INDIA BUSINESS WORLD - OCTOBER 21^st - NOVEMBER 15^th - 2007

BAJAJ READY FOR EURO TOUR, PICKS 14.5% IN KTM

Exactly a week after Renault Nissan CEO Carlos Ghosn's high-profile visit to its Chakan plant, Bajaj Auto has announced another topgear alliance, this time in the motorcycle market. Bajaj picked up 14.5% in KTM from the open market for around Rs 300-350 crore, as part of a "wide-ranging cooperation" with the € 566 million (Rs 3,200 crore) KTM Power Sports, Europe's secondlargest sport motorcycle maker. Bajaj picked up the stake through its 100% Dutch subsidiary and sources said it may look at picking up another 5-10%. Bajaj Auto may also get a seat on the KTM board, say industry sources.

The alliance with KTM covers joint development of street bikes for both Indian and overseas markets and will complement Bajaj Auto's efforts to hammer out a deal with another European motorcycle brand, Triumph. Sources say talks are on with Triumph, and if they go through, the focus there would be more on cruisers and other higher displacement on-road products. KTM, on the other hand, makes mostly off-road sports bikes. Its jointly-developed street bikes with Bajaj will have smaller 125 cc and 250 cc engines.

The promoters of KTM currently own 50.1% of the company. Asked if Bajaj would increase its shareholding in the company to a more substantial 20-25%, KTM CEO Mr Stefan Pierer said: "Our company is listed on the Vienna stock exchange and Bajaj's current stake comes from the free float shares. If there's something free on the market, they could do it and end up increasing their participation. We see this as a long-term partnership and will be very positive about it."

The partnership will jointly develop a highperformance, water-cooled engine platform for 125 cc and 250 cc bikes. "The engine platform will spawn several models," said Mr Pierer. "KTM will do KTM models and Bajaj will make Bajaj motorcycles." The two companies, he said, are focusing on their core markets for this new range of street bikes-Bajaj on India and the south Asian and southeast Asian markets and KTM on Europe.

But in the second phase, that spread will increase. "We have a good presence in north America and we can figure out which models will work there," Mr Pierer said. "Also we have a footprint in Japan but not in the rest of Asia, so the alliance can look at southeast Asian markets like Indonesia, Philippines, China, Vietnam etc," he added.

The alliance will not only enable Bajaj to take over the distribution of KTM products in India and southeast Asia, it will also enable the Indian two-wheeler major to access the European market through KTM. "We are currently looking at how we can market and sell Bajaj products in European markets," Mr Pierer said. And sourcing will also be part of the deal. "Bajaj will also support us with supplier systems," said Mr Pierer.

Agreed Bajaj Auto vice-president (business development) S Ravikumar: "The cooperation covers product development, technology, vendor sourcing and distribution." Bajaj has funded the current stake buy of a million shares with its internal accruals. Its 14.5% stake makes it the largest stakeholders outside the promoters.

The alliance will offer Bajaj on-road bikes for not just India but also southeast Asian markets like Indonesia, where it is aggressively focusing attention. And if the Triumph deal goes through, Bajaj will have an entire range of bikes and a distribution footprint worldwide to sell them. As for KTM, this means sourcing from India, a street market entry and access to Asian markets.