Demand Forecasting

of
Bajaj Motorcycles

Group 3
-Ashwin Nair(10P213)
-Nikhil Gupta(10P215)
-Poulomi Mukherjee(10P219)
-Shashank Shekhar(10P232)
-Vipul Manglik(10P241)
Bajaj – An Overview
 Started in 1945 as a trading company
 Obtained license in 1959 to manufacture two and three
wheelers
 Rolled out 100,000 vehicle in 1970
 Managed to produce and sell 100,000 vehicles in single
year in 1977
 Demerged into 3 separate entities in 2005 -  Bajaj
finserve, Bajaj Auto & Bajaj Holdings and Investment
Ltd
 Building $2,500 low cost car in collaboration with
Renault and Nissan Motor
Oligopoly Structure

 Few firms selling a homogeneous or

differentiated product
 High degree of interdependence or rivalry
among firms
 Price competition can lead to ruinous price
wars
 Firms prefer to compete on basis of product
differentiation, advertising and service
Oligopoly Structure

 Entry into industry possible, but it is not easy

 Economies of scale
 Huge capital investments and specialized inputs
 Patent ownership for exclusive right to produce a
commodity or use a particular production process
 Loyal customer base
 Few firms may own or control the entire supply of
a raw material
 Government franchise given only to a few firms
Kinked Demand Curve

P*  Current Market Price

At prices above P* a small price rise
brings a big decrease in the quantity
sold  highly elastic
At prices below P* even a large price
cut brings only a small increase in the
quantity sold  less elastic
Motorcycle Market Share
Motorcycle Market Share
3% 3%
5%
8%

47%
Hero Honda
Bajaj Auto
TVS Motors
Honda Motorcycle
Yamaha
Others
34%

Four Firm Concentration Ratio = 0.96

Herfindahl Index ~ 3500
Two wheeler Industry – An Oligopoly

 Constant Price war between Hero Honda & Bajaj

 October 2007: Hero Honda offered discount of Rs 2020
on CD Deluxe; Bajaj responded with a discount of Rs
4000 on Platina to counter competition
 Reducing Operating Margins over the years due to
competitive pricing strategies by all the players
 Lower product prices also acts as an barrier to entry
 Increased advertising spends by one leads to
increase in ad spends by all players
 Bajaj launches ‘Naye Bharat ki Nayi Tasveer’ ad campaign
 Honda responds with ‘Desh ki Dhadkan’
 Porter’s Five Forces Model
Threat from new entrants
• Barriers to entry reduced as 100% FDI allowed
• Huge investments required for setting up
distribution channels and service stations
• Second hand car market • Brand building costs are high
• 4 wheelers – convenience and status symbol • 100% import duty on foreign bikes reduces
• Low price 4 wheelers newer entrants
Threat from Substitutes
Current competition:
- Intensified
- Greater brand building and advertising
Supplier Power - Tremendous growth potential in rural markets
personality and comfort
• Supplier power is low • Buyers demand 2 wheelers as it suits their
• Suppliers fragmented and exclusive financing
• Backward integration by 2 wheeler companies • Price sensitivity reduced due to ease in
• Buying power is high
Buying Power
Demand and Growth Drivers
 Personal Income
 Demand increases as income increases, later substituted by demand for four
wheelers
 Demography
 Bigger the young and working population, greater the demand
 Penetration Level
 Lower the penetration level in the market better the scope for market demand
 Interest rates
 Decrease in bank rates leads to increase in demand
 Oil Prices
 Increasing oil prices deter many lower many middle class buyers
 State of public transport system
 Poorer the public transport, the greater the demand
 Low Priced Cars
 Launch of low priced cars like Tata Nano and reduction in price of second hand cars
Key Information
Dependent Variable:
Annual Sales for Bajaj Motor cycles

Independent Variable:
Per Capita Income of India
WPI (Weighted Price Index) of Petrol

R Square 86.83%
Adjusted R Square 83.07%
F - Statistic 23.0758

Critical F-Statistic at 95% Confidence: 4.74

Multivariate Regression Analysis
 Equation:
Sales = 9254.71*Petrol WPI +
14.85*Per Capita Income -593708.08
3,500,000.00

3,000,000.00

2,500,000.00

2,000,000.00

1,500,000.00 Actual
Forecast
1,000,000.00

500,000.00

0.00
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013-
01 02 03 04 05 06 07 08 09 10 11 12 13 14
Forecast for Bajaj Motorcycle Annual
Sales
Year Petrol WPI Per Capita Income Bajaj Annual Sales
2000-01 154.24 16688 963115
2001-02 158.09 17782 1198227
2002-03 163.25 18885 1251855
2003-04 178.73 20871 1288910
2004-05 203.54 23198 1602565
2005-06 231.09 26003 2029090
2006-07 254.79 29524 2396999
2007-08 242.26 33283 2160927
2008-09 260.85 37490 1919582
2009-10 242.66 40489 2511696
2010-11 281.15 41519 2624574
2011-12 294.27 44264 2786807
2012-13 307.40 47009 2949039
2013-14 320.53 49753 3111271
Time Series Analysis

 Trend Equation: St = S0 + bt
 Bajaj Quarterly Motorcycle sales trend
equation with quarterly data for the last 10
years: St = 111558 + 14391t
 R2= 80.99%
 Trend Line
900000

800000

700000

600000

500000
Actual
Forecast
400000 Linear (Forecast)

300000

200000

100000

0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47
Seasonal Variations using
Ratio-to-trend method
Quarter Actual Sales Forecast Actual/Forecast
2000 Q2 146097 125949 1.16
2001 Q2 168546 183513 0.92
2002 Q2 210932 241077 0.87
2003 Q2 259071 298641 0.87
2004 Q2 341435 356205 0.96
2005 Q2 445557 413769 1.08
2006 Q2 623062 471333 1.32
2007 Q2 531516 528897 1.00
2008 Q2 561475 586461 0.96
2009 Q2 599737 644025 0.93
Average 1.01
 Trend using Ratio-to-trend
Method
900000

800000

700000

600000
Actual
500000
Forecast
400000 Linear
(Forecast)
300000
Forecast
with
200000
seasonal
variations
100000

0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
Linear Trend including Seasonal
Dummy Variables
 St = S0 + b1*D1t+ b2*D2t+b3*D3t+b0t
 Dit: Seasonal Dummy Variable for the ith Quarter
 Trend Equation Obtained:
St = 84421 + 22957*D1t + 29629*D2t + 50534*D3t
+ 14547t
 R2= 81.94%
 F statistic = 39.70
Linear Trend including Seasonal
Dummy Variables
900000

800000

700000

600000

500000
Forecast
400000
Actual
300000

200000

100000

0
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5 2 7 2 9 31 3 3 3 5 37 39 41 43 45 47
Forecasts

Quarter Trend Forecast without Forecast using to Ratio-to- Forecast Using Dummy
Seasonal Variations Trend Method Variables

2010 Q2 701589 706621 706808

2010 Q3 715980 757776 742170

2010 Q4 730371 684598 706094

2011 Q1 744762 706820 743509

2011 Q2 759153 764598 764638

2011 Q3 773544 818700 800000

2011 Q4 787935 738555 763924

2012 Q1 802326 761452 801339

Thank You