Mumbai: Auto maker Mahindra and Mahindra Ltd (M&M) is changing the business model of a unit that sells electricity generator sets and repositioning it as a provider of power and logistics to telecom tower companies and small and medium businesses.
A new avenue: The M&M unit has already been awarded management of 6,000 towers by Indus Towers, the shared telecom infrastructure business of Bharti Airtel, Idea Cellular and Vodafone Essar. Harikrishna Katragadda / Mint
The M&M unit has already been awarded management of 6,000 towers by Indus Towers, the shared telecom infrastructure business of Bharti Airtel Ltd, Idea Cellular Ltd and Vodafone Essar Ltd. Indus Towers plans to end the current fiscal with an estimated 140,000 towers across the country.
The move comes on the back of Mahindra Powerol, the genset business that was set up in 2001 as part of M&M’s farm equipment division, nearly doubling its revenue to Rs1,010 crore on sales of 50,000 units for the year ended March.
The new strategy signifies a completely new business strategy and model for the division. The core business sold 130,000 tractors and earned revenue of Rs5,667 crore in fiscal 2009.
“This was a business we started in 2001, when the tractor industry was in a huge downturn and our business saw a huge dip in revenues and profits. We had excess engine capacity and therefore asked ourselves, why don’t we supply engines for generator sets,” said Anjani Choudhari, president (farm equipment) and a member of the group’s board. Tractor sales for the fiscal ended March 2002 fell 27% from 79,237 tractors in fiscal 2001 to 58,000 tractors. This forced the farm equipment sector of M&M to look at alternative businesses that had manufacturing synergies with the main business of making tractors.
“Tractors makers such as the M&M had the natural advantage of being present in this range as the tractors were also powered by the engines in a similar range,” says Chennai-based Bhaskar Majumdar, programme manager, South Asia and West Asia, for energy and power supplies at consulting firm Frost and Sullivan.
The division then moved from initially supplying the engines to diesel generator set manufacturers to making the gensets on its own in 2004.
Much of Powerol’s growth was driven by the boom in the mobile telephony sector, which required round-the-clock power supply and uses gensets for telecom towers. Given the gap in capacity and demand in power supply, tower companies turned to gensets. Frost and Sullivan estimates that about 90,000 telecom towers were installed in fiscal 2008, pushing demand for gensets in the range of 10-25kVA through the roof, so much so that units had to be imported from China as domestic manufacturers failed to keep up.
Powerol is now venturing into estate management of the towers. Diesel generator sets will be owned and maintained by Powerol, which will not only provide gensets but also offer preventive management, security and estate management that includes surveillance and even mowing.
Mahindra isn’t the only tractor maker looking at the telecom tower and genset market. Ashok Leyland Ltd, the country’s second largest commercial vehicle maker by volumes, and Faridabad-based Escorts Agri Machinery Group, the third largest tractor maker by volume, also have their sights on the business.
In 2007, Escorts started selling engines to genset manufacturers and other original equipment manufacturers. It sold 3,500 engines in the year ended March, earning Rs150 crore in revenue.
“We are also seriously considering to get into the manufacturing of diesel gensets,” said Rohtash Mal, executive director and chief executive officer of Escorts Agri, adding that the growth in the genset division would be driven primarily by the telecom sector.
The Rs410 crore power solution business of Ashok Leyland makes diesel engines ranging from 10-500kVA for application across industries.
Charu Belsare, special director of the unit, said the diesel engine segment drew half of its revenue from the telecom sector last fiscal. It has been supplying engines through some original equipment manufacturers, as well as gensets under the Leypower brand.