Mahindra two wheelers to rev up executive bike segment

Mahindra Two Wheelers Ltd plans to focus on rural markets to tap the potential for executive motorcycles.

With 100-110 cc bikes accounting for about 60 per cent of the motorcycle market estimated to be about 8.5-9 lakh per month, the company, a relatively late entrant, sees this as a big opportunity in rural areas.

The diversified Mahindra & Mahindra Group will leverage its big presence in the rural market with its farm equipment division including tractors, to tap into the rural market where executive bikes continue to be popular.

Dharmendra Mishra, Vice President, Mahindra Two Wheelers Limited, said, “The company will provide a wider range of bikes f

or consumers to select from. The company R&D centre is playing a vital role in tapping into various segments.”

Launching the company’s new entry-level variant of Pantero, a 110 cc motorcycle in Hyderabad, he said within couple of months they expect to go pan-India.

The company will also launch Centuro in the second quarter of this financial year.

Referring to the general slowdown in the market, he said demand is likely to pick up during the festive season. The second half this year is expected to fare better than the first half.

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“We are working on several platforms and expect to roll out new models depending upon what the consumers want. This is just the beginning of a long journey. The company began with scooters. With entry into the motorcycle segment, the company will be able to address a much bigger market,” he said.

The Pantero is priced in the range of Rs 40,599 to Rs 44,599 for four models, all ex-showroom.

Honda opens third 2-wheeler plant in India

Honda Motorcycle and Scooter India (HMSI), India’s second-largest two-wheeler company, plans to expand its installed annual capacity 15 per cent to 4.6 million units by March 2014.

On Tuesday, the company inaugurated a plant at the industrial area here, 58 km from Bangalore, it’s third plant in the country, after those in Manesar in Haryana and Tapukara in Rajasthan.

The three plants have a combined capacity of four million units a year.

The Narasapura plant would initially produce 1.2 million units a year. By March 2014, additional capacity of 600,000 units would be added, through a third assembly line, said Keira Muramatsu, president & chief executive. The Narasapura plant would see a total investment of Rs 1,350 crore, including the funds for expansion.

The company has acquired 23 acres from the Karnataka government for creating additional facilities such as a safety riding track. By the end of this financial year, the plant, spread over 96 acres, would provide employment to 4,500 people, said Yadvinder Singh Guleria, vice-president (sales and marketing). The company would produce the Dream Yuga motorcycle at the plant from June. Two months later, it would start manufacturing Activa scooters on the second assembly line, he added.

Accordingly, the company would reduce the Activa’s waiting period from the current 15 days.

“At present, 100,000 customers are waiting for delivery of the Activa in cities such as Bangalore, Kochi, Trivandrum, Chennai, Hyderabad and Vizag,” he said.“Seeing the current trend of demand for scooters and motorcycles, we have decided to expand the capacity by 6,00,000 vehicles by the end of this financial year to raise the total capacity to 1.8 million units in Narasapura.

Are quadricycles a four-wheel ride to success ?

In Delhi, auto-rickshaws ferry over 20 lakh passengers every day, nearly as many as the city's swanky metro service does (around 2.2 million). Or about half the number of passengers that take the Delhi Transport Corporation buses every day (4.5 million). In smaller cities like Agra or Allahabad, say transport economists, nearly half of all the motorised trips are made on three-wheelers.

From these numbers, a large part of the burden of transporting people from one place to another seems to have fallen on the ubiquitous three-wheelers. Taxis are expensive and finding one is not easy. Buses are overcrowded and unpunctual and they are either racing to overtake their rivals or stopping frequently to take on as many passengers as possible. Autos, therefore, provide a relatively affordable option for travel.

However, last week, the government added a new alternative for commuters. It allowed quadricycles. an upgraded auto-rickshaw with four wheels and doors, for intra-city transportation, albeit with some riders. For now, quadricycles can be used only for commercial use within cities and cannot run on highways. Besides, they will have to meet stringent emission norms.

The idea, if it catches on, promises to fundamentally change the country's transport economy. The first quadricycle on the road is likely to be Bajaj Auto's RE60. The company has the product ready and had been fighting hard to get the vehicle approved by the government. It hopes to sell at least 5,000 quadricycles every month.

The new vehicle could provide commuters an option between the three-wheelers and the taxis. Experts say it will fill the requirement of those who want to upgrade to a taxi but are deterred by high fares. Taxi fares are generally double that of an auto. Besides, taxis are also in short supply in most cities. In Mumbai, for instance, the number of black-and-yellow taxis has dropped from 62,000 in 1997 to just 32,000 this year as new permits have been restricted. In comparison, there are around 100,000 autos in the city.

