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LML plans maiden motorcycle offering - Views on News from Equitymaster
 
 
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  • Oct 8, 1999

    LML plans maiden motorcycle offering

    After the International Court of Arbitration (ICA) squashed Piaggio's plea, LML of Singhanias plan to go ahead with their maiden offering in motorcycles and step-throughs. This was reported by a leading financial newspaper.

    LML is India's second largest scooter manufacturer with 27% market share. Its brands are recognised for their styling and aesthetics. The Vespa, its flagship brand, is targeted at the premium end of the scooter segment. 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.

    Earlier, 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 had also demanded that LML cease to use its technology for certain vehicles including the ET-4 and Skipper. But the injunction was rejected by the ICA.

    Encouraged by the ICA's decision (although the main verdict is pending), LML plans to launch its motorcycle by the first quarter of 2000. Plans are also afoot to make a break in the step-through (hybrid between and motorcycles and mopeds) segment. LML's foray in the motorcycle segment is a conscious decision taken by the management after witnessing a degree of stagnancy in scooter sales over the past two years. Robust motorcycle demand has also played a role in influencing this decision. Its decision to enter the step-through segment stands vindicated by the fact that unlike other two-wheeler segments, there is low competition in this segment, with Hero Honda (Street) and Kinetic Motors (K4) competing for volumes.

    LML has tied up with Daelim of South Korea for technological inputs for its motorcycles. It is yet undecided on whether it wants to tie-up with Daelim for its step-throughs. Both these forays have operational synergies with LML's current product portfolio.

    However, as far as motorcycles are concerned, LML will have to introduce a range of products targeted at various price segments if it wants to compete effectively with the likes of Hero Honda, Bajaj Auto and TVS Suzuki. All these companies have established brands and are in the process of consolidating market shares.

    Investments in motorcycles and step-throughs will put additional burden on the company's margins, until it reaches break-even point.

    Market view:
    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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