Royal Enfield, India’s oldest motorcycle company, will add capacity by half but this may not be enough to reduce the 10-month waiting period for the iconic Bullet, said Chief Executive Venki Padmanabhan.
“We have to increase the capacity further in Chennai and (we are) in the process of setting up a 150,000 units greenfield facility at Oragdam, near this city,” he said, addressing analysts.
Royal Enfield, owned by Eicher Motors, sells five models of the Bullet – Classic 500, Classic 350, Thunderbird Twinspark and Bullet 350 UCE. In southern parts of India, the waiting period for Classic 350 model is around 10 months, said Padmanabhan.
In the 9 month calendar period ended September 2011, Enfield sold 55,615 bikes -- more than what it sold in 12 months last year. It hopes to end the year with sales of 75,000 vehicles. “For the first time, we sold over 20,000 motorcycles in the last quarter, up by 57 per cent over the same quarter last year,” said Eicher Motors Managing Director and chief executive Siddhartha Lal.
He said the company is working on improvements on the bike. It is importing batteries from Italy. A key bottleneck is paint which the company outsources. “Our paint shop factory will be the first important thing to come up in Rs 350 crore Oragadam plant”, said Lal. The new facility will be ready by the first quarter of 2013.
Honda sees India as global hub for mass market bikes
Japanese auto major Honda Motor Co will commence exporting bikes by next year from India, a country which it sees as a future global hub, particularly for mass market models.
The company is also building a global procurement centre for large-sized motorcycles as well as commuter bikes in India as it looks to enhance exports from the country along with components.
"We will soon start exporting from India... Earlier some of the motorcycle models were being produced by Hero. Now we would like to do it ourselves by next year from the new plant," Honda Motor Company COO (Motorcycle Operations) Tatsuhiro Oyama told reporters on the sidelines of Tokyo Motor Show here.
Last year, Honda and the Hero Group decided to end their 26-year-old joint venture Hero Honda and the Indian partner bought out the Japanese firm's entire 26 per cent stake for Rs 3,841.83 crore.
Indian motorcycle market has high potential and Honda believes that India will eventually become number one in terms of motorcycle market, he said.
"Therefore, we have lots of expectations towards its capability to export to the global market...Specially talking about motorcycles, we do believe India will become a global hub, particularly for the commuter type of models," he said.
The company's wholly-owned subsidiary Honda Motorcycle and Scooter India (HMSI) currently sells entry level, 100 cc bike CB Twister and executive segment motorcycles CB Shine and CBF Stunner (both 125 cc) in the mass market segment.
HMSI has two plants in India with a total capacity of around 22 lakh units per year. It is in the process of setting its third plant in Bengaluru.
After the commercial production of the third plant, the company expects to touch its total capacity to 40 lakh per year by first half of 2013.
"From the new plant we will be making motorcycles that can be sold within India and some can also be exported. We will start exporting to neighbouring countries like Nepal, Bangladesh," Oyama said.
Later the company will export to South America, South Africa and other ASEAN countries. The idea is to explore as many countries as possible, he added.
Commenting on sourcing from India, Oyama said: "We are also in the process of trying to build India as a global procurement centre for large-sized motorcycles as well as commuter bikes. We are already procuring lights and lamps and some other components from India.
"So we see India as a procurement centre in the near future and hopefully export more components to other markets."
Oyama said Honda is giving top priority to India in expanding the production capacity and it is also trying to boost the product line-up and launch more models.
"We are also developing a new R&D centre, which will have the capacity to develop products for the global market," he said.
The company today showcased electric small sports concept car EV-Ster.
The company is also building a global procurement centre for large-sized motorcycles as well as commuter bikes in India as it looks to enhance exports from the country along with components.
"We will soon start exporting from India... Earlier some of the motorcycle models were being produced by Hero. Now we would like to do it ourselves by next year from the new plant," Honda Motor Company COO (Motorcycle Operations) Tatsuhiro Oyama told reporters on the sidelines of Tokyo Motor Show here.
Last year, Honda and the Hero Group decided to end their 26-year-old joint venture Hero Honda and the Indian partner bought out the Japanese firm's entire 26 per cent stake for Rs 3,841.83 crore.
