Mumbai: A century-old motorcycle brand that survived bankruptcy and rebirth to emerge as an icon for biking enthusiasts has a story to tell and an experience to share. Something Rajiv Bajaj hopes to bring home as he enters an association with Triumph Motorcycle Ltd of the UK.
Under their global alliance announced on 8 August, Triumph and Bajaj Auto Ltd will design and develop a new motorcycle in the “middle weight” category, to be sold in India as well as abroad. Middle-weight bikes have an engine displacement of 250cc to 650cc. Bajaj, India’s second largest bike maker, will build them at Chakan, near Pune, where it already makes most of its models.
For Bajaj, Triumph is more than about sales and profitability (bigger, costlier bikes are more profitable) but also because it will enable the company to bring the entire Triumph heritage and the story and experience associated with the brand.
In an interview, Rajiv Bajaj, managing director of India’s largest exporter of motorcycles, said the latter is critical, as it’s the story and experience that differentiates a product from a brand. Unlike a Royal Enfield, this has been a missing piece for Bajaj, which makes Pulsar and Discover motorcycles.
“What we are really excited about is not India alone, but markets outside India (as well),” Bajaj said. The fact that Triumph is a well-known brand from the US to Japan, and has the technology, distribution and quality, bodes well for Bajaj and opens up immense opportunities in India and several others markets, he added.
“If we can sell Rs3,000 crore worth (of motorcycles) in India, we can sell Rs3,000 crore worth outside India. If we can have a bottomline of Rs1,000 crore in India, we can have double or triple of that, outside India. That’s the size of the opportunity,” he said.
According to Bajaj’s rough calculations, when the new bike hits the road in two years, Royal Enfield Ltd, which sells 60,000 motorcycles per month in the middle-weight segment will, in all likelihood, sell a million units every year. Expecting large volumes for its Triumph model, Bajaj is planning to build a dedicated manufacturing unit closer to its existing Chakan plant. Investments and capacity of the new unit will be finalized in six months.
Bajaj said if the new Triumph-Bajaj model is priced at Rs1-1.5 lakh ex-showroom and Bajaj captures even 20-30% of the segment, with an Ebitda (earnings before interest, tax, depreciation and amortization) margin of 20-30%, it makes for a bottomline of Rs1,000 crore a year, with a topline of Rs3,000 crore a year in India alone.
This is the same “cost plus” revenue model that Bajaj has with KTM Power Sports AG. Bajaj said the bikes it exports for KTM enjoy high Ebitda margins, pointing out that the partnership with Triumph “is based on the triangle of mutuality, transparency and reciprocity.” While Triumph benefits from Bajaj’s ability to engineer the bikes at Indian costs, Bajaj gets the market access.
According to Nitesh Sharma, an analyst at PhillipCapital India, Bajaj will have to sell 400,000-500,000 units of locally produced models every year to earn a profit of Rs1,000 crore.
“While it’s doable, it would take the company some time to reach those volume levels,” Sharma said.
The middle-weight segment, which the duo are targeting, is currently dominated by Eicher Motors Ltd’s Royal Enfield that makes 350cc and 500cc (and one 535cc) bikes. Bajaj makes one in that category—the 375cc Dominar—and Triumph none. In India, the world’s largest two-wheeler market, buyers have been up-trading to bigger motorcycles. In 2016-17, for instance, Royal Enfield sold 651,107 motorcycles in India, an increase of 30% from the previous year.
Under their deal, Bajaj will market Triumph motorcycles and supply spares in Sri Lanka, Bangladesh, Nepal, Myanmar, Columbia and most of Africa, among others. Similarly, all of Europe, US, Japan, New Zealand, Australia and some markets of Latin America like Brazil, where Triumph already has a presence, will be managed by Triumph.
In India, Triumph’s existing 13 dealerships will continue to be managed by the company’s wholly-owned India subsidiary, till the jointly produced models are ready. A year before the roll-out, Bajaj will take over the Triumph network and start selling both high-end motorcycles as well as models meant for the mass segment and will expand the dealership to at least 400.
Meanwhile, even as the product plans with Triumph take shape, Bajaj is working on building another niche business. Codenamed “Urbanite,” the new franchise will make chic, aspirational products and aim to do a Tesla in the electric two-wheeler space, said Bajaj. “I have said time and again that I don’t want to be in a volume business and make another 100cc scooter and compete in a red ocean with 10 others,” he added. Electric vehicles including three-wheelers under the new franchise will go on sale before 2020.