Rajiv Bajaj, managing director of Bajaj Auto, says the quadricycles will not cannibalise the three-wheelers. He believes the two could co-exist and expand the portfolio of affordable transportation.

Market size
How big is this an opportunity for Bajaj Auto? Under the new policy, quadricyles cannot become an alternative to passenger cars. Also, that would require considerable jazzing up of the model and more safety tests. But many experts say it could happen over the next four to five years.

Says Dinesh Mohan, Volvo Chair Professor Emeritus in the Transportation Research and Injury Prevention Program at IIT Delhi: "In the near future we could have two kinds of car models, one like the RE 60 which cannot go over an average 50 kmph but are safe vehicles for daily use, and two, vehicles that speed beyond 50 kmph which you will use on highways or for longer distances".

Such a change would bring in new buyers who cannot afford a car at present. It could also encourage families which already own a car to buy another vehicle for the daily commute of other family members. In India, average occupancy of a car is just 1.7 to 1.8. Assuming that a family has at least four members, the occupancy level leaves enough room for another vehicle for the household. For quadricycles, this could be a huge market.

Of course, a lot would depend on the price of the upgraded RE60 in comparison to other ultra-small cars like the Nano. Bajaj has not revealed the price but the buzz is that it would cost between Rs 1.3 lakh and Rs 1.5 lakh. Compared to the Nano's Rs 1.53 lakh ex-showroom tag currently, RE60 may not have much of an advantage, considering its engine capacity is nearly one-third of the Nano's.

However, the RE60's key selling point will be its fuel efficiency. The vehicle claims to give 35 km to a litre compared to the Nano's 25.4 km to a litre. In other words, the RE60 will consume around 40 per cent less fuel for the same distance compared to the Nano. Experts say that the running cost of a small car like the Nano is Rs 3,000 to Rs 4,000 a month. For the RE60, this bill will be down by Rs 1,200 a month.

The quadricycle could also come in handy for moving goods within the city. Currently, the government has paid little thought in this direction, but goods transportation could open up new market for the vehicle. The opportunity here is massive: companies could use the vehicle to deliver goods to kirana stores, e-commerce sites to their customers, sellers of consumer goods such as TV sets and fridges could use it to ship their orders, and so on. As of now companies use an array of transport option-vans, tempos, cars, Matadors- to ferry goods. The RE60 could position itself as an attractive urban goods carrier with some modifications. Says Mohan: "The RE60 has to be customised and designed to meet the specific transportation needs for delivering TV sets, lifestyle products or pizzas. That would be the challenge. Of course, the government has to make clear rules and regulations on its usage". The vehicle could also function as a mini ambulance for cases where a patient does not need to be carried on a stretcher.

Safety issues
However, many have their reservations about the vehicle's safety and environment-friendliness. Tata Motors Managing Director Karl Slym, who is struggling to sell the Nano, says that allowing quadricycles is a regressive step. "The government and industry have been accelerating efforts in traffic safety and environment, now we consider a quadricycle. Why go backwards?" he had tweeted. However, he has not ruled out the possibility of entering the segment in the future.

Most of the concerns over the safety are based on a European Safety Council report which says that quadricycles have a fatality risk 10 to 14 times higher than other cars.

Bajaj Auto brushes aside these doubts. As for the RE60's green credentials, it claims the emissions from the RE60 at 60 grams of Co2 per km is substantially lower than pollution norms of most available cars in the market. The Nano emits 92.7 gram of Co2 per km, auto-rickshaws 85.6 grams and the Maruti Alto 103 gram.

Also, some say slower vehicles are less likely to be involved in road accidents. A study undertaken in six Indian cities by Mohan's team at IIT shows that three-wheelers are no less safe nor more accident-prone than cars. According to government data, the share of auto rickshaws in the total road accidents in India is only 7.3 per cent compared to 21. 8 per cent for cars and over 23 per cent for two wheelers. The quadricycle has a weight closer to that of an auto (autos weigh 350 kg, while RE60 has a weight of 400 kg).

There are other areas where quadricycles score over cars. For one, they require less space than a car on the road, and two, with a mass weight which is one-third that of an average car, there is less wear and tear of the road. With these advantages to boot, the quadricycle could create a substantial market for itself in the country's transportation system.

In re-launch of Freedom, LML faces rocky road to revival.

LML Ltd, which used to make the iconic LML Vespa in collaboration with Italy's Piaggio & C Spa, is working hard to regain its lost glory with the relaunch of the Freedom motorbike, besides making new two-wheelers as well as light-weight three-wheelers.