Indian motorcycle market has high potential and Honda believes that India will eventually become number one in terms of motorcycle market, he said.
"Therefore, we have lots of expectations towards its capability to export to the global market...Specially talking about motorcycles, we do believe India will become a global hub, particularly for the commuter type of models," he said.
The company's wholly-owned subsidiary Honda Motorcycle and Scooter India (HMSI) currently sells entry level, 100 cc bike CB Twister and executive segment motorcycles CB Shine and CBF Stunner (both 125 cc) in the mass market segment.
HMSI has two plants in India with a total capacity of around 22 lakh units per year. It is in the process of setting its third plant in Bengaluru.
After the commercial production of the third plant, the company expects to touch its total capacity to 40 lakh per year by first half of 2013.
"From the new plant we will be making motorcycles that can be sold within India and some can also be exported. We will start exporting to neighbouring countries like Nepal, Bangladesh," Oyama said.
Later the company will export to South America, South Africa and other ASEAN countries. The idea is to explore as many countries as possible, he added.
Commenting on sourcing from India, Oyama said: "We are also in the process of trying to build India as a global procurement centre for large-sized motorcycles as well as commuter bikes. We are already procuring lights and lamps and some other components from India.
"So we see India as a procurement centre in the near future and hopefully export more components to other markets."
Oyama said Honda is giving top priority to India in expanding the production capacity and it is also trying to boost the product line-up and launch more models.
"We are also developing a new R&D centre, which will have the capacity to develop products for the global market," he said.
The company today showcased electric small sports concept car EV-Ster.
GDP growth slows down to 6.9% in Q2
Mining, manufacturing are main drag on the economy
THE continuing tight monetary policy along with high inflation brought down the country's GDP growth to 6.9 per cent in the second quarter. The last time such slow growth was recorded was in 2009, when the economy expanded by just 6 per cent.
Latest data prove that the slowdown seen in the first quarter (when growth was 7.7 per cent) has only aggravated, and this is largely due a 2.9 per cent contraction in mining. In the first quarter, the sector had grown by 1.8 per cent, in itself much lower than the 8 per cent growth it had seen in the corresponding quarter of the previous year.
India’s real GDP at 2004-05 prices in the second quarter was Rs 13.21 lakh crore. Nominal GDP at market prices was Rs 20.09 lakh crore.
Reacting to the slowing of growth, planning commission deputy chairman Montek Singh Ahluwalia said, “We are not focusing on the current year in the planning commission. It is a year of slow(down). We know that.”
The finance ministry's chief economic advisor, Kaushik Basu, blamed three factors for what he called “this temporary slowdown”.
1.There is a global slowdown. (“It is in a gloomy global scenario that India’s growth has slowed down.)
2. We are battling inflation. (“There is no getting away from that.”) and
3. There is some slowdown in decision-making.
Among the sectors that added to deceleration was agriculture. Unlike the first quarter, when the farm sector GDP growth was buoyant, in the second quarter it was down at 3.2 per cent. Last year’s corresponding growth was 3.9 per cent and 5.4 per cent, respectively. This, despite a bountiful monsoon this year. Farm GDP growth was pulled down by a drop in pulses production; it contracted by 6.2 per cent and 9.7 per cent, respectively, according to advance estimates.
The full impact of monetary tightening was felt in manufacturing. The sector growth decelerated sharply to 2.7 per cent from 7.2 per cent in the first quarter and 7.8 per cent in the second quarter last year. Surprisingly, the interest rate sensitive construction sector grew by 4.3 per cent, against a 1.2 per cent growth in the first quarter. In the second quarter last year the sector had grown by 6.7 per cent.
The services sector continued to do well. It grew by 10.5 per cent (9.1 per cent in the first quarter this year and 10 per cent in the second quarter last year. The social sector grew by 6.6 per cent, accelerating from a growth of 5.6 per cent in the first quarter.
On the expenditure side, weak consumer spending pulled down private final consumption expenditure (PFCE) growth to 5.91 per cent at 2004-05 prices, down from a 6.32 per cent growth in the first quarter. In the second quarter last year the growth was 8.9 per cent. PFCE as a component of the GDP was down to 59.5 per cent from 60.5 per cent in the first quarter this year and 59.9 per cent in second quarter last year.
