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1 Praxis Business School Assignment No: 1 BAJAJ AUTO LTD A report submitted to Prof. S. Govindrajan In partial fulfillment of the requirements of the course Sales & Distribution Management On 15 November 2009 By Atul Saboo Mohit Almal Tarun Daga Uma Balakrishnan

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Page 1: Bajaj Auto Final

1

Praxis Business School

Assignment No: 1

BAJAJ AUTO LTD

A report

submitted to

Prof. S. Govindrajan

In partial fulfillment of the requirements of the course

Sales & Distribution Management

On 15 November 2009

By

Atul Saboo

Mohit Almal

Tarun Daga

Uma Balakrishnan

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EXECUTIVE SUMMARY

In 1945, Jamnalal Bajaj had formed M/s Bachraj Trading Corporation Private Limited, the flagship

company, to sell imported two-wheelers and three-wheelers. The present Chairman of the Bajaj group,

Rahul Bajaj, took charge of the business in 1965. He was the first licensee of the Indian make of the

Italian Vespa scooter. The company has a network of 498 dealers and over 1,500 authorised service

centers and 162 exclusive three-wheeler dealers spread across the country. Bajaj has now identified a

segment of customers called 'Probikers', who are knowledgeable about motorbikes and appreciative of

contemporary technology. They are trendsetters and very choosy about what they ride. Bajaj Auto is in

the process of setting up a chain of retail stores across the country exclusively for high-end,

performance bikes. These stores are called “Bajaj Probiking". Fifty two such stores have been opened

across the India. With such vast global and Indian rural presence, designing an efficient distribution

system becomes a complex task even for a company like Bajaj Auto. Lot of time and effort goes into

designing a strategy based efficient distribution system.

Bajaj Auto continues to be India’s largest exporter of two and three wheelers. During 2008-09, the

company exported 772,519 two and three-wheelers recording a growth of 25 percent over 2007-08. It

has plants in Nigeria, Indonesia and Egypt. It is also looking at Manaus, Columbia and Iran. To expand to

new geographic locations, where Bajaj perceives a strong market potential, they establish a tie up with

one major industrial establishment eager to invest in the project. These investors who form alliances

with Bajaj Auto are termed as “Business Partners”. Bajaj Auto strives for efficiency in all its operations

across the world. To aid in this, it creates partnerships with experts in local markets and multinational

leaders. It has motorbikes in three segments- entry segment (with Platina), Executive segment (with

XCD and Discover) and the premium segment (with Pulsar, Avenger).

For decades, Bajaj Auto was riding high but was late to respond when competitions struck. Then, it

restructured its products, channels and the performance management system. Bajaj Auto announced

the successful “Go Live” of their External Portal Initiative for their sales and service employees, dealers

and suppliers. SAP’s mySAP Enterprise Portal was implemented simultaneously with the current SAP

R/3 ERP implementation. Bajaj has linked 380 out of its 483 dealers through this system. Also connected

are 165 out of a total of 200 suppliers. The dealer portal, in addition to operating information, provides

access to unstructured information like news items, new product releases, new product introduction,

dealer discussion groups and internal marketplace. The supplier gets up-to-date information on

purchase orders and contracts, material schedules, and payment details. Bajaj Auto, in turn, gets

invoicing information from suppliers for its automated material receipt system. This helps in

streamlining the supply chain, optimising inventories and reducing non-value-adding activities at both

ends.

For global delivery of products, Bajaj has tried leveraging the existing distribution network of the

“business partner” in the country where the partner is present. Bajaj Auto has also set up assembling

units in few of the continental hubs, as discussed in above sections. The logistics for this is outsourced

to third party vendors like Maersk Sealand, P&O Nedloyd and APL.

There is a generic channel at the national level. Goods flow from the manufacturing unit to either the

depot or to the C&F agent. It may also go directly to the dealer. The C&F and the depot also supply to

the dealer, who then supplies to the ASC, RSO, Sub Dealer & its own branch. Order tracking, packaging,

invoice generation and despatching goods are key functions of the sales and distribution of a company.

For distribution, Bajaj Auto has extensively used the mix of Depot & CNF Agents. This is completely

dependent upon the distance of the dealer’s location from the manufacturing unit. Depots are set up

for two purposes- catering to sudden spikes in demand, whereby the dealer can order from the depot

reducing the delivery time, and to reach faraway places.

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As for C&F agents, it is the “Giant dealer” of a particular region who acts a carrying and forwarding

agent for Bajaj Auto. The transport and logistics is completely outsourced to the Transport Corporation

of India (TCI). We have highlighted in this section, the areas where IT has been applied. The company

has a network of 498 dealers and over 1,500 authorised service centres and 162 exclusive three-

wheeler dealers spread across the country. These may be COCO, CODO or DODO showrooms. Bajaj

provides workshop training, new product launch and other promotional activities as services to the

dealers. We have also shown monitoring sheets used to assess dealer performance by various ratios.

There is also a day-wise summary of customer satisfaction feedback. A ‘health card’ is used for

supervising workshops using parameters like customer complaints and repeat visits. A service quality

index (SQI) is also attached, which is used by Bajaj to gauge dealers. Sub-dealers, ASCs and RSOs are

also discussed. In the analytical framework, we saw that the most important variables affecting

distribution were brand loyalty, level of involvement, complexity of decision-making and search costs.

The pro-biking concept introduced by Bajaj was seen to address all these variables.

Channel members are graded and given monetary rewards in the form of company owned showrooms.

Non-monetary incentives include training, product launches and promotions. Mutually agreed upon

targets are set by headquarters and the ASM in a meeting, and the latter then sets targets for dealers in

his region.

As a high involvement product, Bajaj automobiles require a field force which is well-trained in the

product and can provide information to customers at an instant. Bajaj Finance also accelerates the role

of the field force by providing financial assistance to buyers of two- and three-wheelers. Bajaj enjoys

more than 90% of the market share in three-wheelers and is fast gaining a share of the rural market as

well.

