New Delhi/Mumbai: India’s second largest two-wheeler maker, Bajaj Auto Ltd, announced that it has picked up a 14.5% stake in Austrian sports bike maker KTM Power Sports AG in a bid to access engine technology it doesn’t have and gain a distribution network in Europe. At KTM’s Friday closing price of €58 (Rs3,308) a share, the transaction is valued at €57.9 million. Bajaj declined to say how much it paid, although the deal makes it the second largest shareholder in KTM after Cross Industries AG.

Full throttle: Bikers on KTM (left) and Honda motorcycles compete during the UAE Desert Challenge on 31 October.

Bajaj and KTM will jointly develop two engines—125cc and 250cc—using water-cooling technology, which generates more power for the same capacity than the air- and oil-cooled ones that Bajaj has been traditionally making. Water is a better conductor of heat and more suitable for hot countries such as India.

The engines will be made at Bajaj’s research and development centre at Akurdi in Pune, said Amit Nandi, general manager of marketing at Bajaj. The company plans to assemble bikes using these new engines at its Chakan plant, he said.

However, Nandi refused to say whether the company will pump in more money to expand capacity or shift some production of existing models outside Chakan to make room for the new product.

“The partnership is also another step in our globalization move," said Nandi. “We have access to 720 KTM dealerships in Europe." More than 16% of Bajaj’s sales of 2.7 million vehicles last year came from exports. The company expects overseas sales to account for 25% of overall sales in the next five years.

In India, Bajaj’s Probiking outlets—these sell only the higher powered Pulsar and Avenger models—will also sell fully built KTM bikes from the next financial year, starting in April. Bajaj, which also has a distribution chain in some South-East Asian nations such as the Philippines and Indonesia, will sell KTM models there, too. Nandi did not say whether Bajaj is also entering Thailand and Vietnam, saying only that these markets are also accessible to KTM through Bajaj.

“It is a win-win situation for both Bajaj Auto and KTM," said Vaishali Jajoo, automotive analyst, Angel Broking Ltd. “It gives Bajaj access to ready-made technology."

The Bajaj scrip declined by Rs28.5 or 1.2% in a weak Mumbai market to end the day at Rs2,394.9.

In an August interview with Mint, managing director Rajiv Bajaj had indicated the company was looking to get the right kind of products before entering markets such as Europe and America, where a majority of bikes sold are higher powered and in the leisure segment. Most of the bikes Bajaj makes cater to the commuter segment. Its largest selling category runs on 100cc engines, an unprofitable segment for Bajaj, though market leader Hero Honda Ltd, makes money on it.

Bajaj has so far introduced models with maximum power of 220cc. It had earlier said it was capable of developing engines up to 600cc independently, though it hasn’t showcased any so far in the market. KTM sells sports and off-road bikes in a range of engine capacities: from sub-100cc to almost 1,000cc.

This is the second deal 40-year-old Rajiv Bajaj has cut this year after an alliance with Renault SA and Nissan Motor Co. Ltd to jointly develop a small car costing around $3,000. Bajaj is developing the engine for the car.