Ajay Final

7/31/2019 Ajay Final

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A PROJECT REPORT

ON

STRATEGIC ANALYSIS OF

BAJAJ AUTO LTD

Submitted by

Ajay Kr.Singh

20004(TPS-A)


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INTRODUCTION :

Bajaj Auto Limited is India's largest manufacturer of scooters and motorcycles. The

company generally has lagged behind its Japanese rivals in technology, but has invested heavilyto catch up. Its strong suit is high-volume production; it is the lowest-cost scooter maker in theworld. Although publicly owned, the company has been controlled by the Bajaj familysince its founding.

Origins

The Bajaj Group was formed in the first days of India's independence from Britain. Its founder,Jamnalal Bajaj, had been a follower of Mahatma Gandhi, who reportedly referred to him as afifth son. 'Whenever I spoke of wealthy men becoming the trustees of their wealth for thecommon good I always had this merchant prince principally in mind,' said the Mahatma after

Jamnalal's death.

Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in 1942. Kamalnayan,however, was preoccupied with India's struggle for independence. After this was achieved, in1947, Kamalnayan consolidated and diversified the group, branching into cement, ayurvedicmedicines, electrical equipment, and appliances, as well as scooters.

The precursor to Bajaj Auto had been formed on November 29, 1945 as M/s Bachraj TradingLtd. It began selling imported two- and three-wheeled vehicles in 1948 and obtained amanufacturing license from the government 11 years later. The next year, 1960, Bajaj Autobecame a public limited company.

Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of Italy. In 1960, atthe age of 22, he became the Indian licensee for the make; Bajaj Auto began producing its firsttwo-wheelers the next year.

Rahul Bajaj became the group's chief executive officer in 1968 after first picking up an MBA atHarvard. He lived next to the factory in Pune, an industrial city three hours' drive from Bombay.The company had an annual turnover of Rs 72 million at the time. By 1970, the company hadproduced 100,000 vehicles. The oil crisis soon drove cars off the roads in favor of two-wheelers,much cheaper to buy and many times more fuel-efficient.

A number of new models were introduced in the 1970s, including the three-wheeler goods carrierand Bajaj Chetak early in the decade and the Bajaj Super and three-wheeled, rear engine


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Autorickshaw in 1976 and 1977. Bajaj Auto produced 100,000 vehicles in the 1976-77 fiscalyear alone.

The technical collaboration agreement with Piaggio of Italy expired in 1977. Afterward, Piaggio,maker of the Vespa brand of scooters, filed patent infringement suits to block Bajaj scooter sales

in the United States, United Kingdom, West Germany, and Hong Kong. Bajaj's scooter exportsplummeted from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million) in 1981-82,although total revenues rose five percent to Rs 1.16 billion. Pretax profits were cut in half, to Rs63 million.

Rahul Kamalnayan Bajaj, 66, has stepped down as managing director of Bajaj Auto passing on

the mantle of the company to his eldest son, Rajiv. Rahul Bajaj will continue as the chairman of

the Bajaj conglomerate. Bajaj Auto is facing increased competition from Honda and Piaggio.

Honda has overtaken Bajaj as India's No.1 scooter maker in the past two years.

New Competition in the 1980s

Japanese and Italian scooter companies began entering the Indian market in the early 1980s.Although some boasted superior technology and flashier brands, Bajaj Auto had built up severaladvantages in the previous decades. Its customers liked the durability of the product and theready availability of maintenance; the company's distributors permeated the country.

The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was immediatelysuccessful, and the company aimed to be able to make 60,000 of them a year by 1985. Capacitywas the most important constraint for the Indian motorcycle industry. Although the country's

total production rose from 262,000 vehicles in 1976 to 600,000 in 1982, companies like rivalLohia Machines had difficulty meeting demand. Bajaj Auto's advance orders for one of its newmini-motorcycles amounted to $57 million. Work on a new plant at Waluj, Aurangabadcommenced in January 1984.

The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the Kawasaki Bajaj KB100motorcycles. The company was making 500,000 vehicles a year at this point.

Although Rahul Bajaj credited much of his company's success with its focus on one type ofproduct, he did attempt to diversify into tractor-trailers. In 1987 his attempt to buy control ofAhsok Leyland failed.

END OF LICENSE RAJ

The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion followed a year later.About this time, the Indian government was initiating a program of market liberalization, doingaway with the old 'license raj' system, which limited the amount of investment any one companycould make in a particular industry.