Government final consumption expenditure (GFCE) growth was only 4.05 per cent, a slight improvement over the first quarter’s 2.07 per cent but way below the 6.37 per cent growth logged in the second quarter last year.
The major surprise was sharp fall in gross fixed capital formation (GFCF). GFCF captures investment in the economy. GFCF shrank to 30.5 per cent of GDP at 2004-05 prices. In the first quarter it was 31.2 per cent and 32.8 per cent in the second quarter lat year. At current prices GFCF was 28 per cent, lower than threshold of 29 per cent. Any drop below this is normally seen as a danger signal, indicating a longer recovery period.
Global rating agency Moody's senior economist Glenn Levine warned of more headwinds. He said, “The economy is struggling under the weight of higher interest rates, ostensibly to cool inflation. It is difficult to see this turning around any time soon, especially as the troubles in Europe appear to have some way still to play out. We may need to revise our 2012 growth outlook from current 7 per cent and towards something like 6.5 per cent. By recent Indian standards this is a poor performance.”
Domestic rating agency CARE’s chief economist Madan Sabnavis agreed that growth was unlikely to be anywhere close to what government had estimated. “I would assume growth to be around 7.2 per cent this year, but there are headwinds. The area of concern is slowdown in capital formation and this will likely impact long- term growth.”
The uncertainty over long-term growth also stemmed from high inflation, as measured by the GDP deflator.
Bank of Baroda’s chief economist Rupa Rege Nitsure said, “The rise in deflator does not mean that rates will rise. Status quo will be maintained.” She added that credit offtake is a leading indicator. The bottom line, she said, is that “we are entering an era of a stagflation,” that is high inflation and low growth.
THE continuing tight monetary policy along with high inflation brought down the country's GDP growth to 6.9 per cent in the second quarter. The last time such slow growth was recorded was in 2009, when the economy expanded by just 6 per cent.
Latest data prove that the slowdown seen in the first quarter (when growth was 7.7 per cent) has only aggravated, and this is largely due a 2.9 per cent contraction in mining. In the first quarter, the sector had grown by 1.8 per cent, in itself much lower than the 8 per cent growth it had seen in the corresponding quarter of the previous year.
India’s real GDP at 2004-05 prices in the second quarter was Rs 13.21 lakh crore. Nominal GDP at market prices was Rs 20.09 lakh crore.
Reacting to the slowing of growth, planning commission deputy chairman Montek Singh Ahluwalia said, “We are not focusing on the current year in the planning commission. It is a year of slow(down). We know that.”
The finance ministry's chief economic advisor, Kaushik Basu, blamed three factors for what he called “this temporary slowdown”.
1.There is a global slowdown. (“It is in a gloomy global scenario that India’s growth has slowed down.)
2. We are battling inflation. (“There is no getting away from that.”) and
3. There is some slowdown in decision-making.
Among the sectors that added to deceleration was agriculture. Unlike the first quarter, when the farm sector GDP growth was buoyant, in the second quarter it was down at 3.2 per cent. Last year’s corresponding growth was 3.9 per cent and 5.4 per cent, respectively. This, despite a bountiful monsoon this year. Farm GDP growth was pulled down by a drop in pulses production; it contracted by 6.2 per cent and 9.7 per cent, respectively, according to advance estimates.
The full impact of monetary tightening was felt in manufacturing. The sector growth decelerated sharply to 2.7 per cent from 7.2 per cent in the first quarter and 7.8 per cent in the second quarter last year. Surprisingly, the interest rate sensitive construction sector grew by 4.3 per cent, against a 1.2 per cent growth in the first quarter. In the second quarter last year the sector had grown by 6.7 per cent.
The services sector continued to do well. It grew by 10.5 per cent (9.1 per cent in the first quarter this year and 10 per cent in the second quarter last year. The social sector grew by 6.6 per cent, accelerating from a growth of 5.6 per cent in the first quarter.
