Riding out of the sunset

In 1974, two years after H.K. Firodia flagged off the Kinetic Group with the vision of developing vehicles for common people at affordable prices, he launched India's first moped, Kinetic Luna. The top brass at the group's flagship, Kinetic Engineering Ltd (KEL), says the Luna "has provided mobility to over 40 lakh Indian customers". Yet, today, the moped segment barely exists—representing just 3 per cent of total twowheeler sales—but the late patriarch's vision still prevails at the Pune-based automotives group.

In September 2009, KEL began supplying transmission gears for the Tata Nano, the ultra low-cost car. As Arun Firodia, Chairman, Kinetic Group (and son of the founder), puts it: "Kinetic has been a believer and partner to the Tatas for the Nano project from day one, when many chose to be sceptical about a Rs 1-lakh car."

The Road Ahead The Vision for the next 10 years. Aggressively unleash the potential in auto components in the areas of engines, gear boxes, other automotive systems through global partnerships. Develop infrastructurerelated businesses, with the focus on Kinetic Hyundai. Exploit and leverage the Kinetic brand to develop new B-to-C businesses.

The change from a moped maker to a manufacturer of automotive systems and components that include powertrain systems (engine and transmission parts and assemblies) is just one of the makeovers at the group over the past four decades in which it has often struggled to keep pace with changing consumer preferences and increasing competition in the Indian automotive sector.

Even by that history, two new areas of focus at the group, which has third-generation scion Ajinkya as KEL'S Managing Director, make for radically different businesses from the past and hold promise to alter the scale and shape of the one-time two-wheeler maker. The two new lines of businesses: Infrastructure (for which joint ventures have been put in place in 2009, with the likes of Hyundai and FG Tecnopolo of Italy) and a still-on-the-drawing board consumer business, where the intention is to leverage the equity of the Kinetic brand.

That's a fresh start and direction for the Firodias who, in the mid-'80s, had flagged off a joint venture with Honda to make India's first gearless scooter. The product was a raging success, and nudged leader Bajaj Auto —which was resting assured on the demand for its best-selling Bajaj Chetak —out of complacency. Bajaj was still No.1 by far but Kinetic Honda launched what was perhaps India's first scooter to aspire for, with the focus being more on style and features than fuel efficiency.

By the late '90s, however, Honda (which had already upped its stake to a little over 50 per cent by 1993) was keen to take over the joint venture. The Firodias weren't in a mood to sell. Result? The Japanese auto major exited by selling its stake to Kinetic, preferring instead to build on its joint venture with the Munjals, Hero Honda Motors (which today makes both motorcycles and scooters). Without Honda, Kinetic Motor wasn't the same force anymore, even as it tried to sell motorcycles and scooters with help from overseas collaborations. That wasn't enough to take on the big boys.

"Competition intensified in Kinetic Motor's main segment of gearless scooters with the entry of large players like Honda, Suzuki and Hero Honda. The Kinetic Group decided that it would be difficult for its twowheeler business to be profitable as a standalone scooter manufacturer," says Sulajja Firodia Motwani, Managing Director, Kinetic Motor Company, and one of the more visible faces of the group in the past decade. So, in 2008, Kinetic Motor and the tractors-to-software Mahindra and Mahindra (M and M) set up a new company — Mahindra Two Wheelers Ltd — that acquired the assets of Kinetic Motor, in which the Mahindras have an 80 per cent stake and Kinetic Motor owns the rest (Kinetic Motor is a listed company in which KEL and associate companies have a shareholding of a little over 45 per cent).

Sulajja prefers to see it as a "strategic partnership," although most investment bankers wouldn't hesitate in labeling the transaction with the Mahindras as an acquisition. "The deal is a bit like having your cake and eating it too," she insists. "We have tied up with one of the best business houses in the country and if there is one group that can succeed today in this competitive twowheeler industry, it is M and M," she adds.

While it will be up to the Mahindras to determine the future of the twowheeler business (see Riding Pillion), the Firodias have their hands full with their flagship activity of automotive components and systems. For the year ended March 2009—the latest period for which numbers (unaudited) are available—the flagship KEL reported net sales of Rs 50.4 crore and a net loss of Rs 25.42 crore.