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It was hoping to increase its exports, which then amounted to just five percent of sales. Thecompany began by shipping a few thousand vehicles a year to neighboring Sri Lanka andBangladesh, but soon was reaching markets in Europe, Latin America, Africa, and West Asia. Itsdomestic market share, barely less than 50 percent, was slowly slipping.

By 1994, Bajaj also was contemplating high-volume, low-cost car manufacture. Several ofBajaj's rivals were looking at this market as well, which was being rapidly liberalized by theIndian government.

Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The company was theworld's fourth largest manufacturer of two-wheelers, behind Japan's Honda, Suzuki, andKawasaki. New models included the Bajaj Classic and the Bajaj Super Excel. Bajaj also signeddevelopment agreements with two Japanese engineering firms, Kubota and Tokyo R & D. Bajaj'smost popular models cost about Rs 20,000. 'You just can't beat a Bajaj,' stated the company'smarketing slogan.

The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in 1997. The nextyear saw the debut of the Kawasaki Bajaj Caliber, the Spirit, and the Legend, India's first four-stroke scooter. The Caliber sold 100,000 units in its first 12 months. Bajaj was planning to buildits third plant at a cost of Rs 4 billion ($111.6 million) to produce two new models, one to bedeveloped in collaboration with Cagiva of Italy.

NEW TOOLS IN THE 1990S

Still, intense competition was beginning to hurt sales at home and abroad during the calendaryear 1997. Bajaj's low-tech, low-cost cycles were not faring as well as its rivals' higher-endofferings, particularly in high-powered motorcycles, since poorer consumers were withstanding

the worst of the recession. The company invested in its new Pune plant in order to introduce newmodels more quickly. The company spent Rs 7.5 billion ($185 million) on advanced, computer-controlled machine tools. It would need new models to comply with the more stringent emissionsstandards slated for 2000. Bajaj began installing Rs 800 catalytic converters to its two-strokescooter models beginning in 1999.

Although its domestic market share continued to slip, falling to 40.5 percent, Bajaj Auto's profitsincreased slightly at the end of the 1997-98 fiscal year. In fact, Rahul Bajaj was able to boast,'My competitors are doing well, but my net profit is still more than the next four biggestcompanies combined.' Hero Honda was perhaps Bajaj's most serious local threat; in fact, in thefall of 1998, Honda Motor of Japan announced that it was withdrawing from this joint venture.

REVAMPING THE DESIGN

Bajaj Auto had quadrupled its product design staff to 500. It also acquired technology from itsforeign partners, such as Kawasaki (motorcycles), Kubota (diesel engines), and Cagiva(scooters). 'Honda's annual spend on R & D is more than my turnover,' noted Ruhal Bajaj. Hisson, Sangiv Bajaj, was working to improve the company's supply chain management. Amarketing executive was lured from TVS Suzuki to help push the new cycles.


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Several new designs and a dozen upgrades of existing scooters came out in 1998 and1999. These, and a surge in consumer confidence, propelled Bajaj to sales records, and itbegan to regain market share in the fast-growing motorcycle segment. Sales of three-wheelersfell as some states, citing traffic and pollution concerns, limited the number of permits issuedfor them.

SHARE IN COMPETITOR

In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65 million.The Italian firm had exited a relationship with entrepreneur Deepak Singhania and waslooking to reenter the Indian market, possibly through acquisition. Piaggio itself had beenmostly bought out by a German investment bank, Deutsche Morgan Grenfell (DMG), whichwas looking to sell some shares after turning the company around. Bajaj attached several

conditions to his purchase of a minority share, including a seat on the board and anexclusive Piaggio distributorship in India.

Employment fell from about 23,000 in 1995-96 (the year Bajaj suffered a two-month strike atits Waluj factory) to 17,000 in 1999-2000. The company planned to lay off another 2,000workers in the short term and another 3,000 in the following three to four years.

Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; BajajElectricalsLtd.; Bajaj Hindustan Ltd.; Maharashtra Scooters Ltd.; MukandLtd.

Principal Competitors: Honda Motor Co., Ltd.; Suzuki Motor Corporation; PiaggioSpA.


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STRA TEG IC ANALYSIS

a) Vision mission and values

b)Logo

c) SWOT Analysis

d)Porters five Forces Model Analysis

e) Managerial style

f) Business strategies

g) Other strategic issues


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VISION MISSION AND VALUES

Bajaj doesn't have a straight vision or mission statement. They define it in terms of brand

identity, brand essence (derived from mission) and brand values.