On the expenditure side, weak consumer spending pulled down private final consumption expenditure (PFCE) growth to 5.91 per cent at 2004-05 prices, down from a 6.32 per cent growth in the first quarter. In the second quarter last year the growth was 8.9 per cent. PFCE as a component of the GDP was down to 59.5 per cent from 60.5 per cent in the first quarter this year and 59.9 per cent in second quarter last year.
Government final consumption expenditure (GFCE) growth was only 4.05 per cent, a slight improvement over the first quarter’s 2.07 per cent but way below the 6.37 per cent growth logged in the second quarter last year.
The major surprise was sharp fall in gross fixed capital formation (GFCF). GFCF captures investment in the economy. GFCF shrank to 30.5 per cent of GDP at 2004-05 prices. In the first quarter it was 31.2 per cent and 32.8 per cent in the second quarter lat year. At current prices GFCF was 28 per cent, lower than threshold of 29 per cent. Any drop below this is normally seen as a danger signal, indicating a longer recovery period.
Global rating agency Moody's senior economist Glenn Levine warned of more headwinds. He said, “The economy is struggling under the weight of higher interest rates, ostensibly to cool inflation. It is difficult to see this turning around any time soon, especially as the troubles in Europe appear to have some way still to play out. We may need to revise our 2012 growth outlook from current 7 per cent and towards something like 6.5 per cent. By recent Indian standards this is a poor performance.”
Domestic rating agency CARE’s chief economist Madan Sabnavis agreed that growth was unlikely to be anywhere close to what government had estimated. “I would assume growth to be around 7.2 per cent this year, but there are headwinds. The area of concern is slowdown in capital formation and this will likely impact long- term growth.”
The uncertainty over long-term growth also stemmed from high inflation, as measured by the GDP deflator.
Bank of Baroda’s chief economist Rupa Rege Nitsure said, “The rise in deflator does not mean that rates will rise. Status quo will be maintained.” She added that credit offtake is a leading indicator. The bottom line, she said, is that “we are entering an era of a stagflation,” that is high inflation and low growth.
Govt to set up Rs 740 cr electric vehicle R&D fund in 12th plan
To be formally announced next month, this allocation is part of a Rs 2,541 crore budgetary spend on the auto sector across the Plan period.
With rising petrol and diesel prices making it tough to tame inflation, the Government is now planning a serious policy push towards developing alternate automotive technologies.
A fund of about Rs 740 crore for research and development in electric vehicles (EVs) and hybrids is likely to find its way in to the 12th Five-Year Plan, officials connected with the development told Business Line.
“This fund will be used in projects for developing new technology in EVs and hybrids along with the industry, foreign technical collaborators and other domestic institutions, such as the IITs.
The industry is also expected to contribute, as the Government will only fund research and not manufacturing,” the official said.
To be formally announced next month, this allocation is part of a Rs 2,541 crore budgetary spend on the auto sector across the Plan period. It also follows the Government's Budget 2010-11 announcement of forming a ‘National Mission for Hybrid and Electric Vehicles' with the industry and academia.
“Many foreign players such as Toyota are interested in investing in EVs, but are waiting for the policy. They are looking to make and develop components domestically if feasible,” the official said.
Under this programme, research facilities for such technologies will be set up at Automotive Research Association of India, Pune and the other six Government-run auto homologation and testing centres under National Automotive Testing and R&D Infrastructure Project (NATRiP).
Investment pattern
The investment figure of Rs 740 crore was arrived after consultations with industry body Society of Indian Automobile Manufacturers and Booz and Co, a consultant hired to draft a report on potential of the EV sector. Booz, in fact, had suggested a Rs 1,000 crore fund, which had later been scaled down by the Ministry of Heavy Industries.
Apart from the EV R&D fund, Rs 991 crore from the Rs 2,541 crore allocation is for completion of the NATRiP (total spend Rs 2,288 crore) and Rs 7-8 crore for a National Automotive Board that is scheduled to be set up.
With rising petrol and diesel prices making it tough to tame inflation, the Government is now planning a serious policy push towards developing alternate automotive technologies.
A fund of about Rs 740 crore for research and development in electric vehicles (EVs) and hybrids is likely to find its way in to the 12th Five-Year Plan, officials connected with the development told Business Line.
