A PROJECT REPORT ON

STRATEGIC ANALYSIS OF BAJAJ AUTO LTD

Submitted by Ajay Kr. Singh 20004(TPS-A)

INTRODUCTION :
Bajaj Auto Limited is India's largest manufacturer of scooters and motorcycles. The company generally has lagged behind its Japanese rivals in technology, but has invested heavily to catch up. Its strong suit is high-volume production; it is the lowest-cost scooter maker in the world. Although publicly owned, the company has been controlled by the Bajaj family since its founding. Origins The Bajaj Group was formed in the first days of India's independence from Britain. Its founder, Jamnalal Bajaj, had been a follower of Mahatma Gandhi, who reportedly referred to him as a fifth son. 'Whenever I spoke of wealthy men becoming the trustees of their wealth for the common good I always had this merchant prince principally in mind,' said the Mahatma after Jamnalal's death. Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in 1942. Kamalnayan, however, was preoccupied with India's struggle for independence. After this was achieved, in 1947, Kamalnayan consolidated and diversified the group, branching into cement, ayurvedic medicines, electrical equipment, and appliances, as well as scooters. The precursor to Bajaj Auto had been formed on November 29, 1945 as M/s Bachraj Trading Ltd. It began selling imported two- and three-wheeled vehicles in 1948 and obtained a manufacturing license from the government 11 years later. The next year, 1960, Bajaj Auto became a public limited company. Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of Italy. In 1960, at the age of 22, he became the Indian licensee for the make; Bajaj Auto began producing its first two-wheelers the next year. Rahul Bajaj became the group's chief executive officer in 1968 after first picking up an MBA at Harvard. He lived next to the factory in Pune, an industrial city three hours' drive from Bombay. The company had an annual turnover of Rs 72 million at the time. By 1970, the company had produced 100,000 vehicles. The oil crisis soon drove cars off the roads in favor of two-wheelers, much cheaper to buy and many times more fuel-efficient. A number of new models were introduced in the 1970s, including the three-wheeler goods carrier and Bajaj Chetak early in the decade and the Bajaj Super and three-wheeled, rear engine

Autorickshaw in 1976 and 1977. Bajaj Auto produced 100,000 vehicles in the 1976-77 fiscal year alone. The technical collaboration agreement with Piaggio of Italy expired in 1977. Afterward, Piaggio, maker of the Vespa brand of scooters, filed patent infringement suits to block Bajaj scooter sales in the United States, United Kingdom, West Germany, and Hong Kong. Bajaj's scooter exports plummeted from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million) in 1981-82, although total revenues rose five percent to Rs 1.16 billion. Pretax profits were cut in half, to Rs 63 million. Rahul Kamalnayan Bajaj, 66, has stepped down as managing director of Bajaj Auto passing on the mantle of the company to his eldest son, Rajiv. Rahul Bajaj will continue as the chairman of the Bajaj conglomerate. Bajaj Auto is facing increased competition from Honda and Piaggio. Honda has overtaken Bajaj as India's No.1 scooter maker in the past two years. New Competition in the 1980s 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. The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was immediately successful, and the company aimed to be able to make 60,000 of them a year by 1985. Capacity was the most important constraint for the Indian motorcycle industry. Although the country's total production rose from 262,000 vehicles in 1976 to 600,000 in 1982, companies like rival Lohia Machines had difficulty meeting demand. Bajaj Auto's advance orders for one of its new mini-motorcycles amounted to $57 million. Work on a new plant at Waluj, Aurangabad commenced in January 1984. The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the Kawasaki Bajaj KB100 motorcycles. The company was making 500,000 vehicles a year at this point. Although Rahul Bajaj credited much of his company's success with its focus on one type of product, he did attempt to diversify into tractor-trailers. In 1987 his attempt to buy control of Ahsok Leyland failed. END OF LICENSE RAJ The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion followed a year later. About this time, the Indian government was initiating a program of market liberalization, doing away with the old 'license raj' system, which limited the amount of investment any one company could make in a particular industry.