There are three key aspects of financials, namely:

Freight, forwarding and packaging

Advertising

Sales promotions

The first expense has been increasing over the past three years. This may be due to the fact that

exports rose and that Bajaj focuses on premium and executive bikes transported in small lots and

sophisticated packaging. Advertising costs have fallen, which may be due to the recession. Sales

promotion expenses have increased due to the foray into premium bikes. The highest cost is seen to be

that of freight and forwarding

We have compared these components with Hero Honda. Here, we saw that freight and forwarding

expenses grew regularly, due to constantly increasing sales. Sales promotions were stagnant and very

low. Hero Honda’s expenditure is comparatively steady and it is a stronger brand, especially in sales

promotions. Hero Honda also spends the maximum share on freight and forwarding. Next, we have

compared the expenses of the two companies under advertising and sales and distribution in a graph.

We also saw that Bajaj relies more on sales and distribution whereas Hero Honda creates a pull demand

for its product. Hence, the brand pull for Hero Honda is stronger, which justifies its position as a market

leader.

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TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................................ 5

GLOBAL PRESENCE OF BAJAJ ....................................................................................................................... 6

CHANNEL DESIGN ...................................................................................................................................... 10

ANALYTICAL FRAMEWORK ......................................................................................................................... 24

CHANNEL MEMBER MANAGEMENT .......................................................................................................... 26

FIELD FORCE MANAGEMENT ..................................................................................................................... 27

FINANCIAL ASPECTS ................................................................................................................................... 29

ANNEXURE ................................................................................................................................................. 33

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INTRODUCTION

The Bajaj Group was founded in 1926 by Jamnalal Bajaj and now consists of 27 companies. In 1945,

Jamnalal Bajaj had formed M/s Bachraj Trading Corporation Private Limited, the flagship company, to

sell imported two-wheelers and three-wheelers. The company acquired a license from the government

in 1959 to manufacture these vehicles and went public the next year. By 1977, the company saw its

plant rolling out 100,000 vehicles in a single year. In another nine years, Bajaj Auto could produce

500,000 vehicles in a year. The present Chairman of the Bajaj group, Rahul Bajaj, took charge of the

business in 1965. He was the first licensee of the Indian make of the Italian Vespa scooter.

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 several advantages in

the previous decades. Its customers liked the durability of the product and the ready availability of

maintenance; the company's distributors permeated the country. By 1994-95, Bajaj was racing to beat

Honda, Suzuki and Kawasaki in the two-wheeler segment internationally. By 1997, Bajaj faced tough

competition in the domestic market and its market share stood at 40.5%. Under the leadership of Rahul

Bajaj, the turnover of Bajaj Auto has gone up from Rs.72 million to Rs.46.16 billion (USD 936 million), its

product portfolio has expanded from one to many and the brand has found a global market. Bajaj as a

brand is well-known across several countries in Latin America, Africa, Middle East, South and South East

Asia.

The company has a network of 498 dealers and over 1,500 authorised service centers and 162 exclusive

three-wheeler dealers spread across the country. Around 1,400 rural outlets have been created in

towns with populations of 25,000 and below. The current dealer network of Baja is servicing all these

outlets. Bajaj is convinced that the real impetus of future two-wheeler growth will come from

upcountry rural India. Bajaj Auto has defined specialist dealerships for rural markets, called 'Rural

Dealerships'. During the year 2008-09, twenty new rural dealers became operational.

Bajaj has identified a segment of customers called 'Probikers', who are knowledgeable about

motorbikes and appreciative of contemporary technology. They are trendsetters and very choosy about

what they ride. Hence, Probikers need to be addressed in a meaningful way that goes beyond the

product. Bajaj Auto is in the process of setting up a chain of retail stores across the country exclusively

for high-end, performance bikes. These stores are called “Bajaj Probiking". Fifty two such stores have

been opened across the India.

Catering to demand in this sector requires a strong and effective distribution network as consumers are

more demanding and expect delivery on time. Early delivery is a cause of delight for customers. With

such vast global and Indian rural presence, designing an efficient distribution system becomes a

complex task even for a company like Bajaj Auto. Lot of time and effort goes into designing a strategy

based efficient distribution system.

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GLOBAL PRESENCE OF BAJAJ

Bajaj Auto continues to be India’s largest exporter of two and three wheelers. During 2008-09, the

company exported 772,519 two and three-wheelers recording a growth of 25 percent over 2007-08.

Exports now constitute 37 percent in terms of volume and 35 percent in value of net sales. The

company currently exports to over 30 countries in Latin America, Africa, the Middle-East, South and

South-East Asia. Bajaj Auto has a dominant presence in the countries of Sri Lanka, Columbia,

Bangladesh, Central America, Peru and Egypt, and is looking to increase its share in the African market.

The company has commissioned an assembly unit in Nigeria with the help of its distributor, to cater to

the growing demand in the African markets. It already has an assembly plant in Indonesia and is looking

at setting up a plant in Manaus, a Free Trade Zone, in Brazil by 2010-11, after delaying the decision for

six years. A distributor of Bajaj Auto has a plant in Egypt. They are also planning to set up plants at

Columbia and Iran.

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Extent of Presence of Bajaj Auto

Management of Global Supply Chain

With operations spanning to such vast geographies, managing a supply chain globally becomes more

and more complex. In countries where Bajaj perceives a strong market potential, they establish a tie up

with one major industrial establishment eager to invest in the project. This investment may include

setting up strategic manufacturing or assembly units, apart from a well-established nation-wide

network for marketing, distribution and after sales services. These investors who form alliances with

Bajaj Auto are termed as “Business Partners”.

Bajaj Auto offers a number of services to its business partners. They include:

Training in sales, service and spare parts management based on the Bajaj distribution system

Active support for setting up manufacturing facilities overseas including transfer of technical

know-how

Assistance in setting up an assembly plant for assembly of vehicles from complete knocked

down (CKD) kits

Selecting of machinery and equipment and training of technical personnel, all in a phased

manner as required by the regulations in the recipient country

Active support in setting nation-wide dealer network, also involving identification and

recommending suitable partner who would assist the distributor in Business growth

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Global Efficiency

Bajaj Auto strives for efficiency in all its operations across the world. To aid in this, it creates

partnerships with experts in local markets and multinational leaders. Also, it seeks to avoid all

imperfections in the product due to glitches in delivery. For this, Bajaj is committed to certain

initiatives:

Partnership with globally trusted shipping lines: Maersk Sealand, P&O Nedloyd, APL ensuring

safe and timely delivery to markets

Efficiently packed, factory stuffed cargo shipped in completely built up (CBU), semi-knocked

down (SKD) or complete knock down (CKD) modes

Specially designed export packing procedure

Full container load (FCL) or less than container load (LCL) dealt with safety and security

Product Segmentation

The company classifies motorcycles into three segments, based on consumer categories and approximate price points. These are:

Entry Segment: These are typically 100 cc motorcycles at a price point in the neighbourhood of Rs.35000. Bajaj Auto has a presence in this segment through the Platina. Here, Bajaj Auto has been a major player and despite an overall market de-growth, it accounted for 34% of this segment in India in 2008-09.