“This fund will be used in projects for developing new technology in EVs and hybrids along with the industry, foreign technical collaborators and other domestic institutions, such as the IITs.
The industry is also expected to contribute, as the Government will only fund research and not manufacturing,” the official said.
To be formally announced next month, this allocation is part of a Rs 2,541 crore budgetary spend on the auto sector across the Plan period. It also follows the Government's Budget 2010-11 announcement of forming a ‘National Mission for Hybrid and Electric Vehicles' with the industry and academia.
“Many foreign players such as Toyota are interested in investing in EVs, but are waiting for the policy. They are looking to make and develop components domestically if feasible,” the official said.
Under this programme, research facilities for such technologies will be set up at Automotive Research Association of India, Pune and the other six Government-run auto homologation and testing centres under National Automotive Testing and R&D Infrastructure Project (NATRiP).
Investment pattern
The investment figure of Rs 740 crore was arrived after consultations with industry body Society of Indian Automobile Manufacturers and Booz and Co, a consultant hired to draft a report on potential of the EV sector. Booz, in fact, had suggested a Rs 1,000 crore fund, which had later been scaled down by the Ministry of Heavy Industries.
Apart from the EV R&D fund, Rs 991 crore from the Rs 2,541 crore allocation is for completion of the NATRiP (total spend Rs 2,288 crore) and Rs 7-8 crore for a National Automotive Board that is scheduled to be set up.
More Fuel-Efficient Bikes Honda's Mantra for India
Japanese auto major Honda is working to launch more fuel efficient two-wheelers in India to strengthen its presence post its split up with erstwhile partner Hero Group.
The company, which is enhancing its research and development centre in India, is also developing a 125 cc scooter to be introduced for the first time in the country.
"Honda has the largest share (of two-wheelers) in the world. However, in India we are still number four. So, we are challenger in Indian market," Honda R &D Co President, CEO and Representative Director Yoshiharu Yamamoto told PTI here.
Stating that the demand for models with good mileage is high in India, he said: "We need to introduce more products which Indian people want on a timely manner...We want to introduce more and more products which have very good fuel efficiency."
Yamamoto said the company is working to improve the fuel efficiency of its existing models and "will also introduce new models as well, particularly in the scooter segment".
After the break up with Hero Group, the company is stressing on need to widen product portfolio, particularly in the small scooter segment both in the upper and lower end of the market in India.
"In the past, we have been working with the Hero Group. Now, we have terminated the contract. So far, we had Hero Honda as brand. Now we have to be only Honda," Honda R & D Co Ltd Director, Managing Officer Director Tetsuo Suzuki said.
Last year, Honda and the Hero Group decided to end their 26-year-old joint venture Hero Honda and the Indian partner bought out the Japanese firm's entire 26 per cent stake for Rs 3,841.83 crore.
Since there is clear distinction between the upper and lower range, the company needs to focus on both from now on, he added.
While Suzuki did not give much details on the kind of models the company plans to launch in India, he said Honda is currently developing a 125 cc engine scooter for the Indian customers.
"Currently, we are developing a 125 cc scooter engine. It will go into the Indian market," he said but did not specify when the company will launch it in India. At present, the company's wholly-owned arm, Honda Motorcycle and Scooter India(HMSI) only sells 110 cc engine scooters under the brands like Activa, Aviator and Dio. In 2009 the company had decided to phase out its geared 150-cc scooter Eterno due to falling sales.
The company, which is enhancing its research and development centre in India, is also developing a 125 cc scooter to be introduced for the first time in the country.
"Honda has the largest share (of two-wheelers) in the world. However, in India we are still number four. So, we are challenger in Indian market," Honda R &D Co President, CEO and Representative Director Yoshiharu Yamamoto told PTI here.
Stating that the demand for models with good mileage is high in India, he said: "We need to introduce more products which Indian people want on a timely manner...We want to introduce more and more products which have very good fuel efficiency."
Yamamoto said the company is working to improve the fuel efficiency of its existing models and "will also introduce new models as well, particularly in the scooter segment".
After the break up with Hero Group, the company is stressing on need to widen product portfolio, particularly in the small scooter segment both in the upper and lower end of the market in India.
