Bajaj Raising Stake In KTM To 30%

Tuesday, January 29, 2008

Indian scooter and motorcycle manufacturer Bajaj Auto plans to increase its stake in Austrian motorcycle maker KTM Power Sports by 25% to 30% over the next few months, said Managing Director Rajiv Bajaj.

In November, Bajaj Auto acquired 14.5% of KTM for about $76 million, and subsequently increased that to 20.9%. “When we move into a more up-market two wheeler scenario, we will brand the vehicles as KTM, as that is what will be right for consumers,” Rajiv told

As domestic automakers compete with global brands in the rapidly growing Indian market, Rajiv said his strategy was to continue building the brand name. “Ultimately it is brands that profit, products only sell. What we see is an industry where companies put out products all the time–mindlessly. They try to be everything to everyone, with no brand identity of their own,” he said.

“I would like to position Bajaj as a manufacturer of light vehicles in the volume space in the world. We don?t want to compete on price,” said Rajiv, whose company plans to launch a small car over the next two to four years, in an alliance with Nissan (nasdaq: NSANY – news – people ) Motors and Renault (other-otc: RNSDY – news – people ). The vehicle, which Nissan and Renault chief Carlos Ghosn said he wanted to price around $3,000, will likely offer competition to the ultracheap Nano from Tata Motors (nyse: TTM – news – people).

Bajaj and Tata showcased their models at an auto expo this month, but the Nano hits the roads much earlier–in September (See: “Tata Shows Off Its $2,500 Car At New Delhi Auto Expo”)

India?s second-largest motorcycle maker plans to produce its small car at a plant in Chakan in the western state of Maharashtra. Rajiv said the initial investment would be nearly $180 million.

“Getting the price of the product down is good, but it is not critical for success. We want to sell a car that will give double the mileage the most fuel efficient car on Indian roads gives today,” he said.

The vehicle is likely to have a sedate maximum speed of 100 kilometers per hour, but on Indian roads, where the average speed is 27 kilometers an hour, that will be adequate, he said. “The vehicle is not for inter-city driving. But within the city, it makes sense to have cars that are fuel-efficient and eco-friendly.” Bajaj is exploring hybrid fuels for the vehicle, but for now the fuel options will be gasoline and diesel.

“The world will call it a car. To me it?s half a step ahead of a three-wheeler,” Rajiv said. Bajaj will use the same technology it uses for two- and three-wheelers, and the same suppliers and dealers.

And if Bajaj goes on to larger vehicles, it?s unlikely to be under the company?s brand. “If we were to make bigger cars, maybe we should go out and buy a brand somewhere in the world,” he said.

Bajaj Auto sales declined 3.4% decline this quarter, which was tough for other two-wheeler manufacturers as well, but Rajiv said the numbers should not be mistaken as a trend.

“With the exception of Maruti, most four-wheeler companies are under pressure as well. The whole issue has been with financiers gradually withdrawing. It first affects the bottom of the pyramid, gradually works its way up. This is just a structural correction.”

And if two-wheeler growth slows down in India, there are always the export markets. “The market for two-wheelers outside India is possibly five or six [bigger], so there is no reason why any two-wheeler company should be at a loss for growth,” he said.

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