Executive segment: This largely comprises 100 cc to 135 cc motorcycles, priced between Rs.40000 to Rs.50000. Bajaj Auto has two brands in this segment, namely XCD and Discover.

Performance segment: These are sleek, high performance bikes with price points in excess of Rs.50000. They are present here with their flagship brand, the Pulsar and cruiser, the Avenger. They dominate this space with a domestic market share of more than 47%.

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Spare Parts Automobiles need periodic replacement of parts. Not surprisingly therefore, spare parts comprise a profitable business for major automobile manufacturers. The objectives of the spare parts business of Bajaj Auto are to perform an effective role in supporting new vehicle sales, maintain ‘vehicle goodwill’ across different geographies, makes and consumer groups, and contribute to the bottom-line. Challenge: To make the company’s spare parts available in not just the authorised service centres but also the private garages and spare part shops that dot the country. This is a high volume, credit intensive business that requires mastery over the supply of heterogeneous products. Solution: In 2004-05, Bajaj Auto created a separate channel exclusively for distribution of spare parts. Today, the channel has 73 distributors, who cater directly to over 15,000 retail shops across the country. This channel now accounts for sales of over 70% of total spare parts of Bajaj Auto Ltd. Other 30% is distributed via the distribution channel of the bike itself.

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CHANNEL DESIGN

Usage of IT at all Levels

For decades, Bajaj Auto was riding high. The company was enjoying market share the only way it knew to: by building basic, durable scooters on the platform of ‘value for money.’

But when the marketplace changed, Bajaj was late to respond. It became clear that the company could no longer derive big market shares from limited brands and products. Then started the restructuring—of products, channels and the performance management system. Along with that, the company realised that it had to redesign its IT structure.

Bajaj Auto announced the successful “Go Live” of their External Portal Initiative for their sales and service employees, dealers and suppliers. SAP’s mySAP Enterprise Portal was implemented simultaneously with the current SAP R/3 ERP implementation.

Business information is available to the company’s external community in real time. This assists in improved decision-making, whether it is to meet customer requirements or to maintain efficiency in supply chain management. The company’s field sales teams get full visibility on all dealer activities while the dealers get real-time access to relevant information on operational activities. The dealers and sales employees get information relevant to their respective region and territory by aggregation from the underlying SAP R/3 ERP database.

Bajaj has linked 380 out of its 483 dealers through this system. Also connected are 165 out of a total of 200 suppliers. The dealer portal, in addition to operating information, provides access to unstructured information like news items, new product releases, new product introduction, dealer discussion groups and internal marketplace. The supplier gets up-to-date information on purchase orders and contracts, material schedules, and payment details. Bajaj Auto, in turn, gets invoicing information from suppliers for its automated material receipt system. This helps in streamlining the supply chain, optimising inventories and reducing non-value-adding activities at both ends.

The website to log on to is http://www.channelbajaj.com. Every PC has a hardware lock so that the correct terminal is established and does not travel out of the dealer’s premises.

Bajaj is also planning to extend the IT system even as it plans to launch a major marketing initiative in rural areas. “As this project gets implemented, we have to see how IT can support it. There is an issue of Internet connectivity. But the infrastructure is changing with telecom majors expanding their network. We are looking at connectivity through WLL,” said Mr Bajaj.

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Before understanding the channel design, we need to know the components that are involved in the channel network. Various players involved in the channel design are:

Manufacturing Plants

Depots

Carrying & Forward Agent

Dealers

Sub Dealers

Logistics Each of these players and their key role and deliverable will be dealt in detail later. Channel Design is dependent on the segmentation that Bajaj have done in the geographic and product category segments.

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Geographic Segmentation

Here the distribution channel design exists at two different levels. The two levels are national and global level. Both of them are discussed in details in the following pages.

Global Level Partnerships In order to cater to a widespread network of dealers, distribution is a challenge for Bajaj Auto. Here the concept of “business partners” comes in. Bajaj has tried leveraging the existing distribution network of the “business partner” in the country where the partner is present. Bajaj Auto has also set up assembling units in few of the continental hubs, as discussed in above sections. These continental hubs act as goods receivers from the manufacturing units of Bajaj in India. The logistics for this is outsourced to third party vendors like Maersk Sealand, P&O Nedloyd and APL.

Geographic

National Level

Global Level

Plant In India

Transport & Logistics(Third Party Vendor)

Assembling Hub & “Business

Partner

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National Level Partnerships There is an exisisting generic channel which is used for segmentation of this category of two-wheelers and three wheelers.

Generic Channel

The physical flow of goods takes place from the factory to either the depot or to the carrying and forwarding agent, depending upon the geographic distance and the location of the Depot. The transport & logistics for this is outsourced to third party vendors which are under Transport Corporation of India (TCI). Depending upon the demand these goods have, they flow from Depot or the C&F agent to the dealer and their network. In case of high profile dealers, the dealer can himself take the physical delivery of goods directly from the manufacturing plant. The dealer, at the last juncture, caters ASC, RSO, Sub Dealer & its own branch. The channel members and the key roles for each of these channel members is detailed below.

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Manufacturing Plant

Bajaj Auto’s vehicle manufacturing capacity currently stands at 3.96 million units — comprising 3.6 million two-wheelers and 360,000 three-wheelers. The newest plant at Pantnagar (Uttarakhand) has a capacity to produce 900,000 two-wheelers.

Plant Wise Capacity

The company’s first plant at Akurdi which was a vehicle assembly unit was shut down in September 2007. The reason for doing so was the higher cost of manufacturing, which placed this location at a disadvantageous position compared to the other facilities.