It was hoping to increase its exports, which then amounted to just five percent of sales. The company began by shipping a few thousand vehicles a year to neighboring Sri Lanka and Bangladesh, but soon was reaching markets in Europe, Latin America, Africa, and West Asia. Its domestic market share, barely less than 50 percent, was slowly slipping. By 1994, Bajaj also was contemplating high-volume, low-cost car manufacture. Several of Bajaj's rivals were looking at this market as well, which was being rapidly liberalized by the Indian government. Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The company was the world's fourth largest manufacturer of two-wheelers, behind Japan's Honda, Suzuki, and Kawasaki. New models included the Bajaj Classic and the Bajaj Super Excel. Bajaj also signed development agreements with two Japanese engineering firms, Kubota and Tokyo R & D. Bajaj's most popular models cost about Rs 20,000. 'You just can't beat a Bajaj,' stated the company's marketing slogan. The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in 1997. The next year saw the debut of the Kawasaki Bajaj Caliber, the Spirit, and the Legend, India's first fourstroke scooter. The Caliber sold 100,000 units in its first 12 months. Bajaj was planning to build its third plant at a cost of Rs 4 billion ($111.6 million) to produce two new models, one to be developed in collaboration with Cagiva of Italy. NEW TOOLS IN THE 1990S Still, intense competition was beginning to hurt sales at home and abroad during the calendar year 1997. Bajaj's low-tech, low-cost cycles were not faring as well as its rivals' higher-end offerings, particularly in high-powered motorcycles, since poorer consumers were withstanding the worst of the recession. The company invested in its new Pune plant in order to introduce new models more quickly. The company spent Rs 7.5 billion ($185 million) on advanced, computercontrolled machine tools. It would need new models to comply with the more stringent emissions standards slated for 2000. Bajaj began installing Rs 800 catalytic converters to its two-stroke scooter models beginning in 1999. Although its domestic market share continued to slip, falling to 40.5 percent, Bajaj Auto's profits increased slightly at the end of the 1997-98 fiscal year. In fact, Rahul Bajaj was able to boast, 'My competitors are doing well, but my net profit is still more than the next four biggest companies combined.' Hero Honda was perhaps Bajaj's most serious local threat; in fact, in the fall of 1998, Honda Motor of Japan announced that it was withdrawing from this joint venture. REVAMPING THE DESIGN Bajaj Auto had quadrupled its product design staff to 500. It also acquired technology from its foreign partners, such as Kawasaki (motorcycles), Kubota (diesel engines), and Cagiva (scooters). 'Honda's annual spend on R & D is more than my turnover,' noted Ruhal Bajaj. His son, Sangiv Bajaj, was working to improve the company's supply chain management. A marketing executive was lured from TVS Suzuki to help push the new cycles.

Several new designs and a dozen upgrades of existing scooters came out in 1998 and 1999. These, and a surge in consumer confidence, propelled Bajaj to sales records, and it began to regain market share in the fast-growing motorcycle segment. Sales of three-wheelers fell as some states, citing traffic and pollution concerns, limited the number of permits issued for them.

SHARE IN COMPETITOR
In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65 million. The Italian firm had exited a relationship with entrepreneur Deepak Singhania and was looking to reenter the Indian market, possibly through acquisition. Piaggio itself had been mostly bought out by a German investment bank, Deutsche Morgan Grenfell (DMG), which was looking to sell some shares after turning the company around. Bajaj attached several conditions to his purchase of a minority share, including a seat on the board and an exclusive Piaggio distributorship in India. Employment fell from about 23,000 in 1995-96 (the year Bajaj suffered a two-month strike at its Waluj factory) to 17,000 in 1999-2000. The company planned to lay off another 2,000 workers in the short term and another 3,000 in the following three to four years. Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; Bajaj Electricals Ltd.; Bajaj Hindustan Ltd.; Maharashtra Scooters Ltd.; Mukand Ltd. Principal Competitors: Honda Motor Co., Ltd.; Suzuki Motor Corporation; Piaggio SpA.

