Bajaj After Rahul

IT WAS WHEN he got confined to his home in Pune due to prolonged illness that the late Rahul Bajaj decided it was no longer possible for him to manage the family’s interest in businesses and be part of the boards of group companies. In 2020, the veteran industrialist constituted a family council to manage promoter shareholders’ interests. By next year, he had vacated the chairmanship of Bajaj Auto Ltd. (BAL) and board position at Bajaj Finance Ltd (BFL).

Before his demise in February 2022, Rahul had already laid out the succession roadmap in group companies. He had stopped managing BAL long back and entrusted elder son Rajiv Bajaj with operations as managing director. Niraj Bajaj, cousin of Rahul Bajaj, succeeded him as chairman at the two-wheeler maker later. Younger son Sanjiv, who built the NBFC and insurance businesses, was appointed the chairman of BFL and its parent firm Bajaj Finserv Ltd.

However, the biggest change instituted since Rahul’s passing was that there will no longer be a chairman. Instead, the ₹1.46 lakh crore Bajaj Group will be run by consensus via the family council — which includes Rahul’s cousins Shekhar, Madhur and Niraj and Niraj’s son Nirav, besides Rajiv and Sanjiv. The council meets every one and a half months and spends a day together in Mumbai or Pune discussing business and family matters. Moreover, the fifth generation — Rajiv’s son Rishabh and Sanjiv’s daughter Sanjali — has joined the business.

Two years and four months since Rahul Bajaj’s passing, a statistical analysis of the 98-year-old Bajaj Group reveals the business performance has improved despite his absence. Yet, new challenges have emerged stronger than before. Aggregate net profit (consolidated) of six major companies rose 117% to ₹37,809 crore in the last three fiscals. During the period, the group added over ₹4 lakh crore to the aggregate market cap of listed firms, crossing ₹10 lakh crore in December 2023. “Rahul Bajaj was always against the idea of doing multiple things at a time and insisted on sticking to the knitting. We want to become better every day with sharper focus in the businesses we are in,” says a family member.

Yet, the group faces new challenges that can affect profitability and valuations. Especially its two most successful and profitable companies: Bajaj Auto and Bajaj Finance. BAL was a late entrant and less aggressive initially in electric mobility and for that reason its electric scooter Chetak lags Ola Electric and TVS Motors in market share. BFL, on the other hand, is up against stiff competition from new ventures of cash-rich conglomerates — Jio Financial Services, Godrej Capital, Poonawalla Fincorp and Hero Fincorp. In the NBFC space, Tata Capital is strengthening its play.

Keeping the family together is another challenge, especially when the baton is being passed on to the fifth generation.

Two-wheeler Play

Rajiv Bajaj is pressing the pedal at BAL to capture every possible business opportunity in two-wheelers. For one, it entered the 400 cc premium bike segment to compete headlong with segment leader ‘Bullet’ from Eicher. While launching the premium motorcycle Triumph — jointly developed by the British and Indian two-wheeler maker — at BAL’s Akurdi plant in Pune last year in April, Rajiv said the segment dominated by Royal Enfield is seeing increased demand and margins. “We will be there where the money is,” he said.

In the fast-growing electric two-wheeler (e2w) segment, Bajaj is taking on segment toppers Ola and TVS with new launches, to increase its market share from the current 12%. While Ola accounts for every third e2w sold in India and has nearly doubled sales to over 3 lakh units in FY24, TVS has a 19% market share.

Bajaj Auto recently announced at least one new Chetak will be launched every year. The last upgraded Chetak e2w was launched in January. “For the next year, we have something distinctly different. It’s not just another refresh on the existing Chetak, but a new platform itself,” Rajiv said. BAL founded Chetak Technology Ltd. to develop the electric scooter in-house in 2021. The company plans to increase Chetak showrooms to 600 from the current 200 by September.

BAL expects the domestic industry will expand at 7-8% per annum, with the upper half of the demand pyramid growing faster. “Growing penetration of EVs is opening up a new segment for us,” says Rakesh Sharma, executive director, BAL, during the FY24 earnings call. In FY24, BAL recorded highest-ever revenue, EBITDA, PAT, cash flow, Pulsar volumes, three-wheeler volumes and KTM volumes in India, says Sharma. Going forward, it intends to focus on driving topline growth without diluting profitability.

