|Bajaj Auto Ltd, India’s largest exporter of motorcycles and three wheelers, will enter a dozen new export markets by end of March, a top company official said in an interview on Tuesday.|
The maker of Pulsar and Avenger motorcycle brands has reported a decline in exports volume in the last few months because of political and economic uncertainties in some of its export markets, particularly in oil-producing emerging markets. Bajaj plans to maintain its leadership in the export market by expanding into newer markets— a plan that some analysts are skeptical about given the current stress on emerging market economies and their currencies.
Rakesh Sharma, president of international business at Bajaj Auto, said the company is executing an aggressive expansion plan to get into newer countries. This, coupled with the recent market share gains, will hold the firm in good stead and minimize the impact of any macroeconomic headwinds.
“By end of fiscal 2016, we should enter a dozen new export markets,” said Sharma, declining to give further details. This will help the firm report a growth of 13-15% in export volumes over the next 3-4 years, he added.
Exports, which account for more than four out of 10 motorcycles made by the company, have been under pressure lately. In the eight months from April to November, Bajaj’s motorcycles exports dropped 3.7% to 1.04 million units from a year earlier, according to Society of Indian Automobile Manufacturers or Siam. Even in December, exports fell 12% to 145,000 units, Bajaj said in a statement on 4 January.
Sharma attributed this to factors including shortage of foreign exchange and currency devaluation in emerging markets such as Egypt and Nigeria in Africa. Africa accounts for 45% of Bajaj Auto’s total exports. A fall in commodity prices has led to a lower inflow of foreign currency into these markets, which, in turn, is preventing dealers from stocking up.
The value of the currency in a number of these markets has also fallen sharply. Currencies in Argentina, Mexico, Columbia—some of the key markets for Bajaj—have fallen by 32%, 11%, 18%, respectively, according to Bloomberg.
But Sharma maintains that the company has a leadership position in most of the markets it has a presence in and this has helped the company maintain its prices in these markets.
“Whatever work we have done in the past years in terms of building the channel and after sales and service is paying off now,” said Sharma adding that Bajaj Auto has managed to retain the retail price in these markets to a great extent despite weakness in the currencies.
Analysts however, are not as bullish and expect export volumes to remain under pressure, which will also have an adverse impact on margins.
Considering that currencies in other emerging markets have fallen more sharply than the Indian rupee, the benefits of a depreciated Indian rupee will be erased for the company, said an analyst at a brokerage declining to be identified.
The Indian rupee has weakened 5.5% against the dollar in the nine months to December.
“Three months back, the management had guided for a 2 million export volume (including three wheelers) targets for fiscal 2016. Given the current macro-economic scenario, they won’t be able to do more than 1.8 million units,” said the analyst cited above. While the March quarter may look good for the company because of a low base from last year, in absolute sense, the volumes are unlikely to advance, he added.
Nitesh Sharma, an analyst at Philip Capital India Pvt. Ltd added that while entry into newer markets will help the firm de-risk itself geographically, volumes will remain under pressure.
Since the start of the financial year, Bajaj Auto stock has gained 24%, while the Sensex has slipped 8.94%. On Wednesday, Bajaj Auto fell 0.46% to Rs.2,485.50 on BSE, while the exchange’s benchmark Sensex fell 0.68% to 25,406.33 points.