M&M drives away with Kinetic for Rs 110 crore
31 Jul, 2008, 0507 hrs IST,
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MUMBAI: Utility and tractor major Mahindra & Mahindra on Wednesday signalled its entry into the two-wheeler segment by agreeing to buy the assets of Kinetic Motor Company for Rs 110 crore. M&M will buy the assets through a new company called Mahindra Kinetic Scooters and Motorcycles, which will own the assets of the Pune-based Kinetic Motor. M&M will own 80% of the new company. Kinetic Motor, which makes two-wheelers, will own 20% in the new joint venture firm, M&M said in a statement. ET had written about the possibility of the deal in its edition dated May 14.
“Kinetic Motor is a strategic fit with our overall two-wheeler strategy,” said M&M vice-chairman Anand Mahindra. “The acquisition gives us an opportunity to emerge as a full range player with a presence in almost every segment of the automobile industry,” he said.
While the deal will help M&M get a foothold in the scooters and motorcycles segment, the new JV is open to talking to other global two-wheeler players to enter the higher end of the two-wheeler space. The JV will rely heavily on global sourcing to get competitive and build a differentiated brand. Sulajja Firodia Motwani, the current MD of Kinetic Motor will be a non executive director in the new company, while Anoop Mathur M&M’s president designate of two-wheelers will spearhead the new venture.
The strong in-house design and development competencies provided by Mahindra Engineering Services and the recent acquisition of Italy-based two-wheeler design house Engines Engineering, coupled with Kinetic Motors’ expertise will help in getting a strong position in the rapidly growing Indian and global two-wheeler market, Mr Mahindra added.
The Rs 110 crore will be used to repay some liabilities of Kinetic Motor which has term loans of around Rs 60 crore. Incidentally, through the acquisition, M&M does not get a stake in Kinetic Motor or Kinetic Engineering.
But SYM, a Taiwanese maker of two-wheelers, which has a strategic alliance and a 11% stake in Kinetic Motor, will continue to work with the new JV, Ms Motwani said. It is not clear if SYM will separately pick up a stake in the new company or will hold its stake though Kinetic Motor.
The move would boost M&M as it is more economical compared to putting up a greenfield unit which is more expensive and time-consuming, Mr Mahindra said. Besides, Kinetic has a product portfolio ranging from mopeds, scooterettes, scooters to motorcycles. Kinetic Motor’s promoters, the Firodia family, owns about 54.8% in the company. The firm needs funds to revamp its operations and had been looking at raising anything between $100-125 million.
Kinetic Motor will continue as the holding company and will venture into new business areas other than two-wheelers, Ms Motwani said. “We have a non-compete clause with Mahindras. We will focus now on the component and infrastructure businesses.”
Within the overall two-wheeler strategy, scooters will form the entry point into the Indian market and will be an important part of the company’s overall two-wheeler product portfolio, M&M officials said. While the existing Kinetic dealerships will be retained, the JV is currently working on the modalities of branding the products.
Founded in 1974, the Kinetic group launched the moped Luna in 1974. In 1984, it launched India’s first gearless scooter. Although the two-wheeler market is currently in slow gear, Mr Mahindra says penetration levels are still low at 48 vehicles per 1,000 people which augurs well for the future growth of the industry. Besides, empowerment of women and increased scooter demand in Tier II cities and small towns will also add to the growth.
The Indian two-wheeler industry is the second-largest in the world with total domestic demand of 7.2 million in 2007-08. The two leading players are Hero Honda, the market leader, closely followed by Bajaj Auto. The market is dominated by motorcycles.