BAL is also launching the world’s first CNG bike for mileage-conscious commuters. It will halve commuting expenses, and will be offered in dual-fuel capability with both CNG and petrol options on the same vehicle.The company is expanding its pro-biking business unit, which houses KTM, Husqvarna and Triumph brands. “The new-gen KTM and the recently introduced Husqvarna range should help us build on. In FY25, we will introduce the big bikes of KTM in select cities,” says Sharma. Incidentally, KTM recorded its highest-ever sales in FY24. Triumph’s domestic network will touch 150 stores in the first half of FY25. “We have exported over 19,000 bikes to 57 countries. Initial responses are promising, and we see a good upside in Triumph exports,” says Sharma.

BAL’s market share in the upper end stands at 27%, just 2% lower than segment leader Royal Enfield. At the beginning of FY24, the difference was 10%. BAL closed the gap, thanks to nine new launches, spanning the 125cc to 250cc class, says Sharma. “Another six models will be launched in H1 FY25, ensuring we are always on top of the mind of the customer,” he adds.

Overseas markets, however, could put the brakes on BAL’s growth story. The company has divided its overseas markets into three sets — stressed (Nigeria, Bangladesh, Kenya, Egypt and Argentina), recovering (mainly LatAm and ASEAN), and new (where it plans to foray or has forayed recently). While Nigeria and Bangladesh are currently reeling under inflation, macroeconomic and geopolitical issues are affecting other markets and supply chains. In its FY25 blueprint, BAL management has taken an ultra-cautious view of the stressed markets, while deciding to go aggressive in the recovering ones. The automaker plans strong launches in new markets and segments. For instance, its plant in Brazil will start production soon. “In this quarter, we will expand our presence in Europe. The Egyptian government has formally recognised the category of quadricycles for public transportation,” says Sharma. The company started the export of its quadricycle, the Qute, to Egypt in May.

The three-wheeler auto rickshaw business though stays rock-solid with an overall market share of 78% in FY24, up 5% since FY23. BAL is looking to add one store for EV auto, every two days.

The company says it is confident of retaining over 20% EBITDA margin amidst scaling up of e2Ws and e3Ws portfolios in the coming quarters and efficient cost management, ICICI Securities analysts say in a report. The brokerage sees rising competition in the Pulsar segment and weak export demand as risks.

Competition Brews In NBFC

Mukesh Ambani’s Jio Financial Services (JFL), which got former ICICI Bank chief K.V. Kamath on board as chairman, has joined hands with BlackRock Inc. to set up wealth management and broking businesses. JFL is looking to increase the share of foreign investments in its equity capital up to 49%. It has also launched the beta version of the app.

Tata Capital, meanwhile, plans to raise $750 million via overseas bonds/loans to diversify its liability base. Poonawalla Fincorp is keeping all options open to tap strategic investors and PE funds, while Godrej Capital is looking to foray into affordable housing loans.

Companies are looking at diversified portfolios, too. While JFS is building a bouquet of services in lending, asset management, insurance, mutual fund and stock broking, Godrej is focusing on secured loans (home loans and loan against property), and Poonawalla Fincorp is expanding in semi-urban and rural India.

Rajeev Jain, MD, BFL, however, does not see rising competition in the NBFC space dampening BFL’s growth. “The financial services industry has always been characterised by competitive intensity. However, India continues to present an incredible opportunity for financial services, and this will only rise with a growing economy and resultant consumer needs,” Jain says in an interaction given in the context of BFL emerging as Fortune India’s Best Listed NBFC.

According to Jain, the financial services business is about talent, risk management, economic cycles and flawless execution. “While this is a tough balancing act, I believe it has also been our key competitive advantage over the last 17 years... We are strengthening our competitive moat which positions us well to navigate the changing business landscape and deliver long-term sustainable value,” he adds.

BFL’s consolidated net profit rose 26% YoY to ₹14,451 crore in FY24, on the back of a 26% growth in total income to ₹36,258 crore. New loans booked in Q4 were lower by 2 million quarter-on-quarter due to RBI restrictions in its ecommerce and insta EMI card products. In November 2023, the central bank ordered BFL to stop disbursal of loans under the two categories due to ‘non-adherence’ to digital loan guidelines. The restriction was lifted in May. “Regulatory action on two of our products was a setback for the year. We remain committed to compliance in form and spirit as a company,” Jain had said during the Q4 investor call. The lender, which added 53 new locations and 7,700 distribution points in FY24, is present in 4,145 locations, and serves over 198,000 active distribution points.

The major concern for the company, however, is its rural B2C business (excluding gold loans). Asset under management (AUM) of the segment grew 6% to ₹17,607 crore, constituting 5.32% of the overall AUM, lower than 6.73% in the previous year. Urban B2C, SME lending, commercial lending, mortgages and two and three-wheeler lending maintained its AUM growth between 30% and 50% during FY24.