Our Brand Identity

Our Brand is the visual expression of our thoughts and actions. It conveys to everyone our intention to constantly inspire confidence. Our customers are the primary audience for our brand. Indeed, our Brand Identity is shaped as much by their belief in Bajaj as it is by our own

vision. Everything we do must always reinforce the distinctiveness and the power of our brand. We can do this by living our brand essence and by continuously seeking to enhance our

customers experience. In doing so, we ensure a special place for ourselves in the hearts and the minds of our

customers.

Our Brand Essence

Our Brand Essence is the soul of our brand. Our brand essence encapsulates our mission at Bajaj. It is the singular representation of our terms of endearment with our customers. It provides the basis on which we grow profitably in the market. Our Brand Essence is Excitement. Bajaj strives to inspire confidence through excitement engineering. Blending together youthful creativity and competitive technology to exceed the spoken and

the implicit expectations of our customers. By challenging the given. By exploring the unknown and thereby stretching ourselves

towards tomorrow, today.

Our Brand Values

We live our brand by its values of Learning, Innovation, Perfection, Speed and Transparency. Bajaj

will constantly inspire confidence through excitement engineering.


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Learning

Learning is how we ensure proactivity. It is a value that embraces knowledge as theplatform for building well informed, reasoned, and decisive actions.

Innovation

Innovation is how we create the future. It is a value that provokes us to reach beyond theobvious in pursuit of that which exceeds the ordinary.

Perfection

Perfection is how we set new standards.It is a value that exhibits our determination toexcel by endeavoring to establish new benchmarks all the time.

Speed

Speed is how we convey clear conviction. It is a value that keeps us sharply responsive,mirroring our commitment towards our goals and processes.

Transparency

Transparency is how we characterise ourselves. It is a value that makes us worthy ofcredibility through integrity, of trust through sensitivity and of loyalty throughinterdependence.

LOGO of BAJAJ:

INITIAL LOGO (upto 2004) CHANGED LOGO (upto2007) LATEST LOGO (since 2007)

Hexagonal blue and whitelogo

Completely blue logo tosignify modernity and

dynamism

To stress the leadershipposition of the brand in

the market


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SWOT Analysis:Let's analyze the position of Bajaj in the current market set-up, evaluating its strengths,weaknesses, threats and opportunities available.

Strengths:

Highly experienced management.

Product design and development capabilities.

Extensive R & D focus.

Widespread distribution network.

High performance products across all categories.

High export to domestic sales ratio.

Great financial support network (For financing the automobile)

High economies of scale.

High economies of scope.

Weaknesses:

Hasn't employed the excess cash for long.

Still has no established brand to match Hero Honda's Splendor in commuter segment.

Not a global player in spite of huge volumes.

Not a globally recognizable brand (unlike the JV partner Kawasaki)

Threats:

The competition catches-up any new innovation in no time.

Threat of cheap imported motorcycles from China.


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Margins getting squeezed from both the directions (Price as well as Cost)

TATA Ace is a serious competition for the three-wheeler cargo segment.

Opportunities:

Double-digit growth in two-wheeler market.

Untapped market above 180 cc in motorcycles.

More maturity and movement towards higher-end motorcycles.

The growing gearless trendy scooters and scooterette market.

Growing world demand for entry-level motorcycles especially in emerging markets.


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Porters Five Forces Analysis:

Supplier Bargaining Power: Suppliers of auto components are

fragmented and are extremely critical for this industry since most of the component work isoutsourced. Proper supply chain management is a costly yet critical need.

Buyer's Bargaining Power: Buyers in automobile market have more choice to choosefrom and the increasing competition is driving the bargaining power of customers uphill.With more models to choose from in almost all categories, the market forces haveempowered the buyers to a large extent.

Industry Rivalry: The industry rivalry is extremely high with any product being matchedin a few months by competitor. This instinct of the industry is primarily driven by thetechnical capabilities acquired over years of gestation under the technical collaboration withinternational players.

Substitutes: There is no perfect substitute to this industry. Also, if there is any substituteto a two-wheeler, Bajaj has presence in it. Cars, which again are a mode of transport, donever directly compete or come in consideration while selecting a two-wheeler, cycles donever even compete with the low entry level moped for even this choice comes at acomparatively higher economic potential.