STRATEGIC

ANALYSIS

a) Vision mission and values b)Logo c) SWOT Analysis d)Porters five Forces Model Analysis e) Managerial style f) Business strategies g) Other strategic issues

VISION MISSION AND VALUES

Bajaj doesn't have a straight vision or mission statement. They define it in terms of brand identity, brand essence (derived from mission) and brand values. Our Brand Identity Our Brand is the visual expression of our thoughts and actions. It conveys to everyone our intention to constantly inspire confidence. Our customers are the primary audience for our brand. Indeed, our Brand Identity is shaped as much by their belief in Bajaj as it is by our own vision. Everything we do must always reinforce the distinctiveness and the power of our brand. We can do this by living our brand essence and by continuously seeking to enhance our customers experience. In doing so, we ensure a special place for ourselves in the hearts and the minds of our customers.

Our Brand Essence Our Brand Essence is the soul of our brand. Our brand essence encapsulates our mission at Bajaj. It is the singular representation of our terms of endearment with our customers. It provides the basis on which we grow profitably in the market. Our Brand Essence is Excitement. Bajaj strives to inspire confidence through excitement engineering. Blending together youthful creativity and competitive technology to exceed the spoken and the implicit expectations of our customers. By challenging the given. By exploring the unknown and thereby stretching ourselves towards tomorrow, today.

Our Brand Values We live our brand by its values of Learning, Innovation, Perfection, Speed and Transparency. Bajaj will constantly inspire confidence through excitement engineering.

Learning Learning is how we ensure proactivity. It is a value that embraces knowledge as the platform for building well informed, reasoned, and decisive actions. Innovation Innovation is how we create the future. It is a value that provokes us to reach beyond the obvious in pursuit of that which exceeds the ordinary. Perfection Perfection is how we set new standards.It is a value that exhibits our determination to excel by endeavoring to establish new benchmarks all the time. Speed Speed is how we convey clear conviction. It is a value that keeps us sharply responsive, mirroring our commitment towards our goals and processes. Transparency Transparency is how we characterise ourselves. It is a value that makes us worthy of credibility through integrity, of trust through sensitivity and of loyalty through interdependence.

LOGO of BAJAJ:

INITIAL LOGO (upto 2004)

CHANGED 2007)

LOGO

(upto LATEST LOGO (since 2007)

Hexagonal blue and white Completely blue logo to To stress the leadership logo signify modernity and position of the brand in dynamism the market

SWOT Analysis:
Let's analyze the position of Bajaj in the current market set-up, evaluating its strengths, weaknesses, threats and opportunities available. Strengths: Highly experienced management. Product design and development capabilities. Extensive R & D focus. Widespread distribution network. High performance products across all categories. High export to domestic sales ratio. Great financial support network (For financing the automobile) High economies of scale. High economies of scope.
Weaknesses:

Hasn't employed the excess cash for long. Still has no established brand to match Hero Honda's Splendor in commuter segment. Not a global player in spite of huge volumes. Not a globally recognizable brand (unlike the JV partner Kawasaki)

Threats: The competition catches-up any new innovation in no time. Threat of cheap imported motorcycles from China.

 Margins getting squeezed from both the directions (Price as well as Cost) TATA Ace is a serious competition for the three-wheeler cargo segment. Opportunities: Double-digit growth in two-wheeler market. Untapped market above 180 cc in motorcycles. More maturity and movement towards higher-end motorcycles. The growing gearless trendy scooters and scooterette market. Growing world demand for entry-level motorcycles especially in emerging markets.

Porters Five Forces Analysis:

Supplier Bargaining Power: Suppliers of auto components are fragmented and are extremely critical for this industry since most of the component work is outsourced. Proper supply chain management is a costly yet critical need. Buyer's Bargaining Power: Buyers in automobile market have more choice to choose from and the increasing competition is driving the bargaining power of customers uphill. With more models to choose from in almost all categories, the market forces have empowered the buyers to a large extent. Industry Rivalry: The industry rivalry is extremely high with any product being matched in a few months by competitor. This instinct of the industry is primarily driven by the technical capabilities acquired over years of gestation under the technical collaboration with international players. Substitutes: There is no perfect substitute to this industry. Also, if there is any substitute to a two-wheeler, Bajaj has presence in it. Cars, which again are a mode of transport, do never directly compete or come in consideration while selecting a two-wheeler, cycles do never even compete with the low entry level moped for even this choice comes at a comparatively higher economic potential.

