Bikes above 250cc up to 750cc are next big opportunity, says Bajaj Auto

Speaking about KTM, he said it's on the verge of becoming the largest brand in the premium segment.

India will be the most important market for the Bajaj Auto-Triumph alliance, he added.

Bajaj Auto will export to markets in Africa, Latin America and Association of South East Asian Nations (ASEAN) via its alliance with Triumph.

We will make Triumph motorcycles at Bajaj Auto's Chakan facility, said the MD.

Bajaj said that the margin is a secondary issue from the strategic point of view and pricing power is primary.

Below is the verbatim transcript of the interview.

Q: Quite the coup, one must say, for Bajaj Auto because with this, you are now in the entry level segment, medium duty segment, the sports segment with the KTM and now you have entered with the easy riding or the cruiser segment, is how you put it. Talk to me now about the strategic rationale behind this because it seems that you will also help Triumph manufacture motorcycles in the lower cc category. Take me through the strategic rationale before I get into more specific questions with you.

A: It is a wonderful opportunity for Bajaj. As you said yourself. We are present in more than one segment. I have always said we are marketing company more than a technology or an engineering company and all marketing is basically about brands and all brands are about attributes that they stand for. The sharper the attribute, the stronger the brand. So we are a company that makes for example, a Boxer for Africa, it is the largest selling brand in that continent.

We are a company that makes the V for example, for India, another successful brand. It stands for a solid commuter. We make Pulsars and Avengers for the world. And all these brands together in the 100-250 cc range represent some very good options for what I would call commuters at large. Now, beyond 250 cc, somewhere commuting becomes less important and riding, if I may say so, becomes more important.

And to my mind, above 250 cc. up until 750 cc. this is where really the next big opportunity is, not only in India, but worldwide. And essentially, it is in two parts. Once again, speaking of attributes, there could be brands that are strong in this space in the 250-750 cc space. In the sportier, sharper, hard riding space and that is where we compete with KTM. And as you know, over the last 10 years, that relationship has really gone from one success to the other. KTM is on the verge of becoming the largest brand in the world in the premium space, this year.

But there is at least equally, another opportunity which you referred to as the easy riding or sometimes I refer to as the lazy riding almost, segment and we had one piece in our puzzle that was missing. And that was an association with a premium brand in this space. So, Triumph is a company that I have been in touch with for about 10 years now and I am very glad that after a 10-year period of getting to know each other, we have finally both felt comfortable enough to come together and hopefully to create some magic in this space, as we have done for the last 10 years with KTM, for example.

Q: You are talking about the 250-750 cc segment and interestingly, that is the segment that Royal Enfield at their end, have identified as the medium duty segment that the company will also be focusing on and that is going to bring you head to head. In terms of the opportunities and volumes globally that you can share with us, because as you are saying, your focus is primarily going to be within this segment.

A: Honestly, this is a wrong question to ask and I can say this candidly. Every time I have approached business with volume in mind, I have made a mistake. With KTM, we did not ask ourselves about the numbers. We did not say to ourselves 10 years ago that KTM should become the number one premium brand motorcycle in the world. We just did the right thing. We had a sharp brand and we developed products around that and we went to different markets that were not accessible or within reach before because of the price points involved and look where KTM is, from 65,000 a year to 2,50,000 a year this time.

Now, similarly, for Triumph, it may appear as if currently, where is the market for small Triumphs the world over because there are no small Triumphs today, at least none that people, especially in emerging markets can afford. Fortunately and thanks to Siddhartha Lal and his team in Royal Enfield, we have at least one shining example in India where one company has shown the way that this can be a segment that is almost 7-8 percent today of the total market.

Now if we take that as a benchmark and on top of that if you put together the brand value of Triumph which at least to me, ranks higher than a Royal Enfield and if you then add to that, the capability of Bajaj in terms of design, development, engineering, manufacturing, sourcing, which in quality and cost terms, at least to my subjective mind, is superior to that of Royal Enfield, then you can begin to appreciate that there is a huge potential waiting out there that we can harness together.

Q: You have said in the past that 70-80 percent of the motorcycle market is outside of India and therefore, therein comes your global ambition of being one of the preeminent motorcycle brands globally. So, talk to me a little bit about the markets that you will be focusing on at least in the first leg of your arrangement.

A: If you see where things stand today, I would say the first and most important market should be India because this segment is closing in on a vehicle size of one million units per annum. In that segment today, Enfield is probably 75 percent of the market. We have now grown steadily in the last 18 months thanks to our product interventions like the Dominar, like the upper end Pulsars like the RS and NS and of course, KTM, we have grown to acquire about 15 percent share approximately in this segment. So Bajaj has good traction here already and this should obviously be the most rewarding market for this relationship between Bajaj and Triumph.

But beyond that, as Bajaj we are going to take responsibility for certain global markets on behalf of Triumph and in line with their policies because ultimately, they own the brand. These would be markets in most of Africa and several important markets in both Association of Southeast Asian Nations (ASEAN) and Latin America. And Triumph of course, will take these products to all other global markets including to the developed or the advanced markets. And the potential there will also be significant.

