One of the promoter, the Pradeshiya Industrial and Investment Corporation of UP Ltd (PICUP) sold 5,00,000 shares (4.63%) on 14th May as per exchange notification issued today. So it aligns with the block deal information mentioned above. But it it is very interesting to note that Malabar India Fund, who is picking up 5,03,461 shares (4.27%) via preferential issue, is more hungry for RACL shares and hence decided to buy additional 1.75% from promoter entity in a block deal.
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I asked Grok on what Bajaj’s take over of KTM would mean for RACL?
RACL Geartech Limited, a key supplier of precision gears and components to KTM, stands to benefit from Bajaj Auto’s €800 million (₹7,765 crore) takeover of KTM, announced in May 2025. The takeover aims to rescue KTM from financial distress and restructure its operations, which could positively influence RACL’s topline growth. Below is an analysis of how this development could drive RACL’s revenue and the factors affecting its potential impact.
- How Bajaj Auto’s Takeover Could Help RACL’s Topline Growth
a. Restoration of KTM’s Production and Demand
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Context: KTM’s financial crisis, with debts exceeding €2 billion, led to a production halt and zero sales for six months in FY25, significantly impacting RACL’s revenue. KTM is a major client, and its slowdown caused a 5% YoY revenue drop for RACL in Q3 FY25 (₹109.75 crore vs. ₹115 crore in Q3 FY24) and contributed to high inventory days (162 days) due to unsold stock (RACL-Q3FY25-Concall.pdf, Pages 6, 21).
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Impact of Takeover: Bajaj’s €600 million fresh infusion (on top of €200 million earlier in 2025) ensures KTM meets a court-mandated 30% creditor payout by May 23, 2025, avoiding insolvency. This enables KTM to resume production and supply of motorcycles, parts, and accessories (,). For RACL, this means:
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Increased Order Flow: Resumed production will clear RACL’s KTM-related inventory backlog and drive new orders for transmission gears, differential gears, and other components, boosting topline growth.
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Guidance Alignment: RACL’s management expects KTM to return to full production by mid-FY26 (RACL-Q3FY25-Concall.pdf, Page 6). With Bajaj’s funding, this timeline could accelerate, supporting RACL’s FY26 revenue guidance of ₹525 crore (23% YoY growth from ₹427 crore in FY25).
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Quantitative Estimate: If KTM contributes ~20-25% of RACL’s revenue (inferred from its status as a top client), a 50% recovery in KTM orders in FY26 could add ~₹50-60 crore to RACL’s topline, assuming stable pricing and margins.
b. Cost Optimization and Shift to India-Based Production
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Context: KTM’s high-cost European manufacturing has been a financial burden, contributing to its losses (). Bajaj plans to shift more production to India, leveraging its cost-efficient facilities in Chakan, Pune, where KTM bikes for India and select export markets are already produced (,).
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Impact on RACL:
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Local Sourcing Advantage: RACL’s India-based manufacturing facilities (Gajraula and Noida) position it to supply components for KTM’s India-produced bikes at lower costs and faster lead times compared to European suppliers. This could increase RACL’s share of KTM’s supply chain, especially for two-wheeler components like transmission gears.
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Economies of Scale: Higher KTM production volumes in India could lead to larger, more consistent orders for RACL, improving capacity utilization (currently ~70-80%) and supporting topline growth (RACL-Q3FY25-Concall.pdf, Page 20).
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New Product Opportunities: Bajaj’s focus on KTM’s smaller-capacity street, enduro, and adventure bikes (e.g., 390 Adventure) for global markets aligns with RACL’s expertise in two-wheeler drivetrain components, potentially opening new revenue streams ().
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Quantitative Estimate: A 10-15% increase in KTM’s India-sourced components could add ₹20-30 crore annually to RACL’s revenue by FY27, assuming RACL captures a proportional share.
c. Strengthened KTM-Bajaj Synergies
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Context: Bajaj, a 37.5% stakeholder in KTM via Pierer Mobility AG before the takeover, has a long-standing partnership, co-developing bikes like the KTM 390 Duke and RC series in India (). The takeover deepens this collaboration, with Bajaj revamping KTM’s governance, board, and India-Austria joint development framework ().
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Impact on RACL:
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Stable Client Relationship: Bajaj’s control ensures KTM’s financial stability, reducing RACL’s risk of client default or order cancellations, which plagued FY25 (RACL-Q3FY25-Concall.pdf, Page 22).