Riding Pillion The Firodias see more value with M and M at the throttle. Tell Sulajja Firodia Motwani that she sold the Kinetic two-wheeler business to the Mahindras, and she's likely to greet you with a gentle rap on the knuckles. Kinetic Motor Company Ltd and Mahindra and Mahindra (M and M) have set up a new company—called Mahindra Two Wheelers Ltd—in which Kinetic Motor has a 20 per cent stake and M and M 80 per cent. "So we continue to be in this segment through our alliance," says Sulajja, Managing Director of Kinetic Motor. Whether an alliance or an acquisition, the facts are that M and M bought the assets of what used to be Kinetic Motor's two-wheeler activities for Rs 110 crore and, as Sulajja puts it: "The bet here is that 20 per cent ownership in the Mahindra Kinetic alliance, which will be an end-to-end player in two-wheelers, will generate more value at a lower risk than a 100 per cent ownership of gearlessscooters-only business. I think it will pay off." An added benefit for flagship Kinetic Engineering Ltd is that it gets another customer to supply parts to. Mahindra Two Wheelers has three products in the market: The Rodeo, the Duro and Flyte (from the Kinetic Motor stable), all powered by 125 cc engines. At the time of launch, Anoop Mathur, President (Two-Wheeler Sector), M and M, had said that Rodeo and Duro have created a new market segment for power scooters (most of the competition in the gearless scooters market is 100 cc), and that he hopes to reach a cumulative volume of 1 lakh units in 12-18 months. An average of some 1.5 lakh scooters and scooterettes sell every month in India. The market has grown by 17.87 per cent April-December 2009, as per data from Society of Indian Automobile Manufacturers.

But the Firodias expect a lot from the automotive systems business which includes, besides KEL, Kinetic Communication for automotive design, JVs with Ducati Energia of Italy for ignition and auto electrical systems, and with Taigene Group of Taiwan for motors. The tooling division of KEL was spun off into an independent tool engineering centre, and has clients including the M and M Group, General Motors and TAFE. With all these activities, the group hopes to generate a turnover of Rs 500 crore annually from automotive systems in the next three years. (Total group revenues add up to $500 million, or Rs 2,300 crore, it says).

Much of that growth in the automotives business will have to come from the supply of transmission gears for the Tata Nano. KEL has invested Rs 50 crore to set up a gear making facility as a "plant-in-plant" at its existing unit in Ahmednagar in Maharashtra. Supplies to the Nano will help KEL earn its spurs as a manufacturer of car transmission components, paving the way for more such orders. Currently, the company also supplies gear boxes for Tata Motors' light commercial vehicles (LCV) platform; other customers include sister company Force Motors (which has Arun Firodia's brother Abhay at the helm); Bombardier Recreational Vehicles; Tomos, a European moped maker, and associate company Mahindra Two Wheelers.

Even as the group builds on its competence in components, it's cottoned on to the high-growth infrastructure sector. Kinetic Hyundai Elevators Moving Technologies Ltd, which will make elevators, escalators and multi-level automated parking systems, has Sulajja's husband Manish Motwani as Managing Director. "We aim to be among the top five companies (in this space) in the next five years. With growth in construction, infrastructure and retail, this is an attractive area for our group," says Motwani, who has worked with Sun Microsystems in the US and in India, after which he had set up a computer monitor-manufacturing unit.

The days when Kinetic scooters were common on Indian roads are still fresh in Sulajja's mind, and even if she won't make scooters, she's keen to ride on the equity and recall of the brand. "Kinetic is a respected and well-recognised brand across big and small towns of India. We aim to leverage the basic values and heritage of the brand such as innovation, technology, convenience and modernity... We will develop a bouquet of products that offer these values," she says. The vision for the brand stays the same as it was when the group made scooters—a Kinetic in every home.

Power back-ups such as generators and invertors, as well as the area of home automation, are businesses that the group is eyeing. "We will launch at least one product in 2010," adds Sulajja. For the Firodias, the past decade has been a challenging one—it's been a time to rebuild, restructure, and restrategise.

Amongst those challenges are some highgrowth opportunities that the group has zeroed in on. The group has been no stranger to adversity, right from the time the Luna lost its relevance, to the time Honda exited its scooters' joint venture. This time around, the Firodias appear to have a fine balance of activities and have put their eggs in high-growth sectors. The years ahead will reveal whether the Kinetic Group is successful in yet another transformation.