Again if one looks at what has happened with KTM, it is not just the 1,00,000 vehicles that Bajaj makes this year, the smaller ones going to emerging markets, that is the story of KTM. The story of KTM is also about the 1,50,000 bigger KTMs, that KTM themselves have taken to their markets. So I think there  is a huge global opportunity across markets for a Triumph that is made to world class standards and that is suddenly brought to price points that were previously considered inconceivable especially in emerging markets.

Q: So when do we see the first product coming up for the India market then and currently, as you alluded to, over one-third of KTM's production happens at Chakan. So when do we see these motorcycles being ready for production back home here in India?

A: Yes, we do envisage to make the Triumphs at our Chakan facility. Whether it will be the existing facility or a new one right next door, for which we already acquired land, I am not quite sure as of today because my own anticipation is that the volumes could scale up very rapidly, both for KTM because of the introduction of Husqvarna next year, which is something we announced last month and also with Triumph coming in. So we might have to actually add a plant in Chakan.

In terms of product development, it will not be one product that we go to market with, it will be more than one because clearly if we have to go to entrepreneurs and ask them to set up dealerships, it is not very inspiring to do that on the back of just one stock keeping unit (SKU), so we will go with more than one SKU. How many exactly, that time will tell. In terms of product development time, typically a ground up motorcycle is a three-year effort, but I can share this with you that in anticipation of this partnership materialising, the two companies which have known each other, as I said, for the last 10 years, have already started work a few months back, both on the vehicle side and the engine side.

So we saved ourselves a few months of work by working, because engineers tend to agree easily with each other because they speak very logically. Business guys like us, take a long time negotiating the contract. So Abraham Joseph and Pradeep Shrivastava and their counterparts have already started work. Ravi and I have been delaying the process, but finally it has come to be.

Q: Bajaj takes a lot of pride in being the world's most profitable two-wheeler company, so therefore, my question is with respect to margins. You have always kept it at 20 percent plus. That is the ballpark range where you want to be. What could be the possible impact on Bajaj Auto's combined and consolidated margins once the products are ready for production with Triumph.

A: First of all, I would say that our priority has never been margin itself, because at the end of the day, margins are controlled more by competitors than by yourself. What we are very particular about is pricing power and what we insist and the pressure we put on ourselves is that in every segment that we compete in, right from the Boxer in Africa to the Dominar in India through to the KTM sold in Germany, we must be priced on par with the best of the competitors because that is the only proof at the end of the day that the consumer appreciates your work.

Now, if that price is yields a margin of 20 percent, a blended margin of 20 percent, that is our good luck because we are doing something efficiently and more importantly, we are perhaps not getting distracted and flittering away our money in some other segments, i.e. scooters for example, in the context of Indian market, that our competitors may be doing. But margin is a secondary issue, frankly for me from a strategic point of view.

The more important point is the pricing power or the pricing parity. In that context, what I would say is that every Triumph like every KTM will be priced on par. It is not going to be sold as a cheap motorcycle, it is still going to be an expensive motorcycle. Now what the pricing will be will depend on the market, will depend on what competition is doing there, will depend on what product we make exactly, what exact displacement, because there is a very close correlation of price to displacement. So this will all unfold as we go ahead. It is going to take a couple of years if not more to get these products out.

But definitely, pricing power has stood us in good stead. It has given us a blended margin of 20 percent, obviously a Boxer does not make 20 percent, obviously a Pulsar or an Avenger makes much more than 20 percent. In that sense, we are not directly comparable to Enfield, that compete only in one segment and therefore, in isolation will demonstrate a higher earnings before interest, taxes, depreciation and amortisation (EBITDA). But as a company, with this portfolio, yes nobody else is able to do this so far and I am sure that even with the Triumphs, we will be able to demonstrate the same standard of excellence.

Q: I am curious because since another global motorcycle brand is on the block, Ducati, so there were a lot of media reports speculating that Bajaj would tie up with Ducati and here we can say, we were the only media channel consistently saying that it was not Ducati because that did not make any strategic sense for Bajaj Auto, but could you, for the record, for the benefit of our viewers also, tell us that did Ducati approach Bajaj Auto? Were you seriously considering the proposal at some point and if yes, why did you not go through with it?

A: I can tell you a little about that. A] Ducati never approached Bajaj Auto. B] KTM and Bajaj together did certainly express interest formally in Ducati. Why? Simply because it is a fantastic brand. It is doing very well. It must have a great future and as a motorcycle company that prides itself on being a motorcycle specialist, how could we not look at an opportunity like that which comes only once in so many years, if at all. So we wanted to know more about it.

We wanted greater insight and that is why we expressed interest. We got some information and the reason we decided to pull out of that race, a little before July 19, is two-fold. One, because instinctively, we always felt that Ducati was too close to KTM. For every naked Ducati, for every adventure Ducati, for ever full-faired Ducati, we have a KTM that is doing so well.

So the question before us was that should we try to put in the same effort all over again for perhaps a marginal incremental gain picking up 55,000 Ducatis and trying to move that up or should we put all the resources behind KTM and Husqvarna and indeed, Triumph which in fact in my opinion has a bigger potential, logically than even KTM and Husqvarna do. So the answer clearly was that the incremental gain would be greater here. And two, from whatever we have heard and we had no way of knowing anything very accurately, the money being talked about was not logically justifiable.