Plant Wise Product Profile

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Key Deliverables in terms of Sales & Distribution Management

Order Tracking-Taking a daily account of the order received from various dealers and Regional Offices (RO). Orders from dealers are punched in by dealer themselves. Orders are followed up in the system only if the credit limit is not crossed. This credit limit is preset into the system depending upon the dealer and his/her track record.

Packaging-Packaging in factory is outsourced to third party vendor. These vendors are generally from the Transport & Logistics partners

Despatching Goods-Goods need to be despatched via third party vendor TCI. State corporations and other private players are also part of the vendor list.

Generating Invoice & Waybill-These documents need to be generated and despatched to the respective dealer. A sample invoice is attached in Annexure 1

Depot and C&F Agent The representation below depicts the location of the various member groups of Bajaj Auto in India.

For distribution Bajaj Auto has extensively used the mix of Depot & CNF Agents. This is completely dependent upon the distance of the dealer’s location from the manufacturing unit. For example, due to the extensive distance between the manufacturing plant from West Bengal and the North-East, there exists a depot at Kharagpur with a capacity for housing 8000 two-wheelers. There are similar depots in Rajasthan, Punjab and Southern India. In our conversation with the management of the Bajaj Auto showroom, they declined to divulge further details of the locations of the depots and the total number of depots in the country.

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Key Role & Deliverables of Depots Setting up depots is a geographical strategy adopted by Bajaj Auto. But this does not mean that the company has gone all out to open a large number of depots. It has chosen strategic locations. The key role played by depots is that they are meant to cater to any sudden rise in demand of vehicles, and to cover the existing geographic span of India.

When we spoke to the management, they explained to us the reasons behind having a depot in Kharagpur. There are two reasons for which Kharagpur was chosen to hold a depot for Bajaj Auto. They are as follows:

Catering to a sudden shooting up of demand- In Bengal itself, it is common knowledge that

during the festive season which spans from September to November, there is a huge demand as people spend more on festival extravaganza, and it is considered an auspicious time to buy household gadgetry. There is a conspicuous rise in the sales of white goods, motor vehicles and jewellery.

Reaching the states of the North-East- As per the people at Bajaj, “We take 15 days to reach the North-East if we go via the carrying and forwarding agent concept. Generally bikes reach West Bengal in 7-8 days. The bottleneck is the Darjeeling route. Hence, came in the concept of a depot whereby we can reach the North-East in the same time, instead of experiencing a lag of almost a week.”

Dimensions for Choosing Depot or Factory Approach A dealer needs to consider his order requirements and then come up with an order to place to the regional office. If the demand is immediate, he may approach a Depot for the load. Else, he has to try to stick to factory load. Both of these loads have their own sets of pros and cons. We have listed them in the following table.

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Criteria Factory Load Depot Load

Assortment • Product Mix • Colour

Available Available

Less Less

Lead Time 9-10 Days 5 Days

Geographic Dispersion Constrained Highly Available

Ease of access for dealer Less High

Quantity 43-Discover & Pulsar, Avenger 53-Exceed & Platina

28-Discover & Pulsar, Avenger 35-Exceed & Platina

Packaging High Standards Low Standards

Depending upon the criteria that are more important to the dealer, he places his order to either the factory or the Depot. Generally, orders are placed to the factory but in case of urgent requirement, due to which the lead time reduces considerably, the order is procured from the depot.

Carrying & Forwarding Agents Though the agent has a separate set of roles and responsibilities, it is just a semantic difference in the case of Bajaj Auto. In most cases, it is the “Giant dealer” of a particular region who acts a carrying and forwarding agent for Bajaj Auto. A giant dealer is one who secures an A+ rating from the company, or has strong financial muscle in the region in comparison to the other dealers. Their key deliverables will be dealt in detail when we talk about dealers. This generally happens in states or regions which are near to the manufacturing unit. This is almost always the case for most Indian States.

Transport & Logistics

This function of distribution is not owned by the company in any form. This is outsourced in toto to the third party vendors. The third party here is Transport Corporation of India (TCI) and a few other private vendors. The fleet to be transported is custom-designed for Bajaj Auto by the vendor.

Key Facts

There are twenty vendors all across India OSL Jamuna Transport Sumit Transport

A Transit Insurance Compliance Letter(TICL) is signed between the two parties

The local level sub-dealer sometimes gets to decide the last mile logistics, as he can decide to pick up the vehicles himself or have it transported to him

Logistics of the vendor is decided by the company

Freight charge is built-in in the product price

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This is a sample documentation process that takes place in any order fulfilment chain. The

documentation inside black boxes has been considerably reduced due to the usage of IT at both ends-

client and companies. The main documentation that still remains is waybills and invoices which are

generated from the manufacturing plant of the company.

Example:

TCI looks after the packaging of the bike from the manufacturing unit to its delivery upto the warehouse of the dealer or to the depot, as required. In the above example, one truck or a single factory load can carry either 43 premium bikes or 53 general bikes. Depending upon the product mix ordered by the dealer, the truck is loaded. It can then either go to the dealer’s warehouse directly or to the depot, as depicted in the generic channel. From the depot, these bikes are loaded in smaller fleet and distributed to the respective dealer. In this case, the fleet size is 28 premium bikes or 35 general bikes. This load is termed as Depot Load.

Factory Load(1)

43 bikes(Pulsar & Discover)

10*4+3

Depot(Depot Load)

28 bikes(Pulsar & Discover)

7*4

Dealers

35 bikes(Exceed & Platina)

7*5

53 bikes(Exceed & Platina)

10*5+3

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Key role & Deliverables Packaging- One of the key deliverables in such a high intensive industry is a quality product.

Hence packaging is the key deliverable

Logistics-Handling of bikes and catering to the fleet demand is essential for the vendor

Goods Tracking- Tracking the flow of goods and acting as a business partner for the client is essential for the third party in this case

Key Documents Generation- Documenting the waybill and passing it to the required channel member is an important aspect

Last mile logistics is decided most of the time by sub-dealers. Bikes are driven from the dealer’s warehouse to the showroom by employees of sub-dealer.

