Moreover, its adoption of a brand-centric strategy, focusing on the differentiation and positioning of the Discover and Pulsar brands has reflected on the company’s robust volumes. The repositioning of its brands has helped the company cater to the segment between executive and premium bikes and also the entry and executive bikes. Moreover, through Discover and Pulsar, Bajaj Auto has successfully transited from the low profit Commuter STD segment to higher profit segments including the Commuter DLX and Sports.
The three-wheelers segment manufactures goods carrier and passenger carrier three-wheelers. Bajaj Auto manufactures a range of passenger carriers which include: 2-stroke (2S), 4-stroke (4S), 4S compressed natural gas type, 4S liquefied petroleum gas type and 4S diesel type. Therefore, the company’s extensive range of products and well established brands covering the diverse spectrum of the automotive market enables it to cater to a wide range of customers and price points that further strengthens its reach and market position. 3.2 Bajaj Auto Limited: Weaknesses
3.2.1 Vehicle recalls impacting the company’s reputation
The company announced a number of safety recalls recently. For instance, in March 2012, Bajaj Auto recalled a certain number of its Pulsar 220cc DTS-I motorcycles. The recall was due to a problem with the starter motor that can lead to starting problems. The company recalled only those that are believed to be carrying the potentially faulty part and not all Pulsar 220 units. Hence, significant product recalls such as these would negatively impact the consumer confidence in Bajaj Auto’s products which would negatively influence the company’s brand image. 3.2.2 Labour dispute affecting production
The company has been involved in a conflict over wage and labour issues and it has been suffering low bargaining power due to existence of collective bargaining agreements and labour unions. On June 4, 2012, Bajaj Auto’s two-wheeler plant in Pantnagar, Uttarakhand, was affected by a workers’ strike, bringing production down by over 50% for the day. Around 1,200 workers at the company’s Pantnagar plant, agitating over salary hike, decided to go slow on production until their discussions with the management and the owners come to a satisfactory conclusion. The workers were demanding for a pay increase of INR 8,000 a month, but the company agreed for an INR1, 500 hike. Therefore, such labour issues disrupt operations which can hinder the reputation of Bajaj Auto. Further, strikes such as these in the near future would have an adverse impact on the company’s overall production output and its revenues. 3.3 Bajaj Auto Limited: Opportunities
3.3.1 Growing two wheeler market in India
The Indian two wheeler market has witnessed a strong growth in the recent past and the trend is likely to continue in the future. This was primarily due to the government stimulus packages, better demand and lower loan interest rates. According to industry estimates, the overall two wheeler industry sales increased by 16% from 13.3 million units in FY2011 to 15.4 million units in FY2012. This growth was mainly propelled by impressive strong 26% growth in scooters from 2.1 million units to 2.7 million units and 14% growth in motorcycles, from 10.5 million units to 11.9 million units. Scooters as a category continued to gain share from motorcycles in the total two wheeler industry. Mopeds registered a growth of 12% growing from 0.7 million units to 0.8 million units. In the motorcycle category, growth was mainly propelled by 24% growth in economy segment.
The executive segment contributing to 60% of the volumes, grew by 12% while growth in premium segment remained at 5%. This encouraging trend in the industry has also made India the second fastest growing market in the world following China. Bajaj Auto is a leading manufacturer of two wheelers, which enjoys a 32.1% market share in the domestic motorcycle sales and exports. Hence, the growing demand for two wheelers represents an opportunity for the company to further capitalize on this market and expand its revenues and profits. 3.3.2 Launch of new vehicles expands the company’s product portfolio It is vital for any automotive company adopting new technology and launching new models as per the customer requirement in order to survive and compete with other market players in a highly competitive automobile market. For instance, in February 2013, Bajaj Auto launched the 100 cc Discover 100T bike, featuring the company’s patented 4-valve DTS-i technology.
The new bike delivers a 10.2 PS (horsepower), which is 30% more than other 100cc motorcycles. Similarly, the company launched an upgraded version of its 650-cc sports bike, Kawasaki Ninja, in August 2012. The latest version follows the launch of the Ninja 650R introduced in June 2011. Further, Bajaj Auto launched the ‘Discover 125 ST”, in May 2012. Powered by the company’s patented ‘DTS-iTwin Spark’ technology, for the first time in this category, the engine is designed with 4 valves. The bike delivers a record 13 PS of power, highest in the 125cc category. Thus, launching of new and innovative models of vehicles and technologies would allow the company to strengthen its portfolio of two wheeler vehicles by attracting new customers, while retaining its existing customers. 3.4 Bajaj Auto Limited: Threats
3.4.1 Intense competition in the two wheeler market
The two wheeler market in India is highly competitive with fuel efficiency and price being crucial considerations for success. In the Indian two wheeler market, competition is stiff with around 10 players (including Bajaj Auto) competing for significant market shares. The players include global giants like Honda, Suzuki and Yamaha as well as Indian players like Hero Motocorp and TVS Motor. The increasing preference for Japanese brands has led to a marked change in the two-wheeler market in India, with domestic companies facing fierce competition from their multinational counterparts. Currently, every fourth two-wheeler sold in India is manufactured by Honda, Suzuki or Yamaha.
