Honda is a company I greatly admire. Our goal as Bajaj has been to have a unique business model, the world's most versatile motorcycle maker. We never said to ourselves we'll be the biggest motorcycle maker or the most profitable motorcycle maker. Rahul Bajaj told me with a twinkle in his eye, and his happiness was, 'My son bested me.' 'Do what you think best, but be the best in what you do.' We are surprised in the last 12 months by the kind of growth UP has demonstrated. Indian two-wheeler safety regulations are actually ahead of Europe.
What's TVS getting right?
This you must ask my good friend Sudharshan. Brands do not travel inter-segment. Bajaj is actually a 21 or 22% EBITDA company. In a matter of weeks, the entire Indian EV industry will grind to a halt. All Chetak dealerships would have to shut down. You may be surprised to know that I do not own a suit. I simply don't own one. And my uncles have always lived in his shadow. He said, 'I don't want to start another company. I don't want another board. I don't want another six board meetings.' I wish I could cook. I can't sing, but I wish I could dance a little bit, which I can't.
The one sector that has contributed the maximum to India's manufacturing sector is actually the auto sector. It accounts for 49% of India's manufacturing. And to the credit of the two-wheeler and four-wheeler industry, from the word go they indigenized the entire ecosystem, and both the final product and the ancillaries are all globally competitive.
Today in our Moneycontrol series Lata and the Leaders, I have with me one person who has kind of seen it all, enabled a better part of it, and more importantly whose innings in the auto sector more or less corresponds to mine in journalism. I have with me the delightfully intelligent Managing Director and CEO of Bajaj Auto, Rajiv Bajaj. Rajiv, thank you very much for your time.
Thank you, Lata. It's a pleasure.
Purpose of this show is really to look for lessons in our respective areas and to see whether we are better able to understand the future that will be on us. But in this case I'm going to start with the future. First of all, congratulations. Your new term, five-year term of MD and CEO has just been sanctioned by shareholders.
Okay, if you say so. It's an ordeal you're enjoying. But anyway, what is the goal for the next five years?
You know, my goal remains the same as it has been for the last 30 years. I'll tell you something I heard at the Tokyo Motor Show in 2001. Elizabeth Moskanter was the anchor and she was asking a Honda CEO basically why would Honda exist. Honda is a company I greatly admire, and I will never forget what he said. He said Honda will exist because society will want Honda to exist. So the way I see our task, my job is simply this: we have to give people a reason to permit us to be around. In marketing terms, that's called differentiation or having a unique selling proposition. And to that objective, our goal as Bajaj has been to have a unique business model of being the world's most versatile motorcycle maker. We never said to ourselves we'll be the biggest or the most profitable or the best motorcycle maker, whatever that means. We said the most versatile. This has implications for markets. For example, we are a market leader in Africa, selling motorcycles for as little as $500 and trying to make money on them. And we are also a participant in the high-performance markets of Europe, selling a 7,000 euro motorcycle and making a lot of money out of that. So whether it's your choice of markets, your brands, your brand architecture, your product platforms, the modularity in production, and the skills of your people, all of these are directly influenced by your choice of strategy. My job, as I have understood it, has been to enable Bajaj to be the most versatile motorcycle maker in the world, and I think to a large extent we've been able to achieve that.
Definitely, you're present in perhaps the entire range of price points and product categories. But now when you look at the next five years, will Pulsar continue to be your bread and butter, your 150cc? Or will it shift to the 400cc? Will it shift to EV? What do you think will be your best horses?
Well, you know, sometimes people ask me when you look back on 35 years at Bajaj, how do you see it? I say Bajaj has been through two and a half transitions. The first big transition was from a scooter company to a motorcycle company. Today motorcycles are the majority of what we do, at the center of our strategy. And it wasn't just scooters to motorcycles — it was 1960s scooters to this century's motorcycles, a huge shift in technology. The second big shift is from being a domestic company — when I joined, 100% of what we made was sold here — to now being present in exactly 100 countries, understanding each market because every market is different. The reason I say two and a half is because now we are in the middle of the third transition, from ICE to EVs. That's why when there was all this noise about whether legacy makers will make it or whether it'll be only the startups' prerogative — who I refer to as upstarts — my point was it's not about one thing or another. It's about a company demonstrating what Charles Darwin said: it's not the strongest or the most intelligent of a species that survives. It's the one that is most adaptive to change. I think this company has demonstrated repeatedly that it can adapt to significant changes. The short answer is: it doesn't matter whether people move from scooters to motorcycles or back, from 100cc bikes to bigger ones or back, from ICE to EV or back. We'll adapt.
