Mahindra &Mahindra raises stake in 2-wheeler market bet

Nearly four years ago, Mahindra & Mahindra (M&M) invested Rs 120 crore to enter the two-wheeler business by acquiring an 80 percent stake in Kinetic Motor. Now, it has shelled out Rs 100 crore more in building an R&D centre that will drive the company’s strategy to “redefine the segmentation” in the market. Another Rs 500 crore will be invested over the next five years. A senior executive hinted that in the future the company may have more than the current conventional motorcycles and scooters. M&M has had a cold start in the motorcycle segment, where it had an all-new product – Stallio. With the ‘future-ready’ centre in Pune, claimed to be the third largest of its kind in India, the company hopes to start a successful innings.

“The centre will develop prototypes and components from design through to production, which will then be transferred to the company’s brand- new production lines at Mahindra 2 Wheelers’ Pithampur plant,” says P S Ashok, head – R&D, Mahindra 2 Wheelers.

Diesel, electric two-wheelers next?

The first example of an ‘innovation’ in the two-wheeler space is the new start–stop technology in the Duro DZ, which makes it India’s first scooter with this ‘micro hybrid’ technology. Mahindra 2 Wheelers claims a five percent reduction in fuel consumption and a seven percent drop in CO2 emissions while riding the micro hybrid Duro DZ with the feature on, which has been derived from M&M's SUV business. The youngest business arm in the group is working to tap many more such “synergistic opportunities” available.

On the product front, many of the 175 engineers at the R&D centre are working on two-wheelers that will run on unconventional sources of energy. It hopes to reap the benefit of the access to electric vehicle (EV) technology available in the Mahindra Reva. “That you will see one (electric two-wheeler) is certain,” says Anand Mahindra, chairman, designate, M&M, without discussing the timeline of its introduction.

M&M’s automotive business, which has built strong R&D capabilities in diesel engine technology, will also lend a helping hand to Mahindra 2 Wheelers in developing diesel engines for two-wheelers. “We are looking at it. NVH (noise, vibration, harshness) is a big challenge,” says P S Ashok.

As work continues on developing an electric two-wheeler and diesel two-wheeler engines, the R&D team is ready with a new engine each in the 110cc and 300cc categories. The 110cc engine will go into the new Stallio, scheduled for a festive season launch this year. The original Stallio motorcycle was withdrawn from the market in 2010, as it did not meet certain customer needs, according to the company. Experts say the bike’s quality was not satisfactory. A little over 5,000 Stallios were sold before it was taken off showrooms. Earlier, the issues in the Stallio were to be sorted out by June last year. The company promises the new Stallio will have only the name in common.

“The Stallio has been completely re-invented. It will be a pleasure vehicle to ride. Any association with the earlier Stallio is incidental,” says Anoop Mathur, president, Mahindra 2 Wheelers.

Anand Mahindra is betting on the talent pool of engineers in the two-wheeler-rich Pune belt to give his two-wheeler venture that much-needed thrust. This ‘node’ will connect and derive the benefits from the other R&D ‘nodes’ that M&M has in its command.

“Even though it is the third largest two-wheeler R&D centre in India on a standalone basis, if you think of us as a node, I would argue there’s no one who can rival the strength that Mahindra brings. There may be other nodes, as two-wheelers grow. Pune has an ecosystem of two-wheeler customers," says Mahindra. “The average age here is 31 years. They are part of the Pune ecosystem of two-wheeler riders. Our R&D head has hired some of best names in the business,” he adds.

In the past 12 months, the Pune R&D team has filed 12 patents. The team also will work in tandem with the other R&D ‘nodes’ within M&M. The key one will be the Mahindra Research Valley (MRV) in Chennai. The Pune centre currently has 175 engineers, and the headcount will be taken to 300, according to the company.

“The Mahindra 2 Wheelers' R&D centre will provide us with the dual benefits of indigenous design at lower costs and shortened product development lifecycles,” says Mathur.

New launches

Some experts feel that it is a tall task for any new entrant like Mahindra 2 Wheelers to crack the code in the highly competitive Indian two-wheeler market.

Mahindra says he expected it: “We also knew that if anyone can crack the code and make a mark, then it is Mahindra, given that we have a brand, we have automotive technology, a rural brand, network. We are here for the long run, we are a marathon runner. 'Would I have liked to have more success earlier?' Yes.”

The new products lined up are targeted to make that major mark and garner success. Mahindra 2 Wheelers will launch two- 110cc bikes and the much- awaited 300cc bike ‘Mojo’ during this fiscal. The Mojo is slated for launch during the January-March 2013 quarter. Both the engines have been indigenously developed and tested. The 300cc liquid-cooled engine was initially designed by Engines Engineering, the Italian firm that M&M acquired and later sold back to its original promoter. Mahindra 2 Wheelers says the new engines are totally different than the ones showcased at the time of launching the Stallio. Except for the mounting points, everything else is new. The new products will roll out of the new motorcycle manufacturing line set up with an investment of Rs. 25 crore at the company’s Pithampur plant.

Big targets

For a company of its parent’s size, Mahindra 2 Wheelers is quite small. During the first two months of this fiscal, it sold 19,268 units in the segments totaling 421,424. That’s about a five percent market share. Clearly, the volumes have to be way bigger for the company to touch the targeted Rs 20,000 croremark by 2020. “If I do a back-of-the-envelope calculation, to reach Rs. 20,000 crore by 2020 we will be looking at three to four million units a year,” says VirenPopli, VP, strategy and market development, Mahindra 2 Wheelers. The two-wheeler market is expected to touch 30 million units a year by then.