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Access to Bajaj’s Network: Bajaj’s distribution network for KTM bikes in India and 80 export markets could increase KTM’s sales volumes, indirectly boosting RACL’s component demand ().
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Innovation Push: Bajaj’s focus on KTM’s product innovation (e.g., new models, electrification) may require advanced components, aligning with RACL’s prototyping capabilities for premium OEMs like BMW and ZF (, RACL-Q3FY25-Concall.pdf, Page 8).
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Quantitative Estimate: Enhanced KTM sales through Bajaj’s network could drive a 5-10% incremental revenue uplift for RACL by FY27-28, potentially ₹15-25 crore, if new models gain traction.
d. Reduced Customer Concentration Risk
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Context: KTM’s financial difficulties highlighted RACL’s over-reliance on a single client, a key risk noted in FY25 (RACL-Q3FY25-Concall.pdf, Page 22). Bajaj’s takeover diversifies this risk by integrating KTM into a stronger, more stable parent entity.
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Impact on RACL:
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Broader Client Base: As Bajaj consolidates KTM, Husqvarna, and GasGas under its control, RACL could supply components to these sister brands, expanding its revenue sources ().
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Cross-Selling Opportunities: RACL’s existing relationship with Bajaj Auto (via TVS and other domestic OEMs) could lead to cross-selling opportunities for Bajaj’s Pulsar or other premium models, further supporting topline growth (RACL-Q3FY25-Concall.pdf, Page 18).
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Quantitative Estimate: Supplying to Husqvarna/GasGas or Bajaj’s premium bikes could add ₹10-20 crore annually by FY28, assuming RACL secures even a small share of these brands’ supply chains.
Total Potential Impact: Combining these factors, Bajaj’s takeover could drive ₹95-135 crore in additional revenue for RACL by FY27-28, representing a 20-30% uplift from FY25’s ₹427 crore topline. This aligns with RACL’s target of ₹1,000 crore by FY28-29, implying a 20-25% CAGR (RACL-Q3FY25-Concall.pdf, Page 17).
- Can Bajaj Auto Turn Around KTM?
Bajaj Auto’s ability to turn around KTM is critical for RACL’s topline growth, as KTM’s recovery directly impacts RACL’s order flow. Below is an assessment of Bajaj’s prospects for a successful turnaround, based on its strategy, KTM’s challenges, and external factors.
a. Bajaj’s Turnaround Strategy
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Financial Restructuring: Bajaj’s €800 million package (€200 million in early 2025, €600 million in May 2025) addresses KTM’s immediate liquidity crisis, settling 30% of creditor claims (€548 million) by May 23, 2025, and exiting self-administration by mid-June 2025 (,). This stabilizes KTM’s operations and restores creditor confidence.
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Cost Optimization: Bajaj plans to shift production to India, where manufacturing costs are 30-40% lower than in Europe, improving KTM’s margins (). It will also scrutinize loss-making ventures like e-bicycles and MotoGP programs, focusing on core motorcycle segments ().
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Governance Overhaul: Bajaj will revamp KTM’s board and governance structure to streamline decision-making and enhance operational efficiency (). This addresses prior mismanagement under Stefan Pierer, whose leadership led to over-leveraging ().
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Synergistic Growth: Bajaj aims to leverage its R&D and distribution strengths to develop new KTM models (e.g., 390 Adventure) and expand in mid-range segments, competing with brands like Royal Enfield (,). Joint India-Austria development will accelerate innovation ().
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Market Expansion: Bajaj’s global network (80 countries) and expertise in emerging markets will boost KTM’s sales, particularly for smaller-capacity bikes in Asia and Latin America ().
b. KTM’s Challenges
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High Debt Load: Despite the €800 million infusion, KTM’s remaining debt (~€1.4 billion after the 30% payout) remains a burden. Bajaj’s ability to manage this through further restructuring or profitability improvements is critical ().
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Market Headwinds: Europe’s economic slowdown and high inflation have reduced demand for premium motorcycles, KTM’s core segment (RACL-Q3FY25-Concall.pdf, Page 6). Geopolitical risks, like potential US tariffs, could further impact exports (RACL-Q3FY25-Concall.pdf, Page 13).
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Brand Identity Risks: Shifting production to India and cost-cutting measures may dilute KTM’s premium Austrian brand image, potentially affecting sales to brand-conscious customers ().