Dealers Like mentioned above, the company has a network of 498 dealers and over 1,500 authorised service centres and 162 exclusive three-wheeler dealers spread across the country. Around 1,400 rural outlets have been created in towns with population of 25,000 and below. The current dealer network is servicing these outlets. Dealers can be classified under 3 heads. They are as follows:

COCO-These are Company Owned & Company Operated showrooms. These concepts exist only for Pro-Biking showrooms. Here Bajaj Auto has tried showcasing their muscle power in high end biking segment. The concept has evolved very fast and now there are 52 Pro-Biking showrooms in the country. The company itself does not take any order from the customer in these showrooms. The giant dealer of the region who is acting as a logistics partner for the pro-biking concept takes the order on behalf of the company and fulfils the customer requirement.

CODO-These are Company Owned & Dealer Operated showrooms. In case of this concept, showrooms are owned by the company but the operations in the showroom are managed by the dealer. This is generally the case where Bajaj wants to provide the dealer financial benefits considering the high working capital requirement of the company.

DODO-These are Dealer Owned & Dealer Operated. These dealers are fewer in number because they are generally the giant dealers who are the financial muscle for the company. In our talks, the management indicated that the top management wants to do away with this concept. The reason behind this is that the bargaining power increases in the hands of the dealer, which puts the company in an knotty situation.

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Services provided by Bajaj Auto to the dealer Workshop Training

In a month: 30-40 Mechanics can be trained per dealer 15-20 Sales personnel can be trained per dealer

New Product Launch Information is percolated around a month before the product is to be launched The date of launch can be rescheduled in case the current stocks of the dealer are not

getting cleared.

Promotional Activities The cost of sending the staff to the Pune branch for training is borne by the dealer.

Key Role & Deliverables The most important loop that is the outcome of the dealer management is the feedback loop. Using this loop company designs its strategy for different segments. Dealer need to fill in the required form provided by the company and update it to company on monthly basis. The three heads under which the feedback is filled are:

Monitoring Sheet

Daywise Summary of Customer Satisfaction Feedback

HealthCard For Monitoring Workshops

Monitoring Sheets The key entry fields in this sheet are:

No of vehicles ready for Delivery awaiting customer UNDELIVERED

No of vehicles pending B/F(for work) WIP

No. of vehicles received FRESH(INC QRC)

Total Vehicles in wshop = Rcd(1+2+3)

No of vehicles Ready for the day

Total No. of vehicles ready for delivery(1+4)

No.of vehicles delivered(wrt 4a)

No. of appointments given(wrt 5)

No. of appointments turned up(wrt 6)

No. of vehicles ready on time commitment(wrt 5)

No. of vehicles estimate met.(wrt 5)

Carry forward pending for tomorrow (3a-4)

Ready carried forward for tomorrow today UNDELIVERED(4a-5)

SERVICE VOLUME DETAILS(WRT C10)

NEW BIKES SOLD

NEW BIKE SHOWROOM SALES

NEW BIKE DOOR DELIVERY

SERVICE DATA( WRT C10)

FSC

PAID COUPON SERVICE

UNDER WARRANTY ONLY

PAID SERVICE

PAID JOBS

ACCIDENT

QRC

RV

BREAK DOWN

EARLY FAILURE(WITHIN 30 DAYS)

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The resultant entry comes up with key ratios which gives a look into the dealer’s operational performance. The Key ratios are:

Appointment Ratio

Turnup Ratio

% WIP

% Undelivered O.K. Stock

% Ready

% Vehicle delivered

% On Time Delivery (C13/C10)

% COST ESTIMATE MET(C14/C10)

% RV/ RJ (C33/C10)

PSFU SATISFACTION %(C19/C18)

EFR %(C35/C22)

1 HR % (WRT PS) (C42/C41)

% CC REPORTED(MAIL, LETTER,SAP)

% CSI FORMS COLLECTED ( 17/10)

Daywise Summary of Customer Satisfaction Feedback This is a method to record customer feedback.

NoCR: Means Number of customers rated that particular rating.

Score : Score will be multiplication of number of customers & that particular rating

The score for the day will be sum of score of all the 3 Qs divided by product of 3 & no. of feedbacks collected.

Rating 5 4 3 2 1 5 4 3 2 1 5 4 3 2 1

No. of

Customers

Rated

[NoCR] Excellent

V.

Good

Good

Fair

Poor

Definitely

Mostly

Som

e

tim

es

May o

r

May n

ot

Definitely

Not

Definitely

Mostly

Som

e

tim

es

May o

r

May n

ot

Definitely

Not

Max Score/

Acheived

Score

CSI

Score

23 NoCR 1 6 11 5 0 3 9 10 1 0 7 11 5 0 0 345

Score 5 24 33 10 0 15 36 30 2 0 35 44 15 0 0 249 72.17%

Date

01-Sep-09

Q 3. Rating on recommend CSI Score

for the Day

Q 1. Rating on service offered Q 2. Rating on availing service

No. of

F' backs

Page 22: Bajaj Auto Final

22

Health Card for Monitoring Workshops Key inputs in this field are stated below:

Area Plan / Target Dat from MOP-001

Customer Complaints (BAL /Dealer /Call Centre) % and Nos. 0.25%

Numerator

Denominator ( SER VOL.) = 7L

Overall Internal CSI - 3Q 100%

% PSF & its effectiveness

No of Effective calls

PSFU TARGET (7L)

PSFU satisfaction

SATISFIED

No of Effective calls

Repeat Job % 0.1%

Numerator 15h

Denominator(SERVICE VOLUME)

Repeat visit Reason wise Analysis

Wrong Diagnosis (Nos.)

Non identification of unforeseen problems (Nos.)

Poor workmanship (Nos.)

Technician's negligence (Nos.)

Product Problems ( Nos.)

Spares problems (Nos.)

Operation and maintenance procedure not followed (Nos.)

RV technician and SA wise analysis (Nos.) AVL / NA

Repeat Visit Product wise Analysis

200 pul

220 pul DTSI

Avenger-dtsi 200

On the basis of all the above inputs the Service Quality Index for a particular dealer is calculated. On the basis of SQI achieved by the retailer over a period of one year the dealer is rated as A+, A, B+, B. These ratings decide the type of credit that the dealer receives, the type of bargaining power he/she enjoys with the company.

