September 5 2008.

Mahindra & Mahindra Ltd., India's midsize carmaker, is pushing diversification, aiming to emerge as a maker of a wide range of motor vehicles.

The company, which used to be a niche-oriented firm focusing on jeep-type multipurpose vehicles, has entered the passenger car market through a joint venture with French carmaker Renault SA. And now it is moving into the motorcycle and scooter business by acquiring a specialized manufacturer.

The company has also emerged as one of the candidates for purchasing the Hummer brand of large cars from General Motors Corp.

Anand Mahindra, vice chairman and managing director of Mahindra Group, left, announced the purchase of Kinetic Motor in Mumbai.

Anand Mahindra, vice chairman and managing director of Mahindra Group, who recently announced Mahindra & Mahindra's entry into the two-wheeled vehicle market, said the move will be a good opportunity for the group to develop into a comprehensive automaker handling all areas of motor vehicles. He said he wants to spread the Mahindra brand all over the country.

For the company, motorcycle/scooter operations will be a strategic business to attract consumers whose incomes are lower than those of car users.

Mahindra will purchase Kinetic Motor Co., a Pune-based midsize maker of scooters and motorcycles suffering from financial difficulties, through a new joint venture in which it will hold an 80% stake. The new firm, Mahindra Kinetic Scooters & Motorcycles Ltd., will purchase Kinetic Motor's business assets for 1.1 billion rupees, or about 2.75 billion yen.

Kinetic, for which scooters are mainstay products, is a lower-ranked two-wheeler maker that accounted for 0.4% of the domestic two-wheeler market in the April-June period. It has recently been operating in the red and, according to the local media, has 1.4 billion rupees in cumulative losses.

Nevertheless, the vice chairman said Kinetic fits Mahindra's two-wheeler strategy.

Mahindra, which used to specialize in multi-utility vehicles and agricultural tractors, suddenly attracted attention in March 2005, when it announced it would build and market the Logan, Renault's mainstay lower-priced sedan, in India through a joint venture with the French firm. Mahindra thus realized its desire to enter the passenger car business.

The joint venture, Mahindra Renault Private Ltd., sold about 26,000 Logan cars in the year ended March 2008, its first year of operations, winning a 1.7% share of India's car market.

Mahindra also unveiled plans to produce passenger cars through a tripartite venture with Renault and Nissan Motor Co. (7201), though it later broke away from the joint project due to disagreement over strategy.

Reuters has reported that Mahindra, along with Chinese and Russian firms, is among potential buyers of General Motors' Hummer brand and is in the preliminary stage of talks with the U.S. group. The Indian company may expect Hummer would bring synergy, such as allowing it to introduce the GM technology into its mainstay multi-utility vehicles.

Mahindra's diversification strategy, however, is not free of risk. Domestic sales of Logan cars, its first passenger cars, fell 11% year on year in the April-June quarter. The market for low-priced subcompact cars is where competition is particularly savage in India, with automakers' plans to introduce new cars jostling with each other. Once a car is regarded by consumers as past its prime time, it is difficult for the car to recover strong demand.

Mahindra Renault could let its business dwindle if it remains unable to provide cars other than the Logan. The carmaker is thus negotiating with Renault to sell Renault cars the French firm will start producing jointly with Nissan in 2010.

The motorcycle business appears to be in even more tougher circumstances. Kinetic is completely outdistanced by Hero Honda Motors Ltd., the largest domestic motorcycle maker, and Bajaj Auto Ltd., a major local motorcycle maker. Honda has also become a formidable rival for its scooters. It is uncertain how far Kinetic will recover its strength under Mahindra's umbrella.

Tata Motors Ltd., another Indian carmaker, has suddenly boosted its presence in the domestic auto industry by acquiring luxury British car brands Jaguar and Land Rover. Mahindra's diversification drive is also enough to show the energy of the Indian manufacturer. Both firms, however, have yet to prove that they are right in pursuing such aggressive strategies. 

Source:  Nikkei Business Daily - Translated from an article written by Nikkei staff writer Hiroshi Kotani.