No response from FinMin, SIAM on CKD kits issue: Vimal Sumbly, MD, Triumph Motorcycles India

British motorcycle brand Triumph, which sells premium bikes having engines between 800cc-2300cc, has seen a 15 per cent spurt in retail sales this financial year. But with the government announcing a 5 per cent hike in customs duty  on completely knocked down (CKD) kits retail demand may come under pressure. In a chat with Moneycontrol, Vimal Sumbly, the India managing director of Triumph, explains how the hike has created an imbalance in the premium bike industry.

What is the issue with the hike in CKD rates and the imbalance with Free Trade Agreement (FTA)?
When the 'Make in India' concept was started, government said ‘Come and make in India’. At that time, we used to take the FTA route with Thailand where the duties are 10 per cent. Then, because of the call by the government, we decided to set up an assembly plant with plans to have a  full-fledged manufacturing unit. Last year around this time, 90 per cent of our portfolio was FTA and 10 per cent CKD and we flipped it completely to 90 per cent CKD and 10 per cent FTA.

Unfortunately, they announced a 5 per cent increase in CKD and they did not change the FTA rates. I believe was not a positive sign for niche brands who are setting up their shops in India.

How exactly is the CKD duty hike negative for you?
CKD is sitting at 15 per cent (the rate of duty)  and CBU after reduction is at 50 per cent. But this is negative because the FTA is with Thailand and most of the luxury cars or two-wheelers have a plant in Thailand. Now what direction is the government taking? If you do FTA, there is no requirement of investment, manpower or plant. We just import from Thailand and start selling at 10 per cent. Why should anybody come and invest here at 15 per cent when he can get it for 10 per cent under the FTA with zero investment?

Do you import from Thailand as well?
We used to import from Thailand until last year. We can do it (again) of course in the current scenario. Why would we logically not go the FTA route? We don’t have to homologate or get certification. We just have to import and start selling.

Do you think the disadvantage will hurt your volumes?
The brand is stronger with the price proposition but at the same time, if I have to present to the board that I wanted you to invest because I expected the government to be fair but that’s not happened, then the parent company will not approve. A 5.7 per cent increase on a turnover of Rs 300 crore is Rs 17 crore, which we can use it for marketing.

Have you taken up the issue with SIAM or the government?
We have approached both SIAM and Ministry of Finance. We have spoken to them through mail but there is still no response.

What are the volumes required for you to manufacture fully in India?
Typically, you would need volumes of 40,000-50,000 units per month. There is nothing stopping you but there is really no number attached to it. It depends on how the segment has performed in India.

How is the market segment in such a niche segment?
It is following the global trend. Classics range are 40-45 per cent of sales globally, followed by Adventure and then by Roadsters like speed bikes and lastly by Cruisers.

What is happening with your partnership with Bajaj Auto?
The partnership is creating a new segment of motorcycles and it is about a premium motorcycle but at an affordable price point. The products will be badged as Triumph. The nitty-gritty of the venture is being worked upon. The mid-segment is going to play a stepping stone in for the premium segment.

Where does India rank in Triumph’s global standing?
We have 15 subsidiaries in the world and we are among the top ten in terms of volumes and I hope in time we make it to top five. The ramp up of volumes is happening.

The sales numbers of premium bikes have not grown much so far this year
Global brands change the product cycle based on calendar year. Replacement products come four months after we stop importing kits into the country. But I know we are at retail growth of 15 percent. There is no problem at the retail end.

How big is the premium bike market?
The premium bike market for such bikes in 10,000 bikes a year which is bound to rise to 20,000 bikes in the next 2-3 years. There should be a growth of 10-12 percent in sales for the year.

What is Triumph's retail reach?
We have 15 outlets as of now and we want to increase it to 25 in 2-3 years. We have a product portfolio of 15 and we want to take it 18-19 in 6-8 months.

When do you expect to break even?I believe at around 1700 units per year sales we should break even. In 2-3 years we should be able to reach that level. We are betting high on India and we believe the growth will be very good.