That's really a great strategy, and you've taken away my pet question. I actually started this series with Kamath, and I told him that my next guest is going to be Rajiv Bajaj, and he said, 'Oh, you should ask him about his father.' Rahul Bajaj told me with a twinkle in his eye, 'I was very angry with Rajiv. I didn't want the transition from scooters. Apparently you all disagreed violently,' and his happiness was, 'My son bested me.' He said that with pride. So the lesson is that you're going to always remain nimble, adaptable. Is that the big lesson of the 30 years?
Yes, I think so. Again, if I have to lean on Soichiro Honda, the founder of Honda Motor Company — Honda said it is not the manufacturer, it is the customer that develops the market. I see this very vividly in Africa. Whether markets will remain small or grow big, whether they will want the cheapest stuff or quality stuff — who determines this? It is not a manufacturer's policy. It is what the consumer is willing to absorb. As Rumi said, 'You don't sow; the earth receives.' It was not up to my father or me. We can only respond to the reality of the marketplace. I have great respect for Mr. Kamat, but I would say this: in 1993, three years after I joined the company, I think my father really gave me purpose and direction. I went to him — everything was fine at Bajaj, there was no crisis, and I didn't know how to make myself useful. So I said, 'What do you want me to do here?' Of course he wanted me to go to Harvard Business School, and I'm the only one in my family that never went to business school, but that's a different story. He said, 'I will say to you what my father said to me: Do what you think best, but be the best in what you do.' I thought that's nice, but what does it mean? Then I thought what he probably means by being the best is to be a global player — be the best in the world in whatever you choose to do, and not just in one market. I realized the value of my favorite marketing mantra from Al Ries: narrow your focus. If you're doing sport in India, you can excel in half a dozen sports, but to be a world champion you have to narrow your focus. That's where the seeds of Bajaj becoming a motorcycle company were sown. We asked ourselves, if we want to be the best in the world, where is the biggest opportunity? And it was motorcycles. People often say, 'Were you not anxious putting everything behind one thing?' I say focus and fragmentation are two sides of the same coin. A lot of people, in trying to make a virtue out of indecisiveness, say they are de-risking by doing multiple things. But you end up spreading yourself thin. So I would say to Kamat sir that my father gave me purpose and direction with that one sentence, and that got me going on the path for the last 30 years.
But you are also diversified to some extent. Anyway, let me come back to the current market. The two-wheeler industry had a bad 2019 to 2022. Just before COVID and through COVID, there was a degrowth, a contraction, but you more than made up — I think it was over 15% CAGR in the next three years. Some would say it is the slack you were filling, but there was growth. The economy also grew 7%, 8%, 9%. How is it looking now?
I would say, Lata, it's a mixed bag. I think we witnessed something of a K-shaped recovery, undoubtedly. And the texture of this has changed every few months. For example, at the entry level there was stress — the so-called 100cc customer — whereas people buying the mid-segment or the premium segments were less affected by COVID. More recently, we are seeing urban versus rural — more stress in urban. We are also seeing a north versus south situation where today we are surprised by the kind of growth UP has demonstrated in two-wheelers. I hear stories about the wonderful roads, the great security situation, ladies riding in greater numbers. It's anecdotal — I have never been to UP — but these are the signals from the marketplace. Having said that, the industry is barely back to pre-COVID levels quantitatively. We have recovered, but growth has to still come. Qualitatively, things are much better.
One of our reporters did a microfinance survey and she said there were problems at the bottom, but roads in UP were outstanding. Maharashtra is the other end of the spectrum, especially Pune — the worst roads in the country. You're telling someone from Bombay that you're much better off now. Well, let's see, that's another issue — we have a lot of angst. But to come back to the products, do you think premiumization will be a very big theme? You spoke about the K-shaped recovery and we can see hotels and jewelry doing much better than FMCGs. Do you think premiumization will be one big choice you will make? After all, you've entered 400cc.
I'll give you a somewhat indirect, longer answer. What is the reason for the success of the Indian two-wheeler industry? It is not the success of Bajaj alone. Look at TVS, both domestically and globally. Look at Royal Enfield. To me there are three fundamental factors. First, we have to be grateful — we are blessed to be born in the biggest two-wheeler market of the world. Scale can be everything. That is our first good fortune. The second is that successive governments have ensured a reasonably high level of regulation. Today Indian emission regulation is on par with the best in Europe. This has pushed all of us since 1991 to develop technology to be the best in the world. What we sell here sells in Europe and everywhere else. Similarly, in terms of safety, a 13-horsepower motorcycle in India needs ABS brakes even though it's not required in Europe. Indian two-wheeler safety regulations are actually ahead of Europe. If governments had not continuously evolved regulations, this industry would have got commoditized. The greatest risk for a business is creeping commoditization. And the third and most important factor is the consumer. The Indian consumer is not interested in something that is just cheap, purely functional, or a clone. If there's a market leader and I simply make a copy for 10% less, the consumer is not interested. In every segment — motorcycles, scooters, three-wheelers — the brand that offers the best value is the leader. The consumer is shaping the segment. These are the underlying strengths of this market. But I'd like to stay away from the cliché term 'premiumization.' I like to stick with the age-old word: differentiation. Premiumization is a result of a manufacturer's endeavor to differentiate — by technology, brand, product, distribution, or consumer initiatives. Royal Enfield is best known for consumer experience. These are all the levers of differentiation. I like to keep it simple for my people and say we need to differentiate.