Page 23: Bajaj Auto Final

23

Sample SQI

6 Service Quality Index (SQI) % 0

77

6.1 Infrastructure elements 24.75

6.2 Process Elements 27.20

6.3 Productivity 12.45

6.4 Warranty

12.75

7 SERVICE DETAILS

a FSC 15a 143

b PAID COUPON SER(U/W) 15b 56

c EXCLUSIVE U/W 15c 47

d PAID SERVICE 15d 120

e PAID JOBS 15e 22

f ACCIDENT 15f 3

g QRC 15g 74

h RV. 15h 4

7L TOTAL SERVICE =7(b+c+d+e+f+g+h+i)

469

Sub Dealers, ASC & RSO Sub Dealers- Generally this are the small players in the market who helps breaking the bulk at

the dealers end and providing the dealer necessary rotation of working capital. In turn they get flexible terms from the dealer and trade on smaller volumes. These channel members exist in the design because of the company’s objective of increasing the reach to the end consumer.

Authorised Service Outlets- These are the authorised outlets of the company which can be dealer operated or independently run by a new entity. The distribution for these components is completely independent from the distribution channel of the product itself. Today, the channel has 73 distributors, who cater directly to over 15,000 retail shops across the country. This channel now accounts for over 70% of total spare parts sales of Bajaj Auto Ltd.

Rural Sales Outlets-Around 1,400 rural outlets have been created in towns with population of 25,000 and below. The current dealer network is servicing these outlets. Bajaj is convinced that the real impetus of future two-wheeler growth will come from up-country rural India. Bajaj Auto has defined specialist dealerships for rural markets, called 'Rural Dealerships'. During the year 2008-09, twenty new rural dealers became operational.

Page 24: Bajaj Auto Final

24

ANALYTICAL FRAMEWORK

VARIABLE KEY COMPONENT OF

DISTRIBUTION AFFECTED

STEPS TAKEN BY BAJAJ

No. of Consumers Large number of consumers, but because of product nature, too many channel members are not required. Logistics and transport hold a vital role

Only intermediary is dealer. Logistics is outsourced to third party, making it more efficient.

Geographic Dispersion of

Consumers

Since dispersion is very high,

extensive distribution network &

reach required

Country-wide depots in hard-to-

reach regions. Else, C&F agents

are used

Higher Frequency of

Purchase

Low frequency of purchase. Last

mile logistics are not important as

in India, a bike is delivered within

1-3 days of booking

Last mile logistics depend on

urgency from dealer’s side

Tendency to Postpone

Purchase

High, requiring regular

reinforcement from field force

Well-trained field force of dealers.

Also, Bajaj has Auto Finance in all

its showrooms, especially for

three-wheelers

Level of Familiarity/Product

Knowledge

High for lower-end bikes, and low

for higher-end bikes

Field force not very important for

lower-end bikes. For higher-end

bikes, Bajaj introduced Pro-Biking

to inform consumers about the

vehicles

Degree of Brand Loyalty If low, margins to field

force/channel members, and

point-of-sale merchandising

become very important. If high,

these factors lose importance.

High for three-wheelers, but

brand loyalty is not necessarily

high for Bajaj two-wheelers. Pro-

biking addresses point-of-sale

merchandising by displaying parts

of the bike & simulations.

Incentives & sales promotions are

also high.

Purchase on Impulse Not at all an impulse purchase.

Availability is not a major factor.

Takes orders and delivers within 1

day (better than industry

standards)

Level of Involvement High for both two-wheelers and

three-wheelers. Information

needs to be diffused, as

consumers search for it

Pro-biking provides information

about high-end bikes. Trained

field force and regular

advertisements in auto magazines

Purchased as a Basket of

Goods

Only high-end bikes create a

basket of goods when accessories

are bought along with them

Accessories are made available at

showrooms, as well as in the Pro-

biking workshops

Page 25: Bajaj Auto Final

25

Speed & Complexity of

Decision-making Process

Low speed & complex decision-

making process for two-wheelers.

For three-wheelers, norms are

set by government, reducing

complexity

Pro-biking encourages quick

decisions. Cannot do much for

three-wheelers except advise

buyers

Presence of Experts

Influencing the Decision-

making Process

Highly applicable for all product

ranges

Highly trained field force. For high

performing bikes, Pro-biking

concept is a solution

Element of Crisis Purchase

Exists

Not applicable at all Cannot induce crisis purchase in

any way

Element of risk Aversion

Exists

Exists in multi-brand showrooms Dealer cannot unsell a brand, as

company presses him to sell

different products of the mix

along with his order

Perishability Not a perishable product Not applicable

Time band Associated with

the Purchase of Product

Not applicable, except during

festive season when demand

spikes suddenly

Need not push the brand within a

time range, except before new

product launches. Depots were

introduced to handle sudden rise

in demand during festive seasons

Fungibility Cannot be replaced, especially for

physical flow of goods

Channel is not replaced by other

means

Importance of Search Cost High LOI product, needs

information from means other

than channel member

Informative website and Pro-

biking workshops provide

extensive information on bikes

Degree of Customization

Possible

Moderate for two-wheelers but

not applicable for three-wheelers

Customizes the vehicle in the

workshop, along with accessories,

after making a sale

Negative or Positive

Reinforcement

Lighting and field force create

ambience required for the

experience

Bajaj sets pre-conditions for

dealership, in terms of space and

polite field force which interested

parties must follow

Value/Volume Ratio of

Product

Not applicable Dedicated showrooms of Bajaj

dealers do not require

value/volume ratio as a criterion

Page 26: Bajaj Auto Final

26

CHANNEL MEMBER MANAGEMENT

A few aspects about Channel member management that are not covered in the earlier pages will be dealt with in specific in this section.

Monetary Methods to Reward Channel Members If a dealer is rated A+ in a particular region his credit limit is made less stringent and the required payment terms are made flexible. Above this, they are also provided with a chance to become a partner of the Pro-biking evolution of Bajaj Auto. They become part of the inclusive growth of the company. Company owned showrooms are a way in which the company rewards the dealer, by providing the base capital for the new showroom awarded. For E.g.: In our conversation with Mr. Neotia (Prime Dealer in Kolkata, Auto centre, AJC Bose Road), he informed us how another dealership Flagstore in Sodepur is a company owned and dealer operated showroom. It was his reward due to the good performance of the existing showroom.