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Regulatory Delays: The takeover requires approvals from the Austrian Takeover Commission, Foreign Investment Control, and Merger Control authorities, which could delay implementation until mid-2025 ().
c. Bajaj’s Track Record
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Proven Partnership: Bajaj has successfully co-developed KTM bikes since 2007, with models like the 390 Duke achieving strong sales (143,000 units of KTM/Husqvarna in FY21) (). Its Chakan plant already produces KTM bikes for India and exports, demonstrating operational capability ().
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Financial Strength: Bajaj’s robust balance sheet (₹29,018 crore turnover in FY21, 18.3% EBITDA margin) and access to funding (e.g., €566 million loan from JPMorgan, Citigroup, DBS) provide the resources to support KTM’s turnaround (,).
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Turnaround Expertise: Bajaj’s ability to revive its own premium Pulsar brand and compete in India’s two-wheeler market suggests it can navigate KTM’s challenges ().
d. External Sentiment
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Positive Outlook: Industry sources and X posts express optimism, noting Bajaj’s takeover as a “lifeline” for KTM, with potential to “shake up the global motorcycle market” (,). KTM’s recent Paris Dakar 2025 win reinforces its brand strength, supporting recovery prospects ().
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Cautious Notes: Some highlight the complexity of managing a global brand across continents and the need to maintain KTM’s premium feel while cutting costs ().
e. Assessment Bajaj is well-positioned to turn around KTM, with a high likelihood of success by mid-FY26. Its financial commitment, cost-optimization strategy, and operational expertise address KTM’s core issues. The shift to India-based production and focus on mid-range bikes align with market trends, while governance changes mitigate past mismanagement. However, challenges like residual debt, European demand weakness, and regulatory delays require careful execution. Assuming approvals are secured by mid-2025 and production ramps up as planned, KTM should resume normal operations by Q2 FY26, supporting RACL’s growth projections.
- Specific Considerations for RACL
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Upside Potential: If Bajaj accelerates KTM’s recovery (e.g., full production by Q1 FY26), RACL could exceed its FY26 revenue guidance, potentially reaching ₹550-600 crore. New orders from Husqvarna/GasGas or Bajaj’s premium bikes could further amplify growth.
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Downside Risks: Delays in KTM’s recovery (e.g., due to regulatory hurdles or weak European demand) could limit RACL’s FY26 growth to 10-15%, closer to ₹475-500 crore. Persistent working capital issues (120 receivables days, 162 inventory days) could also constrain cash flows, impacting RACL’s ability to scale for KTM orders (RACL-Q4FY25.pdf, Page 3).
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Monitoring Points: Investors should track:
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KTM’s production ramp-up timeline (target: mid-FY26).
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RACL’s working capital improvements (target: receivables <100 days, inventory <120 days).
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Progress on Bajaj’s regulatory approvals (expected by June 2025).
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KTM’s European sales recovery and India-based production scale.
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- Conclusion
Bajaj Auto’s takeover of KTM is a significant positive for RACL Geartech’s topline growth, primarily through restored KTM production, increased India-based sourcing, and strengthened Bajaj-KTM synergies. These factors could add ₹95-135 crore to RACL’s revenue by FY27-28, supporting its ₹1,000 crore target by FY28-29. Bajaj is likely to successfully turn around KTM by mid-FY26, leveraging its financial strength, cost optimization, and operational expertise, though risks like debt management and market headwinds remain. For RACL, the key is capitalizing on KTM’s recovery while addressing working capital challenges to maximize topline upside.
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Any idea who is currently supplying to Husqvarna & Pulsars? could there be a risk of Bajaj selecting this vendor for KTM instead of continuing with RACL?
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For Husqvarna, RACL is a direct supplier but not sure whether they also supply to Pulsar as well. KTM and RACL have had a synergy even through Bajaj’s earlier stake in KTM.
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If the part is common across different platform then definitely would be the same vendor. All bajaj products be it Pulsar, KTM, Husq or Triumph are designed with commonisation as one of the targets. An easy way to verify is to get hold of catalogue of different bikes and cross check the part numbers. (speaking as a former RnD engineer)
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The uploaded file of concall seems to be corrupted. I was not able to play it after the mark of 32:00. Did anyone faced the same issue? I am sharing the link of company website where the file can be downloaded.
Yes I have also faced the same issue. The file is unplayable after 32 min. Wrote mail to the management too for the re-upload of the file
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