AFS_Powertrain Business Caselet_Powertrains Business Strategy

8/10/2019 AFS_Powertrain Business Caselet_Powertrains Business Strategy

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Mahindra War Room 2014 AFS – Powertrain Business Caselet

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MAHINDRA AUTOMOTIVE & FARM SECTORSPOWERTRAINS BUSINESS CASELET

Mahindra Automotive & Farm Equipment Sectors (AFS) comprise businesses rangingfrom Automotive (including Cars, UVs, Trucks and Buses), Agri-business (includingSeeds and Applitrac equipments), Construction Equipment, Powertrains (Engines,Transmissions & Gensets) to Tractors. This caselet pertains to the PowertrainsBusiness, which is housed under the Truck & Powertrain division of the Automotive &Farm Sectors.

BUSINESS BACKGROUND

Currently Mahindra makes engines and transmissions including few of latest technologyfor their captive use , they have recently decided to unlock this value by selling these toother vehicle manufacturers Globaly. This also brings Mahindra’s strength of supplychain and frugal cost structure on table for potential customers.

Taking this forward and making this further larger domain Mahindra recently merged theINR. 1000 crore ‘Powerol’ Gensets business, with a new division called MahindraPowertrain. This division aspires to develop world class powertrain solutions for variouslight vehicles, commercial vehicles, power generator, agricultural & constructionequipment sectors across the globe, catering to captive as well as non-captiverequirement of OEMs across geographies.

Mahindra has set up world class R&D facility at Chennai called Mahindra ResearchValley, where 1500 engineers work to upgrade engines and transmission using thelatest technology. The ‘Advanced Engine Development Center’ offers unique strength todeliver the variety of products in minimum lead time. State-of-the-art chassis, dyno,

vehicle testing and noise-testing labs add to the product development capability for allauto development OEM’s. With stringent emission norms, Mahindr a engines qualify toEuro-4 norms and capable of meeting Euro-5 norms. With 11 modern manufacturingplants across India at multiple locations and a strong vendor base in vicinities, Mahindrahas the ability to realize scale in the highly competitive global market.

LIVE CHALLENGE: POWERTRAINS BUSINESS STRATEGY

Mahindra has wide range of engines starting from 0.6 Ltrs to 7.2 Ltr of diesel as well asgasoline engines along with powertrain up to 400 N-m range. Mahindra Powertrains

aspires to play in Engines ranging from 6-cylinder rear-wheel drive, Euro4 & Euro5compliant engines upto 200 KVA (Currently Mahindra sources higher KVA; more than200KVA; engines from companies like Greaves and Perkins and sales them for specificcustomers in India). Mahindra Powertrain’s capabilities range from design, developmentand manufacture of powertrains suitable for various automotive as well as non-automotive applications. Currently, there are over 100 variants of engines on SUV’s,tractors, gensets, etc with a capacity to produce more than 1,000,000 powertrains.Since the Powerol division has been merged into this division, the major revenue





source today is the captive business as well as the Powerol business. MahindraPowertrain division aspires to realize revenues from multiple segments such as exportsof powertrain, gensets, defense, Marine, repowering opportunities, etc., also providingimmense opportunity to utilize existing capacity optimally.

Globally, Cummins is a well-established engine brand, leading in engine technologywith forward and backward value chain across the globe. Cummins spread its presencethrough joint ventures with major Auto OEM’s and licensing arrangements. Cummins offers Genset with 3 exclusive OEM’s in India ranging from 15 kVA to 2000kVA withdomestic manufacturing facility at Pune and Jamshedpur. The Commercial vehiclesegment is a stronghold of Cummins in the diesel engine industry. In the Powertrainindustry, Fiat Powertrains are the global benchmark. Fiat is an example of an OEM whocreated a separate entity using their Powertrain technology, to eventually excel insupplying engines and transmissions across the globe. In India, Fiat supplies engines toMaruti, Tata and other leading Auto OEM’s for passenger car., highlighting the potentialfor Mahindra to grow in the Powertrains business.

Based on the above, develop an overall strategy and value proposition for the

whole business of selling Engines & Powertrains, for Mahindra Powertrain toevolve into a market leader with INR. 10,000 crores of revenues by 2020, throughthe following potential opportunities:

1. Developing New Markets for Existing Products: Currently, Mahindra Powertrainshas over 18 kinds of engines and 25 kinds of transmissions, for which potential marketsare all countries whose emission norms are behind those of India. How shouldMahindra Powertrains go about tapping this opportunity? Which would be the prioritymarkets? What should be the entry strategy for those markets, including the market, thesegment, the mode of entry, business model, associated risks etc.?

2. Developing New Products for New Markets: For other markets where emissionnorms are ahead of India, Mahindra Powertrain can design engines for, say, supplyingto companies such as BMW. While some Automotive companies, such as Ford forexample, have a captive engine and transmission manufacturing unit, MahindraPowertrains’ target automotive customers will be those who do not have a captive unit.What would be the entry barriers, and how should Mahindra Powertrains attract andretain the non-captive automotive market, while competing with the likes of Cumminsand Suzuki who have a longer track record in this area? The Powertrains business istruly global, with many potential locations where engines and transmissions can bemanufactured, and also supplied to. For example, Turkey is a major market formanufacture of Powertrains, as supply to Africa, Europe and Asia can be easily done

through the sea route. Which are the manufacturing locations and user countries thatMahindra Powertrains should target?

3. Alliances, Mergers & Acquisitions: Mahindra Powertrains is open to alliances withcompanies that need engines and transmissions in the future, and share a commoninterest for markets in a 3rd geography other than India or their home country. Who arethese potential alliance partners, and how should Mahindra Powertrains go aboutcollaborating with them to tap the opportunity? Mahindra Powertrains is also open to





acquisition of small but struggling companies with good capabilities or value - do anysuch companies exist, and if so, please provide a detailed M&A strategy for the same.

4. Services & Spares Revenue: Companies such as Cummins earn 30% of theirrevenue from services and spares, after the sales of engines. How can MahindraPowertrains realize a robust revenue stream from services and spare parts.

5. Defence Business Opportunity: Marine and Defence applications also exist forMahindra Powertrains’ range of engines - how should this opportunity be addressed?Ensure that your strategy also addresses issues such as how Mahindra Powertrainsshould move from vehicle manufacturing to part selling and if they should integratebackward or forward or both.

6. Developing or alliance for engine in Higher KVA ( 250 KVA to 1250 KVA)forIndian and Global market: Currently this market is being dominated by Cummins inIndia and Cummins and CAT globally . This is high revenue and profit segment butdominated by two or three players globally and calls for technology and understandingof bigger engines.

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AFS_Powertrain Business Caselet_Powertrains Business Strategy