"In the past, we have been working with the Hero Group. Now, we have terminated the contract. So far, we had Hero Honda as brand. Now we have to be only Honda," Honda R & D Co Ltd Director, Managing Officer Director Tetsuo Suzuki said.
Last year, Honda and the Hero Group decided to end their 26-year-old joint venture Hero Honda and the Indian partner bought out the Japanese firm's entire 26 per cent stake for Rs 3,841.83 crore.
Since there is clear distinction between the upper and lower range, the company needs to focus on both from now on, he added.
While Suzuki did not give much details on the kind of models the company plans to launch in India, he said Honda is currently developing a 125 cc engine scooter for the Indian customers.
"Currently, we are developing a 125 cc scooter engine. It will go into the Indian market," he said but did not specify when the company will launch it in India. At present, the company's wholly-owned arm, Honda Motorcycle and Scooter India(HMSI) only sells 110 cc engine scooters under the brands like Activa, Aviator and Dio. In 2009 the company had decided to phase out its geared 150-cc scooter Eterno due to falling sales.
Suzuki launches Rs 8.88 lakh bike
Suzuki Motorcycle India Pvt Ltd, a subsidiary Suzuki Motor Corp, on Monday launched its cruiser bike Intruder M800 priced at Rs 8.88 lakh.
The bike powered by a 805cc engine has been launched in 12 cities, including Delhi, Bangalore, Hyderabad, Chennai, Mumbai, Pune and Ahmedabad, the company said in a statement.
"The Intruder M800 is more focused as an entry level cruiser which performs like its bigger brother giving a chance to the Indian youth to step in to the world of performance biking," Suzuki Motorcycle India Pvt Ltd (SMIPL) Vice President (Sales and Marketing) Atul Gupta said.
The launch of M800 is aimed at expanding the company's big bikes range in India, he added.
At present the company's portfolio of high-end bikes in India includes M1800 priced at Rs 13.25 lakh, GSX-R1000 (Rs 13.75 lakh), Bandit 1200S (Rs 8.8 lakh) and the Hayabusa (Rs 13 lakh) in India.
The bike powered by a 805cc engine has been launched in 12 cities, including Delhi, Bangalore, Hyderabad, Chennai, Mumbai, Pune and Ahmedabad, the company said in a statement.
"The Intruder M800 is more focused as an entry level cruiser which performs like its bigger brother giving a chance to the Indian youth to step in to the world of performance biking," Suzuki Motorcycle India Pvt Ltd (SMIPL) Vice President (Sales and Marketing) Atul Gupta said.
The launch of M800 is aimed at expanding the company's big bikes range in India, he added.
At present the company's portfolio of high-end bikes in India includes M1800 priced at Rs 13.25 lakh, GSX-R1000 (Rs 13.75 lakh), Bandit 1200S (Rs 8.8 lakh) and the Hayabusa (Rs 13 lakh) in India.
Mahindra 2 Wheelers may raise Rs 200 crore
Mahindra 2 Wheelers Ltd, an arm of Mahindra and Mahindra Ltd, is exploring raising around Rs. 200 crore from private equity (PE) investors by divesting a minority stake, said two company officials.
While the parent company has sufficient cash, the external funding is to nudge the two-wheeler maker to perform better, they said, both declining to be identified.
“This is primarily to de-risk the business, though valuations are the concern in the present market scenario and we want an investor who can work according to our terms,” said one of them.
Mahindra 2 Wheelers, which came into being after the acquisition of Kinetic Motors in July 2008, hasn’t been able to gain traction in India’s one million-units-a-month two-wheeler market.
Between April and October, 7.7 million two-wheelers were sold in India, a 15% growth over a year ago, according to the Society of Indian Automobile Manufacturers. Mahindra sold 92,168 units in that period, a 3% increase from a year earlier.
An investment banker who didn’t want to be identified said the PE investment could be an exercise in determining the valuation benchmark. “We have seen Bain Capital Llc. and GIC investing in Hero, so there has been a precedence for PEs to explore this sector,” he said.
Mahindra paid around $22 million to acquire an 80% share in the two-wheeler maker from Kinetic. “Expectations are around 10 times that value currently. So the investment might also facilitate at least a partial exit for Kinetic while the rest of the money can be pooled into the business,” he added.