“We still don’t have a full hold on rural B2C. As a result, growth has slowed down until such time we can tame the risk in the business,” says Jain. “It’s a contained risk, and does not impact the company on an overall basis.” BFL is also deploying various Gen AI initiatives across operations, services and contact centres to enhance operating efficiencies. The bigger benefits will be visible from FY26, adds Jain.

In Q4 FY24, the NBFC raised $725 million (₹6,016 crore) in external commercial borrowings. According to latest reports, the company, along with Bajaj Housing Finance raised more than ₹12,000 crore through bond issuances on May 7, the largest single-day issuance by an NBFC. Bajaj Housing Finance also raised ₹4,500 crore via non-convertible debentures in May.

Meanwhile, insurance businesses under Bajaj Finserv continue their growth trajectories. Bajaj Allianz Life Insurance recorded its highest ever AUM of ₹1,09,829 crore in March 2024, due to its focus on omnichannel distribution. Renewal premiums for FY24 surged to ₹11,549 crore, a 32% growth, from ₹8,724 crore in FY23. Bajaj Allianz General Insurance Company, on the other hand, has emerged as the second-largest private general insurer with a market share of 7.4% in terms of gross direct premium income in the first 11 months of FY24, according to rating agency ICRA. The company’s strong presence is supported by its diversified distribution mix, which has aided growth. It recorded a 33% increase in gross written premium to ₹20,630 crore in FY24, while AUM stood at ₹31,196 crore in March 2024, against ₹27,809 crore a year ago.

According to analysts at Motilal Oswal Financial Services, BFL is staring at a weaker year ahead as near-term headwinds on AUM growth cuts down business in rural B2C. The compression in net interest margin (NIM) due to rise in borrowings costs, difficulty in passing on rate hikes to customers, and change in product mix are other concerns of the brokerage.

No Smooth Sailing

Sluggish demand in mixer-grinder to pricing pressure in LED lights has hit Bajaj Electricals Ltd (BEL). The Shekhar Bajaj-headed company reported a lower profit of ₹131 crore in FY24, against ₹216 crore in FY23, owing to weakness in appliances and general trade.

The company said the growth in fans and the Morphy Richards brand was offset by a drop in the appliances business during Q4 FY24. The lighting solutions segment witnessed a decline in revenue due to falling LED prices and higher base effect in professional lighting, while consumer products also showed signs of rural stress and weak demand. All these together affected revenue from operations, which fell to ₹4,641 crore in FY24, from ₹4,889 crore in FY23. Analysts, however, expect a business boost due to increased consumer demand sentiment in rural and semi-urban areas following a favourable monsoon.

Another group firm Mukand Ltd is betting on innovative specialty steel products, following a 40% YoY decline in net profit at ₹103 crore in FY24 due to benefit of land sale in the previous year. The company is focusing on transitioning to environment-friendly practices within its stainless steel manufacturing operations. It recently inked a pact with Tata Power for building a 43.75MW captive solar project in Maharashtra.

Within The Family

Rahul Bajaj, who countered a bitter ownership feud in the family that led to the exit of Shishir from the group in 2007, wanted to prevent a repeat. This thinking led to the creation of the financial services business, which was handed over to his second son Sanjiv. Operational responsibilities of Bajaj Electricals were entrusted to Shekhar and steelmaker Mukand Ltd. to Niraj.

In 2018, Rahul envisaged a business succession plan and ownership structure and implemented it through a Family Settlement Agreement (FSA) signed by around 25 members. The family council now takes care of shareholder interest in businesses.

The family controls the ownership through private trusts, over 10 holding companies, and personal accounts, which are managed by Niraj. There is no family head after the passing away of Rahul Bajaj.

Kavil Ramachandran, senior advisor at the Thomas Schmidheiny Centre for Family Enterprise in the Indian School of Business, Hyderabad, says it is challenging to “run” a family business through a family council. “The challenges depend on the kind of advisory role the family council plays. Does it make certain decisions that may be strategic and/or operational in nature?”

Since the ownership is shared by family branches, there will be questions about performances, rewards and resource allocations across businesses, adds Ramachandran. “The challenges grow as generations move from siblings to cousins and beyond.”

During an earlier interaction with Fortune India, Niraj Bajaj had said the problem with most business families is that the family comes first and companies second. “In our case, the family comes second. We owe our reputation and existence to thousands of small shareholders who trust the Bajaj name and have put their hard-earned savings in Bajaj shares.”