Conglomerate Ayala Corp. is set to manufacture motorcycles under Austrian brand KTM as part of a strategic move to deepen its footprint in the automotive and manufacturing sectors while helping revitalize the country’s lethargic industrial sector.
Complementing its existing investment in Integrated Micro-electronics Inc. (IMI), one of the largest automotive electronics manufacturing services in the world, Ayala signed a joint venture deal with KTM AG to both serve as the exclusive local distributor of KTM products and to manufacture motorcycles for the Philippines and for export to China and Southeast Asia.
This partnership is the first of many investments as we ramp up our manufacturing portfolio. Over the years, we have built a long track record of excellence in manufacturing and engineering. We believe that manufacturing should be a critical component for the country’s growth moving forward, providing thousands of jobs, creating numerous ancillary business opportunities, and helping drive inclusive growth for the Philippines said group chair and chief executive officer Jaime Augusto Zobel de Ayala during Ayala’s stockholders meeting yesterday.
The deal is seen transforming the Philippines into KTM’s manufacturing hub in Southeast Asia as this European firm which competes on the basis of quality and reliability instead of price has only two other manufacturing sites, one in its home base of Austria and another in India.
The new business will be housed under the Ayala automotive unit, with production being subcontracted to IMI in its facility in Laguna.
Ayala will take a 65-percent economic interest in the partnership with KTM, which is envisioned to evolve beyond manufacturing to include the co-development of next-generation motorcycles for the global market, said IMI president Arthur Tan.
The venture will have an initial capitalization of $2 million, excluding at least P500 million to be initially invested in building the facility, which will start producing around 20,000 motorcycle units per year.
Around 70 percent of production is targeted to be exported to China, Zobel de Ayala said.
KTM Group builds and markets a wide range of award-winning off-road and street motorcycles.
Zobel de Ayala, himself a recreational biker, attested to the good performance of this brand.
The investment in KTM was also part of Ayala’s bid to diversify its revenue stream and double net profit to P50 billion by the year 2020 under a five-year vision that also seeks to expand its position across Southeast Asia.
During the meeting yesterday, Zobel de Ayala also unveiled the Ayala 2020 roadmap, which aims to boost return on equity (ROE) to 15 percent, expand equity earnings contribution of businesses outside its four largest business units (banking, property, telecommunications and water utility) to 20 percent and increase the earnings contribution of international businesses by 2020.
Over the last few years, Ayala has aggressively invested in the power generation space, with a target of building 1,000 megawatts of attributable capacity. This will be achieved this year.
The company has also invested in the transport infrastructure sector with tollroads, railroads, and rail payment projects under the public-private partnership (PPP) programs. More recently, Ayala ventured into healthcare and education, acquiring Generika and the University of Nueva Caceres, to build a presence in social infrastructure.
The investment in social infrastructure, Zobel de Ayala said, could give ROE in the range of 12-15 percent, in line with the group’s overall goal.
But the group is now also betting heavily on manufacturing often cited as the missing component of the Philippine growth story as another business pillar.
Ayala managing director and group head of corporate strategy and development Paolo Maximo Borromeo said the motorcycle venture would break even once it scales up production to 70,000 annually, which he said could happen in the next two to three years.
KTM motorcycle units to be produced locally will likely be priced at around P100,000 per unit.
“This is not for the mass market but also not the ultra-high market,” Borromeo said, “These would be the leisure bikers or hobbyists.”
Borromeo said there were a few more deals in the pipeline for the automotive manufacturing segment. Another investment could be finalized within the year, he said.
The group sees the Philippines soon undergoing a manufacturing renaissance.
“We’re trying to put ourselves in a sweet spot at this time,” Zobel de Ayala said.
For his part, Ayala president Fernando Zobel de Ayala said for this year, the group earmarked P174 billion in total capital expenditures, of which P22.4 billion would be done at the parent level.
Over the last five years, the Ayala group invested over half a trillion pesos in capital expenditures, investing in businesses critical to the country’s economic growth.
It had paid P170 billion in total corporate taxes and had given direct and indirect employment to 90,000 Filipinos.