Two weeks ago, Bajaj Auto announced an infusion of €800 million (Rs 7,765 crore) to bail out its ailing partner KTM, which has been on the brink of bankruptcy. What is interesting is that the investment is around eight times the return Bajaj has got from the Austrian bike maker in the last 17 years.
The move will make Bajaj Auto a majority owner in KTM from being a dormant minority investor. But not everybody is impressed. “The acquisition of a controlling stake in Pierer Mobility (holding company of KTM) demands caution, given the company’s financial distress and the complexity of turning around a struggling premium brand in a shifting global market,” said a report by Kotak Institutional Equities.
But the fact is that the deal happened not because Bajaj wanted to buy but because it had to. The threat of KTM being shut down for good left too much at stake, and the takeover appears to have been Bajaj’s only course of action. Why so? The short answer is that despite its problems, KTM is an important piece of the puzzle for Bajaj Auto’s motorcycle ambition.
Over the past several years, the two companies have jointly developed several mid-capacity bikes and engines for India and for over 80 overseas markets.
“Even in this extremely stressful period, the customer franchise (of KTM) has not eroded due to its deep and niche positioning and is ready to be restored. We have a strong belief in the opportunity in KTM,” Rakesh Sharma, executive director, Bajaj Auto, said in an earnings call late last month.
A full revamp of the entire governance framework of KTM is being planned by Bajaj which will involve leveraging the experience and expertise of the Bajaj ecosystem. This will be aimed at restoring the momentum of the business as well as driving the financial viability, synergies in procurement of components and production.
While till now Bajaj was making KTM bikes in India having engines up to 400cc, after the completion of takeover, production of motorcycles with engines of nearly 1000cc are being planned in India. Leveraging its own production ecosystem, Bajaj hopes to bring down the cost of production of bigger KTM bikes.
“At some point we will also expand the limit of the joint development program as a possible opportunity. Today that programme is only limited to bikes below 400cc. We have the opportunity to increase that to 990cc in the immediate term,” Dinesh Thapar, chief financial officer, Bajaj Auto added.
The US and Europe are large markets for KTM for bigger bikes, while Asian markets like India are lucrative for mid-capacity bikes. From being a major challenger to ace brands like Harley-Davidson and BMW Motorrad in Europe, the bike business of KTM nosedived sharply in the post Covid-19.
“The unfortunate developments of 2024 have their genesis in the downturn of the e-bike business, the sharp rise and fall for extreme sports during and post Covid. The failure to read the demand volatility led to increase in stock and debt and the subsequent interest cost hike. The convergence of all these developments put a huge pressure on liquidity and brought KTM to near insolvency,” Sharma said.
Since December, 2024 bike production at KTM had come to a standstill. The immediate goal for Bajaj would be to restart production.
“CY25 will be the year of bringing back continuity because the production stopped in December. It is about reviving the partnership with customers and the ecosystem. It is about establishing normalcy in operations,” Thapar added.