Managerial Style:Off late Bajaj Auto Limited, Indias premier automotive company, has emphasised alot on organizational restructuring for the Auto business. With this restructuring,the existing business roles and responsibilities at the company has beenstrengthened and enhanced to ensure greater operational empowerment andeffective management.

The five pillars of this new structure (Strategic units) are R&D, Engineering, TwoWheeler Business Unit, and Commercial Vehicles Business Unit & InternationalBusiness Unit. These pillars will be supported by functions of Finance, MIS, HR,Business Development and Commercial.

Pradeep Srivastava, who was VP-Engineering prior to restructuring, will now bePresident- Engineering. As per the reorganized structure the company will havethree CEOs. S. Sridhar, currently, VP, Mktg. & Sales Two-Wheelers, will nowhead the Two Wheeler Business Unit as CEO with manufacturing operations atWaluj and Akurdi also reporting to him. RC Maheshwari has joined Bajaj Auto asCEO Commercial Vehicles. The company is in the process of identifying a CEOfor its International Business. The three CEOs will be responsible for Top line,Business Growth & profitability of their respective businesses. Abraham Josephwill continue to lead Research & Development.


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Busine ssStrater gies:Ma rketi ng Strategies:

The focus of BAL off late has been on providing the best of theclass modelsatcompetitiveprices.Most of the Bajaj modelscome

loaded with the latest fea tures within the price bandacceptableby the marke t. BAL has been the

pionee r in stretching competition into providinglatest fea tures in the price seg ment by updating the low price

bikes with the latest fea tures like disk- brake s, anti-skidtechnologyand dual suspension,etc.BAL adopted different marke ting strategies for different models,few of them are discussedbelow: -

Kawasaki 4S - First atte mpt by bajaj to make a mark in themotorcycle segment. The target customer was the father in thefamily but the target audience of the comm ercial was the son inthe family. The time at wh ich Kawasaki 4S was launched HeroHonda wasthe market leaderin fuel-efficie nt bikesand Yamahainthe performance bikes.

Boxer - It took the reins from wh ere the Kawasaki 4S left. Targetwas the rural population and the price sensitive customer. Boxermarketed as a value for money bike with great milea ge. Largerwhee lbase, high ground clearance and high milea ge were theselli ng factors and it was in direct competition to Hero HondaDawn and Suzuki MX100.

Caliber - The focus for the Caliber 115 was youth. And thoughBajaj made the bike lookbigger and fee l more powerful than its


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predecess or(characteristics that will attract the ave rage, 25-plus,executive seg mentbike buyer), its approach towards advertisingis even more radically different this time aroun d. Bajaj gave themandate for the ad campaign to Lowe, picki ng them from the

cliq ue of three agencies that do promos for the company (theother two bei ng Leo Burnett and O&M ). Going by the initialmarket response, the campaign was cle arly a hit in the 5-10 yearsage bracket. So, the teas er campaign and the emphasis on theCalib er 115 being a `Hoodibabaa' bike placed it as a trendymotorcycle for the college-goers and the 25 plus executivesbothat the same time.

Pu lsar - Pulsar was laun ched in direct competition to the HeroHonda's 'CBZ' model in 150 cc plus seg ment. The campaign

bea red inno vative punch line of "Definitely Male" positioningPulsar to be a masc uline-looking model with an appea l to the

pe rformance sensitivecustomers. The Pulsarwent one step aheadof Hero Honda's 'CBZ' and launched a twin variant of Pulsarwith the 180 cc model. The model was a great success and hasalready crossed 1 milli on mark in sales.

Di scover - The same DTSI technology of Pulsar extended to 125cc Discover was a grea t success. With this, Bajaj could rea lize its

success ridi ng on the back of technological innovat ion rather thanthe joint venture way followed by competitors to gain marke tshare.BAL now is taki ng a leaf out of the FMCG business model to takethe company to grea ter heights.Baj aj has kicked off a project tocompletely rest ructure the company's retail network and createmultiplesaleschannels.Over the next few months, the company will set-upsep arate saleschannels for every seg ment of itsbusiness and consumers. BajajAuto's entire product portfolio, fr om the entry-level to the

premium, is being soldby the samedea lers.The restructuring willinvolve sepa rate dealer networ ks catering to the urban and ruralmarkets as well as its three -whee ler and premium bikessegments.Baj aj Autoalsoplansto set-upan independentnetworkof dealers for the rural areas. The needs of financing, selli ng,dis tribution and even after-sales service are completely different


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in the rural areas and do not makes sense for city dealers tocontrol this. The compa ny also plans to set-up exclusivedea lerships for its three-whee lerproducts instea d of havi ng themsoldthrou gh an estimated300 of itsexistingdealers.

