TVS, BMW Motorrad tie up for sub-500cc mobikes

The co-operation agreement involves the two companies offering their own vehicle derivatives, which will be sold through their own distribution channels in India and across the globe.

TVS Motor Company Ltd.

CHENNAI: TVS Motor CompanyBSE 0.57 % on Monday announced a long term pact with BMW Motorrad, the German carmakers bike subsidiary, that will enable the Indian company to access German technology to manufacture a series of sub-500 cc motorcycles.

The motorcycles developed by BMW AGs motorcycle subsidiary will hit the market as early as 2015. The partnership will work on developing motorcycles with different versions for TVS and BMW respectively and will be sold through their independent distribution network, across global markets.

Calling the technology tie-up a win-win for both, Venu Srinivasan, chairman, TVS Motor Company, hesitated to call it a gamechanger for his company yet, "I would not like to term it as that, but I would say it is certainly a very significant step to get into high-quality premium bikes over 200cc. It does provide aspirational value for the TVS motorbike."

The tie-up will enable TVS to expand into the premium motorcycle space, where Bajaj-KTM- Kawasaki is expanding aggressively. For BMW, this technology tie-up will expand their portfolio into smaller motorcycles (below 650cc),a space, where it has no presence currently.

TVS will invest 20 million Euros or Rs 142 crore in its manufacturing facilities, whereas BMW Motorrad will invest in development and testing of products at Berlin. The two partners said there is no equity investment proposed and there will be no royalty paid. These motorcycles will be manufactured at TVS Motors plants in either Mysore or Hosur.

"We are impressed with their focus on quality, reliability and technology. From our side, they saw our ability to develop smaller products, good production engineering and robust supply chain. It is win-win for both partners," Srinivasan said.

Stephan Schaller, president, BMW Motorrad said, "We are in the process of re-alignment of our motorcycle business and make it profitable. Our focus is on urban mobility and electric mobility. I regard this tie-up in our endeavour to deliver sustainable and profitable growth."

For BMW Motorrad, which sold 1,17,000 two wheelers in 2012, posting a growth of just 3%, developed markets are major facing demand challenges. Experts say, to build volumes and market share going ahead, developing smaller motorcycles (below 650 cc) and expanding presence in emerging markets like India are very critical from BMW's perspective, this tie-up just aims to deliver that.

Schaller agreed the tie-up would enable the partners to tap into emerging markets of Latin America and Asia.

Post the tie-up with Bajaj Auto, Austrian bike maker KTM managed a significant turn around in volumes and profitability in just two years, BMW Motorrad could well replicate that.

The markets responded positively to the announcement. Following the announcement, TVS Motor Company's share price jumped over 17% on Bombay Stock Exchange before ending the day 9.93% higher, at Rs 39.85,a share.

According to IDFC Institutional Securities, the alliance is a significant positive for TVS as it increases revenue potential (a higher margin one,Bajaj makes 25% margin on KTM bikes) and boost its R&D and brand capability in the higher displacement bikes. "At a market capitalisation of Rs1,500 crore (8x FY13 standalone EPS) the company is significantly under-priced in our view given its technology capability, physical capacity, strong launch pipeline, free cash flow generation and improving debt profile," IDFC said in a note.

However some experts believe the technology sharing by BMW will enable its Indian partner to play in just less than 10% of the highly competitive motorcycle market in India. Analysts say that the company has to do something more to revive its pioneering role and position in the two-wheeler market and stem the market share slide.

VG Ramakrishnan, MD, Frost & Sullivan South Asia, says the deal will surely help TVS Motor Company on the technology and capacity utilisation front, but won't be a game changer for TVS Motor. "The large pie of the market still lies in the mass market in India. They will have to get their act together for that space to build volumes and market share," Ramakrishnan said.

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