The world has its first CNG motorcycle in the shape of Bajaj Auto Ltd’s Freedom 125. The bike, which is also designed to run on petrol if CNG isn’t available, appears to have been positioned and priced just right.
Nearly 70% of motorbikes sold in India are in the 100-125cc segment, and Bajaj plans to target this market with its new CNG bike. The Freedom 125 has been priced at ₹95,000 ex-showroom, though, which is much higher than any other 125cc bike. While the pricing may appear premium, the savings on fuel should appeal to potential customers. The higher price could also drive sales value growth.
According to Kotak Institutional Equities, Freedom 125’s cost of ownership is similar to that of the Hero Splendour 100cc, one of the most successful two-wheelers in India. This assumes fuel savings make up for the higher upfront cost if the bike travels 60,000 kilometres.
Here, the running cost per kilometre of the Freedom 125 is pegged at ₹1.1, assuming three kg of CNG and one litre of petrol are consumed. If only CNG is used, the running cost works out to ₹0.7 a kilometre. The same calculations repeated with the Hero Splendour 125cc show that choosing the Freedom 125 is likely to save the buyer nearly ₹30,000.
An important question, however, is whether Bajaj Auto needed to build a CNG bike in the first place, given that electric two-wheelers present an even cheaper and greener option. Electric two-wheelers have running costs that range from ₹0.25 to ₹0.50 a kilometre, compared to ₹0.7 for CNG. But electric two-wheelers still haven’t taken off in a big way despite substantial government subsidies.
In FY24, only about 5% of the 18 million two-wheelers sold in India were electric. Reasons for the slow growth of electric two-wheelers include the high initial cost, range issues, and long charging times (quick battery replacements are yet to gain momentum).
The Freedom 125 solves the first two problems to some extent as it is priced cheaper than most electric two-wheelers – even without government subsidies – and addresses range issues. The two-kg CNG tank provides a range of 200 km and the two-litre petrol tank offers another 130 km, for a total of 330 km. However, navigating long queues at CNG stations can be just as time-consuming as charging a battery.
Bajaj Auto outshone its rivals on two-wheeler sales volume in FY24, clocking growth of 25% as against 13% for the top four companies combined. This has caused the stock to double over the past year. Whether the new CNG bike helps it further narrow the gap with market leader Hero Motocorp or boost its exports remains to be seen.
“The stock has already had a significant re-rating in the past 12 months on the back of its market share gains in 125cc+ domestic motorcycles, improved margins and a one-of-a-kind policy to reward shareholders,” said a Motilal Oswal Financial Services report. The broking firm believes the stock’s valuation is reasonable and has a target price of ₹8,660. On Monday, Bajaj Auto stock closed at ₹9,529.40 on the NSE.