The company, in a downward spiral after its break-up with Piaggio in 1999 and a lock-out at its Kanpur factory in 2006, will initially focus on the Gujarat and Maharashtra markets, apart from Delhi and Punjab where it already operates, a senior official said.

LML posted a net loss of Rs 45.2 crore in 2011-12. In the December 2012 quarter, the latest quarterly result available, the company's net loss widened to Rs 17.46 crore from Rs 9.25 cr in the corresponding period last year.

The company is now ready to relaunch the old 110cc Freedom motorbike, a two-stroke scooter LML NV, and an all new four-stroke gearless scooter, the Star Automatic, which is dubbed as the "man's scooter". "We are also planning to come up with 125cc and 150cc motorbikes, apart from the 125cc Unisex scooters and 150cc and above lifestyle scooters," said Partha Sen Chowdhury, head of sales and marketing, LML.

There are plans to launch light-weight three-wheelers for cargo applications.

The LML Freedom and Star Automatic will be available in 70 outlets in Delhi and Punjab by mid-May. In Gujarat and Maharashtra, the products will be launched in three months, Chowdhury said. "We have been able to develop a four-stroke engine and meet euro-emission norms, without altering the vehicle's dimensions, the prime reason why the scooter is popular in the exports market."

LML is looking to add at least 12 dealers across Gujarat and 20-25 in Maharashtra. "We are not looking at huge numbers initially, but maybe 50-60 units a dealer per month," Chowdhury said. That would mean 26,640 units a year from Gujarat and Maharashtra, and 50,400 units from Punjab, Delhi and parts of Uttar Pradesh.

Even so, the numbers would be far higher than what LML sold in 2012-13. Chowdhury said it exported 40,000 units the last financial year and sold 25,000-28,000 scooters in the domestic market. This was down from 44,435 units (exports) and 31,148 units (domestic) sold in 2011-12.

"(The) company has been passing through a difficult time and facing problems for the last few years, which has affected its operations," LML's 2011-12 annual report said. "Since the company's net worth became negative, it filed reference before the Board for Industrial and Financial Reconstruction (BIFR), where it is registered and declared as a sick industrial company."

The company has proposed a revival scheme to the BIFR in 2011, under active consideration of LML's banks and various financiers. "Stakes of a lot of banks and financiers are involved; hence everybody's views have to be considered," a finance official in the company said, requesting anonymity.

"Europe is a heritage-oriented market, and our particular bodyline has a lot of demand. We are even selling decent numbers in Piaggio's home ground, Italy. More, we also managed to get an attractive pricing in the foreign market," Chowdhury said. LML has been exporting to Italy, France, Germany, the UK, Belgium, Denmark, apart from some Latin American and African countries.

"The positive in favour of LML is that it has a good brand recall, but results would depend on what kind of a product they can come up with. The motorcycle market has remained flat during 2012-13, while the scooters segment has grown by around 14 per cent. However, the 110-125 cc segment in bikes is the fastest growing," said Yaresh Kothari, an automobile analyst with Angel Broking.

"The timing is crucial as the overall industry is not doing very well at the moment. Moreover, with stiff competition, almost every player has increased their ad-spend budget. It might be difficult to position the products without a strong marketing campaign," Kothari added.

India Inc ups its stake in Africa.

It is no coincidence that the fifth BRICS summit was held in Durban, South Africa, last month. The country is the gateway to a continent that is catching up fast.

Holding the summit in Durban, therefore, was a recognition of the changing dynamics of what was once a hopeless, strife-torn continent. Africa is now seen as the place where the next big opportunities are. A genuine middle class is emerging in the continent; its population of 1.1 billion has a median age of 18; and consumer spending, currently over $920 billion, is expected to grow to $1.4 trillion by 2020. Obviously, the growth potential is huge. For new and old Indian companies alike in the continent, the untapped demand for consumer durables, automobiles, medicines and mobiles phones offers a lucrative opportunity.

India and Africa resemble each other, says Chandru Chawla, head of corporate strategy (international business),Cipla, referring to the huge opportunity at the bottom of the pyramid in the two geographies. Cipla, the Mumbai-based pharmaceuticals company, went to Africa over a decade back and it is now trying to step up its presence in the continent. In February, it announced plans to acquire its South African distribution partner, Medpro, for $512 million.

Cipla could gaze into the potential of Africa's bottom-of- the-pyramid market early on. In 2000, Yusuf Hamied, the promoter of the company, decided to sell its three-drug combination for treatment of HIV/AIDS for around $800 for a year's dosage. At that time, patent-holding multinational corporations were selling the combination for $12,000 per patient.

