Is lack of innovation hurting Bajaj Auto?

Two-wheeler maker Bajaj Auto disappointed the Street with first quarter net profit rising marginally to Rs 740 crore compared to Rs 737.7 crore in same quarter last year, dented by weak operational performance and higher depreciation charge.

The stock fell 3 percent intraday on Thursday, post the results. Is brand fatigue and lack of innovation causing Bajaj Auto to fall back significantly in this market share race?

Bertrand D'souza, Editor, Overdrive, says the fact that they are not present in the scooter market is definitely affecting their numbers.

"Over the last few years, we have been seeing that scooters have been gaining a lot of market share over motorcycles. So definitely, for Bajaj Auto, the decision they took all those years ago to just follow the motorcycle market hasn't been a very forward-looking step," he feels.

But yes, the profitability in the motorcycle business has definitely been higher, said D'souza.

He said for Bajaj Auto, Discover is a good brand and has done well, but hasn't been able to put up a fight against Hero Splendor. "Splendor has been ruling the segment. Neither Bajaj nor Honda has been able to displace Hero from there."

D'souza feels Bajaj needs to revitalize its premium bike segment. One of the most profitable brands in their portfolio has been Pulsar and the company must rework on that.

Foe Honda, he thinks with the sole aim of having the largest market share, the company will come up with an extensive product line. Honda, which emerged as the second biggest producer of two-wheelers in India, is set to launch the most affordable 110 cc bike in August.

The dark horse in the race to market share has been TVS . It has dethroned Bajaj Auto in the overall two-wheeler markets purely because of its presence in the scooter segment.

Below is the transcript of Bertrand D'souza's interview with Latha Venkatesh and Sonia Shenoy of CNBC-TV18.

Latha: What is hurting Bajaj Auto according to you? Is it the fact that they have not entered the scooters market, is it exactly the mistake they made in the late 90s - sitting strong with scooters and refusing to get into motorcycles; are they making the same mistake the other way round?

A: The fact that they are not present in the scooter market definitely affects their numbers. Over the last few months we are seeing that the scooters essentially have been gaining a lot more market share than motorcycles. The have grown a lot more than motorcycles. So, that definitely for Bajaj that definitely hasn't been a very forward thinking step, that decision they took all those years ago to just follow the motorcycle market.

Rajiv Bajaj has come on record and mentioned that what he is looking for essentially may not be numbers as much as he is looking at profitability. The profitability in the motorcycle market is higher for sure. The numbers at the end of the day will show better results also overall.

Sonia: What do you think Bajaj should do at this point? Should they come out with a completely new brand because as we have seen they have come out with so Discovers in the last many months and years but that just seems to be crowding the market a little bit? What would your suggestion be if you had to advice Rajiv Bajaj?

A: The Discover is a good brand. They have done reasonably well with that. However, it has been a difficult take or rather it has been difficult putting up fight against the Hero Splendor; that still is the market leader in that segment. Even Honda has been trying very hard to displace the Splendor off that 100cc segment but neither Bajaj nor Honda have been able to displace Hero from that position.

So, they do need to look at new segments. Probably not as much as creating new brands but revitalising what is already there in their portfolio. One of the most profitable brands for them has been the Pulsar brand and they need a lot of work to do in that direction. The last time we saw a Pulsar, the 150 which is essentially one of their large bread and butter segment as well, it is the motorcycle that got all the attention back on Bajaj, that motorcycle needs to be revitalised. There is a lot of work that has to come in that direction.

They have shown a couple of motorcycles in larger capacities at auto expo – the 200 and 400 again from the Pulsar brand itself but they will be very niche players. Bajaj needs to look at the 150 and 180 segment motorcycles within that Pulsar brand; that is where they will do exceedingly well.

Latha: What are the lessons learned from Honda? It has really zoomed and has dethroned Bajaj Auto even as the largest producer of two wheelers. What lessons from there and it is not as if they are not catering to the value market, the 110cc market? Is there something to be learned from the Honda way of doing business?

A: They have been out in the market with just one goal in mind and it is to have the largest market share. Keeping that in mind, their product lineup is going to be pretty extensive. They are looking at several motorcycles in the future as well.

However, essentially what they want is the volume segment, they need to capture the 100cc market, the 125cc market and there are a lot of sub-brands within this also. You have got the 100cc, you have got the 110cc, you have got the 125cc coming all the way up to 150cc and upwards. However, between 100cc and 150cc is where Honda wants to establish themselves as number one.

Currently competition is just Hero Motors and Bajaj as we know now Bajaj is not really big player there. It is not affecting Honda's numbers. However, there are not going to be too many new products in that sense as much as Honda pushing forward what they already got and introduced in the market.