labels: two- and three-wheelers, kinetic engineering, kinetic motor company, restructuring
Strategic degrees of freedomnews
13 August 1999

In November 1998, when the Firodia family-controlled Kineticsulajja motwani.jpg (9807 bytes) group parted ways with the Honda Motor Company of Japan, its partner in Kinetic Honda Motor Ltd, it created a wave of speculation. People asked: what had led to the parting of ways? had the Kinetic group acted rashly? would the company go downhill, now that it did not have the Honda expertise?

"It was a sweet deal," says Sulajja Firodia Motwani, joint managing director, Kinetic Engineering Ltd, daughter of chairman Arun Firodia, who is obviously happy with the new arrangement. If the aggressive plans work, she will be vindicated in believing that this parting is sweet but no sorrow.

Kinetic Honda was formed in 1984 as a joint venture between the Kinetic group and Honda, each holding 28.56 per cent of the equity. In 1993 Honda Motor increased its stake to 50.92 per cent. Then, in November 1998, after protracted negotiations, in which Honda tried to take over completely, and the Firodias refused to surrender, Honda sold its shares to the Kinetic group for Rs 35 crore, at Rs 45 a share.

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Why did Kinetic buy out Honda Motors' holding? "Kinetic is an established two-wheeler manufacturer. The two-wheeler market is set to grow 10 to 15 per cent in the next decade. We want to take a bigger slice of this market," says Ms Firodia Motwani. The parting of ways with Honda is part of this strategy.

"We had a lot of things going for us -- our name, as an established and trusted two-wheeler manufacturer, the name of the Firodias, which was built by my grandfather H K Firodia, the values we represent -- we had the technology, the capability, the brand," she says.

Kinetic Engineering has been a maker of mopeds for decades. Its Luna brand has become a generic term, synonymous with mopeds, the de-rated motorcycles that have served millions of middle class households in India who needed personal transport but couldn't afford a motorcycle or scooter.

The group began making scooters through the joint venture KHML in 1984, the Kinetic Honda DX and later ZX. Kinetic Engineering too launched a 'scooterette', the Kinetic Pride. Three years ago, Kinetic Engineering entered the step-through motorcycle segment with the 100cc four-stroke K4. A 73cc scooterette, Style, is now on the launch pad. Soon, the company will enter the motorcycle segment with two motorcycles with Hyosung-designed engines, and UEN designs.

"It is our intention to establish ourselves equally strongly in every segment of the market," says Ms Firodia Motwani. And that was where the rub was. The agreement with Honda was too restrictive. It didn't allow the group to grow in desired directions.

It's pertinent that in all the years that Kinetic Honda had been operational, the company came out with only two models, the second one, Kinetic Marvel, coming a full decade after the first model. The arrangement with Honda was seen as not being able to capitalise on the product strengths, especially in the important north Indian markets. Analysts felt the company could have done much better had it been more aggressive in its marketing.

Kinetic knew it was critical to have a diverse and strong product portfolio. "The two-wheeler market had become very personalised. The two-wheeler is no longer seen as a family vehicle, but as a personalised, individual vehicle. So we needed to address each of these segments with different, niche products.

"Our joint venture agreement with Honda stipulated that Kinetic Engineering Ltd would not make scooters. And because Honda had a joint venture with the Hero group to make motorcycles, we could not make motorcycles. That left us only with mopeds.

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"Making only mopeds was not in line with our planned strategy for product diversification. We had to be into motorcycles, we had to be into scooters, so this acquisition of our shares was critical. We had to have the size, muscle. And a lot of freedom to make our own programmes. Besides, Honda Motors had its own plans for a wholly owned subsidiary," says Ms Firodia Motwani.

"We wanted Kinetic Honda back because it gave us some critical strengths. First, size. Instantly our sales jumped from Rs 200 crore to Rs 600 crore. With combined sales of 600 crore we can invest about Rs 30 crore in advertising and brand building.

"Secondly, it also gave us our brand name back. Thirdly, it strengthened our distribution, and, fourthly, it gave us a readymade entry into the scooter market. Which was essential in order to make progress on the product portfolio. Fifthly, it gave us freedom to grow."

It was with these basic objectives that Kinetic sat down at the negotiating table with Honda. "It didn't look like we would swing it. We thought they would even pressure us into selling our shares, but we managed," says Ms Firodia Motwani.

By the end of 1998, Kinetic Honda Motor Ltd was fully a Firodia group company, and was accordingly renamed Kinetic Motor Company Ltd. Now it's time for building on the synergies that the Kinetic group had identified in the first place.

also see : List of reports on the Kinetic Honda
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Strategic degrees of freedom