Synergies beyond R&D

Anand Mahindra’s confidence also stems from the “synergistic ecosystem” that will be tapped by Mahindra 2 Wheelers in the group. Apart from tapping the various R&D nodes, the two-wheeler business will tap M&M’s strong distribution network; the group sells its products across 40 countries. “In new markets where M&M’s automotive business is entering, in Africa or East Asia for example, it will be wonderfully synergistic to have a motorcycle that you can export and build a Mahindra brand in those markets. In some countries with a low purchasing power, motorcycles may sell quicker and faster,” says Mahindra.

The company is looking at gaining 20 percent of its revenue from exports. Markets in Africa and Latin America will be targeted first. Affluent countries will also be on the radar as scooters are seen as an eco-friendly mode of transportation in those markets.

M&M has pumped in Rs 600-700 crore into the two-wheeler business so far. The current and the next financial year will be crucial for the company as it re-enters the motorcycle market and also builds its scooter portfolio. But the road ahead is not an easy one. Mahindra 2 Wheelers really needs to build strong muscles as entrenched players like Hero MotoCorp, Honda and Yamaha are on an overdrive in building R&D capabilities, products and manufacturing footprint.

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INTERVIEW WITH MAHINDRA 2 WHEELERS’ MANAGEMENT TEAM

Some large two-wheeler OEMs have had joint ventures and alliances. Will you also look at that route to grow?

Anand Mahindra: When we started off, we already had a collaboration with SYM which we inherited from Kinetic. We have visited them and found them to be good people with good technology. Don’t be surprised if technology flows the other way. To me personally, what will be a matter of pride is when we create technology in India which somebody else would want to buy. I feel the future of alliances will include two-way flow of technology. As far as new partners and alliances, nothing is in the anvil as of now. We have stated clearly that we are open.

Will you continue your partnership with SYM?

Anoop Mathur: There’s nothing as of now to say that it’s a finite partnership. What we have with SYM, in terms of engines or vehicles, is part of the legacy. Going forward, given the vastness of our plan, there may be an array of arrangements. The financial stake of SYM, if any, is through the Kinetic route. The SYM relationship is only licensing of technology arrangement. But the R&D centre is not all encompassing with everything under one roof. Likewise, we will be working with the best in class anywhere in the world, whether it is for styling, engine or whatever.

How would you differentiate your products from others?

VirenPopli: When you start looking from a customer’s point of view, you start looking very differently. We are looking at differentiating our products by looking at them from the customer’s point of view. Currently, the market is like the good old days of Henry Ford, where you can pick up any product as long as it is black. Our products are not about making in millions and selling them in any three colours. We are going down the route of segmented volumes.

Anand Mahindra: We want to redefine the way segmentation is happening. We don’t want to sell by the existing definition. Mahindra 2 Wheelers seems to be at an inflection point.

Three-and-a-half years ago, did you expect the incubation period to be this long?

Anand Mahindra: No. What is important is that we are building a learning organisation. We are here for the long run. Why we think we can make a mark, but I wasn’t underestimating the challenge. We knew it’s going to take a lot of hard work. We also knew that if anyone can crack the code and make a mark, then it is Mahindra, given that we have a brand, we have automotive technology, a rural brand, a network. We are here for the long run, we are a marathon runner. Would I have liked to have more success earlier? Yes.

How much of a change have you made in the Stallio?

Anoop Mathur: We are talking about at least two motorcycles of 110cc. In one sense, if you wish to call it a Stallio, you can call it a Stallio. It is a Stallio that has been completely re-invented and one that will be a pleasure vehicle to ride. Any association with the earlier Stallio is incidental.

Anand Mahindra: We withdrew it when we saw that it was not meeting what the market demanded; it was not due to any technical fault or glitches. It has been completely re-engineered. Now, what we are coming out with is a vehicle co-created with the customer.

Why did you set up the R&D centre in Pune, and not in Mumbai or Chennai?

Anand Mahindra: I don’t want to sound uncharitable, but I think it will be a stretch to say we inherited anything of substance, as far as R&D is concerned. R&D in the future is a network. MRV is a very important node. There are many such nodes. Nashik and Mohali are all nodes. Yanchang in China is a very important node for small tractors. SsangYong is a node.

Even though it is the third largest two-wheeler R&D centre in India on a standalone basis, if you think of us as a node, I would argue there’s no one who can rival the strength that Mahindra brings.

There may be other nodes, as two-wheelers grow. The average age in this centre is 31 years. They are part of the Pune ecosystem of two-wheeler riders. And there has been virtually zero attrition.

P S Ashok: This is also an important hub for vendors. There’s lot of scope for product development here. There’s ARAI and VRDE for example, with whom we do a lot of work. And we have the Chakan plant where we use the test track.

Will you list Mahindra 2 Wheelers on the bourses?

Anand Mahindra: We will not rule that out. Our focus now is on getting the product right. You know the Mahindra Group has a long tradition of accessing markets, of sharing wealth with investors. I don’t see why not. It’s not on the anvil right now. Another reason why we go public is because we want to share wealth with people in the company. Stock options are very much a key incentive and motivator for the people in the company. Will we eventually do it? Yes.

SUMANTRA BAROOAH