Other StrategicIssues:

Cash is strength: Bajaj Auto has been sit ting on a cash pile forover five yearsnow. Over the next couple of yea rs, competition inthe two-whee ler market is set to intensify. TVS Motors and HeroHonda are on a product expansionbinge. To fight thisbattle andretain its hard-earned market share in the motorcycle seg ment,Bajaj Auto will need its cash muscle. A look at its own story overthe past five yea rs providesvaluable insight.

Stake for Kawasaki: Bajaj Auto's atte mpt to vest the surpluscash in a separate company may be aprelude to offering a staketo Kawasaki of Japan in the equity of the automobile company.The latter has beenplayi ng an increasi ngly active role in Bajaj'srece nt models, and itsbrand name is also mo re vis ible in Bajaj

bikesthan in the past.

Better va lue propositio n: Shareholder interests may be betterserved if the cash is retained to pursuegrowth in a tough market.This would alsoobviate the need to fork-out fancy sums as stampduty to the government for the de-merger. A combination of alarge one-time dividend and a regularbuyback program throu ghthe tender route may offerbetter value. A strategic stake forKawasaki would onlypositively influence the stock'svaluation.

Strate

gies

for the Ove

rse

as

M

arke

ts

:Bajaj Auto looks at external markets primarily with threestrategies:-1) A market where all BAL need to do is distributethrough CKD orCBU routes.2) Marke ts wh ere BAL need to create new

products.3) Marke ts where BAL need to enter with exis ting products and

probably with a good distributor or a production facility or a jointventure.


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THE FUTUREB a j aj - R enau lt - N issan t o dr ive s m a ll car (U LC )

Bajaj Auto has redrafted its bike strategy for this fiscal that will see the Pulsar and Discover actas the key growth drivers. The script goes according to plan, it has have set ourselves a target of

200,000 units from both brands by March 2010. Bajaj Auto and the Renault-Nissan Alliance to

build the car code- named ULC with wholesale price range starting from 2500 USD

All this is part of a renewed thrust by the company to focus on two key requirements of the

market which, over the years, have pretty much remained constant for either fuel-efficientcommuter bikes or sporty, powerful products. The Discover has now been positioned to fulfill

the former need in a segment where Hero Honda reigns supreme while the Pulsar has established

itself in the sporty slot, with monthly sales of over 40,000 units.

Bajaj Auto Ltd has announced that the company may launch a small car in the year 2010 in

India. The second largest two wheeler maker in India will enter the small car segment inpartnership with French car giant Renault and Nissan. The small car prototype was unveiled

today and the company wants to promote the vehicle as economical and affordable car. The Bajaj

Autos car will be expensive as it will meet safety and emission norms. The standard version will

come with an air conditioner.

Bajaj Auto has said in a statement that the car will offer a mileage of 34 kilometer per litter.

Bajaj will launch the car in Petrol and Diesel variants. Bajaj has plans to manufacture the small

car at its facility in Chakan near Pune.


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B a j aj A u t o L t d = 50 per cent

Bajaj Auto, which is yet to sign ajo int ventu r e agreement with its partners, Renault and Nissan.

The ULC project was conceived as a three-way alliance where Bajaj would hold 50 per cent

equity.

R enau lt = 25 per cent

The ULC project was conceived as a three-way alliance where Renault would hold 25 per cent

equity.

N issan = 25 per cent

The ULC project was conceived as a three-way alliance where Nissaan would hold 25 per cent

equity.

Bajaj Auto, which is yet to sign ajo int ventu r e agreement with its partners, Renault and Nissan.

The ULC project was conceived as a three-way alliance where Bajaj would hold 50 per cent

equity with Renault and N iss an accounting for 25 per cent each. Bajaj-Renault-Nissan will

miss its 2011 deadline on its ultra-low-cost car project. Bajaj Auto managing director Rajiv

Bajaj has ordered that the work done so far on the project be scrapped and has demanded

major modifications on design, positioning and other details, according to a person familiar

with the development.
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