Bajaj Auto Limited is one of India's largest two-wheeler manufacturers. As the dominant player until the early 1990s, Bajaj's market share declined from 49.3% in 1994, to 38.9% in 1999 with the entry of major competitors like Hero Honda. Bajaj has initiated several measures to regain its market share and strengthen its competitive position. The case discusses the financial strategy pursued by Bajaj.
Financial Management at Bajaj Auto
We want to get back the leadership position in the two-wheeler segment and will use the cash if required to do so. However, in current volatile market conditions (not to forget the Japanese and their huge cash reserves), we would rather have the security of cash any day. We are competing not only with Indian companies, but also with large foreign two-wheeler companies, many of whom have much deeper pockets than ours. While our surplus cash will assist us in future growth, it also acts as a deterrent to others from indulging in predatory pricing tactics – Sanjiv Bajaj, Vice-President Finance, Bajaj Auto Limited. 1
In 2003, Bajaj Auto Limited (Bajaj) was one of India’s largest manufacturers of both two and three-wheelers. The three-wheelers, also known as autorickshaws, were unique to the South Asian region. The company recorded revenue of Rs.5125.73 crores representing a 13% increase over the previous year 2. Once the unchallenged market leader, Bajaj trailed Hero Honda in the late 1990s. Bajaj’s market share declined from 49.3% in 1994, to 38.9% in 1999.3 Thereafter, Bajaj had initiated several measures to regain its market share and strengthened its competitive position. In 2003, Bajaj had a workforce of 12,000 employees and a network of 422 dealers and over 1,300 authorised service centers.4
The Indian Two-Wheeler Industry
Two-wheelers had become the standard mode of transportation in many of India’s large urban centers. Use of two-wheelers in the rural areas had also increased significantly in the 1990s. The birth of the Indian two-wheeler industry could be traced to the early 1950s, when Automobile Products of India (API) started manufacturing scooters in the country. While API initially dominated the scooter market with its Lambrettas, it was Bajaj which rapidly emerged as the unchallenged leader in the scooter industry. A number of government and private enterprises who entered the scooter segment, had disappeared from the market by the turn of the century. The License Raj that existed prior to economic liberalization (1940s-1980s) in India, did not allow foreign players to enter the market, making it an ideal breeding ground for local players. But the Raj also hurt the growth of the industry by imposing various restrictions. In the mid-80s, the government started permitting foreign companies to enter the Indian market, through minority joint ventures. During this period, the twowheeler market witnessed a boom with Japanese players like Honda, Suzuki, Yamaha and Kawasaki, entering the market through joint ventures.
1 2 3
M. Anand, ―Is Munjal Being Too Generous?‖ Businessworld, 19th May 2003.B1 Source: Prowess Database. Gita Piramal, Sumantra Goshal and Sudeep Budhiraja, ―Transformation of Bajaj Auto Ltd,‖ Lessons in Excellence Case Contest, www.thesmartmanager.com, February-March, 2003. Source: Bajaj Auto Limited Annual Report 2003.
Indian Motorcycle Market
Source: Honda Annual Report 2003.
Foreign players quickly changed the rules of the game. From a supplier’s market, it became a buyer’s market. Companies tried to outdo each other in terms of style, price and fuel efficiency. The technological expertise that the foreign collaborators brought to the market place helped increase the overall quality of the products quite significantly. In the early 2000s, the competition intensified further. In 2000, Honda announced its intentions to set up a 100% subsidiary to...