As of November 2012, the combined market share of these companies rose to about 25%, as compared to 15% in the last five years. In the next few years, competition for domestic brands is expected to intensify further, with foreign brands set to launch many products in every sub-segment of the motorcycle and scooter categories. Growth in number of products in the market increases the bargaining power of the customer. Competition is expected to intensify with the focus on technology and price. The extent of pricing reductions varies from year to year, and takes the form of reductions in direct sales prices. Therefore, working in such a competitive environment exerts a continued pressure on the operations of the company, which may result in downward pricing pressure thereby adversely impacting its market share and results of operations. 3.4.2 Increasing interest rates
The bank interest rates in India have been consistently growing from the past few years. The interest rate decisions are taken by the Reserve Bank of India’s Central Board of Directors. From 2000 to 2013, India’s average interest rate was 6.55% reaching an historical high of 14.5% in August 2000 and a record low of 4.25% in April 2009. Moreover, India’s benchmark policy rate that determines the interest rate is currently at 7.5%, whereas China’s rate stands at 6.56%, the US have its benchmark interest rate at 0.25%, the UK at 0.50% and Euro area has approximately 1%. Increasing interest rates tends to influence the consumers’ decision making in buying vehicles as they tend to purchase vehicles at lower interest rates. Hence, a consistent increase in the bank interest rates in India would negatively influence the growth in Indian automobile sales which in turn would impact the company’s vehicle sales. 3.4.3 Extensive environmental regulations
The company is subjected to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by its production facilities. These regulations are likely to become more stringent in the near future. The emission norms that are in force for two-wheelers and three- wheelers are more stringent than the Euro II norms. India implemented the Bharat Stage (BS) 2 norms throughout the country in 2005 and BS 3 norms from October 2010, which are more stringent than the previous norms. BS emissions standards regulate the output of air pollutants, such as nitrogen oxides (NOx), carbon monoxide (CO), hydrocarbons (HC), particulate matter (PM), soot, and, sulfur oxides (SOx), by motor vehicles and other equipment. Hence, more stringent vehicle emission regulations in the future may lead to significant compliance costs for Bajaj Auto, which may have an adverse impact on the profitability. 4 Competitor Analysis: Bajaj Auto vs. Hero Motocorp:
Market Share: The market share of Hero MotoCorp last year was 56% while that of Bajaj Auto was 25.6%. Volume Growth: Hero MotoCorp had a volume growth of 16.5% last year while Bajaj Auto had a volume growth of 7.4%. Operating Profit Margin: The operating profit margin of Bajaj Auto is 18% while Hero MotoCorp has operating profit margin of 11-12% Strategic Alliances: Hero has broken its partnership with Honda but it has teamed up with the world’s largest privately owned engine developer, AVL of Austria, to develop technology for its 100 cc and 110 cc models – the Splender Range and the Passion. It has also signed a technology sharing deal with US motorcycle firm Erik Buell racing. On the other hand Bajaj Auto is counting on its five year alliance with KTM of Austria to crack open new markets and produce higher end products. Price Segments: KTM and Pulsar make Bajaj Auto a powerhouse in the 60000 plus bike segment. But in the 45000-50000 price band, Hero dominates.
Even in the 40000-45000 price range Hero reigns supreme. Distribution Network: Over the years, Hero MotoCorp has built its distribution network of 700 dealers and 3700 service centres. More than 2000 rural channel partners work on the rural vertical through the ‘har gaon har aangan’ program. Over the past four years, its distribution network has grown nearly 2x compared to peers. The distribution network is fairly spread across the rural and semi urban areas. On the other hand Bajaj Auto has a distribution network of 485 dealers and over 1600 authorized service centres. It has 171 exclusive dealers for the three wheeler segment and has total 3750 rural outlets in rural areas. 5 Bajaj Auto Ltd. Strategy to gain competitive Advantage:
Various strategies employed by the company to improve business over the past two years: Bajaj Auto formed an alliance with Renault-Nissan to manufacture a low emission and high fuel efficiency car. The car named RE-60 was unveiled in January, 2012. It is an effort to challenge Tata’s Nano car. Bajaj Auto acquired a 38% stake in Austrian bike maker KTM power sports and introduced products from its range in the Indian market. The first product was the Duke 125 cc. Bajaj Auto has a 98.9% stake in PT Bajaj Indonesia. It is a subsidiary of Bajaj Auto. It assembles and markets pulsars in Indonesia.