Cipla could reap the benefits of economy of scale. Africa's huge HIV-infected population allowed it to cut costs further to $140 for a year's stock.

"We found these markets attractive despite the challenges. We find that the opportunity is increasing exponentially," says Chawla.

Cipla, which has a turnover of about $1.3 billion, is expecting its Africa business to contribute $1 billion by 2020. For the purpose, it is changing its distribution model. From getting into tie-ups with companies to market its products, it is setting up its own distribution companies.

India's Tata Group, which has a turnover of $100 billion, set up Tata Africa Holdings about two decades ago to identify development opportunities. Its Africa operations, which include automotive, chemicals, smelting, among others, had a turnover of about $2.3 billion in 2011-12. The group has so far invested $1.7 billion in various projects in the continent including a plant in Pretoria to produce commercial vehicles for the local market.

"The kind of growth that the Tatas have experienced in Africa in the last decade is a reflection of the potential and promise that this continent has to offer," says Mukund Rajan, the group's spokesperson. The group is looking at annual revenue growth of 30 per cent from its Africa business, Raman Dhawan, managing director of Tata Africa Holdings, had told Business Standard recently. The Tatas are also planning to get into business hotels in Africa, expanding from the luxury hotels that it operates in Lusaka and Cape Town.

Telecom is another sunrise sector in Africa, with Bharti Airtel leading the Indian charge. It acquired Africa's mobile telecommunication company, Zain, in 2010 for $10.7 billion (enterprise value). Since then its subscriber base has risen to 62 million from 36 million. Bharti also offers high-speed data service in 11 countries and mobile remittance service in 15 countries. Bharti has adopted a low-cost business model in Africa with the help of its global partners: IBM, Ericsson, Nokia Siemens, Tech Mahindra and Spanco. The low-cost model has helped the company expand its presence in the rural areas there.

"It may have taken us a little longer than we expected but if you look at the overall trajectory and direction, we are on the right track in a continent that is the market of the future," says a Bharti Airtel spokesperson. Africa is the fastest growing mobile market in the world. Over the past five years, it has seen a 20 per cent rise in the consumer base, according to a study by telecom industry body GSMA .

India-Africa partnership is not limited to companies setting up bases in that continent. In 2011-12, India-Africa bilateral trade was worth $63.1 billion, accounting for seven per cent of India's global trade. Bulk of this, about $43 billion, was still made up of Africa's staple: oil, gold and metals. However, in recent years, export of manufactured goods such as machinery, transportation equipment, food and pharmaceuticals to Africa has also been on the rise. In 2011-12, it was $20.1 billion.

"We see the growth trajectory in Africa is going to be higher in the years to come vis-a-vis other markets," says Mahendren Moodley, chief executive and India head of Africa's leading financial group, FirstRand Bank

Pune-based Bajaj Auto exports its two- and three-wheelers to 20 African countries. In African markets the primary usage of motorcycles is in the taxi segment. Its Boxer brand with its robust exterior and fuel-efficient engines is a hit in the continent, accounting for 28 per cent of the market. The company has assembly lines in eight African countries.

"For the last few years, Africa has been growing as governments are getting more stable. Also, demographics of the continent is such that it ignites consumption," says Rakesh Sharma, president (international business), Bajaj Auto.

For fast-moving consumer goods companies the story is no different. Africa presents a bright spot with its huge base of middle-income people. Godrej Consumer Products (GCPL) and Marico have been the flag-bearers of the Indian FMCG industry in the continent. "We believe that Africa can be a game changer for GCPL," says Vivek Gambhir, managing director designate, Godrej Consumer Products. But it is not just India that's looking at Africa to fuel growth. "Indian companies will have to compete with other global companies in this market and it is up to them to make the most of the opportunity," says the Bharti Airtel spokesperson.

BMW deal may not impact TVS marketshare: analysts.

TVS Motor Co. Ltd on Monday said it is investing €20 million in tying up with German auto maker BMW AG’s motorcycle division, BMW Motorrad, to source technological know-how for developing high-end motorcycles.

The move could be seen as an effort by TVS to match the technological capabilities of peers in the Indian market. Other Indian two-wheeler companies such as Hero MotoCorp Ltd and Bajaj Auto Ltd have partnered with foreign technology providers such as Erik Buell Racing of the US and KTM AG of Austria, respectively.

According to the long-term agreement, TVS will invest in making vehicles below 500 cc and the development costs will be borne by BMW.