Managerial Style:
Off late Bajaj Auto Limited, Indias premier automotive company, has emphasised a lot on organizational restructuring for the Auto business. With this restructuring, the existing business roles and responsibilities at the company has been strengthened and enhanced to ensure greater operational empowerment and effective management. The five pillars of this new structure (Strategic units) are R&D, Engineering, Two Wheeler Business Unit, and Commercial Vehicles Business Unit & International Business Unit. These pillars will be supported by functions of Finance, MIS, HR, Business Development and Commercial. Pradeep Srivastava, who was VP-Engineering prior to restructuring, will now be President- Engineering. As per the reorganized structure the company will have three CEOs. S. Sridhar, currently, VP, Mktg. & Sales Two-Wheelers, will now head the Two Wheeler Business Unit as CEO with manufacturing operations at Waluj and Akurdi also reporting to him. RC Maheshwari has joined Bajaj Auto as CEO Commercial Vehicles. The company is in the process of identifying a CEO for its International Business. The three CEOs will be responsible for Top line, Business Growth & profitability of their respective businesses. Abraham Joseph will continue to lead Research & Development.

Busin ss Strater gies: e

M rketi ng Strategies: a Th e focus of BAL off late has been on provi ding the best of the class models at competitive prices. Most of the Bajaj models come loaded with the latest fea tures within the price band acc eptable by the marke t. BAL has been the pionee r in stretching competition into providing latest fea tures in the price seg ment by updating the low price bike s with the latest fea tures like disk- brake s, anti-skid technology and dual suspension, etc. BAL adopted different marke ting strategies for different models, few of them are discuss ed below: Kawasaki 4S - First atte mpt by bajaj to make a mark in the motorcycle segment. The target cust omer was the father in the family but the target audience of the com ercial was the son in m the family. The time at wh ich Kawasaki 4S was launched Hero Honda was the market leader in fuel-efficie nt bike s and Yamaha in the perfor mance bike s. Boxer - It took the reins from wh ere the Kawasaki 4S left. Target was the rural population and the price sensitive cust omer. Boxer marketed as a value for mon ey bike with great milea ge. Larger whee lbase, high groun d clearance and high milea ge were the selli ng factor s and it was in direct competition to Hero Honda Dawn and Suzuki MX10 0. Caliber - Th e focus for the Caliber 115 was youth. And though Bajaj made the bike look bigg er and fee l mor e powerful than its

predecess or (characteristics that will attract the ave rag e, 25-plus, executive seg ment bike buyer), its approach towards advertising is even mor e radically different this time aroun d. Bajaj gave the mandate for the ad campaign to Lowe, picki ng them from the cliq ue of thr ee agencies that do promos for the company (the other two bei ng Leo Burnett and O&M ). Going by the initial market resp on se, the campaign was cle arly a hit in the 5-10 years age bracket. So, the teas er campaign and the emphasis on the Calib er 115 being a `Hoodibabaa' bike placed it as a trendy motorcycle for the college-goers and the 25 plus executives both at the sa me time. Pu lsa r - Pulsar was laun ched in direct competition to the Hero Honda's 'CBZ' model in 150 cc plus seg ment. The campaign bea red inno vative punch line of "Definitely Male" positioning Pulsar to be a masc uline-loo king model with an app ea l to the pe rformance sensitive customers. Th e Pulsar went on e step ahead of Hero Honda's 'CBZ' and laun ched a twin variant of Pulsar with the 180 cc model. The model was a great success and has already crossed 1 milli on mark in sales. D sco ver - Th e same DTSI techn ology of Pulsar extended to 125 i cc Discover was a grea t succ ess. With this, Ba jaj could rea lize its succ ess ridi ng on the back of technological inno vat ion rather than the joint ve nture way follow ed by competitors to gain marke t share. BAL now is taki ng a leaf ou t of the FMCG business model to take the compa ny to grea ter heig hts.Baj aj has kicked off a project to completely rest ru ctur e the compa ny's retail network and create multiple sales chann els. Over the next few mon ths, the compa ny will set-up sep arate sales channels for every seg ment of its business and consumers. Bajaj Auto's entire product portfolio, from the entry-level to the premium, is being sold by the same dea lers. Th e restructuring will involve sepa rate dealer networ ks catering to the urban and rural markets as well as its three -whee ler and premium bike s segments. Baj aj Auto also plans to set-up an independent net wor k of dealers for the rural areas. Th e needs of financing, selli ng, dis tribution and even after-sales service are completely different

in the rural areas and do not makes sense for city dealers to control this. The compa ny also plans to set-up exclusive dea lerships for its three-whee ler products instea d of havi ng them sold throu gh an estimated 300 of its existing dealers.