Non Monetary Methods to Reward Channel Members Workshop Training: Training of the staff that dealers have is provided by Bajaj Auto in two ways. Few trainers from Bajaj come down to various workshops of the dealer to provide training. Even a few salespersons and mechanics get to go to the Pune Headquarter for training purposes. New Product Launch: Information of a new product launch is shared with dealers one month before launch so that they can plan the order and working capital requirement. The company even changes the launch date if the existing stock of bikes at the dealer’s end is not cleared. Promotional Activities: A non monetary method of making sure that consumers know about the product and dealer need not make an effort in this department.

Target Setting Mechanism The headquarters sets the target for a particular region in their meeting with the respective Area Sales Manager. In our conversation with ASM Kolkata Mr. Tanuj Mandal, he told us that in his monthly meeting in the headquarters, he is asked how many bikes he will be able to sell in the coming month. This target is then negotiated and is decided upon considering the economic scenario, YoY target and expected growth. The ASM then sets the target for the various dealers in the region considering their past performance. If a dealer has not met the previous target, that gap is added on in his new target. Not meeting a target for a period of 6 months has an impact on the dealers SQI.

Monitoring Mechanism This has been dealt in detail previously in the section of key Deliverables of Channel members.

Page 27: Bajaj Auto Final

27

FIELD FORCE MANAGEMENT

Field force is not so critical in case of such a high involvement product, except for providing information at the point of sale. The segmentation that Bajaj has done in this user category makes the field force in a few segments very critical. In case of high end bikes, the concept of Pro-Biking is very innovative.

In Pro-biking showrooms, the field force consists of highly trained automobile engineers, a lot of them graduates from IIT. This shows consumers the bikes Bajaj offers in the high end segment and the power Bajaj possesses in this. Bajaj wants to enjoy the first mover’s advantage in this segment. Hence they have already made the field force highly active in this segment.

Bajaj Finance: Bajaj Auto Finance Ltd offers attractive loans for purchase of new Bajaj vehicles. Bajaj Finance executives are available at most of the Bajaj Auto dealerships to offer finance schemes to suit the requirements of individuals. It also finances Bajaj three wheelers. This is a field force activity as it is a capital intensive purchase for the consumer. These field forces are very critical and hence their remuneration becomes equally critical. Their remuneration is dependent on customer feedback and variable on the basis of the sale that takes place.

Three Wheeler Segment The company’s domestic sales of three-wheelers in 2008-09 were 12% lower compared to the previous year, and stood at 135,473 units. Export demand grew at 2% to 139,056 units. However that was not sufficient to prevent a decline in the company’s total three-wheeler sales — which fell by 5.4% to 274,529 units in 2008-09. Given that total industry sales shrank by 1.6% in 2008-09 over the previous year, while Bajaj Auto’s fell by 5.4%, the company’s market share dropped by 2.3 percentage points to 55.1%. The heartening news for this segment is that state governments have increased the permits for plying energy efficient three-wheelers. Bajaj Auto has a market share in excess of 90% in the permit-driven markets. The company also intends to introduce a RE Diesel upgrade in 2009-10, which will have a high mileage, accommodate more passengers with a luggage hold area, and will attempt to capture a larger share of the rural market.

Page 28: Bajaj Auto Final

28

Distribution Here the physical flow of goods is similar to that of two wheelers. In this case, the most important variable of distribution is field force management. Most of the three wheeler sales is under finance schemes, hence the introduction of Bajaj Auto finance and well trained field force.

Resource Designation Address Contact No. Debashish Roy

Manager , 2 Wheeler Sales, East India

232B, AJC Bose Road, Kolkata-700020 919433040219

Vinay Nevatia Owner, Bajaj Auto Centre Dealership

225C, AJC Bose Road, Kolkata-700020 913322903988

Tanuj Mandal Asst. Showroom Manager,Bajaj Probiking

32, Chowringhee Road, Kolkata-700071 919831126563

Subroto Sinha Workshop Manager, Bajaj Probiking

1, Bijoy Bose Road, Kolkata-700025 919830565580

Page 29: Bajaj Auto Final

29

FINANCIAL ASPECTS

After looking at the distribution channel and the process flow of vehicles from the factory to the end

consumer, we will now look at the financial aspects. As a part of the financials, we have looked at the

total market spend done by Bajaj Auto Ltd. for advertisements and sales & distribution expenses. Also,

we have compared this with the market leader Hero Honda Ltd.

According to the balance sheet of Bajaj Auto Ltd. and Hero Honda Ltd., we have identified three key

components of advertising and sales & distribution expenses. These three components are:

1. Forwarding, Freight and Packaging- This is the largest component of all. It includes the

transportation charges of the goods from factory to the dealers, packaging of the two wheelers

and three wheelers in container etc.

2. Advertising- The advertising charges include all forms of advertising, i.e. TV ads, print ads,

hoarding and billboards etc.

3. Sales Promotion- The sales promotion expenses includes the discounts which the company

offer from time to time. It also includes other offers and gift vouchers. This component, as per

our understanding, should also include the incentives. However, through our interaction with

the Bajaj dealers, we came to know that the company does not provide any incentives, and the

achievements by the dealers are reflected in the grading system for dealers for each region.

Then again, it may not be the same case for Hero Honda and therefore this component may

include incentives if applicable.

The above graph shows the market spend for Bajaj Auto. We have taken the data for three years to see

the trend in the spending.

As seen from the graph, the expenditure for forwarding, freight and packaging has been increasing

over the years and especially for the year 2008-09. This may be due to the fact that in the last 2 years:

1. Bajaj sales from the export market increased by 31% whereas the domestic sales fell by around

23%. Hence, the transportation costs etc. shoot up due to the exports.

2. Bajaj focused more on executive and premium bikes which are transported in small lot sizes and

the packaging etc are more sophisticated thus resulting in high forwarding, freight and

packaging costs.

Rs. 0.00

Rs. 200.00

Rs. 400.00

Rs. 600.00

Rs. 800.00

Rs. 1,000.00

Rs. 1,200.00

Rs. 1,400.00

Rs. 1,600.00

Rs. 1,800.00

2008-09 2007-08 2006-07

Market Spend of Bajaj Auto Ltd.All Figures are in Millions

Forwarding, Freight and Packaging

Advertisment

Incentive & Sales Promotion

Page 30: Bajaj Auto Final

30

The advertising costs for the year have sharply fallen in the year 2008-09. It is mainly due to the

recession that the company has cut down on these costs. The major saving was done on the print ads

and hoardings.

