According to newspaper reports, the International Court of Arbitration (ICA) has rejected Italian auto major Piaggio's plea against its estranged partner LML, for entering into third party tie-up for its motorcycle foray.
LML is India's second largest scooter manufacturer with 27% market share. Its flagship brand, Vespa, is targeted at the premium end of the scooter segment. Its brands are recognised for their styling and aesthetics. LML had earlier entered into a technical tie-up with Piaggio, but the relationship between the two partners soured over allegations of breach of agreement.
Scooter market share as on July 1999
Piaggio had sought an interim injunction from the ICA prohibiting LML from exporting its products and disclosing Piaggio's know-how to third parties. Piaggio also demanded that LML cease to use its technology for certain vehicles including the ET-4 and Skipper.
With ICA's injunction, LML can continue using Piaggio's technology for its current models. But it will have to beef up its research and development (R&D) for future scooter launches. It will not find it easy to compete with Bajaj Auto with local R&D and may have to explore foreign tie-ups. The injunction will give LML some breathing time to develop in-house R&D or scout for partners to outsource technology.
As far as its planned foray in motorcycles and scooterettes is concerned, LML has tied up with Daelim of South Korea and Benelli of Italy. LML's decision to enter the motorcycle market was influenced by the stagnancy in the scooter market on one hand, and the explosive growth of the motorcycle on market on the other hand. Although the foray is a natural extension for LML, it will find it very difficult to garner market share in these segments from companies like Hero Honda, Bajaj Auto and TVS Suzuki. Moreover, until it breaks even, its investments in these ventures will continue to affect its profitability.
In view of lower sales in the scooter segment, and added burden on margins with forays in motorcycles and scooterettes, analysts have flagged LML as a 'SELL'.
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