The Hindu Business Line : Assets sale, the smartest thing to do for Kinetic

Chennai, July 30 During the heydays of its joint venture with Honda of Japan, Kinetic had benefited from its strong brand association with scooters and scooterettes. Ever since the venture broke up, it has also suffered from it.

Kinetic Motor has its share of successes, but none that can compare with the success of its erstwhile 2-stroke Kinetic-Honda scooters. The magic of that joint venture seemed to have rubbed off entirely on the latter brand.

Honda today has a 59 per cent stranglehold over the scooter/scooterette market in India. TVS Motor is a distant second with a 22 per cent share (based on SIAM June 2008 report). The two top two-wheeler market players have to contend with much lower numbers.

On the fringe

Though Kinetic’s latest scooter — Flyte — developed in collaboration with SYM of Taiwan, has met with some success in a few markets, it would be fair to say that the company is increasingly becoming a fringe player (with a two per cent share) in the scooter segment. And in the business of mass market two-wheelers, fringe players cannot hope to remain profitable.

So, though the assets sale move comes a little late and seems bordering on desperation, it still is the smartest thing to do for Kinetic.

The company and its management can now focus on its various other businesses like auto components, infrastructure, design services and powertrains manufacturing.

Pact with M&M

Kinetic will retain a 20 per cent equity share in the new joint venture to be formed with the Mahindras, but it is also possible that the former will never be able to get into the business of two-wheelers outside the purview of the new joint venture.

For the Mahindras, this was the best bet to shorten the gestation for its entry into the two-wheeler market. With the assets purchase and the setting up of the new joint venture, tentatively to be called ‘Mahindra Kinetic Scooter & Motorcycle’, M&M gets immediate access to productive manufacturing and assembly assets, the entire portfolio of Kinetic two-wheelers, including the SYM-Flyte and the Kinetic brand, which Kinetic Motor has licensed to the new joint venture.

Kinetic and M&M will jointly develop new products in all the two-wheeler categories and the technical collaborations that the former had with overseas partners such as SYM will continue to provide technical assistance to the new venture.

With this move, M&M has managed to make an entry into the one last automotive products segment that it did not have a presence in. The company has said that it wants to mark its entry with scooters, forming an important part of its product portfolio.

M&M also feels it can leverage its understanding and strong presence in the fast emerging rural markets of the country for marketing its future two-wheelers. But, despite its wide reach and very popular brand image, two-wheelers will still be a tough sell for the new joint venture.