Mahindra & Mahindra Ltd. (M&M;), one of India’s leading automotive companies, has announced that its Board of Directors has approved the acquisition of business assets of the Pune-based Kinetic Motor Company Ltd. (KMCL). The acquisition will be done through a new company to be formed. The consideration for the acquisition is a sum of Rs. 110 crores (subject to closing due diligence) plus 20 per cent stake for KMCL in the new company. M&M; will hold the balance 80 per cent of the equity.
The deal will enable Mahindra to design and market a range of scooters as well as value engineered motorcycles and high-end motorcycles for the Indian and global markets, helping it establish a robust, end-to-end two-wheeler business in every segment of the industry.
Said Mr. Anand Mahindra, Vice Chairman and Managing Director, Mahindra Group: “The acquisition of business assets of KMCL is a defining moment in the history of Mahindra as it will give us an opportunity to emerge as a full range player with a presence in almost every segment of the automobile industry. KMCL is a strategic fit with our overall two-wheeler strategy. The strong in-house design and development competencies provided by Mahindra Engineering Services (MES) and the recent acquisition of Italy-based design house, Engines Engineering, coupled with KMCL’s expertise will enable us to assume a significant position in the rapidly growing Indian and global two-wheeler market”.
Ms. Sulajja Firodia Motwani, Managing Director, Kinetic Motor, observed: “KMCL is a company with a rich heritage spanning more than three decades. Over the years, we have introduced several new concepts such as the Luna and India’s first gearless scooter, which have revolutionized the two-wheeler industry. Hence, we are delighted to be associated with Mahindra, another pioneering automobile company with a rich legacy which will add long-term value to the business and take it to greater heights.”
Ms. Sulajja Firodia Motwani will be a non-Executive Director in the new company.
Within the overall two-wheeler strategy, scooters will form M&M;’s entry point into the Indian market and will be an important part of the company’s overall two-wheeler product portfolio. There are several macro environmental trends which make the scooter market especially attractive to Mahindra. These include a younger, more affluent customer base with a significant number of empowered women and increased scooter demand in Tier-2 cities and small towns. M&M; is strongly positioned to cater to this demand, given its significant presence and brand equity in these markets.
For Mahindra, two-wheelers are an additional touch-point for consumers to interact and bond with the ever-expanding universe of Mahindra products and services. Within the automotive space, it allows M&M; to engage and build relationships with customers at a relatively early stage of the ‘personal transport solutions’ value chain. This will give an opportunity to place Mahindra in every household, given its dominant presence in the rural and semi-urban segments and Mahindra Finance’s extensive reach in these markets.
Moreover, the focus on more inclusive growth and improvement in rural transport infrastructure will only expand the demand footprint and increase two-wheeler penetration in semi-urban and rural areas as well.
India is the second largest producer of two-wheelers in the world. The two-wheeler industry has grown from three million in 1998 to eight million in 2008. Domestic sales which comprise 93 per cent of total two-wheeler sales have grown from three million units in 1998 to 7.2 million in 2008, a CAGR of 9.2 per cent. Despite recent market turbulence and volume decline due to the tight credit situation, fundamental demand drivers for two-wheelers in the country remain strong.
With growing GDP, higher disposable household incomes and increased discretionary expenditure on personal transportation, the outlook for the two-wheeler business in India remains positive. Also, penetration at 25 per cent of households in the country is still low and augurs well for increased “consumption”.
With sharply rising environmental concerns and favourable consumer attitudes in the West towards “green” vehicles, two-wheelers provide cleaner, quieter, more fuel-efficient transport solutions. While this presents excellent opportunities in the overseas market, the trend is expected in India and other emerging markets as well.
Founded in 1970, Kinetic has a rich history of innovation and has introduced several new concepts over the years that have revolutionized the two-wheeler industry. In fact, it brought the concept of personalized transport to India with the launch of the moped Luna in 1972. In 1984, it launched India’s first gearless scooter which has come to symbolize comfort, convenience and universal appeal.