“We have been working on this for sometime and we have signed a long-term agreement, where we will marry our ability to engineer products in mass, and use the high-quality engineering and technology strength of BMW,” said Venu Srinivasan, chairman of TVS Motor, whose market share slid to 13% in FY 12, from 18% in FY 07.

The vehicles will be manufactured in two different styles for TVS and BMW each and will be sold through their individual dealerships and will also be exported. The products developed through this tie-up are expected to be launched in 2015.

Experts say this deal will not have an immediate impact on TVS Motor’s declining market share as the market for high-end bikes in India hasn’t yet matured.

“Any technological tie-up will be a positive from a long-term perspective. In case of this deal, there is not much that would result as a big game changer for TVS Motors as the domestic two-wheeler industry itself is going through a tough time,” a Mumbai-based auto analyst said, requesting anonymity.

TVS’s performance lagged that of the Indian two-wheeler industry, which grew by 2-3% in the year ended March. While Hero MotoCorp and Bajaj saw sales drop to about 2-3%, TVS sales fell 7%. Honda Motorcycle and Scooter India’s sales bucked the trend and grew by 30%, according to Yaresh Kothari, analyst, Angel Broking.

While the deal will be a positive for TVS from a strategic point of view as it could open the doors for the company in international markets, it is unlikely to result in any significant improvement in earnings or volume for TVS in the domestic market, said the Mumbai-based analyst.

Srinivasan declined to comment on whether the technological know-how will extend to products below 250cc as well. He also said there has been no equity sale in this deal.

TVS Motor entered into a technical and equity collaboration with Japan’s Suzuki Motor Corp. in 1982 to form a joint venture, which introduced several models including Suzuki Samurai, Suzuki Shogun and Suzuki Fiero.

TVS and Suzuki parted ways in 2001, and since then the company has been a solo rider battling for a greater share in the growing two-wheeler market.

For BMW, this deal should help gain a foothold in the Indian motorcycle market, Kothari said.

Stephan Schaller, president of BMW Motorrad, said BMW was in the process of realigning its motorcycle business to improve profitability and sales. “It is a logical step to develop motorcycles below 500 cc for emerging markets in Asia and South America to improve profitability.”

BMW Motorrad, known for its 600cc to 1600cc category of bikes like Enduro, Sport and Roadster, sold 117,000 motorcycles worldwide in 2012.

'India right place for high quality mass production'.

 BMW Motorrad says its tie-up with TVS Motor Company is not only to leverage a cost competitive manufacturing base. “If you don’t have the best quality of a premium product, then you have problems later on. India is the right place for high-quality mass production,” says Stephan Schaller, President, BMW Motorrad. Venu Srinivasan, Chairman, TVS Motor, also stresses this point sufficiently. Both the alliance partners spoke to Business Line on what lies ahead, as BMW gears up for emerging markets such as South East Asia and India with lower powered bikes, and TVS powers into a new category above 250-cc, a segment where it is not present now.

How will this partnership shape BMW’s focus on emerging markets?

Schaller: We are traditionally strong in our segments of 600-1,600 cc. We are internationally among the top three players. With smaller displacement and lower price level, we have the chance to enter so-called emerging markets which we cannot enter with our existing products. A country like India, one of the biggest populations in the world, is an interesting place for us. The new products will also be sold in our existing markets.

Does the TVS alliance also give you access to a lower cost manufacturing base?

Schaller: What impressed me most was the high quality of mass production I have seen here. This is more important than a low-cost base. India is the right place for high quality mass production — to source, produce, to ship to places in the world where we can sell them… and one of these places will also be India.

If you don’t have the best quality of a premium product, then you have problems later on. This is always more expensive than a high-cost one. This was why we finally thought TVS would be the best partner for us.

Which markets will you look at?

Srinivasan: We are not into any exclusivity. What is made as TVS with its branding, specifications, styling and features, which would be different from BMW, would be sold as TVS. Whatever is done the BMW way will be sold as BMW.

How big is this alliance really?

Srinivasan: For us, it is a privilege and honour. In terms of premium and quality, there is no company in the world higher than BMW. BMW is known for class, styling and pizzazz. We also bring to the table high-quality mass production. It is not low-cost cheap, mass production. The alliance of engineering and premium manufacturing and quality can be a big win-win for both of us. We are not willing to predict volumes. Our biggest bike today is 180-cc. So this gets us into the above 200-500cc segment. For BMW, which makes only above 650, this gets them products up to 500 cc. That is really the play we are working together. We are looking at specific outcomes. We look forward to it with a great deal of hope and aspiration.