Mumbai: The maker of the Matador van, Force Motors Ltd, inked a joint venture (JV) on Tuesday with MTU Friedrichshafen GmbH—a subsidiary of industrial giant Rolls-Royce Power Systems AG of Germany. The JV will develop, manufacture and market MTU’s Series 1600 engines, which have various applications in power generation gensets and passenger rail cars with an underfloor drive system, among others.
The move is being seen as a larger diversification strategy under which Force Motors is looking to manufacture high-quality and high-technology products.
“To propagate our business, we would like to diversify into more concrete and high-technology verticals," said Prasan Firodia, managing director at the firm, on the sidelines of a press conference on Tuesday.
Incorporated in 1958, the Pune-based auto and auto component maker ventured into the manufacturing of premium, high-technology aggregate components such as engines and axles for luxury carmakers such as Mercedes-Benz India Pvt. Ltd and BMW Group India as recently as 2012.
The company has collaborated with a number of other German automakers such as Vidal & Sohn Tempo-Werke GmbH and MAN Truck & Bus AG in the past to enter new segments such as passenger commercial vehicles and heavy commercial vehicles, respectively.
The JV will be called Force MTU Power Systems Pvt. Ltd, where Pune-based Force Motors will own a 51% stake, with MTU holding the rest. Diesel engines manufactured by the JV at a new facility in Chakan will cater to the power generation and railway segments, with India and neighbouring countries such as Nepal and Sri Lanka being viewed as having “high demand in the power generation segment, especially in distributed power generation for an engine of this type", according to Andreas Schell, president and chief executive at Rolls-Royce Power Systems.
Growing population and underserved power needs will fuel the demand, he added.
The rapid construction of infrastructure having greater back-up power needs in India such as ports, airports, data centres, hospitals and education centres, will also aid demand, Firodia said.
Meanwhile, the engines will be deployed in rail cars mostly in developed economies such as Europe, especially the United Kingdom, though demand in India for such an application is under assessment, said Schell.
Both entities will invest over a cumulative Rs300 crore in the first phase to transfer the manufacturing facility from Germany to Chakan and enhance research and development capabilities. Firodia envisions the revenue visibility of the JV to close at around Rs1,000 crore per year over the next few years.
“This initial figure will rise as we enter new markets and product lines," he said.
With focus on maximum localization and cost competitiveness, the JV will leverage the Force Motors distribution network of close to 300 touchpoints in India while building distribution capabilities in neighbouring countries.
The Chakan plant is expected to begin production at the end of 2019.
Analysts said Force Motors’s diversification strategy is “quite positive since the domestic auto and farm equipment verticals have been flat over the past six to 12 months".
“The JV gives the company direct entry into the global railways market since MTU is a supplier to global clientele such as Hitachi (Rail Europe Ltd). Additionally, the company can also expand into some other projects with MTU since the Series 1600 engines have been very well accepted for freight applications as well," said Abhishek Jain, head of institutional business at Almondz Global Securities Ltd, a Mumbai-based financial services company.