Kinetic counting on new scooters for a turnaround

Kinetic counting on new scooters for a turnaround

Mumbai: Two-wheeler maker Kinetic Motor Co. Ltd hasn’t had much of a good run lately. It has been losing money since fiscal 2004 and sales have dropped 9.4% in the last two years even as rivals have ramped up revenues and profits. Investors who pushed the Sensex, the benchmark index of the Bombay Stock Exchange (BSE), to a record have been lukewarm to its share and warmed to those of rivals such as Bajaj Auto Ltd and TVS Motor Co. Ltd.

Kinetic, which made its money and name in low motorized vehicles or mopeds such as the Luna back in 1972, rode on that success and formed Kinetic Honda Motor Ltd, then a joint venture with Honda Motor Co. Ltd to make scooters, and wowed women customers in the 1980s with gearless, or automatic, scooters. By the 1990s, though, competition began to creep in, Honda went its own way and the market started to move towards motorcycles. Honda’s joint venture with the Hero Group prevented Kinetic from making motorcycles then; it only started to make motorbikes on its own after cutting ties with Honda in 1998. When the bigger players started undercutting their prices, Kinetic was in deep trouble.

But the firm says it’s gearing up for change, by refocusing on what gave it success—the automatic scooter.

“For the time being, motorcycles are on the back burner and our focus is on the gearless scooter segment and we are committed to evolving the scooter," said Ajinkya Firodia, senior vice-president, sales and marketing, Kinetic Motor.

“As India progresses, we believe that scooters, which account for about 25% of the market today, will one day make up for 70% of all two-wheelers in the country," said Firodia.

Kinetic is confident that its scooters will help turn the company around from a loss of Rs78.6 crore last fiscal. Sales have also dropped to Rs220.4 crore in the year ended March, from Rs330.5 crore in fiscal 2002. Its stock, too, has been underperforming. For instance, Kinetic’s rise in share price at 13.2% since April this year trails Bajaj Auto’s 17.5% and TVS Motor’s 19.49%.

Still, Kinetic is betting big on its 125cc Kinetic SYM Flyte scooter, launched in October. This is the first product to come out of Kinetic’s technical partnership with Taiwan’s San Yang Motor Co. Ltd (SYM), which had paid Rs13 crore for an 11.1% stake in Kinetic in 2006.

Not everyone is convinced the strategy will pay off.

“Kinetic is trying to capitalize on its previous brand equity of being a scooter maker, but it is going to be an uphill task," said S. Ramnath, vice-president, SSKI Securities Ltd. “Its customers have moved to Hero Honda’s Activa and Suzuki’s Access." Suzuki Motorcycle India Pvt. Ltd launched its 125cc scooter, Access, in September and had sold more than 5,000 units by November.

Kinetic has set a monthly sales target of 6,000 Flytes next fiscal, but Firodia says there is potential to increase this target to 10,000 units by June. Flyte is priced aggressively at around Rs37,500 (ex-showroom) to compete with TVS Motor’s Scooty Pep, priced at Rs35,700, and Honda Motorcycle and Scooter India Pvt. Ltd’s Activa at Rs41,000. Targeted at women commuters, Kinetic has roped in Bollywood actor Bipasha Basu as Flyte’s brand ambassador. An advertising campaign will start soon, and the firm is hoping it will have some young converts.

The company plans to bring in two more products from its partnership with SYM over the next two years, the first of which is slated for launch at the end of next year.

Kinetic had also bought the manufacturing and marketing rights of seven products from Italy’s Italjet SpA. The first of these products, the 165cc Blaze scooter, was launched in June 2006. The company is now planning to bring out the Euro, the second product from Italjet, by June-July.

Kinetic will also launch its electric scooters in the next two months, first in Maharashtra, then in Gujarat before going nationwide. Currently, the electric scooter is a 7,000-8,000 units a month market.

Initially, Kinetic plans to sell 800-900 units a month, which it wants to raise to 2,000 units eight months after launch. Firodia did not give details on the name or engine displacement of its electric scooter, saying only that its engineers were developing it in-house.

The general consensus among five analysts Mint spoke to is that scooters are a risky business to predict so far into the future, much less to partly frame a strategy on them. They say several factors such as infrastructure and consumers’ mindset have to be considered.

For one, India’s pothole-ridden roads are not very conducive for less powerful gearless scooters. And then there is the fact that the preference right now is for strong, powerful two-wheelers, or motorcycles.

India’s six-and-a-half-million-a-year motorcycle market is dominated by fuel-efficient models with an engine capacity of 100cc; eight out of every 10 motorcycles sold in the country are such so-called commuter bikes.