"Yes, I think things are going to improve. The situation was quite severe in the last few months in the run up to the elections which happened, I think in March-April," says Rakesh Sharma, ED, Bajaj Auto.
How important is Nigeria for you? Can you just share that number with our viewers and then we will get into specifics after that.
Yes, Nigeria is our single largest overseas market. As you know, about 50% of Bajaj Auto is exported and about 25% of that is Nigeria so it is of significant value. But of course, we do the entry level, boxer 100cc bikes mostly there. And we have a very good position over there, which is almost as 55 to 60% market share. So all things considered, this is indeed a very-very important market for us.
We will break the simple math here. 50% of your business is exports within that Nigeria is about 50% which means more than 25%.
25% okay. So that means that is a sizable number. I mean, that sizable number almost like a double digit revenue which you are getting from Nigeria.
Of course, of course, volume is what you get from there and given entry level. Thank you for that very simple data. Now, let us understand the dynamics there. There was a demonetisation which was at play. And there is a currency devaluation which has happened. Currency devaluation for an exporter is always great news because you get benefits. So has the Nigerian market which has suffered or the Nigerian economy which has suffered because of a variety of factors. Are you seeing that things are go ..
Yes, I think things are going to improve. The situation was quite severe in the last few months in the run up to the elections which happened, I think in March-April. And there was an accompanying demonetisation. There was a bit of a paralysis on the policy front at that period and which encouraged the parallel markets etc. The transition of power to the new government has been largely peaceful. There have been sporadic incidents. And I see these signs as the new government and particularly the ..
This was the case a few years back, then it drifted and now there is an attempt to reorganise. At the same time, there is recognition of subsidies which are going for fuel, those have been removed. Again, this has caused an increase in petroleum product prices which is also in the short term going to impact the purchasing power and lead to inflationary issues. But again, it is a recognition of the reality which is all very good because we are in it over there for the longer term we are not looki ..
Well, we used to do about 50,000 units per month, some season months we would do about 60,000 motorcycles per month in Nigeria. In the period of Jan, Feb, March, it even dropped down to something like 4,000 units and now it is touching almost 30,000 units, so there is a recovery underway. So you can see if this normalcy and we have to also see how long the consumer will take to digest these things.
I think everybody is echoing the fact that things are being systemized, but there will be a short term pain. Now how long the short term is, one has to see but already the recovery is on its way and hopefully the availability of US dollars will improve for organized businesses like ours and that should lead to further improvement in exports from here because our stocks over there are pretty thin now.
So net-net, exports have been one space which has been disappointing the Street for Bajaj Auto. When do you see the recovery happening and let us say back to the normal levels?
Well, I have been saying that it is going to probably take a quarter but I cannot sort of give you a specific date of recovery because there is no specific one event which we are waiting for.
If you understand the root cause of this decline in overseas markets, you will understand that the recovery is also not a zero one thing. It is going to be gradual. It has been largely caused by a cautious stand by the central banks of various emerging markets because they have taken a very cautious approach because of the strengthening of the US dollar and the lack of availability of US dollar.
So they have tended to prioritize the most important imports like drugs and pharmaceuticals and in some cases food, leaving much less for categories like automotive.
And that is the nub of the problem which started quite suddenly and sharply in May, June of last year. Since then, the US dollar has continued to be very strong. It is only recently that we are now getting some news of it softening.
We have to see how the central banks respond to it. We have seen some kind of a loosening but very, very marginal. And if this kind of trend continues and there is no other black swan event, then I suppose we will continue to see some recovery in about a quarter's time or within the, let us say, within the quarter two of our financial year.
Can I change gears and come back to India and understand what is happening in the EV landscape, because now we understand that the booster which was given to the entire EV industry in terms of tax advantage, in terms of duty advantage that is going and the current EV two wheeler companies are saying that if you take it away, we will go away. What is happening in the EV two wheeler market?
Well, you are right, there has been an abrupt reduction of subsidies under the FAME scheme, which have almost broadly been halved and therefore the prices have gone up by that kind of an amount for the consumer. And this will, of course, again, in the short term, have a salutary effect on the customers coming into the purchase cycle.
I think they will sort of go back and do the maths and see whether it still makes sense. And I still feel at this point also it does make economic sense. A lot of the people, most of the purchase which was happening because of economic reasons and a little bit because of convenience, but almost nothing for environmental reasons.
So, I think the consumer will come back to the buying cycle. Of course, the capital cost, the acquisition cost for the customer has increased, so it will shrink the pool a little bit, but that kind of shrinkage will probably hit some of the weaker players far more and this move will, in fact, accelerate the consolidation of the industry.
A couple of years back or till three years there were a lot of companies which were just importing components, slapping them together and putting them out in the market.
There were almost 30-40 companies. Now you can see that almost 65% of the business is with the top four-five companies and hopefully this consolidation will continue to roll and that is good for these companies which are left and it is good for the customer because that customers will get solid, stable and reassuring propositions.
Source Name:Economic Times