TVS-BMW tie-up: Does it benefit the Indian brand?

  • Apr 17, 2013
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  • By Et
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With the first bike from the new alliance expected to come only by 2015, the partnership with BMW may not be enough to overtake its major rivals in the performance segment, Bajaj and KTM, in the long run

TVS and BMW official during the press launch of their alliance

It's been mostly downhill for TVS Motor Co ever since the two-wheeler maker parted ways with Japan's Suzuki Motor Corp more than a decade ago all models but one have flopped, research and development has stagnated and legal tussles with rivals are clearly hurting. Perhaps it is an acknowledgement of this fact that has pushed the company, headed by the group's scion Venu Srinivasan, to look abroad once again for support. TVS announced earlier this week a tie-up with BMW AG's motorcycle division for developing and making motor bikes in the below 500 cc category.

The good news for TVS fans is that the company is slowly shaking off its inertia and taking steps to regain lost ground. The bad news, however, is that the first bike from its tie-up with BMW Motorrad is likely to roll out only in 2015, by which time rivals like Hero MotoCorp, Honda Motorcycle & Scooter India (HMSI) and Bajaj Auto are going to be much stronger. Also, there is no guarantee that the alliance will do anything to alter the downward spiral that TVS finds itself in.

TVS Apache RTR 180

Vulnerable Venture

Both partners are novices when it comes to the sub-500 cc category TVS makes bikes in the sub-250 cc category while BMW operates in the 600-1,600 cc space and even if they do come up with some interesting products, the 200 cc-plus category makes up for only about 2.5 per cent of the Indian two-wheeler market, the world's second biggest. "For the first time, both of us are getting into products above 200 cc and below 500 cc. I would not like to term it as a game changer, but I would say it is certainly a very significant step to get into high-quality premium bikes over 200 cc. It does provide aspirational value for TVS Motor bikes," TVS chairman Srinivasan told ET.

Rajiv Bajaj, MD & CEO, Bajaj Auto, agrees that a European brand and that too a high-end one lends aspirational value to TVS. "It also allows TVS to enter the global market in the 200-500 cc space," he adds. Bajaj should know. He has Austrian offroad and street bikemaker KTM as a partner for similar reasons. Both BMW Motorrad and KTM run neck and neck in the European market with the latter inching ahead in 2012 (the gap though is marginal, at some 2,000-odd units).

BMW S1000RR in action

Analysts, however, point to one crucial difference between Bajaj's alliance with KTM and TVS' with BMW: the former is a solid equity alliance with Bajaj Auto holding almost 48% in the Austrian bikemaker. TVS-BMW, on the other hand, is a non-equity alliance, at least as of now, with the Indian partner looking for technology and overseas market access, and the European bikemaker seeking to leverage TVS' lower cost structures. The upshot: if KTM does well, Bajaj benefits financially too. For instance, the Pune bikemaker earned dividend of roughly `50 crore in 2012. On the other hand, TVS has little to gain if BMW bikes start selling well, says a Mumbai-based equity analyst who did not want to be named.

The same analyst adds that the Bajaj-KTM partnership is on more solid ground because both brands have something in common. Thanks to the Pulsar, Bajaj Auto has developed a sporty image of making powerful bikes, which fits in well with KTM's off-roaders and sports bikes. As far as brand positioning goes, TVS and BMW are at two ends of the bike spectrum: whilst consumers associate the Indian company with affordable, value-for money bikes, prestige brand BMW is known for anything but that. "It is a bit like the merger of Daimler and Chrysler coming together, and we all know what happened to that merger," says the analyst (the merger of the German maker of marquee brand Mercedes and US volumes brand Chrysler was a classic marriage of unequals, which duly failed).

TVS Phoenix
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Competitors Racing Ahead

Another factor worrying experts is that details of the pact are sketchy and it is still not clear which partner will do what. For its part, TVS has agreed to pump in about 20 million (Rs 143 crore) into the project. "While short-term benefits are limited, apart from improved brand association, the exact nature of benefits to both partners will be clear only once more details are out," said Bhaumik Bhatia, analyst at IDBI Capital, in a research note. "Due to lack of details on the terms and conditions under the technology cooperation agreement, we are unable to assess the exact financial implications." He further said "as the first product will come up only by 2015, the tie-up will have any significant impact on financials only in fiscal year 2016, by when peers are likely to get even stronger".

TVS Motor has been hurt badly by a series of missteps. For long it did not have any new models in the lucrative executive bike segment, and product launches have been few and far between. This led to its market share falling from about 20 per cent in 2003 to about 5.5 per cent now.

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