Mahindra now owns 83% in the two-wheeler arm and Kinetic the remaining stake.
“We cannot provide a time frame for the PE investment as it takes time,” said the second company official.
The company’s facility in Pithampur, Madhya Pradesh, has a capacity to make one million two-wheelers. Plans were underway for another unit, but this had to be deferred due to the slowdown, the official said. The PE money will be used to develop models and plant expansion.
Mahindra’s spokesperson declined to comment.
Mahindra, which sells the Rodeo, Flyte and Duro gearless scooters and has a 6.6% share in the scooter market, had to discontinue sales of its 106cc bike Stallio this year, within five months of its launch, due to some faulty parts and technical glitches.
“We have addressed these glitches and will reintroduce the motorcycle in the Indian market next month,” said the second official.
Mahindra 2 Wheelers’ net loss widened to Rs. 96 crore in fiscal 2010 from Rs. 22 crore in fiscal 2009. The latest numbers weren’t available on the company’s website.
Abdul Majeed, a partner at PricewaterhouseCoopers Pvt. Ltd who leads the auto practice, said that with the two-wheeler segment getting intensely competitive, it’s critical for a new entrant to get the product strategy right at the first go. “Even the investors have to see merit in a long-term commitment.”
Besides seeking engineering and design inputs from Engines Engineering SpA, the Italian design house it acquired in June 2008, Mahindra has been working closely with other global firms in technology and design, and plans to straddle the motorcycle segment with new models in the volume and premium segment, said the second official.
While the parent company has sufficient cash, the external funding is to nudge the two-wheeler maker to perform better, they said, both declining to be identified.
“This is primarily to de-risk the business, though valuations are the concern in the present market scenario and we want an investor who can work according to our terms,” said one of them.
Mahindra 2 Wheelers, which came into being after the acquisition of Kinetic Motors in July 2008, hasn’t been able to gain traction in India’s one million-units-a-month two-wheeler market.
Between April and October, 7.7 million two-wheelers were sold in India, a 15% growth over a year ago, according to the Society of Indian Automobile Manufacturers. Mahindra sold 92,168 units in that period, a 3% increase from a year earlier.
An investment banker who didn’t want to be identified said the PE investment could be an exercise in determining the valuation benchmark. “We have seen Bain Capital Llc. and GIC investing in Hero, so there has been a precedence for PEs to explore this sector,” he said.
Mahindra paid around $22 million to acquire an 80% share in the two-wheeler maker from Kinetic. “Expectations are around 10 times that value currently. So the investment might also facilitate at least a partial exit for Kinetic while the rest of the money can be pooled into the business,” he added.
Mahindra now owns 83% in the two-wheeler arm and Kinetic the remaining stake.
“We cannot provide a time frame for the PE investment as it takes time,” said the second company official.
The company’s facility in Pithampur, Madhya Pradesh, has a capacity to make one million two-wheelers. Plans were underway for another unit, but this had to be deferred due to the slowdown, the official said. The PE money will be used to develop models and plant expansion.
Mahindra’s spokesperson declined to comment.
Mahindra, which sells the Rodeo, Flyte and Duro gearless scooters and has a 6.6% share in the scooter market, had to discontinue sales of its 106cc bike Stallio this year, within five months of its launch, due to some faulty parts and technical glitches.
“We have addressed these glitches and will reintroduce the motorcycle in the Indian market next month,” said the second official.
Mahindra 2 Wheelers’ net loss widened to Rs. 96 crore in fiscal 2010 from Rs. 22 crore in fiscal 2009. The latest numbers weren’t available on the company’s website.
Abdul Majeed, a partner at PricewaterhouseCoopers Pvt. Ltd who leads the auto practice, said that with the two-wheeler segment getting intensely competitive, it’s critical for a new entrant to get the product strategy right at the first go. “Even the investors have to see merit in a long-term commitment.”
Besides seeking engineering and design inputs from Engines Engineering SpA, the Italian design house it acquired in June 2008, Mahindra has been working closely with other global firms in technology and design, and plans to straddle the motorcycle segment with new models in the volume and premium segment, said the second official.