MATTIGHOFEN, Austria -- Sales of a new motorcycle designed and engineered by Austria's KTM Power Sports AG and to be built by India's Bajaj Auto Ltd. could be almost four times greater than those of KTM's entire current model range, underscoring the importance of emerging markets to its future.

In an interview with Dow Jones Investment Banker, KTM's Chief Financial Officer, Patrick Prugger, said he hoped its share of sales of the 125cc machine, known for now as the X-Street and which may go on sale at the end of this year or early in 2011, will be 40,000 units annually in places such as Brazil, where it has distribution rights.

An official at Bajaj, which is building the KTM-branded machine in Pune, India, confirmed that it expects to sell a further 100,000-200,000 units a year in India, Pakistan and elsewhere in Asia. KTM gets a royalty from the machines sold there.

In its last financial year to Aug. 31, 2009, KTM's core 30-plus model range of off-road machines and exotic street bikes sold around 62,000 units, down some 30% against the previous year.

The youth-focused X-Street will be India's most advanced motorcycle and is being built to KTM's design and quality brief. KTM officials are hugely encouraged by the quality they see from Bajaj.

The stylish machine is likely to be competitively priced in Europe–-a small market compared with Asia and Latin America–-at around EUR4,000, tackling Japanese equivalents head on.

The entry-level machine and a possible 250cc variant appear crucial to KTM's growth plans. "In existing KTM products and markets there's no growth potential...for three to five years," Prugger said of the company's forecasts, due to the effects of the credit crisis on consumer demand for the types of niche low-volume performance machines that KTM makes.

If that forecast proves correct, that makes its tie-up with Bajaj and resulting new models key to its future. A rights issue may see Bajaj increase its stake in KTM from 31.72% to around 36%, Mr. Prugger said.

Media reports of a takeover by Bajaj look premature. People familiar with the plans of Bajaj and KTM played down the prospect of the Indians taking control anytime soon. A takeover is complicated, though not ruled out, by a financial guarantee from the Province of Upper Austria contingent on KTM's parent, Cross Industries AG, maintaining its controlling stake. "We are an Austrian company...we don't want to be run from India" said one senior person close to KTM.

KTM entered intensive care once the credit crisis broke, and embarked on a restructuring plan that still has some way to run. Net debt, which peaked at EUR320 million in February 2009, has been cut to EUR240 million. Staff numbers were slashed to 1,600 now from a peak of more than 2,200 in the fall of 2008. Many parts are still made by hand at the factory in this somewhat remote town close to Germany's southeastern border.

The financial shape of the company now "is sustainable in the face of the market. We have adapted the cost structure, reduced it around 30%" in the first quarter of its new financial year against a year ago, Prugger added.

The company's first quarter results for its 2009/2010 financial year suggest a dreadful period in KTM's history may be coming to a close, with a sales decline easing off to 16% and a return to net profit of EUR3.6 million against a EUR27.9 million loss a year previously. That said, insiders believe more discipline is needed if the company's finances are to stabilize.