Bajaj sharpens international play as it takes full control of Austrian brand KTM via €800 million debt deal | Company Business News

New Delhi: Bajaj Auto Ltd is doubling down on its strategy to increase its international business as it acquired a controlling stake in the Austrian motorcycle company that sells motorcycles under the KTM brand.  

Under the transaction announced on Thursday, Bajaj will infuse €600 million into the company through debt funding, while €200 million has already been invested since FY2024, taking the total amount of the deal to €800 million ( ₹7,778 crore).

The fresh infusion of funds is largely intended to pay off KTM’s creditors and ensure the continuity of its business.

The transaction was informed to the exchanges just 24 hours before the 23 May deadline on which the motorcycle brand was supposed to deposit €548 million ( ₹5,324 crore) it owed to creditors.

Bajaj, through its Netherlands-based subsidiary Bajaj Auto International Holdings BV, has taken the entire stake in Pierer Bajaj AG (PBAG), increasing its shareholding from 49.9% earlier.

The 49.9% stake in PBAG gave Bajaj indirect control of a 37% stake in KTM. This was because PBAG held 75% in the parent company of the KTM business, Pierer Mobility AG (PMAG).

After the acquisition of the entire stake in PBAG, Bajaj’s stake in KTM will be 75%. Notably, PMAG is listed on the Austrian stock exchange.

“Bajaj will shift gears from hitherto being a dormant minority investor to a majority owner in the global KTM company,” Bajaj told the exchanges.

After witnessing a decline in sales due to a slowdown in the European premium motorcycle market, KTM filed for insolvency and applied for judicial restructuring proceedings in November 2024.

The firm’s restructuring plan was accepted by creditors on 25 February. Under it, creditors were supposed to receive 30% of their claims in a one-time payment by 23 May. As the deadline approached, the motorcycle brand needed funding to pay off its creditors.

Bajaj to the rescue 

On 16 May, Bajaj announced in an exchange filing that it was receiving unsecured loans worth €566 million from three banks: JP Morgan Chase, DBS Bank and Citigroup Global Markets Asia Ltd.

The purpose of the fundraiser was stated as the need for investment activities. At the end of the October-December 2024 period, Bajaj reported surplus funds of ₹15,000 crore on its balance sheet.

After this fundraise, the company announced the acquisition of the entire KTM brand, which could help its presence in the global markets.

As part of the deal, the company will provide KTM with debt funding worth €800 million, of which €200 million has already been infused via convertible bonds and loans in four tranches of €50 million between fiscal year 2024 (FY24) and April-May 2025.

“This twin move of taking ownership (subject to approvals) and paring down debt by providing liquidity at a crucial stage, positions Bajaj Auto as a driving force in shaping the future of one of the world’s most admired high-performance motorcycle companies,” Bajaj’s statement added.

The remaining €600 million debt package will be distributed in two ways. First, €450 million will be given as a secured loan to KTM. Second, Bajaj’s international subsidiary will subscribe to PBAG convertible bonds worth €150 million, which will subsequently be loaned to KTM’s parent company.

The Austrian court is scheduled to approve KTM’s restructuring plan by mid-June, depending on the presence of enough cash in the firm’s escrow account. After this, the payments to the creditors will be released.

Following all approvals, Bajaj will be able to begin the revival of the KTM brand.

Export boost

The Pune-based company began its partnership with KTM in 2007 when it picked up a 14.5% stake for ₹300 crore. Over the years, this stake was increased to 49.9%.

KTM’s main plant is in Austria, while it has assembly plants in China, Brazil and the Philippines, among others. In 2023, all the facilities produced 380,000 bikes. In India, it uses the Bajaj-owned Chakan plant to produce vehicles for India and also exports to the world.

KTM’s motorcycles are exported to the US, Europe and Latin America, but its sales have significantly declined since it filed for insolvency in November.

In the October-December period, KTM’s exports dropped by more than 50%. This came at a time when Bajaj boosted its exports in FY25 as international sales made up for more than 41% of its total sales.

In the last financial year, Bajaj’s two-wheeler exports surged by 13% to reach 1.67 million units. In the domestic market, it sold 2.3 million units. 

Although the share of KTM in Bajaj’s overall exports was, on average, around 5% before the problems started, the brand’s bikes are important from a revenue and profit perspective.

“Had it not been for the short-term setback on KTM exports, our revenue growth would have been nearing double digit and Ebitda growth even much higher in the teens given the margin accretive business that it is,” Dinesh Thapar, chief financial officer at Bajaj Auto, said during the post Q3 results analyst call on 28 January. Ebitda is short for earnings before interest, taxes, depreciation and amortization.

Analysts see the move as positive for the company, as the KTM business will once again start contributing to the margins.

Short-term pressure

“[There is] potential for enhanced revenues, profitability and valuation uplift upon successful turnaround of KTM. [It] strengthens Bajaj’s strategic global footprint, particularly in the high-performance and premium motorcycle segment,” Shridhar Kallani of Axis Securities wrote in a 22 May note.

However, Kallani noted that there will be near-term pressure on the consolidated financials of the company, depending on the timing of funding and interest costs.

Moreover, the key thing to watch for will be how Bajaj manages to turn around KTM’s business, which suffered a slowdown due to the hit to the premium motorcycle market. In 2024, KTM sold 292,497 motorcycles, which was 21% lower than the 372,511 bikes sold in the year-ago period. 

“In the near term, the company will have to do a strategic overhaul in order to initiate a turnaround of the KTM business,” Mrunmayee Jogalekar, auto research analyst at Asit C Mehta Investment Intermediates Ltd, said.

Bajaj Auto’s share price rose 0.7% on Thursday, compared with a 1% fall in the Nifty Auto index.