The sales promotion expenses have fallen in year 2007-08 and again increased in year 2008-09. The

increase in year 2008-09 is because Bajaj has forayed into premium bikes, which is a new segment in

India, and was backed by heavy sales promotions to boost the sales.

The above graph shows the percentage breakup of the three components. The highest cost is the

forwarding, freight and packaging, followed by advertising expenditure and sales promotion

expenditure.

The above graph shows the market spend of Hero Honda for three years.

51%

26%

23%

Market Spend2008-2009

Forwarding, Freight and Packaging Advertisment Incentive & Sales Promotion

Rs. 0.00

Rs. 500.00

Rs. 1,000.00

Rs. 1,500.00

Rs. 2,000.00

Rs. 2,500.00

Rs. 3,000.00

Rs. 3,500.00

2008-09 2007-08 2006-07

Market Spend Of Hero Honda Ltd.All figures are in Million

Forwarding, Freight and Packaging

Advertisment

Incentive & Sales Promotion

Page 31: Bajaj Auto Final

31

The forwarding, freight and packaging expenditure has been growing regularly and can be directly

linked to the increasing sales. The expenditure on advertising is more or less the same for the three

years and also the sales promotion are stagnant and very low.

If we compare the expenditure of both the companies, it can clearly be seen that the expenditure of

Hero Honda is comparatively steady and hence suggests that Hero Honda as a brand is far stronger then

Bajaj. This is clearly reflected by the sales promotion expenditure which is way less than that of Bajaj.

Hence, Hero Honda does not need additional spending to push its products.

The above graph shows the percentage breakup of the three components. The highest cost is the

forwarding, freight and packaging, followed by advertising expenditure and marginal expenditure on

sales promotion.

In the above graph, we have divided the components of market spend into two heads, i.e.

1. Advertising expenditure

54%43%

3%

Market Spend Of Hero Honda Ltd.2008-2009

Forwarding, Freight and Packaging Advertisment Incentive & Sales Promotion

Bajaj Hero Honda Bajaj Hero Honda Bajaj Hero Honda

2008-09 2007-08 2006-07

1.01%

2.03%

1.47%

2.15%

1.31%

2.44%

2.86%2.70%

2.17%

2.73% 2.75% 2.68%

Advertising and Sales & Distribution Costs as a Percentage of Sales

Advertisment Sales & Distribution

Page 32: Bajaj Auto Final

32

2. Sales & Distribution expenditure (includes sales promotion and the distribution expenditure i.e.

forwarding, freight and packaging)

The graph shows the advertising and sales & expenditure costs as a percentage of sales.

From the above graph we can clearly make out that Bajaj Auto relies more on its sales & distribution.

Hence, it can be safely concluded that Bajaj Auto focuses more on the push factor for its sale.

In case of Hero Honda, the gap between the expenditure on advertising and sales & distribution is less

and we can assume that it creates a pull demand for its products. Hence, the brand pull for Hero Honda

is stronger, which justifies its position as a market leader.

21%

79%

2008-09

Advertisement

Sales and Distribution

33%

67%

2007-08

Advertisement

Sales and Distribution

25%

75%

2006-07

Advertisement

Sales and Distribution

43%

57%

2008-09

Advertisement

Sales and Distribution

44%

56%

2007-08

Advertisement

Sales and Distribution

48%52%

2006-07

Advertisement

Sales and Distribution

Bajaj Auto Ltd.

Percentage breakup of Advertisement and Sales & Distribution in the entire market spend

Hero Honda Ltd.

Percentage breakup of Advertisement and Sales &

Distribution in the entire market spend

Page 33: Bajaj Auto Final

33

ANNEXURE The annexure is attached in the next page.

Page 34: Bajaj Auto Final

34

• •

<-.

'ealel LeJe : }I""", uTa CEIITPE

:l~a.c..: 1\c.;HI\J('I!, .it« .I'J :.11 I\(J:.L ItlJ/dJ

EXTRA COpy FOR BUYER

IlNOIC~ BAJAJ

'OLKATTA, 700020, \,ES, BEtlGl,L, t nd i a

II t Road Pe rrm t v No : A6244005 /IJfltftrij <ll(c.I.'

Baja] Auto Limited Plot No A·l, Village - ~.~<tr.t ct '.;r. MIDC Cnakan. Pun€' ~ 10 SOt LST 110: 1920040~071 INV 110: 900360579

CST 110: CST-42HHBII1C.DT. l7/'J/60. ItJV DT: 26.10.2009

VAT REGN:

G.C.NOTE: TRUCK: MH14V5531

OWNER: SHRI VE1IKATESHWARA ROADWAYS

?UNE

VEHICLE DESCRIPTION

pulsar 220 DTS-l

pulsar 220 DTS-l F

lIin)a 250 P

llin)a 250 P

Pulsar 220 DTS-l

HICLE CODE

J'.RI FF H21·.D

. L. II. PJ..TE

ASIC DUTY n) .C.C.D (t) UTa

CESS (~) OU

CESS n) [, H Ecess (t):

REIGHT RATE

ST/CST (t):

NSURANCE (~)

AX CODE

.L.H. CHARGES :RS

SSESABLE VALUE:PS

(BASIC+F.L.H. )

.E.D. PAYABLE :RS

I.C.C.O PAYABLE:RS

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c H Ecess :RS

UB TOTAL1 : RS

RAIISIT IIlSU? :

FS

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ST/CST :RS

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00DK044M

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8.00 1. 00 0.125

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908650.00

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1630.25

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19913.65

48603.00

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10.00 8.00 1.

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8N

10.00

53450.00

4276.00

535.00 67.00

98.00

~9.00

58475.00

95.90

58570.90

11:1.42

2859.0·)

62601.

32

rei .91 2135 25~301 ()..l Il Fax

.912135259302 03

www.baJ3Jauto com

VEH CODE UNITS RS / UNIT 00DK044M 17 53, 4~C.::

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FOR BAJAJ AUTO LIMITED

AUTHORISED SIGNAT~

Page 35: Bajaj Auto Final

35

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