Ot her Strategic Is ues: s Cash is stre ngth: Ba jaj Auto has been sit ting on a cash pile for over five years now. Over the next couple of yea rs, competition in the two-whee ler market is set to intensify. TVS Motors and Hero Hon da are on a product expansion binge. To fight this battle and retain its hard-earned market share in the motorcycle seg ment, Bajaj Auto will need its cash muscle. A look at its own story over the past five yea rs provides valuable insight. St ake for Kawasaki: Ba jaj Auto's atte mpt to vest the surplus cash in a separate compa ny may be a prelude to offering a stake to Kawasaki of Japan in the equity of the automobile compa ny. Th e latt er has been playi ng an increasi ngly active role in Ba jaj's rece nt models, and its brand name is also mo re vis ible in Bajaj bike s than in the past. Better va lue pro positio n: Shareholder interests may be better se rved if the ca sh is retained to pursue growth in a tou gh market. This would also obviate the need to fork-out fancy sums as stamp duty to the gove rnment for the de -merge r. A combination of a large one-time div ide nd and a regular buyback program throu gh the tender route may offer better value. A strategic stake for Kawasaki would only positively influence the stock's valuation. Strategie for the Overseas Markets: s Bajaj Auto looks at external markets primarily with three strategies: 1) A market where all BAL need to do is distribute thr ough CKD or CBU routes. 2) Marke ts wh ere BAL need to create new products. 3) Marke ts where BAL need to enter with exis ting products and probably with a good distributor or a production facility or a joint venture.

THE FUTURE
Bajaj-Renault-Nissan to drive small car (ULC)
Bajaj Auto has redrafted its bike strategy for this fiscal that will see the Pulsar and Discover act as the key growth drivers. The script goes according to plan, it has have set ourselves a target of 200,000 units from both brands by March 2010. Bajaj Auto and the Renault-Nissan Alliance to build the car code- named ULC with wholesale price range starting from 2500 USD

All this is part of a renewed thrust by the company to focus on two key requirements of the market which, over the years, have pretty much remained constant for either fuel-efficient commuter bikes or sporty, powerful products. The Discover has now been positioned to fulfill the former need in a segment where Hero Honda reigns supreme while the Pulsar has established itself in the sporty slot, with monthly sales of over 40,000 units.

Bajaj Auto Ltd has announced that the company may launch a small car in the year 2010 in India. The second largest two wheeler maker in India will enter the small car segment in partnership with French car giant Renault and Nissan. The small car prototype was unveiled today and the company wants to promote the vehicle as economical and affordable car. The Bajaj Autos car will be expensive as it will meet safety and emission norms. The standard version will come with an air conditioner. Bajaj Auto has said in a statement that the car will offer a mileage of 34 kilometer per litter. Bajaj will launch the car in Petrol and Diesel variants. Bajaj has plans to manufacture the small car at its facility in Chakan near Pune.

Bajaj Auto Ltd = 50 per cent

Bajaj Auto, which is yet to sign a joint venture agreement with its partners, Renault and Nissan. The ULC project was conceived as a three-way alliance where Bajaj would hold 50 per cent equity.

Renault = 25 per cent

The ULC project was conceived as a three-way alliance where Renault would hold 25 per cent equity.

Nissan = 25 per cent

The ULC project was conceived as a three-way alliance where Nissaan would hold 25 per cent equity.

Bajaj Auto, which is yet to sign a joint venture agreement with its partners, Renault and Nissan. The ULC project was conceived as a three-way alliance where Bajaj would hold 50 per cent

equity with Renault and Nissan accounting for 25 per cent each. Bajaj-Renault-Nissan will miss its 2011 deadline on its ultra-low-cost car project. Bajaj Auto managing director Rajiv Bajaj has ordered that the work done so far on the project be scrapped and has demanded major modifications on design, positioning and other details, according to a person familiar with the development.