KTM turnaround: Bajaj Auto considers moving more production to India, job cuts

Bajaj Auto, which will take majority control of KTM AG, is exploring several options including shifting more production to India and cutting jobs as part of plans to cut costs at the financially troubled Austrian bike maker, a senior company official said on Friday. The Pune-based two- and three-wheeler maker is expected to get requisite regulatory approvals and gain majority control of KTM AG by mid-November, Bajaj Auto Executive Director Rakesh Sharma told reporters in a Q2 earnings call.

“We have applied to take over majority control of KTM AG, and we have submitted our application. About nine approvals are needed from various committees in Europe, and eight of them have been obtained,” he said.

He further said, “The ninth should also be ready, hopefully by mid-November, when the turnaround can begin, to be led and directed by us very actively.” Responding to a question on whether it makes sense for KTM to continue manufacturing operations within Europe, Sharma said: “We will look at all options for cost reduction, provided quality is not compromised… That is a very, very important part of the turnaround.”

When asked if the plan includes moving more production of KTMs to India, Sharma said: “That certainly includes that, because both KTM and we have had a very good experience with the production of some of the lower cc (engine capacity) bikes, and that is certainly on the table and will be evaluated and developed further.” On the possibility of closing the KTM factory in Europe, he said: “We haven’t gone in that direction… it’s not like we’re going there with an agenda to close a factory. We’re going there with an agenda to reduce product costs.” Sharma also claimed that it may not be feasible to produce some of KTM’s high-end bikes in India as developing the supplier ecosystem takes time.

When asked if job cuts are planned at KTM, he said: “Yes, plans are being developed, but we won’t take the wheel until the end of this month. We are waiting for regulatory approval before we can take any action.”

In May this year, Bajaj Auto announced its intention to acquire a majority stake in KTM through its wholly owned subsidiary Bajaj Auto International Holdings BV, which has arranged an 800 million Euro (approximately Rs 7,765 crore) debt financing package, to change gears from a dormant minority investor to a majority shareholder in the global KTM company.

Bajaj had started its association with KTM in 2007 with a 14.5 percent stake in the Austrian company and later increased it to effectively 37.5 percent in Pierer Mobility AG (PMAG), the holding company of KTM AG.

Sharma noted that Bajaj Auto’s turnaround plan for KTM is based on three pillars: financial liquidity and support; establishing a good personnel structure and cost reduction.

Financial liquidity and financial support have already been initiated and funded, he said.

On setting up a good human resources structure, Sharma said: “…a lot of the old management had to go, and is still going…So a new kind of management is coming into position…”

He further said that the cost reduction includes “both overhead and direct production costs” including components, but acknowledged that this will take more time as the components have to be developed in India or elsewhere.

Amid the problems faced by KTM, Sharma said the brand’s sales have improved as have Bajaj’s exports to KTM.

“Our exports to KTM were also good (at) almost 20,000 units in the second quarter. KTM exports would be about 5 to 6 percent of our exports in a normal year. It had dropped to 1 percent and now it is climbing back,” he noted.