The word premiumization also came because of that K-shaped recovery — people with money, so premiums sold better than mass. Let me just, since you repeatedly refer to your competition, TVS and Royal Enfield — what's TVS getting right? They have taken market share both domestically and in exports. Hero has declined and so have you all by a few percentage points. What are they getting right?
This you must ask my good friend Sudharshan. But I have always been an admirer of TVS for the last 30, 35 years. I know this may sound a little condescending, but I think just as we got strategy, technology, product quality, productivity, distribution all right, I think they're doing the same and grabbing share. For us, the focus is the 125cc-plus motorcycle market, where we are able to hold our own. We are number two domestically behind Honda. TVS is not in the top two there. In the premium segment, the Royal Enfield segment, we are close number two with Yamaha. Royal Enfield is way ahead; TVS is not really on the radar there. With scooters, we don't participate and TVS has done extraordinarily well. But with electric scooters, it's neck-to-neck between Chetak and the iQube. I honestly don't care who's first, as long as it's between Bajaj and TVS. We've kind of ganged up against the Olas.
You keep admiring Honda, but Honda is still — I mean, the old Hero Honda, but now Hero — still one of the bigger competitors.
For me, the competition is really in India TVS and Royal Enfield. Outside of India, Honda and Yamaha. These are the people we have to watch out for. Of course we respect everyone, but that's my core competitive set.
How do you all manage this 20% margin? You sell quality bikes at a very affordable price, from 35,000 or 50,000 rupees in India and $500 abroad, but you still hold that 20%. Do you look at margins first and then volume?
No, margins are always a consequence. The answer is quite simple, in two parts. First, most companies don't achieve this margin because of things they do which they should not be doing. In every company there is the 20% EBITDA product, but then management crosses the boundaries of the brand. I'll be very candid: if Maruti were only a small car maker, its EBITDA would be higher than if they tried to develop bigger cars, because consumers don't necessarily want a bigger car with an M on the bonnet. Hero is very successful with small motorcycles, not necessarily with big ones. Bajaj is relatively successful with big motorcycles, not necessarily with small ones. Every brand has its place. That's why I say my go-to-market strategy starts with go-to-brand. If you want to participate in a different segment, you have to go with a different brand. Brands do not travel inter-segment. If Bajaj had been participating in ICE scooters or mopeds, we would not have a 20% EBITDA. The second point is that Bajaj is actually a 21 or 22% EBITDA company. Mark Twain said, 'Don't let your schooling interfere with your education.' We say similarly: don't let your business interfere with your entrepreneurship. The reason we are at 20 and not 21 or 22 is because there is always a 1 or 2% experimentation going on. Sometimes that's invested in creating a new market in Africa, sometimes in EVs, sometimes in bringing KTM and Triumph to this country. There is always a startup within the legacy company. So it may appear that we've invested so much in EVs — it's no secret that EVs aren't yet really profitable — but that buffer was always there, applied somewhere else, and now it's been brought into play here.
Okay. Give me a headline. What is the growth number you're prepared for over the next five years? Will it be like GDP, 6%, 7%? What is your working number?
That's very hard to say, because as a global company it is the sum of what happens across markets. If we rely on the past, it would be in that region. But if there is any discontinuity — for example, three-wheelers. Bajaj is a world leader in three-wheelers. We export almost half of what we make. Three-wheelers are a space where electric is extremely relevant. We introduced our electric three-wheeler only last May, several years after the market leader, but yesterday my colleagues informed me we are now the market leader in the electric three-wheeler space. If this triggers state governments to encourage replacing old ICE vehicles with electric, the demand profile will completely change. Also, by next quarter, we are hoping to enter the E-Rickshaw segment, which is almost as big as the E-Auto segment. I can give you a cryptic headline: we are working on a very interesting global partnership opportunity with a very interesting company and brand. If that materializes, it will give Bajaj a new growth avenue, always adjacent to our core space but a significant extension. If Bajaj does some smart stuff, we can outgrow the market growth, and that would be our hope.
Let's come back to the situation we are in now. The tariff war — we may have narrower markets to pay for access to US markets. But does it affect your industry at all? Does it affect you all?
